Brazilian Federal Revenue Office Reviews its Transfer Pricing Guidelines on International Cost-Sharing Agreements
The Federal Revenue Office has issued Private Letter Ruling 99,069/2017, which states, among other things, that transfer pricing rules apply to international cost-sharing agreements related to non-core activities. However, the ruling does not mention which arm’s length method applies to this type of transaction.
The new ruling represents a change in the tax authorities’ position on this matter. Previously, Private Letter Ruling 8/2012 stated that cost-sharing agreements were not subject to transfer pricing rules as long as the involved companies: (i) set forth reasonable and clear criteria for allocation of the expenses; and (ii) the amounts reimbursed did not include a profit margin.
New Interpretation on the Taxation of Remittances Abroad: Marketing and Distribution Rights Related to Software
The Federal Revenue Office has issued Private Letter Rulings 18/2017, 342/2017 and 7,014/2017, stating that the acquisition of marketing and distribution rights for software generates the payment of royalties to the extent that it involves the resale of software licenses.
Therefore, the payments for such rights from a Brazilian resident to a non-resident must be subject to a 15% withholding income tax. Moreover, if the transaction entails the transfer of technology (i.e., the source code is given to the final customer), the CIDE-Royalties tax is also levied at a 10% rate.