The Brazilian Congress enacted the Technological Innovation Act, Law No. 10.973/04 on December 2, 2004, which creates incentives for scientific and technological innovation in a productive environment. The new law, seeking Brazil's technological autonomy, establishes special measures for technological development. Among the measures contemplated in the law are support for the establishment of strategic alliances and the development of cooperation projects involving Brazilian companies.
Specifically, the law creates several tools in order to allow, among others, the sharing of laboratories among very small and small companies, the participation of the federal government in the stock capital of companies aiming at developing scientific projects as a way of injecting money in such enterprises, differentiated remuneration system for public employees who participate in such researches, a guaranteed minimum of 5% of the royalties on the profit for the inventor, partnerships between Scientific and Technological Institutions and private companies for the development of new and innovative technologies and other important incentives for the creative environment in the scientific area.
The impact of such law in the licensing of technology in general, especially know-how and patents has yet to be tested since the enactment occurred only less than one year ago. However, the prospects are very positive for the enhancement of the very shy licensing market of Brazilian technology. According to a survey by the LESI Committee of the Americas and the LES (USA & Canada) International Committee, one of the leading and largest Brazilian Universities, the Universidade de Campinas - UNICAMP, currently holds only 322 patents and, out of this already small number, only 8 are licensed. The Universidade de São Paulo - USP, another very important university holds a little less than 100 patents but no license at all.
Brazil - Technical assistance and transfer of technology agreements may have another tax burden
Law no. 10,865, of April 30, 2004 (former provisional measure no. 164, of January 29, 2004) regulated the (i) Contribution to the Social Integration and Formation of the Public Workers' Wealth Programs which is levied upon the importation of foreign products or services (PIS/PASEP-Importação) and the (ii) Social Contribution for the Financing of the Social Security owed by the importer of foreign goods or serices (COFINS-Importação).
Since May 1st, 2004, the PIS/COFINS-Importação began to be levied upon the services rendered by individuals or legal entities domiciled outside Brazil to contractor domiciled in Brazil. In order for the tax to attach it is essential that (1) the services be rendered in Brazil; or (2) the services be rendered outside the country but which result can be verified in the country (Section 1, paragraph 1 of Law no. 10,865/2004).
In light of the law, the so-called "importation of services", it is possible to gather that the remittance of fees to a foreign country in relation to technical assistance contracts (technical services) will also be taxed for the PIS/COFINS-Importação.
According to section 7, item II of Law 10,865/2004, the basis for the calculation of the PIS/COFINS will be the amout paid, credited, delivered, employed or remitted abroad, before the Income Tax but after the amount owed due to the Service Tax (ISS - a municipal tax that varies from municipality to municipality) and the amount owed in light of the new taxes themselves.
The percentage of the PIS/PASEP-Importação and of the COFINS-Importação are of, respectively, 1.65% and 7.6%, for a total of 9.25%.
The Brazilian company is the party responsible for the payment of the PIS/COFINS-Importação since section 5 of Law no. 10,865/2004 determines that the contributors are, among others listed therein, the individuals or legal entities that contract services of services from persons or entities domiciled abroad and the beneficiary of the service, in the case where the contractor is also domiciled abroad.
It is possible to conclude, hence, if the PIS/COFINS would also be levied upon the technology transfer agreements, especially if it is taken into consideration that this kind of agreement may also embody the rendering of technical assistance.
However, since the PIS/COFINS-Importação began to be levied upon the rendering of services (called generally in Brazil "obligations to do"), it is possible to defend that such contributions would not be applied to the technology transfer agreements, even if they involved the rendering of services. This is due to the fact that the technology transfer should be considered to be essentially an "obligation to give" and not an "obligation to do", i.e., even if there are services within the scope of the transfer of technology, they would be non-continuous and ancillary to the main obligation.
It is advisable, in order to avoid greater discussions regarding the application of the PIS/COFINS-Importação on the amounts paid for technology transfer, to execute agreements with highly defined and segregated objects, being it, on one hand the actual technology transfer and, on the other, the technical assistance. Another possibility is to make the ancillary characteristic of the service to be rendered very clear in the agreement.
The levy of the PIS/COFINS-Importação (upon the "importation of services") can also be challenged due to a few unconstitutional aspects, such as: (1) the contributions were not introduced by complementary law (the Brazilian Fiscal Code has the status of a complementary law and the creation of a tax, in principle, can only occur also by another complementary law); (2) the basis for the calculation include other taxes and (3) lack of jurisdiction of the Brazilian legislation in relation to services rendered abroad, even with results in Brazil.
Actually, with the recent fiscal changes, the value of the "importation of services" can be significantly raised. In other words, apart from the Income Tax and the Contribution of Intervention on the Economic Domain (CIDE), the ISS and the PIS/COFIS-Importação may be applied.
Brazil - Franchising involving Brazilian companies may be excluded from a facilitated method of payment of taxes
The Brazilian IRS has recently provided, in its website, a non-exhaustive list of activities that are excluded from the Integrated System of Payment of Taxes and Contributions of the Very Small and Small Companies (SIMPLES) and, among them, included the "administration of royalties and of franchising".
