LEGAL LETTER / JULY 2014 Controversy and legal

JOSÉ MAURÍCIO MACHADO
ISABEL A. BERTOLETTI
LUÍS ROGÉRIO G. FARINELLI
JÚLIO M. DE OLIVEIRA
CARLOS AUGUSTO DA CRUZ
EDIMILSO GOMES DA SILVA
CRISTIANE M. S. MAGALHÃES
ROSIENE SOARES NUNES
MARIA CRISTINA BRAGA E SILVA
MAURI BÓRNIA
LISIANE B. H. MENOSSI PACE
RICARDO M. DEBATIN SILVEIRA
DANIEL LACASA MAYA
RENATA ALMEIDA PISANESCHI
FABIO F. LANZANA PEREIRA
FABIO MEDEIROS
ERIKA YUMI TUKIAMA
PAULO ROGÉRIO GARCIA RIBEIRO
ROBERTO FLEURY A. CAMARGO
LUCIANA FELISBINO
GUSTAVO DE FREITAS LEITE
SORAIA MONTEIRO DA M ATTA
CAROLINA ROMANINI MIGUEL
JULIANA MARI TANAKA
ROCHELLE RICCI
LANA PATRÍCIA PEREIRA
MAURO TAKAHASHI MORI
TATIANA GALVÃO VILLANI
ANA LÚCIA CASTAGNARI M ARRA
JAQUELINE AP. FERREIRA SLUIUZAS
ANDRÉ LUIZ DOS SANTOS PEREIRA
MARCEL AUGUSTO SATOMI
SUZANA CAMARÃO CENCIN
EDUARDO AMIRABILE DE MELO
CARLOS EDUARDO DE A. NAVARRO
RENATO SILVEIRA
ÁTILA C. BEATRICE CONDINI
JONSON CHUNG
ROGÉRIO G AVIOLLE
CAROLINA RONCATTI TRIGUEIROS
GABRIEL CALDIRON REZENDE
FERNANDA G. S. FIASCO RIBEIRO
GUSTAVO PEREZ TAVARES
MIRELLA ANDREOLA DE ALMEIDA
RAFAELA LUZ AMBROSIO
DÉBORA RAHAL
MARESSA ROMERA DE MORAES
FERNANDA HENNEBERG BENEMOND
LORENA MORAIS XIMENES CAMPOS
KATHERINA KURAMOTI BALLESTA
FERNANDO FARINELLI
ELAINE ALVES FERREIRA
PEDRO CAVALCANTI BOTELHO
DOUGLAS GUILHERME FILHO
SÉRGIO VILLANOVA VASCONCELOS
ANDRÉ A. T. JUNQUEIRA AMARANTE
EDUARDO MONTEIRO BARRETO
RENATA YURI YUASA
RAFAEL M ALCHER A. C. SILVA
LEONARDO CEPELLOS MONTICELLI
LUANA NAVARRO GONÇALVES
STEPHANIE JANE M AKIN
ANGÉLICA LUIZA ROSSI DA COSTA
THOMAS BELITZ FRANÇA
COMPLEXO BRASIL XXI
VIVIAN WESTPHALEN DE CASTILHOS
SHS QUADRA 06 CONJ.6 SALA 808
JESSICA ANN BERNSTEIN HEUMANN
ALEXANDRE MURIEL
ANDRÉ BLOTTA LAZA
AMANDA ALVES BRANDÃO
LÚCIO BRENO P. ARGENTINO
LEANDRO LOPES GENARO
AMANDA ZAIDAN SILVA FERREIRA
VICTOR BULCÃO M ARTINELLI PINTO
RAPHAEL OKANO P. DE OLIVEIRA
PALOMA YUMI DE OLIVEIRA
CESAR ALVES MENDONÇA
KAROLINA GOMES DA SILVA
MANUELA CURTO DUARTE SILVA
BRUNO CESAR F. N. DOS SANTOS
LILIANA CORREA LIMA TAVARES
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TÂNIA RIBEIRO DA SILVA
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RENATA MONTEIRO MORMINO
BEATRIZ RODRIGUES PALORCA
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www.machadoassociados.com.br
LEGAL LETTER / JULY 2014
Ricardo M. Debatin da Silveira and Gabriel Caldiron Rezende1
CIDE CONTRIBUTION IN BRAZIL:
CONTROVERSIAL ASPECTS OF REMITTANCES ABROAD2
Controversy and legal uncertainty have arisen from how the Federal Revenue Service and the Federal
Administrative Council of Tax Appeals understand Brazilian law on CIDE´s taxable basis.
1.
One of the most controversial subjects in connection with the taxation of remittances
abroad from a Brazilian party for certain payments to foreign residents is the amount to be adopted as
taxable basis of the Economic Intervention Contribution (CIDE).
2.
