The tax administration of the State of São Paulo issued guidance—CAT 4/2017—providing that ICMS* will be due with respect to transactions of standard software, programs, applications, electronic files, and electronic games, even if they can be adapted, and without regard as to how the software or files are marketed.
*Imposto sobre Circulação de Mercadorias e Serviços (ICMS) is a state-level sales tax imposed on the physical movement of merchandise. The ICMS is also levied on certain inter-state and inter-municipal services.
According to Coordenadoria da Administração Tributária (CAT) 4/2017, mass-produced electronic software or software programs are subject to ICMS—regardless how the software is transferred and sold to customers. Thus, imposition of ICMS would focus on the sale of software, whether physically distributed, downloaded, transmitted, accessed through the "cloud" or otherwise transferred.
Subsequently, the National Council of Treasury Policy (Conselho Nacional de Política Fazendária—CONFAZ) concluded Convênio ICMS 106/2017 that, among other measures, regulates ICMS collection procedures for transactions involving digital goods and merchandise traded via electronic data transfer. In general, Convênio ICMS 106/2017 provides the following rules:
These measures under Convênio ICMS 106/2017 will be effective 1 April 2018.
Previously, there was uncertainty as to whether transactions involving electronic transfers of software (that is, those made by means of a download or streaming) would be subject to the service tax (Imposto sobre Serviços—ISS) at the municipal level or would be subject to ICMS, at the state level. Taxpayers generally took the postion that they were not required to impose or collect tax on software programs being made available electronically by means of a download (that is, without physical transfer or movement of the product).
Both CAT 4/2017 and Convênio ICMS 106/2017 reflect a change in tax policy for companies involved in transfers of software, electronic programs, and similar applications in Brazil.
Read an October 2017 report (Portuguese) prepared by the KPMG member firm in Brazil
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