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Applicable Laws:
- Law 9,609, as of February 1 9, 1 998.
Rules on the protection of intellectual property of a computer program, its commercialization in the Country, and other provisions.
- Law 9,6 1 0, as of February 1 9, 1 998.
Amends, updates and consolidates the legislation on copyrights, and other provisions.
· Law 1 0,406, as of January 1 0, 2002.
Enacts the Brazilian Civil Code.
Concept, legal nature and copyrights protection
Software in Brazil is conceptualized as being the expression of an organized set of instructions in natural or encoded language, contained within a physical support of any nature, the use of which is required by information treatment automatic machines, devices, instruments or peripherals, based on digital or analog technique, in order to make them run in a determined way and for determined purposes.(article 1 , Law 9,609).
Within the parameters set forth by that conceptualization, and as expressly provided for in article 7, item XII, of Law 9,6 1 0, and in article 2, caput, of Law 9,609, the software in Brazil is a piece of protected intellectual work, i.e., its legal nature is that of a copyright.
An important consequence derives from that fact: its developer owns the copyrights, and its property is not fully transferred, since there is a permanent link between the product and its designer. (…) its developer’s rights are inalienable, and we cannot refer to sale and purchase of software, since no tradition occurs.The commercialization of the software is restricted to a license, or to the rendering of relevant services.
Even though protected by copyright, the software has peculiar traits which led the lawmaker to provide for the non-application in relation thereto of the provisions concerned with moral rights, except for:
- The author’s right to claim parentage of the program; and
- The author’s right to oppose to unauthorized alterations, when these imply the distortion, mutilation, or another modification in the program that may harm its honor or reputation.
The software registration at the National Institute of Intellectual Property (INPI) is the author’s option, pursuant to article 3, caput, of Law 9,609, but the protection of his rights is independent from its registration, under article 2, paragraph 3, of the same Law.
The rights set forth by Law are ensured to foreigners domiciled abroad, provided that in their countries the same rights are granted to Brazilian citizens and foreigners domiciled in Brazil , pursuant to article 2, paragraph 4, of Law 9,609.
Commercialization of the software in Brazil
According to article 8 of Law 9,609, only two persons may commercialize the software in Brazil : theowner of the program rights or a third party who owns the commercialization rights. It should be noted that, due to its nature, the software in Brazil is not commercialized in its strict sense, as should always exist a license for the use of program between the owner of the commercialization rights (whether or not he is also the owner of the copyright) and the final user. The commercialization may take place either via the physical delivery of a copy of the software, or by making the program available on the Internet. Regarding the latter possibility, the owner of the commercialization rights usually operates without any dealer, selling directly to the final user. As to the material delivery, it is also possible to sell directly to the final user, but what usually takes place in commercial practice is the engagement of a lato sensu distributor, who is responsible for making the product available on the market.
Between the owner of the copyrights and the owner of the commercialization rights there is a partial transfer of author’s property rights, allowing the latter to sublicense the product in a specific territory. Between the owner of the commercialization rights and the lato sensu distributor, a service agreement is executed (the traditional agency agreement is also possible), the purpose of which is to distribute the software on the market.
It is worth pointing out the provision in article 1 0 of Law 9,609: the acts and commercialization rights license agreements related to computer programs of external origin shall determine, as to the taxes and charges payable, the responsibility for the respective payments and shall establish the compensation of the owner of the computer program rights resident or domiciled abroad.
The software taxation in Brazil
In what concerns the software taxation in Brazil , it is necessary to make a distinction that arose at the Federal Supreme Court2, as follows:
· mass or off-the-shelf software: it is the one which is mass-produced and targeted at the market as it was a good;
· personalized or customized software: it is the one made to order, due to specific reasons and following the final user’s peculiarities.
