2012 case analysed by government body may change taxation rules and impact gaming prices in the country
A recent decision by the Administration Council of Tax Appeals (Carf) may cause a cascading effect and further increase the price of games in Brazil. The case focuses on a readjustment in the taxation of imported software that, in addition to programs, should also include games in this "package".
The verdict was rendered by the 1st Panel of the 2nd Chamber of Carf's 3rd Section on October 27 of last year, but its publication only occurred on October 18 of last month. Although the decision is valid only for a specific case - for now -, it sets a precedent so that other cases may fall under this same understanding.
As this is a highly technical and still evolving topic, TecMasters took a deep dive into this case and talked to experts so you can understand how this episode can make your games more expensive in the future.
Understanding the case
Before speaking about the process in question, it is important to understand some important points. The first of these is that item 25 of article 10 of Law No. 10833 of 2003 establishes that computer service companies linked to software development, licensing or assignment of rights of use are subject to the cumulative regime.
In practice, the cumulative regime is nothing more than a lower 3.65% taxation of PIS and Cofins. The problem is that one of the paragraphs of this law mentions that the clause does not cover "the commercialization, licensing or assignment of the right to use imported software".
Although complex and a little confusing, the paragraph opens room for interpretation so that software imported and sold in Brazil may be taxed under the non-cumulative regime, almost three times higher - with a rate of 9.25%. This is where the case regarding Carf's decision comes in.
SoftwareONE, a Microsoft partner in Brazil that licenses corporate products from big tech, was fined by the IRS in 2012. This was because the agency understood that the company was selling "imported software" in the country and, because of this, should be taxed under the non-cumulative regime.
The company even appealed the decision, taking the case to Carf. But the verdict (five votes in favor and three against) denied the appeal and established that the rate to be taxed is 9.25%. This means that, from now on, Carf understands that imported software such as Microsoft 365 or Azure, for example, should be taxed at a higher rate.
And what does this decision have to do with games?
All, since it is not only computer programs developed abroad that can be impacted. We must remember that, since 2017, games started to be taxed as software here in Brazil. Soon, as most titles come "from abroad", it is quite possible that the video game industry will also be impacted with the decision.
And that would mean bad news for the regional scene. Data collected by Pesquisa Game Brasil 2021 revealed that Brazilians are the ones who pay the most for games in the world. As if the high dollar and the country's complex tax burden were not enough, the new Carf decision could make games even more expensive.
"Blame" the digital economy
Some may be wondering, "But if the law is from 2003, why has there been an attention only now?". Yes, the legislation is from almost 20 years ago, and the notice to the contract between SoftwareONE and Microsoft is not recent either. Still, there are some explanations behind all this.
To TecMasters, Marcelo Mattoso Ferreira, partner of the law firm Barcellos e Tucunduva Advogados and active in the Games and Esports market, explained that the discussion about imported products came up again because of the new commercial format that replaced physical products by digital ones.
"The term import is provided for in the law, but it is much more closely tied to the customs legislation of physical products. This is because the law was created at a time when the global economy was based on physical products. With technological advances, several problems were created in the tax area to fit the new legal relations into the old law," explained the lawyer.
In short, Brazilian law has not adapted to the new digital product models. An update of the legislation could even solve the problem, but it usually takes years. In other words, Carf's administrative decision comes to solve this more immediately and make the country collect more taxes.
The delay in the decision can be attributed to the inefficiency of the public machine, according to Mattoso. Carf is responsible for millions of processes and, with the constant changes of team, it takes extra time to understand all the pending issues, resulting in delays in the resolution of cases from years ago. "It may be that in a month another case will come from a 2013 assessment," he said.
Impacts on the Brazilian market
Although the decision is valid specifically for the case involving SoftwareONE, it sets precedence for the agency to adopt similar measures in other cases. With this, the fear of companies in the segment grows, as they may get on the radar of the IRS, even if they were not being mapped.
"From the moment this decision was taken, the IRS itself feels comfortable to fine more or inspect more incisively. For now, the decision is only valid for the specific case of SoftwareONE and Microsoft - since it is not binding. However, this new understanding of the agency may be replicated for other cases that are pending trial also in this same sense. And this generates a fear for the market, because there are many companies with lawsuits on the matter," pointed out the lawyer.
The problem is that this may undermine the technological segment in Brazil. Not counting the software that have become essential in times of home office, the gaming market in the country tupiniquim has grown fervently in recent years. And with the increase in taxation, who will end up "paying the bill" will be consumers.
"Whenever there is a change in the tax burden of any sector special attention is needed, as you can encourage the sector to grow or end up destroying it," Mattoso said.
Because of this, the lawyer sees two possible scenarios:
- In the former, software and gaming companies may migrate to other markets, since changes in local taxation may make operations unviable. As a consequence, Brazil would see a slowdown in the segment.
- Another possible hypothesis - still under the scenario of the IRS start to fine other companies - is that gamers have to "give up" the releases. Products such as gasoline or food can even go up in price, but do not leave the budget of the Brazilians - very different cases of games.
And now what?
No, the decision does not become effective immediately. Mattoso points out that the decision occurred in the lower chamber of Carf and the companies involved can take the case to the higher chamber - still in the administrative sphere. If the appeal is again denied, they must file a lawsuit in court.
This means that the process may take a long time before, in fact, being resolved. In any case, imported software and game companies will certainly follow the case closely, hoping that the tax increase does not materialize in practice.
Source: TecMaster