States decide to charge VAT on download software and applications – Digital Convergence

Ana Paula Lobo * … 01.06.2016 … Digital Convergence

2016 can be a very difficult year for cloud service providers, especially for software companies as a service (SaaS). That’s because at the end of 2015, the National Council for Financial Policy (Confaz) approved the signing of 19 secretaries of Finance, the ICMS Agreement No. 181, authorizing the collection of the tax in transactions involving software, electronic games, applications and the like, including those made available by download.

The agreement further provides that the tax burden resulting from this collection must correspond to at least 5% of the transaction value. The Agreement covers 181 states like Amazonas, Bahia, Paraná, Pernambuco, Rio de Janeiro, Rio Grande do Sul, Santa Catarina and Sao Paulo. This is not the first action of taxation for software download.

In October, the government of São Paulo published oo Decree 61,522 / 2015 to repeal Decree 51,619 / 2007, which provided specific methodology for calculating the the ICMS tax base on operations with software, forecasting that the tax would be calculated on the amount corresponding to twice the market value of their electronic form.

With the measure, came to apply to transactions involving software the general rule for calculating the ICMS tax base, according to which the tax must be calculated on the value of the transaction, which would include Software value, the value of the carrier medium and other amounts that are charged to the user of the software.

In turn, the standard of Confaz also allows states to stop demanding, all or part of the debts ICMS tax, already launched by tax assessments or not, including interest and penalties, related to transactions that occurred prior to the effective date of the agreement.

“With this, it is understood that according to Confaz, States could charge download from the ICMS in the past,” said the lawyer Maurice Barros, Gaia, Silva, Gaede & amp; Associados Advogados, told the newspaper Valor Econômico, this Tuesday, 01.06. “But whether in relation to charges retroactive or 2016 onwards, the measure can be questioned in court,” he added.

For the lawyer, it is possible to oppose the change in the judiciary because the covenant Confaz can not provide new triggering events for taxation to cover “counterparts” and “electronic data transfer” without there being a law that permits recovery. The tax expert also claims that the Complementary Law No. 116 of 2003 provides for the collection of ISS for the software and the ICMS requirement would be double taxation.

In an article to Conjur portal, Henry Lummertz, lawyer and partner office Souto Correa, also believes that this new tax’ll end up in court. . He says that there are strong legal arguments to question the intention of states to levy sales tax on transactions relating to downloading software

Especially, says in the article, because the assumptions on which it is based this claim – the qualifying intangibles as “goods” and identifying transactions that involve only the use of transfer as “outstanding” – lead to a disruption of sharing of tax powers defined by the Constitution, in that they would bring to the scope of the various ICMS operations included in the tax jurisdiction of other federal entities, rendering rise countless conflicts.