The following taxes are levied on off-the-shelf software:
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TAX
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INTERNAL OPERATIONS (WITHIN SÃO PAULO STATE )
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IMPORT OPERATIONS
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II
Import
duty
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Not applicable
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Levied on the entrance of foreign goods in the customs territory (articles 75 and 77, Decree 4,543/02)
Tax calculation basis: the value of the midia, should it be detailed in the software amount + international cargo + international insurance. Otherwise, it is levied on the total amount (midia + use license + international cargo + international insurance)
Tax rate: it varies according to the tax classifications
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IPI
Tax on manufactured products
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IPI is levied on the software withdrawal, which be produced or imported-and-sold by the company
Tax calculation basis: the value of the software (except for tax incentives)
Tax rate: it varies according to the tax classifications
Legal basis: articles 1 and 4, Decree 4,544/02 (RIPI)
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Levied on the clearance of imported goods
Tax calculation basis: customs value + international cargo + international insurance + II
Tax rate: it varies according to the tax classifications
Legal basis: articles 1 and 4, Decree 4,544/02 (RIPI)
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ICMS
Tax on distribution of goods and services
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Levied on the withdrawal of goods
Tax calculation basis: twice the amount of the IT support (midia), pursuant to article 50, Decree 45,490/00 (RICMS/SP)
Tax rate: 7%, 1 2% or 1 8%, pursuant to articles 52, 53 and 54, Decree 45,490/00 (RICMS/SP)
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Levied on the clearance of imported goods
Tax calculation basis: IT support’s customs value + international cargo + international insurance + II + IPI, pursuant to article 37, item IV, Decree 45,490/00 (RICMS/SP)
Tax rate: ICMS is calculated using the own tax in its tax calculation basis and applying tax rate according to legislation of the State where the goods will be delivered
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PIS
Contribution on employee’s profit participation program
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Levied on the software’s sales revenue
For those tax payers who calculate Income Tax within presumed profit system, the cumulative tax rate is 0,65% (levied on net income). For those tax payers who calculate Income Tax within taxable profit, the PIS tax rate imposed is 1 ,65% on the net income.(article 8, item II, Law 10,637/02)
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PIS – Import (Contribution on Employee’s Profit participation Program – Import)
Tax calculation basis: value paid, credited, handed over, used or remitted abroad (before the Income Tax retention) + ISS and the value of the own social contributions which affect the import. (article 7, Law 1 0,865/04)
Tax rate: 1 ,65% (article 8, item I, Law 10,865/04)
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COFINS
Contribution on social security financing
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Levied on the software’s sales revenue
For those tax payers who calculate Income Tax within presumed profit system, the cumulative tax rate is 3% (levied on net income). For those tax payers who calculate Income Tax within taxable profit, the PIS tax rate imposed is 7,6% on the net income.(article 8, item II, Law 1 0,637/02)
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COFINS – Import (Contribution on Social Security Financing – Import)
Tax calculation basis: value paid, credited, handed over, used or remitted abroad (before the Income Tax retention) + ISS and the value of the own social contributions which affect the import. (article 7, Law 1 0,865/04)
Tax rate: 1 ,65% (article 8, item II, Law 10,865/04)
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CIDE
Contribution on the intervention in the economic domain
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Not applicable
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Does not affect, because off-the-shelf software is considered good, and not service
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ISS
Tax on services
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Not applicable
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Not applicable
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The following taxes are levied on customized software:
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TAX
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INTERNAL OPERATIONS (WITHIN SÃO PAULO STATE )
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IMPORT OPERATIONS
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II
Import duty
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Not applicable
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Levied on the entrance of foreign goods in the customs territory (articles 75 and 77, Decree 4,543/02)
Tax calculation basis: the value of the midia, should it be detailed in the software amount + international cargo + international insurance. Otherwise, it is levied on the total amount (midia + use license + international cargo + international insurance)
