In a trial that took place on may, 19th, 2020, the first Chamber of the Superior Court of Justice (“STJ”) decided that the remittance of cash by foreign companies to services providers without permanent establishment in Brazil, arising from services rendered under a services agreement are not subjected to withholding tax (“WHT”).

The trial was the first one on the matter, related to a taxpayer appeal against a decision by issued by the Federal Regional Court (TRF) of the 2nd Region, which was favorable to WHT discount on payments made to the French company, for the provision of technical building and maintenance construction services for submarine cables to a Brazilian company .

In the special recourse appeal to the STJ, the taxpayer claims to be domiciled in France, a country with which Brazil signed a convention to avoid double taxation, and Article 7 of the Treaty establishes that taxation on profits should apply only in France, since the company does not have a permanent establishment in Brazil.

The taxpayer also argues that the Brazilian Federal Revenue unduly subjected to WHT gains resulting from the provision of technical services without the transfer of technology, which was not confirmed. Therefore, the payments made could not escape from the provisions of article 7 of the Treaty.

The STJ’s decision in favor of the company was unanimous, confirming the rule provided for on the Double Taxation Treaty between Brazil and France.

Our team is available to assist in this and other tax law issues. For further information please contact our Tax Team by the following e-mails: rmarques@zaslaw.com.br or zaslaw@zaslaw.com.br.