INTERNATIONAL TAXATION OF
GOODWILL AND INTANGIBLES
IV CONGRESSO INTERNACIONAL DE
DIREITO TRIBUTÁRIO – IBDT
RICARDO MARIZ DE OLIVEIRA
MARIZSIQUEIRA.COM.BR
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DEFINITIONS
• “GOODWILL:
A business ’ s reputation,
patronage, and other intangible assets that are
considered when appraising the business, esp.
for purchase; the ability to earn income in
excess of the income that would be expected
from the business viewed as a mere collection of
assets. Because an established business’s
trademark or servicemark is a symbol of goodwill,
trademark infringement is a form of theft of
goodwill. By the same token, when a trademark
is assigned, the goodwill that it carries is also
assigned” (Black’s Law Dictionary)
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DEFINITIONS
• “GOODWILL: An intangible asset which
represents the favorable attitude of clients
or customers of a business toward the
operation of the business; the value of a
business enterprise, above and beyond
the value of the business’ tangible assets,
which represents the enterprise ’ s
reputation with the public and its
managerial
ability”
(Gilbert
Law
Summaries – Law Dictionary)
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DEFINITIONS
• SOME DICTIONARIES DEFINE FUNDO DE
COMÉRCIO AS GOODWILL AND VICE-VERSA
• MANOEL PINHO’S PWC DICIONÁRIO DE
TERMOS DE NEGÓCIO: “ GOODWILL FUNDO
DE
COMÉRCIO;
INTANGIBLE
ASSETS, LIKE THE VALUE OF GOOD CLIENT
RELATIONS, THE HIGH REGARD IN WHICH
STAFF ARE HELD, A BUSINESS’S GOOD
REPUTATION, GOOD LOCATION, ETC.,
WHICH EXCEED THE BUSINESS’S NET
TANGIBLES ASSETS”
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DEFINITIONS
• GOODWILL = FONDS DECOMMERCE
• = AVVIAMENTO
• IN BRAZIL = FUNDO DE COMÉRCIO
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DEFINITIONS
• IN
BRAZIL,
SEVERAL
AUTHORS
CONSIDER FUNDO DE COMÉRCIO =
ESTABELECIMENTO (ESTABLISHMENT)
• BUT AN ESTABLISHMENT IS ALSO A
PLACE OF BUSINESS OR PART OF AN
ENTERPRISE (A HEADQUARTERS, A
BRANCH, A PLANT, A WAREHOUSE, ETC.)
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DEFINITIONS
• BRAZILIAN LEGAL DEFINITION
ESTABLISHMENT
• (BRAZILIAN CIVIL CODE, art.1142)
OF
• “Any complex of goods organized by an
entrepreneur or an enterprise for the
conduct of a business”
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DEFINITIONS
• ALL
MEANS
OF
PRODUCTION
(CAPITAL, WORK-FORCE, EXPERTISE)
MAKE UP AN ESTABLISHMENT
• FUNDO DE COMÉRCIO IS ONLY ONE
OF THOSE MEANS, BUT IS NOT AN
ESTABLISHMENT ITSELF
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DEFINITIONS
• HOWEVER, AN ESTABLISHMENT IS NOT
ONLY A PHYSICAL PLACE OF BUSINESS
(PART OF AN ENTERPRISE) (which is another
meaning for the same word), BUT A PLACE OF
BUSINESS IN OPERATION, A GOING
CONCERN
• GOING CONCERN: “A commercial enterprise
actively engaging in business with the
expectation of indefinite continuance” (Black’s
Law Dictionary)
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DEFINITIONS
TAX SUCCESSION
• BRAZILIAN TAX CODE (art. 133) STATES
THAT THE ACQUIRER OF A FUNDO DE
COMÉRCIO OR AN ESTABLISHMENT IS
LIABLE FOR ITS OUTSTANDING TAX DEBTS
• THUS, FOR TAX PURPOSES, A FUNDO DE
COMÉRCIO IS NOT NECESSARILY EQUAL
TO AN ESTABLISHMENT, ALTHOUGH BOTH
MAY EXIST TOGETHER AND MAY BE SOLD
TOGETHER (or separately)
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DEFINITIONS
• FUNDO DE COMÉRCIO IS A COMPLEX OF
INTANGIBLES
(e.g.,
TRADEMARKS,
PATENTS,
KNOW-HOW,
STRATEGIC
LOCATION, ETC.) WHICH ARE USED BY AN
ENTERPRISE
OR
A
PARTICULAR
ESTABLISHMENT TO EARN INCOME
• FUNDO DE COMÉRCIO IS NOT ANY OF
THOSE INTANGIBLES BUT ALL OF THEM
TAKEN AS A WHOLE AND USED FOR THE
BUSINESS’S OPERATIONAL ACTIVITIES
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DEFINITIONS
POSSIBLE TRANSACTIONS
• THUS, A FUNDO DE COMÉRCIO IS A KIND
OF COLLECTIVE GOOD IN THE MEANING OF
AN UNIVERSITAS FACTI AND ALSO AN
UNIVERSITAS JURIS
• THEREFORE, IT IS POSSIBLE TO BREAK UP
A FUNDO DE COMÉRCIO IN ORDER TO
REMOVE ITS SEVERAL COMPONENTS AND
TRANFER OR USE EACH ONE SEPARATELY
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POSSIBLE TRANSACTIONS
• ALSO, IT IS POSSIBLE TO TRANSFER
OR TO EXPLOIT A FUNDO DE
COMÉRCIO AS A WHOLE
• IT IS ALSO POSSIBLE TO SELL AN
ESTABLISHMENT WHERE THERE IS
NOT AN IDENTIFIABLE FUNDO DE
COMÉRCIO
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DEFINITIONS - ACCOUNTING
• TANGIBLE ASSETS ARE NOT PART OF
A FUNDO DE COMÉRCIO, ALTHOUGH
THEY MAY BE PART OF AN
ESTABLISHMENT
• TANGIBLE ASSETS ARE ACCOUNTED
FOR AS FIXED ASSETS (Law 6,404, art.
