According to analysts Brazil shall spend US$ 33 billion (1,3% of GDP) in R&D in 20141. Brazilian companies' investment growth in R&D activities is an important step to foster innovation in the country and tax incentives are considered an essential tool in this regard.

Current tax incentives for R&D in Brazil are in force since 2006 (arts. 17 to 24 of Law 11.196/052) and 787 companies had a total of R$ 5,34 billion tax incentive in 20123. Such tax incentives consist on:

a) Full deduction of R&D expenses (100%)4 plus 60 to 100% (according to employees hired, success of the R&D and its protection as a patent or cultivar) exclusion on profits (if any) for income tax (IRPJ) and Social Contribution on Net Profit (CSLL) purposes;
b) Full depreciation of R&D assets in the year of acquisition (IRPJ and CSLL);
c) Accelerated amortization of R&D intangibles (only for IRPJ);
d) 50% reduction of company's industrialized products tax (IPI) on the purchase of machinery for R&D;
e) Zero withholding income tax-WHT (IRRF) on remittances to register and keep intellectual property (IP) rights abroad.

Most of such tax incentives (except regarding IPI) are available only for Brazilian companies taxed by the real profit system (lucro real), since the major benefit is the tax allowance and exclusion (if the company is profitable) on the calendar year, but with no carryover, except for exclusive R&D companies. The main expenses are personnel and assets solely for R&D activities. No reimbursement is available.

No prior approval from the Government is needed to use the tax incentives, but some tax requirements shall be fulfilled, like having negative debt certificates, keeping accounting and R&D projects controls and filing an annual form at the Ministry of Science, Technology and Innovation (MCTI) (FORMP&D).

As many tax incentives around the globe, the aim is to subsidize the technological risk of R&D activities since the success is uncertain in this field. Companies shall create its own technology instead of acquiring them from third parties.

Brazil limits its tax incentives to intramural R&D expenses (in basic and applied research and experimental development) by not allowing the incentives to extramural activities where the purpose is to surpass the technological risk, except where expressly authorized by Law 11.196/05 (performed by small and medium companies, individuals, universities or research institutes in Brazil). Thus R&D activities between affiliated companies is not an option. Further activities deemed as R&D by Brazilian law (technical support services and basic industrial technology) are not subject to limitations (except as expenses in Brazil).

The R&D shall also be performed for the benefit of the company claiming the incentives (a service renderer is not subject to such tax incentives). An issue to be yet analyzed more deeply is if the performance requirement of R&D investments made by ANP and ANEEL (Petroleum Public Agency and Energy Public Agency) may be considered for tax incentives.

The notion of R&D activities (basic and applied research and experimental development) is a main limitation for R&D tax incentives, with the Frascati Manual helping to establish it (the Oslo Manual have a broader notion, since it refers to innovation). However, who is competent to establish whether a project is deemed an R&D or not?

The Brazilian Federal Revenue Secretariat (RFB) and the MCTI work together to assess the companies. The RFB does not have the necessary knowledge to establish if a project is a R&D one – although it is dangerously issuing consultations to taxpayers in this regard and sometimes erroneously focusing on the company, not in the R&D activity – whereas some specialists also put in check MCTI personnel's capability to valuate it.

So far, the MCTI reviews the annual form (FORMP&D) filed by the companies and send to the RFB opinions regarding situations that are not related to R&D. However, such cases will be trialed at the administrative tax court (CARF), which has no expertise in such specific issue. In its first case5, the MCTI opinion has been so far prevailing over the one of a third party merely because it was rendered by a public authority. Finally, the MCTI has recently issued a rule (Portaria MCTI 715/2014) establishing an administrative procedure which discloses more information related to the annual form (FORMP&D) and assures the right to file a motion for reconsideration against the MCTI opinion. Nevertheless, this seems to reveal a due process of law violation in past tax assessments. Companies complain from legal uncertainty.


1 BATTELLE; R&D Magazine. 2014 Global R&D Funding Forecast. R&D Magazine, 2013, p. 7.

2 Information technology - IT and Zona Franca de Manaus companies have their tax incentives for R&D based on art. 26 of Law 11.196/05, but some of the other provisions of chapter III of this Law (mentioned here, and further regulations) still applies to them. Companies which also have other economic activities may use, for them, the general tax incentives for R&D of Law 11.196/05.

3 MCTI. Relatório Anual da Utilização dos Incentivos Fiscais Ano Base 2012. Brasília, 2013, p. 16.

4 Even regarding expenses which accounting rules treats as an intangible asset (after the success of the R&D).

5 CARF, Process nº: 16682.720420/2013-47.

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