VoIP services exempt from VAT and service tax - one more chapter in Brazilian software taxation

Valor, a Brazilian newspaper, has published that two provisional decisions by judges in São Paulo have exempted provider of Voice over IP services (skype, etc.) from state VAT and Municipal City Tax.

Portuguese link here. 

Software taxation in Brazil still does not have clear boundaries (check, for example, this article). Many things are uncertain, either due to lack of codified legislation or due to lack of jurisprudence.

I will monitor this lawsuit. Let's see how the court of appeal rules on this. Could be good news. 

Selling engineering services in Brazil

Please also read:

Reduction in the Brazilian taxation of imported services - if you are from the right country

I have been talking to a lot of engineering companies lately.

Most of them want to know two things:

How much in taxes will the Brazilian clients pay when they import my engineering services?

And

Why so much? Is Brazil crazy? Don't you know you need engineers desperately?


The reaction is understandable. After all the due calculations, a Brazilian client may pay 50% in taxes, over the original cost of the service. (For a breakdown of this, please read my article on "taxes over software importation in Brazil". Taxation over software and services is very similar)

Usual solutions to this problem are the incorporation of a Brazilian subsidiary, the creation of a JV between the engineering company and the buyer in Brazil or some kind of technology transference agreement that will allow part of the service to be performed in Brazil. The use of non double taxation agreements complements all the above.

Each of those partial solutions also brings new questions.

For instance,  Brazilian law is not clear on the issue of services invoiced from a subsidiary in Brazil directly to the Brazilian customer,  but partially performed by the controlling company of that subsidiary (for example, a team of game developers in Moldova that has a sales team in Brazil). Should transfer pricing rules apply in this case?

Also, JV agreements do not fully solve the problem.  How much investment should be registered for the foreign party that brings 100k in cash, but allow access to cutting edge software?

On top of that, it must be stressed that the Brazilian revenue service has an internal directive that comands its agents to disregard NDT agreements. If you want to see the law being applied, you must file a lawsuit (some french oil drillers that provided services to Petrobras have Recently won a case).

The use of offshore companies to channel payments has been common. But recent changes on regulation of offshore subsidiaries brought uncertainty to this method.

At the end of the day, each of my clients chooses a different mix of solutions, trying to balance tax economy and safety.

What do you do when you face this problem?

Importing to Brazil: Import by Order and Import on Behalf of Third Party

Many of our clients that seek advice regarding international contracts in Brazil are usually completely lost about import procedures in Brazil. 

I have been noticing that the lack of understanding about Brazilian import modalities can drive foreigners towards bad or inneficient deals. 


Thus,  we bring  a little explanation about import modalities. We will focus on indirect imports. That is, import procedures in which the importing company does not perform all import procedures, but outsources them to specialized companies. 

Please not that, for the procedures below to work, a Brazilian importer must hire a Trading Company. So, either the investor must have a subsidiary/controlled company in Brazil, or the final client must hire a Trading Company in order to import the goods from the foreign seller.  

There are two forms of indirect importation: import by order and import on the behalf of third party. 

The major problem surrounding the choice of them is the lack of accurate information regarding the tax burden and the peculiarities of each procedure, which we will try to clarify below.

Import by order

In this modality, a Trading Company will buy and import the goods with its own financial resources and commits to resell them to the buyer (the real importer), due to a contract previously concluded.

The taxes incident on the import operation, which will be fully funded by the Trading are Importation tax (II), ICMS, PIS / COFINS, IPI and IOF, just like the ones in a direct import.

For such services, the Trading can embed its fees in the sales invoice or opt for the commission system, always defining such option previously on the contract.

The catch is: the Trading Company must resell the goods to the final importer. When this sale is made, VAT taxes will apply, just like in any internal sale in Brazil. The operation becomes more expensive, as a result.

It is important to highlight that even if the buyer delegates all customs clearance work to the Trading Company, the buyer is still required to obtain Brazilian Import Licenses (SISCOMEXand RADAR).

Import on behalf of third parties

In this mode of importation, the buyer is the real owner and importer of the goods  and the Trading is a mere intermediary that assists in the bureaucratic process. There must be a formal agreement between Trading Company and Importer.  

The buyer shall pay the  supplier and the import taxes directly.

Import taxes apply as usual. 

After import taxes are paid and customs are cleared, the Trading company must issue a "nota fiscal de transferência" (a transportation document, required by the Brazilian Revenue Service) and ship the goods to the final importer.

It is precisely no this that the Import on behalf of third party differs from Import by order. Since it is a mere remittance, this operation does not constitute a taxable event for PIS/COFINS (one of the Brazilian VAT).  Thus, the taxation levied on the transference of the  goods from the Trading to the importer is lower in this modality than in the import by order.

