In February 2016 the Brazilian Federal Revenue has issued an official decision (Solução de Divergência No. 6 – Cosit) establishing that the contribution to corporate capital through the acquisition of Know-How from a non-resident is subject in Brazil to 15% (fifteen per cent) as Withholding Income Tax and 10% (ten per cent) as Contribution of Intervention in the Economic Domain – CIDE royalty tax. The decision clarifies previous questioning on the matter.

Former decision SRRF10 No. 20 of 1998 considered that the contribution to corporate capital was the payment from the Brazilian source to the non-resident company for the acquisition of rights, thus subject to Withholding Income Tax. On the other hand, decision SRRF08 No. 178 of 2006 understood that said contribution to corporate capital did not generate revenue to the non-resident, thus not subject to Withholding Income Tax.

Upon analyzing the Brazilian legislation on Withholding Income Tax, specially art. 72 of Law No. 9.430 of December 27. 1996, the official decision decided that the Know-How or new technology invested by a non-resident company is equivalent to the acquisition of rights from the Brazilian company remunerated through the issuance of corporate shares, thus subject to Withholding Income Tax.

Therefore, it is concluded that Withholding Income Tax is due upon the contribution to corporate capital at 15% over the value credited to the non-resident for the acquisition of rights.

It was also decided that the acquisition of Know-How is also subject to CIDE-royalty tax, according to Art. 2, paragraph 4 of Law No. 10.168 of December 29, 2000, for involving the acquisition of technological knowledge from companies domiciled abroad. Thus, it is understood that the CIDE-royalty tax at the rate of 10% is due upon the contribution to the corporate capital for the assignment of rights through the acquisition of technological knowledge.

The contents of the official decision (in Portuguese) can be viewed here.

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