The Contribution for Intervention in the Economic Domain to Finance the Program to Support the Interaction Company-University ("CIDE") - Modifications on this Tax levied on Remittals for paying services and royalties.
(VOLTAR) Roberto BekiermanSince its inception pursuant to Law NR 10168, of 29 December 2000, CIDE has experienced several changes. Firstly it was assessed on payments made to persons or entities domiciled abroad in connection with technology transfer agreements executed with them, i.e., contracts involving the exploration of patents, use of trademarks, supply of technology and technical assistance.
When CIDE was implemented, the withholding income tax rate on such currency remittances had been just increased from 15% to 25%, and would be cut back to 15% when CIDE became effective. Considering that the CIDE rate is 10%, the tax burden apparently would be unchanged. This did not come true, however, for the beneficiaries resident abroad.
Persons or entities domiciled abroad - whether in countries which are parties to Double Taxation Avoidance Treaties with Brazil ("Treaties") or in countries that allow the credit of income tax paid in the income source country - were forbidden to take credit of the amount of CIDE paid in Brazil. Firstly, because the Treaties and the international reciprocity provisions only include the income tax, and, secondly, because Brazilian legislation established that the CIDE taxpayer is the sender and not the beneficiary of the remittance. The tax burden of the beneficiary thus became substantially higher.
With Law 10332, of 19 December 2001, in force since 01 January 2002, the lists of taxable events and taxpayers of CIDE were extended. In fact, Article 6 of that Law gave a new wording for §§ 2 and 3 of Article 2 of Law 10168/00, as follows:
"§ 2. After 01 January 2002, the contribution mentioned in the caption of this Article becomes due also by the legal entities that executed technical assistance agreements, administrative assistance agreements, and service agreements with a similar purpose to be rendered by residents or domiciled abroad, and is due also by the legal entities that pay, take credit, deliver, employ or remit royalties, in any instance, to beneficiaries who are resident or domiciled abroad.
§ 3. The contribution shall be charged on amounts paid, credited, delivered, employed or remitted each month to residents or domiciled abroad as remuneration arising from obligations set forth in the Caption and in Paragraph 2 of this Article."
This wording elicit some legitimate questions. We can foresee that the tax authorities will try to assess CIDE on every remittance abroad referring to payments of royalties and services of any kind. The former wording only imposed CIDE on payments resulting from agreements that must be filed at the National Institute of Industrial Property - INPI, but, currently, in the absence of a legal definition of "technical and administrative assistance services" that do not involve transfer of technology, it becomes almost impossible to distinguish these services from others which are not subject to CIDE assessment.
Would financial services be included in "technical and administrative assistance"? What about legal services? And royalties? The International Conventions to Avoid Double Taxation consider copyrights payments as royalties. However, the domestic income tax legislation clearly distinguish the concepts: in Brazil, for instance, payments for literary, software and film licences have all copyright nature. It seems that the taxable event of CIDE does not include these licences, and therefore CIDE is not owed in payments abroad concerning what the domestic legislation considers "copyrights", even if the beneficiary is domiciled in a country which is a party to any of the Conventions. As noted, CIDE is not subject to regulation by a Convention, but rather by domestic legislation.
Some taxpayers are challenging the constitutionality of CIDE based on the failure of the Brazilian Congress to introduce it by a "Complementary Law". There is at least a case decided to the benefit of the taxpayers by the Federal Appellate Court of the 3rd. Region (States of São Paulo and Mato Grosso do Sul). Nevertheless, the Federal Supreme Court, when judging the Additional Tax to the Ports Prices ("Adicional da Tarifa Portuária - ATP) and the Additional Tax of Freight Prices for the Refurbishment of the Merchant Navy ("Adicional de Frete para a Renovação da Marinha Mercante - AFRRM") ruled that these taxes had the nature of a contribution of intervention in the economy but did not need to be introduced by a "Complementary Law". It must be clear though that these decisions of the Supreme Court did not analyse the issue in its full spectrum and one of the judges mentioned his understanding in favour of the taxpayers.
For these reasons, any challenge of CIDE might be fully analysed in a case-by-case basis. There are strong reasons to understand that some remittals are not taxable, due to the fact that the taxpayer or the taxable event is not expressly established. On the other hand, even tough there are juridical reasons to challenge CIDE in a broader basis, there is still no solid jurisprudence to support it.