Moreover, in this kind of import, the Trading’s services are paid by the buyer through  a service invoice (in the previous modality, the Trading would add an "overhead" to the merchandise cost).

With respect to registration formalities, the buyer is also obliged to obtain the RADAR/SISCOMEX.

COMPARISON

In conclusion, each of the methods has its pros and cons. If the buyer does not want to bear the risk of import and do not want to spend its capital since the beginning of the importation process, he should opt for import by order, since such burden falls on the Trading.

 In contrast, in a different analysis, it is more profitable to use the import on behalf of third party, since the VAT charged in the  transfer of the goods from the Trading Company to the final buyer is considerably lower.

See also:

Step by step for the Brazilian Import License (RADAR/SISCOMEX)

Exemption of import tax for machinery - Import permits for electronics and drugs 

Taxation of software importation by end users in Brazil 

Business Basics in Brazil

How to calculate Brazilian import costs

Brazil's ports are now working 24 Hours

Since May 03 the major Brazilian ports started working 24 hours a day. This is one of the several measures implemented by the Provisional Measure (a law binding presidential decree) No. 595,  which seeks to modernize the Brazilian ports. 

The ports that will work 24 hours are the ports of Santos (São Paulo), Rio de Janeiro, Vitória, Paranaguá (PR), Suape (PE), Rio Grande (RS), Itajaí (SC) and Pecém (CE). This is great news for all businessmen who work with import and export in Brazil. Much remains to be done in Brazil with respect to logistics and port infrastructure, but this is will much contribute to end the delays and long bureaucratic problems of the ports in Brazil.

See also:

 Brazilian ports infrastructure and logistics – The “Zarpa Brazil” Campaign

Which are the best brazilian ports? 

Step by step for the Brazilian Import License (RADAR/SISCOMEX)

See also:

- Business Basics in Brazil
- Brazilian Import Costs

Today I would like to demystify some of the (overly bureaucratic) Brazilian rules on import and export licenses. I hope it helps the readers of my blog.

Secretly, I'm hoping that this detailed explanation will discourage my reader to try obtaining import licenses by themselves. The golden rule in Brazil is: never do anything by yourself. Brazil is not for beginners. 

In Brazil, all foreign trade operations require a certificate from the Brazilian Revenue Service (BRS) called "RADAR" (acronym in Portuguese for "Customs Stakeholders Performance Tracking System"). It is also necessary to be registered at the Integrated Foreign Trade System (Siscomex), which is responsible for the storage and control of all the Brazilian and foreign importers and exporters information regarding the transactions carried out by them.

Thus, in order to assist those who have interest in importing or exporting goods, we prepared this little manual guidance to help you get the RADAR / SISCOMEX license.

Important: If you are a foreign company who wishes to export to Brazil, you don't need a RADAR. Your buyer will need one. 
                       On the other hand, if you want to set up a subsidiary in Brazil, in order to resell your own merchandise, then you will need an Import License. 

First step - obtaining digital certificate

Firstly, the taxpayer must obtain a digital certificate to access the website of the Brazilian Revenue Service, since all documents must be sent online through a software (called "PGS"), an application that allows the taxpayer to upload all the necessary documents.

You can obtain the digital certificate with any of the certification companies at  this link.

After that, you must access this link and click on “acessar o portal e-CAC” (access the portal e-CAC) and select the Mailbox Portal CAC as your Electronic Tax Domicile (DTE), clicking on "Termo de Opção pelo Domicílio Tributário Eletrônico" (Term Option for Household Electronic Tax).

When the Statement Option appears on the screen, click on "Enviar Opção" (Send Option).  After this, the taxpayer will still be given the option to register up to 3 phone numbers to receive messages that inform the delivery of Revenue communications regarding the procedure.

Second step-Survey of documents to be submitted

The following documents are required for enabling SISCOMEX / RADAR:

- Enabling Application: Available at this link. Among the general data to be reported, you should have the following information:

·         The capital effectively paid by the company (in case of companies);

·         If the application is filed by an attorney, the attorney’s complete data. 

Ps.: The attorney cannot be enabled as the one responsible in the computerized systems (Siscomex or other).

·         The complete data of the customs forwarder in the event of using one to make the customs clearance.

- Certified copy of identification document of the legal representative of the corporate and of the signatory of the application, if they are different people;

- Power of attorney, if applicable;

- Articles of Association / Last amendment of the Articles of Association;

- Simplified Certificate of Commercial Registry (issued for a maximum of 90 days);

- Headquarters’ proof of "enabled/active" registration in Sintegra or written justification signed by the company if such proof is not mandatory;

- Initial Registration Form and Managers and Legal Representatives update: Can be obtained through the link. In section V - Specification of Systems and Profiles, fill the field systems with "Siscomex" and in "Profiles" the word "Responsible". The document shall be signed and notarized;

- Declaration signed by the applicant that all documents presented confer with the original.

