Federal taxation on remittance abroad in the acquisition of a software license for commercialization or distribution
The matter analyzed is taxation by Withholding Income Tax, Cide, Pis and Cofins on payment, credit, delivery, employment or remittance abroad, as a license for marketing or distributing of software.
a) Withholding Income Tax – IRRF
The sums paid, credited, delivered, employed or remitted to a resident or domiciled abroad in consideration for the right to sell or distribute software, for resale to the final consumer, who will receive a license to use the software, fall under the concept of royalties and are subject to income tax at source (IRRF) at the rate of 15% (fifteen percent).
b) Contribution of Intervention in the Economic Domain – CIDE
The remuneration for the license to use or the rights to commercialize or distribute the computer program is not subject to Cide, except when they involve the transfer of the corresponding technology.
c) Contribution to the Financing of Social Security – Cofins Import
The amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad as royalties, as a result of the right to sell software, are not subject to Cofins Importação, as long as these values are detailed in the document that justifies the operation, except for the incidence on any amounts related to contracted related services.
d) Contribution to PIS / Pasep Import
The amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad as royalties, due to the right to sell software, do not suffer the impact of the Contribution to the PIS / Pasep Import, as long as these amounts are broken down in the document that substantiates the operation, except for the incidence on any amounts related to contracted related services.
In the event of the existence of a treaty to avoid double taxation, it is important to note that the rate of the IR Fonte will be the one determined in that treaty, being a maximum of 10% in the case of treaties with South Africa, Austria, Belgium, Spain, Finland , France, Israel, Japan and Turkey, under the terms of article 12 (art. 11 in the case of Japan), considering that Law 9.610/98 gives computer programs the characteristic of intellectual work, determining the legal nature of royalties for payments made .
Still with regard to software, the Federal Revenue changed the understanding expressed in the Divergence Solution 18/2017, confirming the incidence of source IR with the focus on consideration for the marketing or distribution license, abandoning the previous guidance, contained in the Divergence Solution (SD) 27/2008, which concluded that the Source IR was not levied on so-called “off-the-shelf software”.
As for SD 27/2008, in fact, it is curious to note that it was excluded from the rules system of the IRS website, as if it had never existed. Nevertheless, we found your menu on another link to the Revenue. We reproduce the text of the menu and then the link to its content, with the exception that the survey was carried out on April 24, 2019, the date on which this text was produced:
SUBJECT: Withholding Income Tax – IRRF
ENVIRONMENT: Withholding Income Tax (IRRF) or the Contribution of Intervention in the Economic Domain (Cide) are not subject to amounts remitted abroad in payment for the acquisition or license of software marketing rights under the modality multiple copies (“off-the-shelf software”).
As it is an interpretative rule, it is our understanding that companies that did not retain the withholding until April 5, 2017 and may be fined by the Revenue for remittances made until this date, have good legal defense arguments, using the previous understanding determined by the Divergence Solution 27/2008, based on article 100 of the National Tax Code and the Principle of Legal Security
It is also worth mentioning the Interpretative Declaratory Act (ADI) nº 07/17, published on 12/26/17, confirming the understanding of Cosit Divergence Solution nº 18, of 03/27/17, in the sense that the amounts paid, credited , delivered, employed or sent to a resident or domiciled abroad in exchange for the right to sell or distribute software, for resale to the final consumer, who will receive a license to use the software, fall under the concept of royalties and are subject to IRRF incidence of 15%, or 25% in the case of a country with favorable taxation.
Regarding the shelf software for own use, Cosit has not yet manifested itself, most likely due to the absence of divergence, but the 6th Tax Region Disit, also in the process of consultation, No. 6014, published on September 12, 2018, if expressed that the amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad in consideration for the licensing of off-the-shelf software, for the exclusive use of the acquirer himself, who will not sell it to third parties, are not subject to the impact Income Tax at Source, linking the answer to the Divergence Solution 18/2017.
In any case (commercialization or own use), in relation to CIDE, the understanding was maintained regarding the non-impact on the remuneration for the license to use computer programs when there is no technology transfer.
As for Pis Importação and Cofins Importação, also in any case, it is worth noting that there will only be an incidence on eventual values related to contracted related services, being of fundamental importance that the values of royalties are detailed in the document that justifies the operation, under penalty of taxation for the referred contributions of the total amount paid, credited, delivered, employed or remitted to a resident or domiciled abroad.
Our office can advise companies that want to go deeper to ensure the correct taxation on remittances abroad for payment of license software.
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Advisory and Tax Litigation Nucleus
Posted in: 04/03/2020