LEGAL LETTER No. 204 / MARCH 2014 1. In December 2013, the

JOSÉ MAURÍCIO MACHADO
ISABEL A. BERTOLETTI
LUÍS ROGÉRIO G. FARINELLI
CARLOS AUGUSTO DA CRUZ
EDIMILSO GOMES DA SILVA
CRISTIANE M. S. MAGALHÃES
JÚLIO M. DE OLIVEIRA
ROSIENE SOARES N UNES
MARIA C RISTINA 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 MATTA
CAROLINA ROMANINI MIGUEL
JULIANA MARI TANAKA
JULIANA DE AGUIAR ALIOTI PASSI
ROCHELLE RICCI
LANA PATRÍCIA PEREIRA
MAURO TAKAHASHI MORI
TATIANA GALVÃO VILLANI
JAQUELINE AP. FERREIRA SLUIUZAS
ANDRÉ LUIZ DOS SANTOS PEREIRA
MARCEL AUGUSTO SATOMI
ANA LÚCIA CASTAGNARI MARRA
SUZANA CAMARÃO CENCIN
EDUARDO AMIRABILE DE MELO
CARLOS EDUARDO DE A. NAVARRO
RENATO SILVEIRA
ÁTILA C. BEATRICE CONDINI
JONSON CHUNG
ROGÉRIO GAVIOLLE
CAROLINA RONCATTI TRIGUEIROS
GABRIEL CALDIRON REZENDE
FERNANDA G. S. FIASCO RIBEIRO
GUSTAVO PEREZ TAVARES
MIRELLA ANDREOLA DE ALMEIDA
RAFAELA LUZ AMBROSIO
NATHALIE SPOSITO COUTO
ANA CRISTINA MAIA MAZZAFERRO
DÉBORA RAHAL
MARESSA ROMERA DE MORAES
FERNANDA HENNEBERG BENEMOND
LORENA MORAIS X IMENES CAMPOS
KATHERINA KURAMOTI BALLESTA
FERNANDO FARINELLI
ELAINE ALVES FERREIRA
PEDRO DE MENDONÇA E LANZA
MANOELA VARGAS NUNES DIAS
PEDRO CAVALCANTI BOTELHO
DOUGLAS GUILHERME FILHO
SÉRGIO VILLANOVA V ASCONCELOS
ANDRÉ A. T. JUNQUEIRA AMARANTE
EDUARDO MONTEIRO BARRETO
RENATA YURI YUASA
RAFAEL MALCHER A. C. SILVA
LEONARDO CEPELLOS MONTICELLI
LUANA NAVARRO GONÇALVES
STEPHANIE J ANE MAKIN
ANGÉLICA LUIZA ROSSI DA COSTA
T HOMAS BELITZ FRANÇA
PABLO GOYTIA CARMONA
JESSICA ANN BERNSTEIN HEUMANN
ANDRÉ BLOTTA LAZA
VIVIAN WESTPHALEN DE CASTILHOS
AMANDA ALVES BRANDÃO
ALEXANDRE MURIEL
MICHELLE ARAÚJO MELO
MOARA JACOB DA ROCHA
LÚCIO BRENO P. ARGENTINO
EDGARD SHWERY NETO
VICTOR BULCÃO MARTINELLI PINTO
RAPHAEL OKANO P. DE OLIVEIRA
PALOMA YUMI DE OLIVEIRA
CESAR ALVES MENDONÇA
PALOMA GERZELI PITRE
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ALINE HARADA DE ALMEIDA
INGRID DO NASCIMENTO PISTILI
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www.machadoassociados.com.br
LEGAL LETTER No. 204 / MARCH 2014
WHT ON SERVICE REMITTANCES ABROAD: OPINION PGFN/CAT 2363/13
Erika Tukiama and Stephanie Makin1
1.
In December 2013, the National Treasury Attorney-General’s Office (local
acronym “PGFN”) issued Opinion PGFN/CAT 2363 to express its understanding about the levy
(or not) of Withholding Tax (“WHT”) on remittances for technical services, without transfer of
technology, to beneficiaries resident in countries with which Brazil has signed a treaty for the
avoidance of double taxation (“DTT”). From the analysis of such opinion, it seems that both the
Brazilian Revenue Service (local acronym “RFB”) and the PGFN are reviewing their stand on the
matter.
2.
The classification of these remittances under the DTT is a matter of huge
discussion between the tax authorities and Brazilian taxpayers as the levy of WHT in Brazil
varies according to the article of the DTT under which the remittances are classified, as follows:
•
article 7 (business profits): no WHT will be levied in Brazil, since this article
establishes that only the country of residence of the service provider is allowed to
tax the remittances;
•
article 12 (royalties): WHT will be levied, limited to the maximum rate provided
for in each DTT. In practice, tax rates lower than the general 15% rate may be
applied, as is the case of remittances to Japan (12.5%), South Africa, Belgium,
Korea, Spain, Israel, Mexico and Turkey (10% in all the latter cases); and
•
article 21 (other income): WHT will be levied, with no rate limit.
3.