These documents should be scanned, front and back, and saved to a file extension. "Pdf". It is important to highlight that the process does not accept e-files larger than 14MB.

The procedure for registration of attorney and delivery of PoA basically follows the same rite, but the taxpayer must select at the portal e-CAC the option " procuração eletrônica ", followed by " cadastrar procuração" and upload the document.

It is noteworthy that in the event of a change in the qualification already obtained, you must also fill out the Request for Qualification, stating the nature of the change, following the same procedure mentioned above.

Third step - Download of the Delivery Request Generator Program (PGS) and submission of documents

As mentioned, since the administrative procedure for SISCOMEX / RADAR license is completely digital, the documents mentioned above must be sent through the Delivery Request Generator Program (PGS).

To download the PGS just click at this link, and select the proper computer configuration.

After this, the taxpayer must access the e-CAC portal and click on "Processo Digital" (Digital Process) and follow the next screen on "Solicitação de Juntada de Documentos" (Documents Upload Request). Done! Documents can now be sent and processed by the BRS.

As it turns out, the procedure seems complicated, but with this little manual I hope it will be easier for taxpayers to obtain their RADAR / SISCOMEX license. It is important to remember that if the taxpayer does not want to have such work, there are many accounting and law firms specialized in foreign trade that already have knowledge of such process and that could help you.

See also:

- Business Basics in Brazil
- Brazilian Import Costs

Electronic payments in Brazil - A telecom business, more than a bank one

Brazil  has just published a provisional measure (which has the force of a  bill) that regulates electronic payments in the country (link to the Portuguese text).

Brazilians already make heavy use of credit and debit cards. So, this is not the news.

What is new is that the new rules put electronic payment providers under the control supervision of the Brazilian Central Bank. Think of pay pal, bitcoin, small credit card companies, etc.

The credit card giants, such as Visa and Master Card, will also be subject to a higher degree of supervision. It is like they were integrated to the Brazilian bank system.

This has some benefits, such as a higher level of security, as well as disadvantages, such as more bureaucracy and elevation of costs.

The rules are very broad, and will depend heavily of further regulations to be issued by Brazilian Central Bank.

A central point, that many people might have overseen, is that electronic payment by cell phone have been clearly described as a joint responsibility of the Brazilian Central Bank and the Brazilian Telecom Agency (Anatel).

So, I will probably be posting about a joint rule to be issued by Anatel and the Central Bank very soon.

A curious fact: I have been receiving calls from providers of electronic payments software since last year. Probably, the telecom operators already knew about the new rules and started asking for proposals abroad.

They were well informed! The rules are finally here.

If you also want to sell your payment software in Brazil, I'd recommend you to read about taxation of software in Brazil.

What do you think about it?

Quels sont les meilleurs ports brésiliens?

 Une étude intéressante du magazine Exame, qui peut être consultée dans cette page, a produit un classement des meilleurs ports brésiliens. Par la publication on peut voire que les principaux ports brésiliens sont encore dans l'axe sud et sud-est: Santos (à São Paulo), Rio de Janeiro (dans la ville du même nom), Paranaguá (au Paraná), Itajai (à Santa Catarina), Vitória (au Espírito Santo) et Rio Grande (au Rio Grande do Sul).

Le port de Santos (São Paulo) reste le port le plus important du Brésil, puisqu'il représente près de 30% de tout le mouvement national de marchandises. Manaus (à Amazonas) a l'avantage d'être situé près d'une zone de préférences économiques, mais il se trouve loin du centre économique du pays. Une innovation est le port de Itaguai (Rio de Janeiro) que, malgré le faible flux de marchandises, est le port au Brésil qui a le plus grand potentiel de croissance.

Mais dans ces dernières années, les ports situés au nord-est ont grandi et ont reçu de nombreux investissements. Ils sont également favorisés par la proximité aux marchés d'exportation comme l'Europe et les Etats-Unis. Ports comme Suape (Pernambuco) et Pecém (Ceará) ont déplacé une grande quantité de marchandises ces dernières années, et ont aussi un grand potentiel de croissance. Le port de Suape, par exemple, dispose d'un transport multimodal, par la route et le rail, et un port en eau profonde avec les réseaux de distribution d'eau, d'électricité, de télécommunications et de gaz naturel installés dans tout le complexe.

