Fábio Bernardo
Lawyer at Marcos Martins Advogados
Residents abroad, whether individuals or companies, are subject to Brazilian income tax on income produced here, due to the principle of territoriality.
In this context, article 682 of the Income Tax Regulations, approved by Decree 3,000/99, states that “Income and earnings of any nature from sources located in the country are subject to tax at source, in accordance with the provisions of this Chapter”
In this brief study, the IRRF will be levied on the remittance of amounts in payment for services rendered, when the beneficiary of the income resides in a country with which Brazil has signed a double taxation treaty.
In fact, the text of the conventions signed by Brazil to avoid double taxation usually follows the model convention of the Organization for Economic Cooperation and Development – OECD, which provides for different treatments for various types of income.
It has long been debated which of the articles of the model convention covers income from the provision of services, with the Brazilian Federal Revenue Service (RFB) always arguing that amounts arising from the provision of services by a resident abroad should be classified as “income not expressly mentioned”, subject to taxation in both states, and taxpayers that such income falls under the concept of company profits, which are only taxed, as a rule, in one of the contracting states.
The dispute between the tax authorities and the taxpayer was brought before the STJ by RESP No. 1.161.467, when the Court ruled that income from the provision of services without the transfer of technology would be classified as “company profits” under the conventions, subject to taxation in only one state.
In light of this ruling, the Federal Tax Authorities, which had previously understood that remuneration for services rendered fell within the concept of “income not expressly mentioned” in the treaties, changed their position, now expressed in the Opinion of the Attorney General of the National Treasury – PGFN No. 2.363/2013 and in RFB Interpretative Declaratory Act No. 5/2014.
According to the new guidance from the RFB and PGFN, income remitted abroad to pay for the provision of technical services and technical assistance is now classified as “company profits”, except in cases where the convention provides for the same treatment as royalties for these services.
What can be seen is a change in the strategy for taxing income, since almost all the conventions signed by Brazil contain additional protocols that include remuneration for technical services and technical assistance in the concept of royalties, such as the convention signed between Brazil and Italy, enacted by Decree No. 85.985 of May 6, 1981:
Article 12
[The term “royalties”, used in this Article, means remuneration of any kind paid […] for the use of, or the granting of the use of, industrial, commercial or scientific equipment and for information corresponding to experience acquired in the industrial, commercial or scientific sector.
[…]
ADDITIONAL PROTOCOL
It is understood that:
[…] 5. With reference to Article 12, paragraph 4 The expression “for information corresponding to experience acquired in the industrial, commercial or scientific sector” mentioned in paragraph 4 of Article 12 includes income from the provision of technical assistance and technical services.
In order to understand the real scope of this equation, it is important to distinguish the concepts of “pure services ‘ from ’technical services ” and “technical assistance”.
In the provision of “services in general ‘ or ’pure services”, the main object of the contract is the provision of the services themselves. The parties enter into an agreement of wills aimed at providing a service of some kind.
On the other hand, in the provision of “technical assistance services”, the provision of services is merely instrumental, since the main object of the contract is the transmission of a technology owned by the provider.
Finally, technical services, according to the official understanding of the Federal Revenue Service (Art. 17, §1, II, a, of IN RFB 1.455/14), are all those that depend on “specialized technical knowledge”. This definition would cover a huge range of services, since any obligation to do something presupposes a minimum of knowledge and technique.
However, there is no legal or doctrinal basis for classifying technical services based on the existence of “specialized knowledge”, since this definition completely empties the concept of “pure services ‘ or ’services in general”.
Thus, what we see in specialized doctrine is that the expression “technical services ” relates to the provision of services that are complementary to technical assistance operations.
Having made these distinctions, let’s return to the analysis of the additional protocols to the conventions signed by Brazil, taking as an example the one signed with Italy.
When article 12, paragraph 4 of the aforementioned convention deals with payment for “information corresponding to experience acquired in the industrial, commercial or scientific sector”, it is referring to the know how contract.
In this type of contract, it is common for accessory services (technical and technical assistance) to be provided alongside the technology (know how) that is transferred, making it possible to use the technological capital.
Thus, within the same contract, different remunerations are envisaged: a) for the use of the “know how ” provided, which is usually a percentage of turnover, production or profit; b) for the ancillary services provided.
It was therefore agreed that ancillary services would receive the same tax treatment as remuneration for the main object of the contract (transfer of technology). It is in this context that the double taxation treaties should be understood, since the purpose of the equalization is precisely to treat equally the remuneration for the transfer of use of a technology and the services related to it, given their ancillary nature.
The literal interpretation of the Additional Protocol itself leads to this conclusion, because when it states that the expression “for information corresponding to experience acquired in the industrial, commercial or scientific sector” includes income from the provision of technical assistance and technical services, it clearly gives the idea that technical services and technical assistance are included in a broader concept, which is the transfer of technology.
Technical services and technical assistance are not separate realities or independent concepts from technology transfer contracts, but are part of them. In this sense, the lessons of Alberto Xavier, in an article published in Revista Dialética de Direito Tributário no. 235, April 2015:
Starting with the grammatical or literal element of interpretation, it is observed that in several protocols the expression “include” is used to mean that income from technical assistance and technical services is part of the concept of “information corresponding to experience acquired in the industrial commercial or scientific sector mentioned in paragraph 3 of article XII.”
[…]
In fact, the expression “includes” clearly means that technical services and technical assistance are not independent or autonomous realities or concepts, but elements of a broader concept of which they are a part. The same can be said of the expression “understand”.
The literal element of interpretation is enough to rule out the possibility of applying article 12, paragraph 3, to realities which, by their nature, are not included or comprised in the broader concept of that article, as they have no connection with technology transfer. [1](XAVIER, 2015, p. 27).
In conclusion, it can be seen that the assimilation rule in the treaties concluded by Brazil only covers technical assistance services and technical services ancillary to technology transfer contracts involving the payment of royalties, and not any service that depends on specialized technical knowledge.
[1] XAVIER, Alberto. A tributação da prestação internacionalde serviços, em especialde serviços técnicos e de assistência técnica.Revista Dialética de Direito Tributário, São Paulo: Dialética, n. 235, p. 7-28, abr. 2015.
