Last year, the the 8th Fiscal Region Office of the Federal Revenue Service of São Paulo was inquired about the nature of the taxes – if any – that would be levied upon the download of movies. The entity which made the consultation has not been disclosed by the Federal Revenue Service but it seems fairly clear it must have been a big name on the download/streaming of movies via the internet or someone connected to this big name.
In any event, this consultation resulted, by the end of last year, in the issuance of Ruling No. 421, in which it was considered that the Import Tax shall be levied on the purchase of digital movies that are downloaded from a foreign server.
This understanding resulted from the interpretation of Article 81 of Decree No. 6759 of 2009 (Customs Regulations), which provides that, differently from physical media containing music, shows or movies, the Import Tax levied on the importation of software is to be calculated on the customs value of the physical media only.
However, it seems to us that the taxation of movies imported by electronic means should not always be considered as an imported good. For example, if the movie is available temporarily to the importer via streaming, it is clear that it is not a transfer of ownership of any physical media and the importer will pay royalties for licensing the right of use, probably on a subscription basis.
In the example above, although there is technically an importation of a movie via download, there is no levy of Import Tax and other customs taxes (IPI, ICMS, PIS-Import, COFINS-Import and IOF), but there will be levy of Withholding Income Tax, Condecine Tax, PIS-Import and COFINS-Import and IOF. Service tax (ISS) should not be levied as we believe that copyrights are not deemed to be services so that there is no legal basis for such taxation.
Therefore, on the importation of movies without the admission of physical support in Brazil, it is advisable to analyze the specific situation in order to verify the correct tax treatment to be applied and, thus, to avoid unexpected outcomes.
The full original version of Ruling No. 421 is available here.
Daniel Mariz Gudiño and Nara Regina de Souza