New Brazilian Tax law to benefit Expanding IT Companies
Partner Contribution - MONTGOMERY & ASSOCIADOS
On 18th February 2021, the Brazilian Supreme Court (“STF”) ended a dispute of many years and ruled that Municipal Service Tax (“ISS”) is the correct tax to be levied on software transactions, especially in respect of software licensing and use assignment transactions.
What does this mean?
Such a decision changed the prevailing case law regarding the matter and impacts IT companies all over the country since they had been waiting for a final decision to be rendered to have legal certainty on how to conduct their activities.
In short, Municipalities will only be authorized to charge retroactively the cases in which no tax has been collected. Additionally, taxpayers may only apply for a refund of the ICMS amount to States in the cases where the payment of both taxes has been effected.
Under this new scenario, IT companies will no longer need to enrol with the State Tax Authority at the time of their incorporation, a requirement that had been triggered automatically by the State Authority at that stage, and which also required the need for physical and segregated premises.
Therefore, the judgment will not only produce a lower tax burden for the technology sector but will also bring less complexity to the company's operations.