Note on the obsolescence of the taxation of technology transfer in Brazil

Abstract

Brazilian law governing the tax deductibility of technology transfer and of intellectual property rights licensing dates back to the 1950s and is outdated. The note reconstructs the powers of the INPI since Law No. 5,648/70, the practice of recordal of contracts up to 2017, and the criteria limiting royalties according to whether or not there is a corporate relationship between the parties, taking as its axis Ordinance MF No. 436/1958, which sets the maximum deduction rates and remains in force with its original wording, amended only in 1959, 1970 and 1994 to include new technological items. It addresses the difficulty of fitting technologies that emerged after 1958 into that list, the inducing effects of differentiated rates on the allocation of investment, the 1% ceiling for royalties from trademark licensing, and the scope of INPI Normative Instruction No. 70/2017, which transferred to the Federal Revenue Service the control formerly exercised by the agency. The text points out the inefficiencies and dysfunctions of the system and calls for a review of the current rules.