Originally published at the March 5 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
São Paulo’s official gazette of February 28 published Decree 51,619/07, which restores the reduced ICMS tax base for software, which was revoked by state Decree 51,520/07.
Less than one month after revocation of many state value added tax (ICMS) incentives by state Decree 51,520/07, the state of São Paulo has restored almost all of the revoked tax breaks. The latest restorations were related to the ICMS reduced tax base for software, and the ICMS tax break for the computer industries located in the state, considered the most important revocations in Decree 51,520/07.
São Paulo’s official gazette of February 28 published Decree 51,619/07, which restores the reduced ICMS tax base for software. The decree retains almost the same wording of the ICMS code’s former provision on software base, and establishes a tax base equal to twice the sales value of the media (CDs, disks, and so on), disregarding the intangible value. The reduced base applies not only to off-the-shelf software, but also to software customized for clients. The decree excludes from the reduced tax base any type of video games, including those with educational content.
The “new” reduced tax base is effective as of February 1, 2007, which in practice means software companies and dealers will not be affected by the base revocation of Decree 51,520 (which also took effect on February 1, 2007).
The restored tax break related to the computer industry is a presumed ICMS credit of 7 percent on the value of outputs, to the extent eligible computer items are manufactured within the state of São Paulo. This presumed credit was granted by Decree 51,624/07, published in the state’s official gazette of March 1.
Because the ICMS rate on sales of those items is also 7 percent, the presumed credit at the same (7 percent) rate makes sales of eligible computer items manufactured in São Paulo subject to a virtually zero ICMS. Among eligible computer items are monitors, cell phones, disk units (CD-ROM, CDR-RW, etc.), portable computers, and barcode readers. The presumed rate takes effect as of February 1.
David Roberto R. Soares da Silva