A Private Ruling 5/2017 (Solução de Consulta 5/2017) has been published in the Official Gazette on 18th January 2016. This ruling confirms that payments made by Brazilian sources to individual or companies resident in Canada for technical services provided, whether with or without the transfer of technology being incorporated, is subject to 15% withholding tax (WHT) rate in Brazil. The Brazilian tax authorities currently identify that payments made by Brazilian sources to foreign payees for providing services or technical assistance, whether or not involving in the technology transfer, are subject to the application of tax treaties established by Brazil, as follows:
- payments are covered by the royalty article if the corresponding protocol founds that technical services and technical assistance are subject to the same tax treatment as royalties;
- payments are enclosed by the articles that deal with independent professional services and independent workers if technical services or technical assistance include technical skills of a person or group of persons, given that the corresponding tax treaty allows taxation in Brazil, and except where item (i) above applies;
- payments drop within the scope of the article on business profits, except where item (i) or (ii) above applies.
In accordance with the protocol to Income Tax Treaty between Canada and Brazil, payments made for the provision of technical services and technical assistance are characterized as royalties and it is subject to 15% withholding tax rate.
