Brazil Confirms Tax Exemption for Royalties Paid Abroad
by David Roberto R. Soares da Silva
Brazil's General Taxation Coordination System (COSIT) has issued a ruling that harmonizes the application of the Program for Social Integration contribution (P.I.S.) and the Contribution for the Financing of Social Security (COFINS) to royalty payments made to nonresidents. COSIT is the body in charge of making the Federal Revenue Department (FRD) superintendences' positions on tax matters uniform throughout Brazil.
COSIT's Solution of Dissent (Solução de Divergência) No. 11/2011, published in Brazil's official gazette on May 17, confirms the FRD's official position that royalties of any kind are not subject to the P.I.S./COFINS normally levied on imports of goods and services.
A translation of the summary of Solution of Dissent No. 11/2011 reads as follows:
"There will be no levy of COFINS-Imports [and P.I.S.-Imports] on the amount paid as royalties if the relevant agreement identifies, individually, the values for royalties, technical services, and technical assistance. In that event, the contribution [COFINS or P.I.S.] on imports will be levied only on the values of contracted services. However, if the agreement is not sufficiently clear to segregate these elements, the entire amount [of the contract] must be deemed to be for services and will be subject to the contribution[s]."
COSIT's Solution of Dissent will result in significant tax savings because P.I.S. and COFINS on imports are usually levied at the combined rate of 9.25 percent (7.6 percent for COFINS-Import and 1.65 percent for P.I.S.-Import).
COSIT's position is binding on all FRD superintendences, which means that any request for a ruling on this matter filed by a taxpayer anywhere in Brazil must be resolved in accordance with Solution No. 11/2011. Although Solution No. 11/2011 is not legally binding on FRD field offices or field tax agents, they can be expected to follow it during the course of a tax audit.
David Roberto R. Soares da Silva, partner, Battella, Lasmar & Silva Advogados, São Paulo
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