The taxation of international remittances regarding cost sharing agreements involving multinational economic groups is a sensitive and controversial issue.
If done carelessly, it generates tax assessments from the Internal Revenue Service. There are strong arguments in favor of the taxpayer to discuss the tax incidence of WHT (15% or 25%), CIDE (10%) and PIS/COFINS-Importação (9.25%). The issue is not peaceful in the courts, but regardless, some points are fundamental:
1. Proof of the nature of reimbursement: it is essential to prove that remittances abroad are mere reimbursements and, therefore, should not be subject to taxation. A detailed written contract and correct bookkeeping are essential, both considering the activities object of the expense apportionment contract and the main activities of the companies.
2. Requirements to avoid taxation: the criteria defined for domestic economic groups can be extended to this case, as they are accepted by the Administrative Court.
They Are: (a) goods and services proven to be received and effectively paid; (b) necessary, usual and normal expenses to the activities of the companies (not eventual expenses); (c) the expenses apportionment being made must be according to reasonable and objective criteria, previously adjusted, formalized by an instrument signed between the companies (written contract); (d) the apportionment criteria must correspond to the actual expenses of each company and consider the global price paid for the goods and services, according to proper bookkeeping; (e) the centralizing company can only consider “expenses” the portion that fits the apportionment criteria (as well as other member companies benefiting from the agreement), indicating the amounts to be reimbursed as a recoverable credit in the bookkeeping; (f) the member companies must keep separate bookkeeping of all acts directly related to the apportionment of the expenses; (g) there can be no profit margin or revenue markup on the amounts transferred (reimbursements); (h) the amounts cannot constitute payment for services provided by the centralizing company.
3. Adoption of preventive measures: financial institutions are responsible for withholding the WHT (which can vary from 15% to 25%) prior to remittances abroad. Thus, it is necessary to consider acting preventively to guarantee the right to non-payment.
The tax burden can be a decisive aspect in the feasibility and structuring of cost sharing agreements. The characterization of remittances as a mere reimbursement of expenses arising from a cost sharing agreement has the potential to avoid taxation. Thus, it is important to pay attention to the evidentiary aspects from the beginning, which will possibly be the object of discussion.