Originally published in the Feb 9 edition of World Tax Daily. Copyrights Tax Analysts (www.taxanalysts.com)
Brazil’s House of Representatives on February 6 approved a provisional measure that eliminates the 10 percent royalty tax (CIDE) for imported software.
Brazil’s House of Representatives on February 6 approved a provisional measure that eliminates the 10 percent royalty tax (CIDE) for imported software. Provisional Measure 328 now will be submitted to President Luiz Inacio Lula da Silva for final approval.
Measure 328 also transfers federal funds to states and municipalities and adjusts personal income tax brackets by raising the income limits by 4.5 percent. During its vote on the measure, the House of Representatives also approved the CIDE exemption for software imports, an amendment that was introduced by the Senate.
The exemption does not extend to technology transfers involving software; it applies only to ready-to-use (off-the-shelf) software. The exemption is retroactive to January 1, 2006, which theoretically could enable taxpayers to claim CIDE refunds.
The exemption has been eagerly awaited by Brazil’s computer industry, which has challenged the legality of the CIDE levy on off-the-shelf software. With few exceptions, most Brazilian states have treated off-the-shelf software like any other tangible good subject to state VAT. Because tangible goods are subject to state VAT rather than CIDE, which applies only to technology transfers and similar intangible items, the same treatment should apply to off-the-shelf software, critics say. That argument was the rationale behind the exemption.