SIMPLES is a differentiated fiscal regimen applicable to the legal entities considered to be very small and small companies, allowing several fiscal breaks and amnesties. It was created by Law no. 9,317/96 with the amendment provided for in Law no. 10,034/2000.
With that, the IRS made it clear its position that the franchisors would be prevented from opting to the SIMPLES system.
More recently, the Secretariat of the IRS, in decision stemming from Consultation no. 200, of November 17, 2003, established position contrary to the option to the SIMPLES to the franchisees, understanding, thus, "that the option to the SIMPLES is forbidden to franchisees, with exception to the ones related to the Brazilian mail services". Such interpretation of the IRS was published in the Official Gazette of January 15, 2004.
However, nothing in Law 9,317/96, nor in its further amendment, Law no. 10,034/2000, provides for any specific prohibition for the franchising activities, be the company the franchisor or the franchisee.
The IRS itself, while regulamenting the matter in several Declaratory Acts and in Normative Instruction no. 355 of August 29, 2003, did not establish any prohibition to the option to the SIMPLES to franchisors and franchisees. The mentioned Normative Instruction aims at normalizing, within IRS's administrative sphere, Law no. 9,317/96, which created the SIMPLES system.
Therefore, one can concluded that the IRS cannot prevent very small and small companies that are not expressly prevented by force of section 9 of Law no. 9,317/96, from opting to the SIMPLES.
As mentioned in section 3 of the mentioned Law, the legal entity determined to be a very small or small company under the legal definition will be able to opt to be registered before the SIMPLES system, as long as it is not listed in the prohibitory section of the same Law (section 9).
It is important to establish that the Law considers as very small company the legal entity with gross revenues, in one year, of an amount equal to or inferior to, approximately, US$ 40,000.00 (forty thousand dollars). Small company is the one that has yearly gross revenue above approximately US$ 40,000.00 (forty thousand dollars) but below approximately US$ 240,000.00 (two hundred and forty thousand dollars).
If a company can be considered to be a very small or small company using the above criteria and if it is not inserted in one of the prohibitions of the above cited section 9, then it should be, in principle, authorize to opt to the SIMPLES system of payment of taxes and contributions. An interpretation act by the IRS should not have the force of revoking a Law.
Colombia and Andean Pact: Forfeiture proceedings are no longer obstacles to the recordation of trademark license agreements
In a recent announcement, the Trademark Office of Colombia stated that a license agreement of a trademark can be regularly recorded even if a forfeiture action is still pending of a decision. This statement from the Colombian Trademark Office has harmonized two important rules from the Cartagena Agreement and it will probably serve as a guideline to the Andean Community.
The Cartagena Agreement is a regional Industrial Property arrangement ratified by Bolivia, Colombia, Ecuador, Peru and Venezuela. According to its Article 162 (Decision 486 of September 14, 2000) "the owner of a trademark that is registered or being filed for may license one or more parties to use the trademark in question. Any license that is granted for use of a trademark shall be registered with the competent national office. Failure to register shall render the license invalid with respect to third parties." In another Chapter, Decision 486 foresees that "the competent national office shall, at the request of an interested party, cancel a trademark registration after an uninterrupted period of non-use in any Member Country, without valid reasons, by the owner, a licensee, or another person authorized by the owner, of at least three years immediately before the start of the cancellation proceeding." (Article 165).
The problem raised by the Trademark Office in Colombia was directly related to situations in which the license agreement was not duly recorded and the trademark was suffering an attack by a third-party based on non-use. If the failure to register would render the license invalid with respect to third parties, how was possible to the trademark owner to use the non-recorded trademark license agreement as an evidence in a forfeiture action?
The statement of May 31st, 2004 from the Trademark Office of Colombia has solved this problem. According to the Trademark Office, proving the use in commerce of a trademark by the licensee is enough to avoid the cancellation of a trademark based on non-use, even if the license agreement is not duly recorded. In this situation, the trademark owner can seek the registration of the license agreement in the middle of the cancellation action and, at the same time, use it as evidence in a forfeiture procedure.
In short, the Colombian Trademark Office stated that the recording of a license agreement can be effected before or after the filing of a forfeiture action or, in other sense, the registration of a license agreement is not an issue when the owner of the trademark is defending the use of it, despite the ruling of the above cited Article 162 of the Cartagena Agreement (failure to register shall render the license invalid with respect to third parties).
However, the Trademark Office has also informed that the mere exhibition of the license agreement in a forfeiture action is not enough to avoid the cancellation of the trademark. Although it is a strong piece of evidence, the trademark owner is still obliged to demonstrate the use of the trademark in commerce by him or by his licensee in order to prevent the cancellation of his trademark.
This statement will probably be followed by the other Trademark Offices from the remaining Member Countries of the Andean Community.
Originally Published in Licensing Update, 2006, Aspen Publishers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.