On June 20, 2014, the Brazilian Federal Treasury published Interpretative Declaratory Act nr. 5 ("ADI nr. 05/2014"), establishing its position on the tax system to be applied to income paid, credited, delivered, applied or remitted by a source located in Brazil, to an individual or company resident overseas, for the provision of technical services or technical support, with or without the transfer of technology, based upon the Agreements or Conventions for the Avoidance of Double Taxation on Income to which Brazil is a signatory party.

With the publication of the mentioned Act, Regulatory Declaratory Act 'Cosit' nr. 1, dated January 5, 2000 (ADN nr. 5/2000), was revoked. According to ADN nr. 5/2000, remittances arising from technical support service supply agreements not involving the transfer of technology are subject to Income Tax Withheld at the Source ("IRRF"). Also according to the revoked regulation, in cases involving remittance to countries with which Brazil has celebrated a Treaty for the Avoidance of Double Taxation, such income would fall into the article relating to "Income Not Expressly Mentioned", therefore liable for taxation in Brazil.

In addition to recognizing the prevailing status of the Treaties entered into by Brazil to avoid Double Taxation, through the revoking of ADN nr. 05/2000, the Federal Treasury has recognized the stance adopted by the Superior Court of Justice (STJ) in the decision proffered on Special Appeal nr. 1.161.147/RS, dated May 17, 2012, in which, in a case involving the contracting of services from overseas without any transfer of technology, the understanding prevailed that article 7 of the treaties should be applied, such which concerns the profit of those companies that, as a rule, are not subject to taxation in Brazil. It is important to note that the Office of Attorney-General of the Federal Treasury had also recently expressed a similar understanding on the matter.

As such, assuming that, in their certificates of filing, the treaties entered into by Brazil have provided for the taxation of technical services and technical support, the income related to the provision of technical support services (with or without the transfer of technology) should fit into article 12, which sets out provisions on the taxation of royalties being subject to the charging of the IRRF tax in Brazil. In parallel, assuming that technical services or technical support related to the technical qualification of a person or a group of people (e.g. attorneys, accountants, doctors, etc.) have been supplied, the income should fit into the article relating to independent professions (normally article 14) and will be taxed in the country of residence and will not, theoretically, be subject to taxation in Brazil.

In summary, according to ADI nr. 05/2014, if a double taxation agreement does not contain any sort of express provision in its certificate of filing relating to the provision of technical services or technical assistance (with or without the transfer of technology), the income relating to the supply of technical services and technical support (with or without the transfer of technology) will qualify either in the article referring to independent professions or in that relating to the companies' profits, hypotheses meaning that they will be free from taxation in Brazil.

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