CIDE: Goals and Implications

Law no. 10.168, of December 29, 2000, established the Contribution for Economic Intervention (CIDE) with the purpose of financing a program to encourage the technological development.

Such contribution incurs, in principle, on agreements regarding technology transfer, specifically the exploitation of patents, trademark use, provision of technology and technical assistance rendering.

In order to make the CIDE operational, the government issued the Provisional Measure no. 2.062-60, of November 30, 2000, which now corresponds to Provisional Measure no. 2.159-70, of August 4, 2001, increasing the withholding tax rate on outbound royalty payments from 15 to 25%.

Such percentage, however, was automatically reduced back to 15% upon the approval of Law 10.168/2000, since the same Provisional Measure established the immediate reduction of the income tax rate as from the beginning of collection of the contribution. In that sense, the foreign company would bear 15% of income tax, and the local part 10% of CIDE.

Although it is a recent theme with some controversies pending, there are several aspects in the creation of the CIDE whose constitutionality is rather doubtful. Therefore, it is possible to challenge in court the application of the CIDE and the operationalization of the credit established by subsequent reissues of the Provisional Measure, especially based on the principles of isonomy and non-retroactivity of tax rules.