Brazilian Federal Revenue publishes its final understanding of paying in capital with know-how

Conflict Resolution Decision 6/2016 (SD 6/2016) was published in the Federal Official Gazette on February 3, 2016. Its purpose is to standardize Brazilian Federal Revenue’s undestanding regarding the taxes due when capital is paid into a Brazilian company through the transfer of rights (a know-how agreement) that are held by a foreign investor. 

The publication of SD 6/2016 was justified on the basis of a difference of opinion that was made evident in Answer to Advance Tax Ruling Request 178/2006 and Answer to Advance Tax Ruling Request 20/1998. 

It is therefore Brazilian Federal Revenue’s current opinion that, in a transaction in which a Brazilian company’s capital is paid in by an investor/stakeholder who is domiciled abroad through the assignment of know-how, the following taxes will be imposed:

Withholding Income Tax at a rate of 15%. According to SD 6/2016, the withholding income tax is levied on the amount credited to the nonresident as consideration for the assignment of know-how;

Intervention in the Economic Domain Tax (Contrubuição de Intervenção no Domínio Econômico), or CIDE, tax on royalties at a rate of 10%. This is levied at the time capital is paid in through the assignment of a right that consists of the acquisition of technical knowledge. 

It should be noted that a Conflict Resolution Decision serves to unify Brazilian Federal Revenue’s understanding on a tax matter. It is binding on Brazilian Federal Revenue and must be followed by tax auditors.

Barretto Ferreira e Brancher, Sociedade de Advogados