Multinationals Lose Brazil Case on Software Taxation

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By Ed Taylor

Brazil’s second-highest appeals court has ruled against two multinationals on the taxation of remittances to pay for imported software.

In its first decision on the question, the Superior Court of Justice Aug. 15 rejected the arguments of the Brazil units of California-based Symantec Corp. and Spain’s Telefonica S.A., and maintained tax charges on them over the period 2000 to 2006.

In 2000, Brazil created the CIDE royalties tax, a 10 percent tax charged on remittances for royalties and technical services in general. From 2000 to 2006, the tax was charged on all software contracts, even when there was no transfer of technology. In 2007, a new law stated that the tax could only be charged if there was a transfer of technology and couldn’t be charged on remittances for licensing contracts.

Since then, companies have been fighting in the courts to be reimbursed for what they paid from 2000 to 2006. In their cases, Symantec and Telefonica argued that the 2007 law was “interpretive,” meaning that its position that the tax could only be charged if there is a technology transfer should be seen as an interpretation of the 2000 law and made retroactive.

Revenue Service

The federal revenue service refuted that argument, saying that the 2000 law creating the CIDE tax was aimed at stimulating domestic production of software by increasing the cost of imported software, with or without the transfer of technology.

The court accepted this argument and added that the law that created the CIDE tax didn’t refer to the “absorption” of technology by companies purchasing foreign software. According to the court, the shipment of a software copy amounts to “providing technology” but not its “absorption by the party receiving it.”

According to the court, “to be sold, technology needs first to be supplied to the party that will sell it. It is not necessary to absorb the technology.”

The ruling is important for companies that acquire foreign software either for themselves or to license and sell domestically, said attorney Flavio Carvalho of the law firm Schneider, Pugliese, Sztokfisz, Figueiredo and Carvalho said.

“The main point was to understand whether the 2007 law was a change or a confirmation of the taxation and the court maintained the previous understanding,” he told Bloomberg BNA in an Aug. 17 email.

Attorney Vinicius Jucá Alves of the firm Tozzini Freire said companies can still appeal on this question but most will likely turn to the supreme federal court and attempt constitutional challenges. He told Bloomberg BNA in an Aug. 17 email that one caseis already pending at the supreme court.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at

To contact the editor responsible for this story: Penny Sukhraj at

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