The CIDE, created by Law 10168, of December 29, 2000, is due by the Brazilian
engaging party on remittances abroad as remuneration for:
•
•
•
agreements involving license to use or acquisition of technical knowledge and transfer of
technology (comprising trademark and patent licenses);
royalties of any kind; or
technical services, technical assistance, administrative assistance or “similar services”.
3.
Software licenses have been excluded from this taxation, except for cases involving
technology transfer.
4.
Pursuant to Law 10168/00, the CIDE’s taxable basis is the amount monthly paid,
credited, delivered, employed or remitted to individuals or legal entities resident or domiciled abroad
as “remuneration” for the obligations engaged, and on which a ten percent tax rate is levied. The
CIDE is not covered by any of the tax treaties executed by Brazil.
1
Ricardo M. Debatin da Silveira and Gabriel Caldiron Rezende are members of the Indirect Tax area of Machado
Associados Advogados e Consultores.
2
This article was first published by International Tax Review in June 2014 on www.internationaltaxreview.com
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5.
In an important dispute involving Petróleo Brasileiro S/A Petrobras and the
Brazilian Federal Revenue Service (RFB), some good news about the controversy related to the
CIDE’s taxable basis emerged at the Administrative Council of Tax Appeals (CARF), the highest
federal administrative court in Brazil.
6.
At a judgment favoring the company in this regard, the CARF rendered Appellate
Decision No. 3403-002.702, establishing that the CIDE’s taxable basis is precisely the remuneration
of the supplier domiciled abroad provided for in contract, and that both the addition and the exclusion
of the Withholding Income Tax (IRRF) — rate of fifteen percent — of CIDE’s taxable basis are
illegal.
7.
If a contract establishes that the foreign party shall receive its remuneration net of
taxes, the Brazilian engaging party shall bear the whole tax burden on the transaction, including the
two taxes due by the foreign party in Brazil: the IRRF and the Service Tax (ISS). In the case at hand,
the CARF decided that even in this situation, the IRRF should not be added to the remuneration
established in contract to increase de CIDE’s taxable basis, that is, that the IRRF should not be
included by means of “gross up”. Accordingly, CARF ruled that the CIDE’s taxable basis should be
considerably lower than the one established by the RFB.
8.
The IRRF is a federal tax due on the remuneration receivable by foreign parties in
certain transactions, but that must be withheld and paid in Brazil by the engaging party as the liable
taxpayer.
9.
The RFB has been construing by means of its rulings and tax assessments that if the
parties agree upon a payment to the foreign party net of taxes, the Brazilian party must carry out the
adjustment of the CIDE’s taxable basis, by grossing up the remuneration agreed with the inclusion of
the IRRF amount, the same way it does to calculate the IRRF itself (with legal grounds). Although
there are no formal pronouncements in this regard, in accordance with the RFB’s understanding, we
believe that the tax authorities could also demand the inclusion of the ISS in the CIDE’s taxable basis,
because the ISS is also a tax due by the foreign party, which must be withheld and paid by the
Brazilian party.
10.
By taking such a stance on the inclusion of the IRRF in the CIDEs’ taxable basis, the
RFB has been triggering numerous tax assessments, bringing about illegal and unconstitutional
demands with unfair and confiscatory consequences.
11.
The main argument against RFB’s construction is that the word “remuneration” must
be understood as the amount established under agreement as consideration due by the Brazilian party
to the foreign party. According to this line of reasoning, the agreement by the parties regarding who is
going to bear the financial burden of the IRRF and the ISS will not modify the remuneration agreed
upon, and thus the CIDE’s taxable basis can only be the amount of the remuneration resulting from
such agreements.
12.
In brief, the paying source taking on the burden of the IRRF and of the ISS does not
mean that the amount of the remuneration under agreement has been increased — it means that said
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remuneration has not been reduced by the taxes due because they have not been supported by the
beneficiary abroad.
13.
To this effect, such CARF’s decision is very welcome, as it states that the CIDE’s
taxable basis is the remuneration of the foreign supplier for the obligations engaged, and that there is
no legal provision stating that the CIDE’s taxable basis shall be adjusted by means of gross up
including the IRRF whenever the Brazilian party undertakes the financial burden of such tax.
According to our viewpoint, the same reasoning may be applied to the ISS.
14.
The issue is still very controversial within the CARF and there are other precedents
orientated towards both constructions. In this scenario, it is expected that Appellate Decision No.
3403-002.702 will represent a precedent indicating what is lawful, moving away the RFB’s illegal
stance. While the discussion is not settled, taxpayers may go after the defense of their rights, either
preventively, by filing a lawsuit with the Judiciary Branch or, remediably, by filing defenses against
tax assessments.
São Paulo, July 2014
______________________________________________________________________________
This legal letter contains information and general comments on the matter. In specific cases, it is advisable to rely on
proper legal assistance before adopting any concrete actions relating to the matters dealt with herein.
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