Tax News: Federal Complementary Law #157/2016

Tax News: Federal Complementary Law #157/2016

Changes to Services Tax (ISS) legislation & Inclusion of Austrian holding companies with no substantial economic activities as privileged tax regime

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Tax News: Federal Complementary Law #157/2016

Services Tax Federal Legislation is modified to extend the levy of Services Tax to activities such as streaming and advertising and introduce other relevant changes

Although Services Tax (“ISS”) is a Municipal tax (i.e., a tax triggered at the level of Municipalities), generalguidelines are provided through Federal Complementary Law #116/2003 (“LC #116”)issued at the Federal level. LC #116 also provides for a list of services / activities that should be subject to the levy of ISS.

Federal Complementary Law #157/2016, published on December 30th, 2016 (“LC #157”), introduced changes to the rules related to the levy of ISS by modifying LC #116.

One of the most relevant changes refers to the introduction of some
services / activities in the list of services subject to ISS
, such as the following:

  • (i) Provide or make available, but not definitely transfer, audio, video, image and text through internet - i.e., streaming, respected the immunity applicable to books, newspapers and journals (subitem 1.09 of the list).
  • (ii) Inserting texts, images, drawings and other marketing and merchandise contents in any media (except books, newspapers, journals and through broadcasting services and free of charge reception of images and sounds) - i.e., advertising (subitem 17.25 of the list).
  • (iii) Development and design of computer software, including games, regardless of the characteristics, components and/or system of the hardware whereby the software would be executed, including tablets, smartphones and similar (subitem 1.04 of the list); among others.

Aiming at minimizing the impacts deriving from the “Fiscal War” between Municipalities caused by the decrease of the effective ISS rate by certain Municipalities, LC #157 defined that the minimum ISS rate should be 2%. Please note that the Federal Constitution already provided that until the enactment of a Federal Complementary Law establishing the minimum ISS rate, such rate should be 2%.

In this context, LC #157 determined that the concession of tax exemption, incentives and/or benefits by the Municipalities, which could make the ISS effective rate be lower than the minimum 2% rate, should not be allowed, except for a few types of services. The Municipalities shall have 1 (one) year as from December 30th, 2016, to change their ISS legislation and accommodate the new rule.

LC #157 is effective as of the date of its publication. Note, however, that LC #116, and now LC #157, list the type of services / activities that may be subject to ISS, but Municipal laws must necessarily be enacted in order to regulate and charge ISS in relation to such services.

Each Municipality should change its legislation to establish the levy of ISS on the new services introduced in the list of services and the charge of ISS by the Municipalities should be effective in the subsequent fiscal year and to observe a 90-day waiting period. 

Austrian Holding companies, which do not have substantial economic activities, are considered as “privileged tax regime” - Normative Instruction #1,683/2016

A couple of months ago, Austrian Holding companies had been included in the list of “privileged tax regimes” by Normative Instruction #1,658/2016, which introduced changes to Normative Instruction #1,037/2010 (art. 2) (“IN #1,037”).

Now, Normative Instruction #1,683/2016, published on December 30th, 2016 (“IN RFB #1,683”), introduced changes to Normative Instruction #1,037 to determine that only Austrian Holding companies which do not have substantial economic activities should be considered as “privileged tax regime”.

Considering that the former wording of IN #1,037 already considered as “privileged tax regimes” Dutch and Danish Holding companies that do not have substantial economic activities, it seems that the purpose of the change introduced by IN #1,683 was to align the rules applicable to Austrian Holding companies with the rules applicable to Danish and Dutch
Holding companies.

IN #1,683 is effective as of December 30th, 2016.

Click here to access the Portuguese version.

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