Le seul défaut de la publication de la magazine Examen, dans notre point de vue, c'est qu'il ne tient pas compte des différences entre les ports brésiliens concernant les retards bureaucratiques et administratives. Dans ma pratique légal au cours des années, j'ai réalisé que l'un des plus grands problèmes de ports brésiliens est l'énorme bureaucratie, le grand nombre de formulaires et le retard des procédures. Une étude sur les ports brésiliens qui ont moins de bureaucratie serait très bienvenue par les entrepreneurs et les avocats qui travaillent avec les investissements étrangers et le commerce international.

Proud about tax planning: Google and me

Google's boss has just said that he is proud of Google's tax avoidance strategy (see below)

I'm also proud of Google's strategy to dodge taxes. That is what I do for a living and I must say that Google's lawyers have created a beautiful work of art when doing the company's tax planning. It is all there: offshore companies, subsidiaries, Dutch sandwich, money centers, tax havens. Bravo!

But Google must take UK and America's threats of taxing them seriously. They may look at Brazil and find out that the Brazilian government has seriously limited the use of offshore companies and tax havens by automatically taxing any gains from foreign subsidiaries the moment they are put on the books, and not when they are transferred to the controlling company (this last option would be the most usual in the civilized world).

Vale, the mining company, is waiting for a judgment on the legality of the Brazilian awkward (by awkward I mean unjust and crazy) tax regime. Some 15 billion US dollars are being claimed by the government. (By the way, check the development of a similar case here)

In order to avoid this kind of taxation, Brazilian companies are now making heavy use of the few Non double taxation agreements that Brazil has signed. Austria is a personal favorite, but the Netherlands are very popular.

Google, don't let the government be evil! Dodge the dogs and lions.

By the way, if you are a Brazilian individual with more than 40k USD on a bank, I'd recommend you to move your money abroad. Brazilian government has too much control over it, and the online system for money seizure is a real letdown for any businessman.

NOTE: For the pro government intervention readers (which should be none), here is the opposite view: http://treasureislands.org/google-boss-eric-schmidt-takes-a-dim-view-of-capitalism/.

_____________

Google boss: I'm very proud of our tax avoidance scheme

Google's Chairman Eric Schmidt said £2.5 billion tax avoidance 'is called capitalism'

From:http://www.independent.co.uk/news/uk/home-news/google-boss-im-very-proud-of-our-tax-avoidance-scheme-8411974.html

The head of the internet giant Google has defiantly defended his company’s tax avoidance strategy claiming he was “proud” of the steps it had taken to cut its tax bill which were just “capitalism”.

In an interview in New York Eric Schmidt, Google’s Chairman, confirmed the company had no intention of paying more to the UK exchequer. Documents filed last month show that Google generated around £2.5 billion in UK sales last year but paid just £6m in corporation tax.

The Californian based search giant has also been revealed to have sheltered nearly $10bn of its revenues in Bermuda allowing it to avoid some $2bn in worldwide income taxes in 2011.

But Mr Schmidt said such schemes were legitimate and the company paid taxes “in the legally prescribed ways”.

“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate,” he said.

The Silicon Valley boss went on to suggest that Google would not turn down the opportunity to draw on the big savings allowed under the law in the countries it operates in: “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

He also ruled out following Starbucks in voluntarily handing more money over to the UK Government.

“There are lots of benefits to [being in Britain],” he said.

“It's very good for us, but to go back to shareholders and say, 'We looked at 200 countries but felt sorry for those British people so we want to [pay them more]', there is probably some law against doing that.”

Mr Schmidt’s defiant stance is unlikely to find favour on either side of the Atlantic with both the American and European Governments searching to find ways of forcing “stateless” internet companies such as Google to pay more tax.

The issue will be raised by George Osborne when Britain takes over the chairmanship of the G8 and will also be investigated by the Organisation for Economic Co-operation and Development (OECD).

Last week the Chancellor said he was committed to “leading the international effort” to prevent international companies transferring profits away from major economies, including Britain, to tax havens.

“We will put more resources into ensuring multi-national companies pay their proper share of taxes,” he said. “With Germany and now France, we have asked the OECD to take this work forward and we will make it an important priority of our G8 Presidency next year.”

Tonight Margaret Hodge, chairman of the powerful House of Commons Public Accounts Committee, which recently cross examined Google UK on its tax affairs said Mr Schmidt should be ashamed rather than proud of his company’s tax bill

“For Eric Schmidt to say that he is ‘proud’ of his company’s approach to paying tax is arrogant, out of touch and an insult to his customers here in the UK,” she said.

“Ordinary people who pay their taxes unquestioningly are sick and tired of seeing hugely profitable global companies like Google use every trick in the book to get out of contributing their fair share.

Google should recognise its obligations to countries like the UK from which it derives such huge benefits, and pay proper corporation tax on the profits it makes from economic activity here. It should be ashamed, not proud, to do anything less.
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