On 5 October 2017, the National Council of Fiscal Policy (Conselho Nacional de Política Fazendária, “CONFAZ”) issued its first regulations on the charging of State Sales Tax (“ICMS”) on transactions involving digital goods. This includes software, applications, electronic files, electronic games and similar goods. Agreement 106/2017 was ratified by all States and the Federal District on 26 October 2017.
According to the Agreement, ICMS will be paid on importations and internal sales to the final consumer, which are deemed to occur when the data is transferred to the purchaser. ICMS will be payable even if payment is made on an ongoing basis (rather than one-off purchases).
The party that controls the website or electronic platform that carries out the sale or “makes the goods available” will be deemed to be the taxpayer and may need to register with the relevant State or the Federal District – this was intentionally left to be decided by the State entitled to charge the tax. Moreover, the States will have the discretion impose the obligation to withhold the applicable ICMS on any of the following:
- the entity that offers, sells or delivers the digital good to consumers;
- the party responsible for arranging payment (such as a credit card company);
- the purchaser of the digital good if the taxpayer is not registered in the State where the party that will use the digital good is located;
- the credit or debit card company or the entity responsible for the currency exchange in the case of digital goods being imported.
Due to the existing constitutional constraints on the power of the States to tax services (other than transport and communication services), software that is provided as an actual service (“SaaS”) will likely fall outside of the scope of the Agreement and will not be affected by it.
The new rules will apply from 1 April 2018.
Contact me if you require further information.
Last modified: December 1, 2017