The Brazilian Federal Revenue Service recently issued Rulings 1,002/2018 and 528/2017, both disregarding consortiums formed by a Brazilian and a foreign related parties to treat them as professional services agreement. Ruling 528/2017, in particular, imposed Withholding Tax and PIS/COFINS on foreign remittances to the foreign party. CIDE contribution is also due in those circumstances, but this levy was not discussed in this case. Ruling 1,002/2018, in turn, only discussed the deduction of expenses by the local company.
In both cases, the companies concluded a consortium agreement whereby the Brazilian party was responsible for purchasing and selling goods, whilst the foreign party was in charge of administrative services and strategic duties. The result of sales was split between both companies. Although formalized as a consortium agreement, this structure materially entailed obligations comparable of a cost sharing agreement.
The consortium agreements were disregarded in both rulings because their purpose was deemed too generic and stipulated the execution of continuous activities. Conversely, consortiums by definition are formed to execute specific and temporary projects. In Ruling 528/2017, it was questioned whether the consortium should be deemed as stipulating the execution of a cost sharing arrangement or professional services. The latter interpretation was favored in accordance with the more recent rulings on international cost sharing agreements.
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