by Marina Ines Fuzita Karakanian
January 01, 2002
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As of January 1, 2002, the Contribution for Intervention in the Economic Domain (CIDE) became payable by companies that enter into technical service, administrative assistance and other similar service agreements rendered by residents or persons domiciled abroad.
The new provision added to article 2 of the Law which created CIDE (Law 10.168, of Dec. 29, 2000 – regulated by Decree 3.949/2001) came from the enactment of the recent Law 10.332, of Dec. 19, 2001, articles 6 to 8.
Upon the application of CIDE at a 10% rate on payments for administrative assistance and similar services, the withholding income tax was reduced to 15% as of January 1, 2002 (new article 2-A, of Law 10.168/2000, introduced by article 7 of Law 10.332/2001).
In view of the above-mentioned change, it is possible to conclude that, as from 2002, CIDE will also be incured on services rendered without technology transfer, contracts for which do not need recordal by the INPI (Brazilian Patent and Trademark Office) or registration at the Brazilian Central Bank (Bacen), contrary to what the sole paragraph of article 8 of the Decree 3.949/2001 previously stated.
Moreover, Law 10.332 established, as already foreseen in article 3 of the Provisional Measure 2159-70, of August 24, 2001, that CIDE became due for payment also by companies that remit "royalties, under any title" to beneficiaries who are resident or domiciled abroad. On these amounts, the withholding income tax applied is also 15%.
Concerning this change, we may assume that CIDE will be levied now on software licenses (the Federal Income Tax Office has already issued a decision addressing this matter – Decision 200, of July 30, 2001) and even on copyrights.
Despite the above comments, CIDE’s constitutionality is still debatable. From this evident intention of the Brazilian Government to extend the scope of the application of CIDE, different interpretations will be raised which can be the object of consultation at the Federal Income Tax Office, as well as a new decree that may be enacted to regulate Law 10.332/2001.