BRAZILIAN TAX REVIEW – February 2017

REFORM OF TAX ON SERVICES APPROVED BY BRAZILIAN CONGRESS

The Brazilian Congress has enacted Supplementary Law 157/2016, amending Tax on Services regulations.

Important changes to the rules include:

L Taxation of streaming services; Update of the Taxable Services' List, especially concerning technology services; Reinforcement of the prohibition against granting tax benefits that lead to a tax burden of less than 2%; Punishment for municipal administrators who maintain or grant benefits below the 2% minimum rate. It is important to mention that each municipality must approve its own rules to put the new regulations into full effect. Once approved, the new rules become valid only in the subsequent fiscal year.

BRAZILIAN SUPERIOR COURT OF JUSTICE REVIEWS ITS POSITION ON THE EXEMPTION OF EXPORTED SERVICES FOR TAX ON SERVICES (ISS) PURPOSES

Brazilian taxpayers now have a new argument to avoid the Tax on Services on exported services. This is because the Brazilian Superior Court of Justice has held that services for which the results take effect abroad are not deemed rendered in Brazil.

The case analyzed involves an engineering company that prepared designs to be used in a construction project in France. According to Brazilian tax authorities, these services should be taxed in the municipality where the company is established since that was where

However, the Brazilian Superior Court of Justice rejected this position, holding that, although the project was done in Brazil, it was an export of services because the result would not take place in Brazil.

This decision provides taxpayers with strong arguments not to pay the Tax on Services on exported services.

FEDERAL TAX TRIBUNAL HOLDS THAT ICMS SUBVENTIONS SHOULD NOT BE SUBJECT TO SOCIAL SECURITY CONTRIBUTIONS (PIS/COFINS)

Following judicial precedents previously enacted, the Federal Tax Tribunal has held that ICMS incentives, such as presumed credits, are not taxable revenue and thus PIS/COFINS are not levied on them.

The main argument that led the Federal Tax Tribunal to this decision is that ICMS incentives work as a factor to reduce expenses rather than as regular revenue, as well as being compensation for investments made by taxpayers.

Although this decision was not issued by the Federal Tax Tribunal's upper chamber, it is an important administrative precedent to argue that this type of incentive should not be taxable.

BRAZILIAN GOVERNMENT REGULATES THE COUNTRY BY COUNTRY REPORT - BEOS PROJECT

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