Change in the tax treatment of remittances abroad for payment of technical services and technical assistance with or without transfer of technology
By Daniela Cristina Ismael Floriano
On June 20, 2014, Statement of Interpretation No. 5/2014 was published to provide for the new tax treatment of payments made by payers located in Brazil to individuals or legal entities residing abroad for technical services and technical assistance provided with or without transfer of technology, based on Double Taxation Treaties.
Under the new regulation, international payments for technical services and technical assistance (with or without transfer of technology) will be classified as a type of royalties, professional services or independent personal services. Only if the above classification does not apply will such transfer be classified as business profits.
In practical terms, the statement authorizes the levy of withholding tax when the services are classified as royalties or as professional services or independent personal services. In other words, it allows double taxation of these payments. Therefore, the withholding tax will not be levied in Brazil only when these incomes are classified as business profits.
In spite of the legal change in this scenario, it is our opinion that it is still possible for taxpayers to question it, in the sense that these incomes should fall into the category of business profits, which are taxed in the country of destination only. This is because the best interpretation of the provision contained in the treaties is the one according to which only services that are complementary or auxiliary to services with transfer of technology would allow for taxation in the country of origin as well.