On 2 October 2019, the Brazilian tax authorities released a private ruling PLR 276/2019 on tax treatment of cross-border cost sharing arrangements. The ruling provides a consultation solution that was requested by an entity whose direct parent company is located in the Netherlands and whose business group is controlled by a company located in the United States, with operations in both countries. The consultation mentions that the transactions were conducted with the parties to the Brazilian company in the Netherlands and that the U.S. activities are only support activities of an administrative nature or to sustain the group’s main activity.
The tax authorities highlighted the main features of shared-cost arrangements based on discussions of Brazilian tax scholars and pointed out that such agreements aim to provide a global benefit to all stakeholders involved under a permanent structure that benefits the group as a whole. Rather than providing an isolated service, the centralized entity should receive payments from group members in a cost sharing agreement to cover the cost incurred by such entity to provide such support activities without any mark up.

After analyzing the details of the contracts and documentation submitted by the taxpayer, tax authority stated that there was no cost sharing arrangement rather was a service agreement. As a result, remittances to the foreign headquarter company would be subject to taxation applicable to service arrangements including withholding tax, Contribution for the Intervention in the Economic Domain (CIDE), federal social contributions on gross income (PIS and COFINS), tax on services (ISS) and financial transactions tax (IOF).