Tax rate: it varies according to the tax classifications
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IPI
Tax on manufactured products
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IPI is levied on the software withdrawal, which be produced or imported-and-sold by the company
Tax calculation basis: the value of the software (except for tax incentives)
Tax rate: it varies according to the tax classifications
Legal basis: articles 1 and 4, Decree 4,544/02 (RIPI)
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Levied on the clearance of imported goods
Tax calculation basis: customs value + international cargo + international insurance + II
Tax rate: it varies according to the tax classifications
Legal basis: articles 1 , 4 and 35, item III, Decree 4,544/02 (RIPI)
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ICMS
Tax on distribution of goods and services
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Levied on the withdrawal of goods
Tax calculation basis: twice the amount of the IT support (midia), pursuant to Decree 5 1 ,6 1 9/07
Tax rate: 7%, 1 2% or 1 8%, pursuant to articles 52, 53 and 54, Decree 45,490/00 (RIMS/SP)
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Levied on the clearance of imported goods
Tax calculation basis: IT support’s customs value + international cargo + international insurance + II + IPI, pursuant to article 37, item IV, Decree 45,490/00 (RICMS/SP)
Tax rate: ICMS is calculated using the own tax in its tax calculation basis and applying tax rate according to legislation of the State where the goods will be delivered
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PIS
Contribution on employee’s profit participation program
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Levied on the software’s sales revenue
Tax rate: 1 ,65% (non-cumulative system)
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PIS – Import (Contribution on Employee’s Profit participation Program – Import)
Tax calculation basis: value paid, credited, handed over, used or remitted abroad (before the Income Tax retention) + ISS and the value of the own social contributions which affect the import. (article 7, Law 10,865/04)
Tax rate: 1 ,65% (article 8, item I, Law 1 0,865/04)
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COFINS
Contribution on social security financing
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COFINS is levied on net income received by IT Companies
Tax rate: 3% in the cumulative system (article 1 0, item XXV, Law 1 0,833/03)
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COFINS – Import (Contribution on Social Security Financing – Import)
Tax calculation basis: value paid, credited, handed over, used or remitted abroad (before the Income Tax retention) + ISS and the value of the own social contributions which affect the import. (article 7, Law 10,865/04)
Tax rate: 1 ,65% (article 8, item II, Law 1 0,865/04)
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CIDE
Contribution on the intervention in the economic domain
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Not applicable
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Levied on the remittance of values to abroad.
Tax rate: 1 0%, pursuant to article 2, paragraphs 2 and 4, Law 1 0, 1 68/00
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IR
Income tax
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IR levys on normal tax calculations of the company
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Retention of 1 5% at source, persuant to IN SRF 252/02 (Normative Instruction)
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ISS
Tax on services
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Levied on the software’s use license
Tax rate: it varies according to the legislation where the services renderer is located (item 1 .05, Complementary Law 11 6/03)
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Levied on the service originating from abroad or services initiated abroad and finished in Brazil , pursuant to article 1, paragraph 1 , Complementary Law 11 6/03
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The following taxes shall be levied on the remittance of royalties abroad related to customized software import operations:
- Withholding Income Tax (IRRF)
Calculation basis: total amount of royalties remitted
Tax rate: 1 5% as a rule and 25% for remittance to tax havens
- Contribution on the Intervention in the Economic Domain (CIDE)
Calculation basis: total amount of royalties paid
Tax rate: 1 0%
- Contribution on Employee’s Profit Participation Program - Import (PIS-Import) and Contribution on Social Security Financing - Import (COFINS-Import)
These taxes have been collected, but challenged in courts. There is no consolidated standpoint on the collection thereof.
- Service Tax (ISS)
The legislation of the city where the importer is located shall be observed. In São Paulo , the tax rate is 2%, pursuant to article 1 6, item II, of Law 1 3,70 1 as of December 24, 2003.
In other events, royalties payment shall not be subject to taxation, as, in the case of customized software local operations, there is no remittance and, in the case of off-the-shelf software, whether domestic or imported, the use license fee is built in the price paid to distributor, whether or not owner of commercialization rights.
PAULO ROBERTO MURRAY – LAW FIRM
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