Up to the issuance of the PGFN’s opinion, the RFB and the PGFN had consistently
defended the classification of said remittances under article 21. Taxpayers, on the other hand,
1
Erika Tukiama and Stephanie Makin are members of the Direct Taxes and International Taxation area at
MACHADO ASSOCIADOS ADVOGADOS E CONSULTORES.
(supported by prevailing case law, including a favorable precedent from the Brazilian Superior
Court of Justice in the Copesul case2) upheld the classification under article 7, following the
international practice and the guidelines provided by the Organization for Economic Cooperation
and Development (“OECD”) in the Commentaries3 to the Model Convention (in which most of
the DDTs are based on).
4.
On September 4th 2013, the RFB submitted the matter to the PGFN’s analysis,
upon the intention of the Government of Finland to denounce the DTT executed with Brazil if the
Brazilian tax authorities confirmed its position regarding the levy of WHT on remittances for
technical services to beneficiaries resident in Finland.
5.
Based on the favorable and prevailing current position of the Brazilian Judiciary
Power and on the international doctrine (OECD Commentaries to the Model Convention):
•
the General Coordination of Taxation (local acronym “COSIT”) proposed the
issuance of an Interpretative Declaratory Act in order to establish a new
understanding of the RFB on the matter, now consistent with the DTTs, and the
review of Declaratory (Normative) Act COSIT 1/20004; and
•
the PGFN ordered the revocation of Opinion PGFN/CAT 776/2011, issued
specifically for the defense of the Federal Government before the Brazilian
Superior Court of Justice in the Copesul case, in which the PGFN maintained the
classification under article 21.
6.
In summary, this new opinion issued by the PGFN evidences that the COSIT, in its
discussions with PGFN, was of the opinion that the remittances should now be classified under
article 7 of the DTTs and that article 12 should only be applied when the protocols of the DTTs
expressly provided so (many protocols attached to the DDTs include technical services in the
scope of article 12).
7.
In our opinion, such conclusions are: (i) contrary to the Declaratory (Normative)
Act COSIT 1/2000 (still in force); and (ii) compatible with Interpretative Declaratory Act 4/2006,
in force, applicable only to the DDT signed with Spain, in which the RFB establishes that
technical services remittances made to that country, including the ones related to agreements
without technology transfer, should be classified under article 12.
2
First decision issued by a higher court on the matter. This decision, issued in May 2012, classified technical service
(without transfer of technology) remittances to Germany and Canada under article 7 of the DTTs, not classifying the
remittances under article 21. The classification under article 12 was not analyzed.
3
Although Brazil is not an OECD member, we understand its Commentaries must be considered as an auxiliary
instrument regarding the interpretation of the DDT articles.
4
This Act determines the application of the article 21 to any and all remittances for technical services without
technology transfer, even if the DTT with the country in which the beneficiary is domiciled does not contain an
article 21, as is the case with France.
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8.
Following the same understanding of the COSIT, PGFN, in this Opinion,
concludes for the (i) non-application of article 21; (ii) application of article 12 to the cases in
which DDTs or protocols include technical services in the definition of royalties; and (iii)
application of article 7 to other remittances for technical services without technology transfer
(remittances to beneficiaries in Austria, Finland, France and Sweden).
9.
Although the PGFN’s opinion is not enforceable, it represents a very good
indication of a possible change of opinion by the Brazilian tax authorities. It is likely that the RFB
will soon decide to formalize this new understanding in a new Interpretative Declaratory Act in
order to determine the classification of the remittances under:
(i)
article 12 (instead of article 21) when the DDTs or its protocols expressly include
technical services in the definition of royalties; and
(ii)
article 7 to the remittances performed to other countries which have signed DDTs
with Brazil.
10.
In light of this scenario, the high tax burden levied in Brazil on the remittances
abroad for technical services without technology transfer could be reduced in the future. The
impacts of a new understanding by the Tax Authorities on the matter should be analyzed on a
case by case basis.
São Paulo, March 2014.
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MACHADO ASSOCIADOS INFORMS:
• On February 17, Ricardo M. Debatin da
Silveira, partner of the Indirect Taxes area of
Machado Associados and Chairman of the
Board of the IBDE – Brazilian Institute of
Energy Law, attended the opening ceremony
of the 5º Fórum Internacional do Direito do
Petróleo e Gás Natural, organized by the
IBDE. In the event, held on February 17 and
18 at the main office of FIRJAN (Rio de
Janeiro), renowned experts present the main
events of 2013 in the oil and gas industry,
and discuss the challenges faced to honor
contracts, especially in the regulatory,
taxation, contractual and environmental
areas.
•
•
Machado Associados was decorated by
ABIHPEC (Brazilian Association of Personal
Hygiene, Cosmetics and Toiletries Industries)
for the work performed in the areas of Civil
and Tax law to establish the ABIHPEC
Institute, a not-for-profit association that
develops in Brazil the activities of the
program “Look Good Feel Better”, referred
to in Brazil as “De Bem com Você – a beleza
contra o câncer”. The program is devoted to
improving the self-esteem and quality of life
of people undergoing treatment for cancer.
On February 11, Carolina Romanini Miguel,
member of the Indirect Taxes area, published
the article “Controle Prévio da Atividade
Comercial” on the newspaper Valor
Econômico. The article is available on
Machado Associados’ website.
_____________________________________________________________________________
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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