179-IV); A FUNDO DE COMÉRCIO AS
INTANGIBLE ASSETS (art. 179-VI)
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POSSIBLE TRANSACTIONS
• THUS, WHEN AN ESTABLISHMENT IS
SOLD IN ITS ENTIRETY IT INCLUDES
THE EXISTING TANGIBLE ASSETS AS
WELL AS ANY INTANGIBLE ASSETS
WHICH MAY FORM THE RELEVANT
FUNDO DE COMÉRCIO
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ACQUISITION OF A COMPANY
• WHEN A CONTROLLED COMPANY IS
ACQUIRED, A PREMIUM (ágio) MAY BE PAID
OR A DISCOUNT (deságio) MAY BE EARNED
(JUST
AS
WHEN
A
SUBSTANTIAL
PROPORTION OF CAPITAL IS ACQUIRED)
• SAID PREMIUM OR DISCOUNT MUST BE
ACCOUNTED FOR AS PART OF THE COST
OF ACQUISITION
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DEFINITIONS
ACQUISITION OF A COMPANY
• FOR ACCOUNTING PURPOSES, A PREMIUM OR
DISCOUNT IS THE DIFFERENCE BETWEEN THE
TOTAL COST AND THE GOODWILL
• FOR TAX PURPOSES, IT IS THE DIFFERENCE
BETWEEN THE TOTAL COST AND THE EXPECTED
FUTURE EARNINGS, OR THE MARKET VALUE OF
THE GOODS, OR THE VALUE OF THE FUNDO DE
COMÉRCIO, OR THE VALUE OF ANY INDIVIDUAL
INTANGIBLE ASSET, OR SOME OTHER ECONOMIC
JUSTIFICATION
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DEFINITIONS
• THUS, EXPECTED FUTURE EARNINGS
ARE NOT THE SAME AS FUNDO DE
COMÉRCIO
• FUNDO DE COMÉRCIO IS A MEANS TO
EARN FUTURE PROFITS, AS WELL AS
FIXED ASSETS, CAPITAL, THE WORKFORCE AND OTHER TOOLS WHICH
ARE USED TO GENERATE THOSE
EARNINGS
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DEFINITIONS
• REMEMBERING BLACK ’ S DEFINITION OF
GOODWIL: the ability to earn income in excess
of the income that would be expected from the
business viewed as a mere collection of assets
• THUS, IF FUNDO DE COMÉRCIO IS NOT THE
SAME AS GOODWILL, THEY ARE AT LEAST
SIMILAR TO EACH OTHER AS THEY BOTH
ENABLE A BUSINESS TO EARN INCOME
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JUST TO KNOW
• FOR ACCOUNTING PURPOSES, A PREMIUM IS NOT
SUBJECT TO AMORTIZATION WHILE A DISCOUNT
IS COUNTED AS INCOME FOR THAT YEAR
• FOR TAX PURPOSES, A PREMIUM IS DEDUCTIBLE
AND A DISCOUNT IS TAXED ACCORDING TO
METHODS OF AMORTIZATION (based on the income
generated or the use of the goods) ONLY IF THE
AQCUIRING COMPANY MERGES WITH THE
ACQUIRED ONE; IF NOT, THEY ARE PART OF THE
ACQUISITION COST WHEN CALCULATING CAPITAL
GAIN OR LOSS
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CAPITAL GAINS
• CAPITAL
GAIN
EARNED
BY
A
PERMANENT ESTABLISHMENT DERIVED
FROM THE TRANSFER OF INTANGIBLE
ASSETS MAY BE TAXED IN THE
COUNTRY WHERE IT IS LOCATED, OR IF
THEY ARE SOLD TOGETHER WITH THE
ESTABLISHMENT
(OECD
MODEL
CONVENTION, ART.13, § 2)
• OTHERWISE, THEY ARE TAXED ONLY IN
THE OWNER´S STATE OF RESIDENCE (§
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5)
CAPITAL GAINS
• WHEN BRAZIL HAS JURISDICTION TO TAX:
• TRANSFER OF INTANGIBLE ASSETS AND/OR
AN ESTABLISHMENT ABROAD OR IN BRAZIL
BY RESIDENTS IN BRAZIL: CAPITAL GAIN IS
TAXABLE (15% FOR INDIVIDUALS AND 34%
FOR LEGAL ENTITIES)
• THE SAME IS TRUE FOR TRANSFER OF
INTANGIBLE
ASSETS
AND/OR
AN
ESTABLISHMENT IN BRAZIL BY NONRESIDENTS (15% FOR BOTH INDIVIDUALS
AND LEGAL ENTITIES)
