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