Decision of the São Paulo Federal Justice benefits foreign company supplier of non-technical services in Brazil.
(Paulo Antônio Machado da Silva Filho)
The Federal Regional Tribunal of the 3rd Region has recently rendered a decision that benefits companies supplying non-technical services in the Brazilian territory, when the company’s head office is located in a country that has executed with Brazil a treaty to avoid double taxation.
Frequently, the Brazilian Federal Revenue understands that the profits obtained in the Brazilian territory by services’ suppliers situated abroad should suffer retention of 15% to 25% as income tax (the percentage varying according to the technical or non-technical nature of the service). This interpretation would set aside the application of the article regulating the company’s profits, included in treaties to avoid double taxation, over burdening service suppliers’ companies.
Analyzing a case where a tourism company located in a country that has ratified a treaty to avoid double taxation of income with Brazil, this company supplying non-technical services in the Brazilian territory, the Federal Regional Tribunal of the 3rd Region considered that the income resulting from these services should be considered as profits and, therefore, not taxable in the Brazilian territory, due to the existence of the international treaty.
In this particular case, the tribunal’s decision, which still may be overturned by superior courts, creates a precedent in the sense that the provision of the international treaty related to company’s profits is applicable to incomes arising out of the rendering of services by foreign companies in the Brazilian territory, at least with respect to non-technical services.