Companies must be careful on the tax impacts when preparing their Brazilian law commercial contracts aiming fiscal efficiency.
Two examples illustrate the material difference in tax burden based on contract terms:
1. Remittances abroad and PIS/COFINS-Import:remittances to residents or domiciled abroad considered royalties payments, related to software licenses to use and distribute, are not subject to PIS-Import and COFINS-Import. That is because they do not represent payments for services provided.
If there are services being provided linked to this contract and the nature of the payments is not specified under the contract, PIS/COFINS-Import will be charged over the entire remittance. If they are segregated, the taxes will be levied only over the payments for services provided. The Internal Revenue Service understands that if the contract is confusing, its entire object is considered a service, and, therefore, taxed.
This is a very simple aspect, but it means a tax burden of 9.25% based solely and exclusively on the planning of the operation from a tax efficiency point of view.
2. Remittances abroad and cost sharing agreements: corporate groups often centralize the costs of common services (intermediate activities) among them in a single company of the group and then share the costs – this arrangement can be structured under a cost sharing agreement.
If the remittances abroad are mere reimbursements related to cost sharing agreements, they should not be subject to taxation. To prove that the remittances abroad are mere reimbursements, a detailed written contract and accurate bookkeeping are essential, both considering the activities object of the expense apportionment contract and the main activities of the companies, among other criteria.
The impact is huge: if it is not considered a reimbursement, there could be a tax incidence of Withholding Income tax (15% or 25%), CIDE (10%) and PIS/COFINS-Import (9.25%) over the remittances.
Paying attention to the details of the negotiation from a tax efficiency point of view can be a determining factor for the very viability of the operation and should not be disregarded.