By Ed Taylor (Bloomberg BNA – International Tax Monitor)
An expansion of a Brazilian tax incentive program for information technology and communications firms has passed its first congressional hurdle.
Under the government’s program, companies are exempted from paying Brazil’s PIS and Cofins social contribution taxes and excise taxes on their investments in research, development, and innovation. To qualify, companies must demonstrate they are investing at least 5 percent of their gross revenues in these areas.
The original program, started in 1991, limited the incentives to investments made over the previous three months. This was extended to 48 months in the government’s December decree (Provisional Measure No. 810). The lower house of Brazil’s congress approved the longer time frame on May 8.
The measure is an important update for the program, and will help companies take advantage of it, practitioners said. Brazil’s information technology sector has a heavy multinational presence including Microsoft Corp., Accenture Plc, and Hewlett Packard Enterprise Co.
Under the government’s program, companies are exempted from paying Brazil’s PIS and Cofins social contribution taxes and excise taxes on their investments in research, development, and innovation. To qualify, companies must demonstrate they are investing at least 5 percent of their gross revenues in these areas.
Meet Requirements
Investments must meet minimum requirements established by the measure:
• 30 percent of the recovered incentives must be invested in technology areas considered priorities by the government’s information technology committee;
• 25 percent must be used in contracts with institutes of science, technology and innovation;
• 15 percent must be invested in information technology projects in the north, northeast and central-west regions of Brazil;
• 10 percent must be invested in the National Scientific and Technology Development Fund; and
• The remainder must be invested in technology startups.
Companies must also agree to drop all legal challenges of incentives that were rejected between 1991 and the end of 2016. The government’s ministry of science and technology estimates the program will result in more than $280 million in new investments based on the acceptance of previously rejected incentives.
Updates Needed
The revised program resulted in large part from the complaints of technology firms who, through their sector associations, have criticized the 1991 rules for being out of touch with the enormous changes in the sector.
In a statement released when the government decree was issued last December, the sector’s leading association, the Brazilian Association of Information Technology Companies (Assespro), said, “This decree which the entire sector has been waiting for has brought important innovations to the law. This is an advance that must be celebrated.”
Approval of the Measure
The longer time period for investment will help companies, said attorney Daniela Cristina Ismael Floriano of the law firm Rayes & Fagundes.
“The decree increases the time period for companies to prove they have reinvested part of their revenue in research and development from three months to 48 months. This certainly will expand the reach of the law, increasing the companies eligible to use this incentive,” she said in a May 14 email.
The approved decree constitutes an important contribution to the government’s efforts to promote technological innovation, said attorney Fabio Pallaretti Calcini of the firm Brasil, Salomao and Matthes. “If there isn’t any stimulation from the fiscal side, there is no innovation. Without money you don’t invest and you don’t create, especially in a country like ours with a high tax load and expensive credit” he said in a May 10 email. Because the approved legislation is based on a government decree, it still must be approved by Brazil’s senate by May 25 or it will lose its validity.