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CAPITAL GAINS
• TRANSFER OF INTANGIBLES EXISTING
IN BRAZIL, BY A NON-RESIDENT
INDIVIDUAL OR ENTITY, TO ANOTHER
NON-RESIDENT
• TAX DUE MUST BE PAID BY THE
RESIDENT REPRESENTATIVE OF THE
ALIENATOR
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INCOME FROM GOODWILL
• INCOME DERIVED FROM THE EXPLORATION
OF INTANGILE ASSETS BY A PERMANENT
ESTABLISHMENT MAY TAXED IN THE
COUNTRY WHERE THE ESTABLISHMENT IS
LOCATED (OCDE MODEL CONVENTION,
ART. 7)
• OTHERWISE, THEY ARE TAXABLE ONLY
IN THE OWNER´S STATE OF RESIDENCE
(ART. 21)
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INCOME FROM GOODWILL AND
INTANGIBLE ASSETS
• INCOME FOR THE LICENSE OF SOME
INTANGIBLE
ASSETS
(ROYALTIES)
IS
TAXABLE ONLY IN THE COUNTRY OF THE
OWNER’
RESIDENCE
(OCDE
MODEL
CONVENTION, ART. 12, § 1)
• WHEN THEY ARE PART OF THE INCOME OF
A PERMANENT ESTABLISHMENT, IT IS
TAXABLE ONLY IN THE COUNTRY WHERE
THE ESTABLISHMENT IS LOCATED (§ 3)
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INCOME FROM GOODWILL AND
INTANGIBLE ASSETS
• WHEN BRAZIL HAS JURISDICTION TO TAX:
• RESIDENT INDIVIDUALS - 27,5%
• RESIDENT CORPORATE TAX – 34%
• NON-RESIDENTS – 15% (POSSIBLE 10%
CIDE ADDITIONAL)
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FOREIGN TAX CREDIT
• ALWAYS GRANTED TO RESIDENT
ENTITIES
• FOR RESIDENT INDIVIDUALS, IF THE
SAME RIGHT IS GRANTED BY THE
SOURCE COUNTRY
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GOODWILL EXPENSES
• EXPENSES FROM THE USE OF GOODWILL
OWNED BY A THIRD PARTY IS NORMALLY
DEDUCTIBLE FROM THE INCOME SUBJECT
TO BRAZILIAN CORPORATE INCOME TAX
• IF PAYMENTS ARE DUE TO RELATED
PARTIES OR TAX HAVENS RESIDENTS,
ARM’S
LENGTH
TRANSACTION
OR
TRANSFER PRINCING RULES MAY APPLY
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INTANGIBLE ASSET EXPENSES
• EXPENSES FROM THE USE OF INTAGIBLE
ASSETS OWNED BY A THIRD PARTY ARE
NORMALLY DEDUCTIBLE FROM INCOME
SUBJECT TO BRAZILIAN CORPORATE
INCOME TAX
• IF PAYMENTS ARE DUE TO RELATED
PARTIES OR RESIDENTS IN TAX HAVENS,
ARM’S
LENGTH
TRANSACTION
OR
TRANSFER PRINCING RULES MAY APPLY
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INTANGIBLE ASSET EXPENSES
• EXPENSES RELATED TO PATENTS, TRADEMARKS
AND
TECHNOLOGY
TRANSFERS
MAY
BE
DEDUCTED
FROM
INCOME
SUBJECT
TO
BRAZILIAN CORPORATE INCOME TAX BUT ARE
SUBJECT TO LIMITATIONS BASED ON THE NET
REVENUE ACQUIRED THROUGH THE USE OF
THOSE INTANGIBLE ASSETS (RATES VARY
ACCORDING TO THE ESSENTIALITY OF THE
PRODUCTS SOLD, UP TO A MAXIMUM OF 5%; 1%
FOR TRADEMARKS) – PAYMENTS RELATED TO
TECHNOLOGY ARE DEDUCTIBLE ONLY DURING 5
YEARS, BUT AN EXTENSION MAY BE GRANTED
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INTANGIBLE ASSET EXPENSES
• EXPENSES
RELATED
TO
PATENTS,
TRADEMARKS,
AND
TECHNOLOGY
TRANSFERS ARE NOT SUBJECT TO ARM’S
LENGTH OR TRANSFER PRICING RULES
• PAYMENTS OF SUCH EXPENSES DUE TO
NON-RESIDENTS IN BRAZIL ARE SUBJECT
TO 15% WITHOLDING INCOME TAX AND A
10% LOCAL TAX (CIDE) DESTINED TO
FINANCE TECHNICAL INOVATION
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