A Brazilian company that purchases goods or services from another country is responsible for the withholding tax (IRRF) due on foreign payments.
However, the tax is not due until the credit can be claimed by the creditor, which only occurs either on the payment date either on the due date, whatever happens first. That is the Brazilian “IRS” understanding, which was recently reaffirmed by the Brazilian Superior Court of Justice (STJ).
In a contract, if the debtor company is Brazilian and the creditor is foreigner, the general rule points to the debtor’s responsibility to report and pay the taxes due to the Brazilian IRS. The withholding tax only is due, according to the law, when there is “acquisition of economic or legal availability” by the creditor, which means the moment of payment or duty of payment.
The recent Court ruling involves a taxpayer that supposedly delayed the payment of taxes due on foreign payments related to a software distribution contract. The IRS claimed that the IRRF was already required when the accounting record of the debt was made, even though it happened before the payment or the date of payment. Nevertheless, that understanding is incorrect, because with the mere accounting record of the debt on the company’s payables, the money is not in the direct possess of the creditor, nor is claimable yet, as the law requires.
Therefore, STJ restated that the IRRF is only due when one of the following events happen: payment, crediting, delivery, the use or remittance of amounts to the foreign company. But if the debt is not paid, the tax still must be paid on the due date. It is important to bear in mind the right moment to report and pay the withholding tax on foreign payments, avoiding fines and penalties by the fiscal authorities.