By Manoel Antonio dos Santos, legal director at ABES
Regarding the article published on the IPNews Portal, on August 14, entitled “Taxes on cloud software increase almost 40% in Brazill”, ABES (Brazilian Association of Software Companies) clarifies that, unlike what was stated in the article, there was no change in the tax burden on software as a service (SaaS). The tax burden that exists today is the same that has been in force for at least ten years in the country. Consultation solution nº 191/2017, issued by the Federal Revenue Service, in March of this year, has an “interpretive” character: it only “answers” the query that was made to COSIT; applies to contracting SaaS abroad (import); it does not create or increase taxes: it just confirms the tax table that is currently applied.
Below is a breakdown of how taxes are currently applied:
• Consultation Solution No. 191/2017, published in March 2017, only provides the Federal Revenue's interpretation of the taxes levied on cloud computing (SaaS) remittances.
• In the last ten years, the Federal Government has neither created nor increased the tax rates on remittances abroad, nor on contracting SaaS, nor on the “import” of any IT/ICT services. It did not change the rates of the following taxes: PIS-Import, COFINS-Import, ISS-Import, CIDE or IR-Fonte.
• The tax rates levied on remittances abroad in payment for the import of services may vary depending on four factors:
1. The CIDE of 10% will apply to the contracting of Services that “involving technology” (technical services, administrative assistance and similar);
2. The IR-Source when contracting Services will be 15% if the services “involve technology”, but will be 25% if the services “do not involve technology”;
3. The IR-Source when contracting Services must be withheld from the source. That is, in principle, the IR-Source is not a cost: The sender deducts it from the exporter and collects it from the government. However, if the importer does not withhold the IR at source, he becomes responsible and must collect it out of his own pocket. Thus, those who do not retain the IRFonte support 17.65% of IR-Source (services involving technology) or support 33.33% of IR-Source (services that do not involve technology);
4. When services are imported by the end user, ISS – Import (2% to 5%), PIS/PASEP – Import (1.65%) and COFINS – Import (7.6%) are levied.
In short:
A) When the source withholds income tax at source, the amount charged is:
• 15,78% of taxes, if “common” services are “imported” (without technology)
• 25,78% of taxes, if “technical” services (with technology) are “imported”
B) When the source assumes responsibility for the IR-Source, the amount charged is:
• 54,24% of taxes, if “common” services are “imported” (without technology)
• 47.91% of taxes, If “technical” services (with technology) are “imported”. Thus, the variables mentioned above allow the interpreter the opportunity to say that the tax burden on service imports is 15.78%; or 25,78%; or from 47,91%; or 54,24%, according to one of the 4 situations listed above; but these rates, as explained above, were like that before Consultation Solution No. 191/2017 and continued like that after its publication.
Finally, it should be clarified that ABES has different understandings from those contained in the Consultation Solution 191/2017, both in relation to the taxes that the Solution understands to be due (example: there is no CIDE in the shipments referring to “software as a service – SaaS”) , as well as in relation to the foundations contained in that solution. It should also be added that SC 191/2017 does not apply to shipments of Marketing Rights by software distributors, but only on importation
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