Private letter ruling published on cross-border taxation of software licensing

Brazil’s federal tax authorities have issued a private letter ruling (PLR 107/2023) clarifying the taxation of outbound payments made by Brazilian end users to foreign licensors of software and related services.
The ruling clarifies that outbound payments for software licenses are considered an import of services and are subject to PIS/COFINS, which are social contributions imposed on the import of goods and services at a rate of 9.25%.
Additionally, amounts paid to foreign licensors for software licenses are characterized as royalties and subject to a 15% withholding tax rate, which increases to 25% if the foreign licensor is located in a tax haven.
Furthermore, amounts paid for services related to software maintenance that are not guaranteed under the software license are characterized as technical services and subject to a 15% withholding tax rate, which increases to 25% if the payee is located in a tax haven.
The Contribution for Intervention in the Economic Domain (CIDE) tax is not imposed on amounts paid for a software license if there is no transfer of technology (i.e., source code) but must be imposed on amounts paid for services related to software maintenance to the extent such services do not result in the renewal of the software license.
Taxpayers should carefully review transactions involving software licenses as PLR 107/2023 provides for different applications of taxes for the same type of payments.

Taxable transaction