In March 2021, the Superior Court of Justice of Brazil issued a decision (Case RESP NÂº 1.759.081) confirming the agreement that was made at the end of 2020, in the same lawsuit: the import of technical services without transfer of technology, from a country with which Brazil has a double taxation agreement, may give rise to withholding of corporation tax, depending on the specific provisions of the agreement.
The result, on its own, would already be relevant in drawing attention both to technical service providers resident in Spain that export services to Brazil and to Brazilian resident companies that import services from Spanish providers.
Indeed, this is the first time that the court has ruled on the subject after the entry into force of the declarative normative law (ADI n Â° 5/2014, enacted by the tax administration), taking into account the very specific provisions. of the Brazil-Spain Convention.
However, the issue takes on even greater proportions as the reasoning used by the tribunal was generic enough to imply that it could potentially be applicable to every double taxation treaty, without distinction of the added texts and the particularities of the Brazil treaty. -Spain.
NDA No. 5/2014 was the main legal basis for the tax authorities in RESP No. 1.759.081 and established that consideration for technical services provided by non-residents, whether or not these services involve a transfer technology, should be reflected in the OECD Model Convention primarily as royalties (Article 12) or as independent personal services (Article 14) and ultimately as commercial benefits (Article 7 ).
Company profits (article 7) would no longer be the primary qualification of such payments, as was the interpretation of the court on the occasion of the repeal of another tax administration law, the normative declarative law. No. 1/2000, which generically qualifies all technical service charges as royalties, regardless of any technology transfer involved in the contract.
On the other hand, in this recent case in particular, it was discussed whether payments sent to Spain by a Brazilian company, in return for the provision of engineering services and administrative assistance, would be subject to exclusive taxation. abroad (residence) or such remuneration would also be subject to withholding tax in Brazil.
Following the literal ADI n Â° 5/2014, the court accepted the interpretation of the tax administration according to which an assessment to qualify the expenses mentioned in articles 12 and 14 should have been carried out before taking the article into consideration. 7; therefore, the lower court’s decision was overturned, requiring the lower court to make such an assessment.
The question is not yet definitively resolved and there is no unequivocal position to be drawn from this judgment concerning all other similar cases of payments in return for the provision of services without transfer of technology. It is not clear whether they should be subject to withholding tax or not.
However, what draws attention are the reasons given by the judges, which were generic enough to be applied in all cases, regardless of the different formulations of the international double taxation conventions signed by Brazil.
As the vote of Judge Mauro Campbell shows, the basis for expanding the concept of royalties to include even services without transfer of technology – normative basis to legitimize the application of NDA No. 5/2014 to the case – no. was not the actual wording of double taxation. The convention signed by Brazil and Spain and its protocol are the result of an amicable procedure (MAP) taken by the tax authorities of the two countries.
The extension of the notion of royalty was made by a process of analogy with the interpretations adopted in certain decisions concerning national legislation on corporate and income tax (Law No.4.506 / 64) and on the intervention contribution in the economic field (law n Â° 4.506 / 64). 10.168 / 2000).
Mainly, the judges may not have realized that in addition to the Brazil-Spain treaty (law n Â° 76.975 / 76) and its annexed protocol, there is between these two countries a MAP which could have solved the whole problem. interpretation.
Consolidated by Declarative Interpretative Law n Â° 27/2004 (ADI n Â° 27/2004), in its article 3, the MAP provides textually for the possibility that between the tax authorities of these two countries specifically, the term “royalty” can be defined as fees for “all technical services or technical assistance, regardless of whether they themselves involve a transfer of technology”.
If the Brazilian and Spanish tax authorities, through the exchange of information and the successive communications which led to ADI n Â° 27/2004, have agreed on the notion of royalty for the purposes of international taxation , it is at the very least pointless to settle the case without taking it. into account. Moreover, if within the framework of such a treaty it was necessary to participate in a MAP in order to “amplify” the notion of royalties, this means that the context of other treaties is completely different in the absence of a such act resulting from a card.
The conclusion drawn during the trial itself is not the main issue because in the specific case of Brazil and Spain it is expected to achieve the result revealed in RESP case No. 1.759.081.
However, the inaccuracy (and even flaws) in the court’s reasoning may allow an extensive interpretation of the concepts presented in double taxation treaties, thus increasing Brazilian tax jurisdiction despite the specific determinations of each treaty, which can clearly be considered a violation of the convention from the point of view of other countries, except Spain.
Paulo Victor Vieira da Rocha
Partner, VRBF Advogados
Murilo Jakuk Ferreira Lopes
Partner, VRBF Avocats
Â© 2021 Euromoney Institutional Investor PLC. For help, please see our FAQ.