Tax News: ICMS - Download e Streaming - KPMG | BR
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Tax News: ICMS - Download e Streaming

Tax News: ICMS - Download e Streaming

ICMS due one "off-the-shelf" software made available by electronic transfer (including download or streaming)


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Tax News: ICMS - Download e Streaming

Decision CAT 4/2017 and ICMS Agreement 106/2017

The São Paulo State Tax Authorities have issued a formal decision (“Decisão CAT 4/2017”) which states that ICMS is due on mass-produced software, apps, electronic programs, etc., irrespective of how they are distributed or accessed. Subsequently, the State Tax Authorities of most of the Brazilian States issued ICMS Agreement 106/2017 (“Convênio ICMS 106/2017”) regulating the payment of ICMS on the referred digital purchases.

Previously, there has been some uncertainty as to whether transactions involving software / electronic programs (and made available through download or streaming) should be taxed by Municipal Services Tax (ISS) or State VAT (ICMS). Taking into account the potential different types of software / electronic programs, the jurisprudence has decided that:

  1. ISS should be due on software / electronic programs developed under a specific customer request (i.e., “personalized and/or customized programs to the customer”), due to its service nature; and
  2. ICMS should be due on software / electronic programs that are mass-produced and sold on a large scale without being tailored to a specific customer (i.e., “off-the-shelf programs”), due to its commercial nature.

Decision CAT 4/2017

We note that the view formed in Decision CAT 4/2017 states that mass-produced software / electronic programs should be subject to ICMS taxation irrespective of the form of their commercialization to customers. This means that ICMS should be triggered on the commercial sale of software / electronic programs whether distributed physically, downloaded, streamed, accessed through the “cloud” or any other type of electronic marketplace.

The decision also clarifies that (i) the taxable basis for the calculation of ICMS should be reduced (with the exception of electronic games) to limit the tax burden to 5%; and (ii) ICMS should not be charged on this type of transaction until it is clear where the ICMS triggering event has occurred.

ICMS Agreement 106/2017

In ICMS Agreement (“Convênio ICMS”) 106/2017, general rules were established regarding the taxation of the referred digital merchandise (including the location of the triggering event).

The main rules are:

  • The ICMS taxpayer is the vendor;
  • The vendor should collect and return the ICMS to the State where the purchaser is located;
  • In certain circumstances the responsibility for ICMS collection may be transferred to the bank, credit card administrator or, buyer (amongst others);
  • Ancillary obligations may arise, such as the need for the vendor to register in different States where its sales are located for the purposes of ICMS collection.

The ICMS Agreement will be effective from April 1st, 2018, onwards.

Both Decision CAT 4 and ICMS Agreement 106 are relevant for companies dealing with software, electronic programs, apps, etc., in Brazil. The new position is that ICMS is triggered irrespective of whether the software / programs are commercialized physically or electronically.

Accordingly, the above-mentioned decision and agreement mark an important change and the implications for companies dealing with software, electronic programs, apps, etc., in Brazil should be considered carefully.

Click here to access the Portuguese version.

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