The Taxation and New Technologies Group, of the Professional Master’s Program of FGV’s Sao Paulo Law School (Direito SP), hosted the event titled “Research in Focus – The challenges of taxation of cloud computing and new technologies” on May 2. The meeting gathered professors and researchers from Direito SP, as well as representatives from law firms, companies, civil society and public authorities, to discuss the taxation of economic events related to technological development.

The meeting kicked off legal research activities of the group, created under Direito SP’s Center for Applied Tax Law, to actively participate in discussions regarding the taxation of new technologies. The purpose of the group is to have an impact on possible legislative solutions by generating knowledge through legal research and the academic and professional expertise of its researchers, as well as by fostering debate with different partners and perspectives.

According to Tathiane Piscitelli, Direito SP professor and researcher, the issues surrounding the authority to tax digital goods and services are much more closely related to legislative changes and the dispute between states and municipalities than the actual assessment of institutions involved. According to the professor, an example is the ICMS Agreement 181, approved by CONFAZ in 2015.  The Agreement authorized 18 Brazilian states to grant a reduction of the calculation basis for transactions involving “software, programs, electronic games, applications, electronic files and similar products, standardized, including those that are or can be adapted, made available through any media, including transactions performed via electronic data transfer”.

The Sao Paulo State administration published the Decree 61.791 in January 2016, amending the current ICMS regulations and adding article 37 to the transitional provisions.  The article eliminates the mandatory application of ICMS taxes over transactions involving software, programs, applications and electronic games provided via download or streaming, “until the origin of the generating event is defined to determine the establishment responsible for the payment of such taxes”.

“With support from CONFAZ, the Sao Paulo State government considers it possible to collect ICMS taxes in transactions involving computer programs, except for electronic games, despite the clear difficulty in actually collecting this tax,” said attorney Roberto Vasconcellos, also a professor and researcher at Direito SP.

The situation became even more complex after Supplementary Law No. 157 passed in 2016, which added legal scenarios related to technological development to the list of services eligible for ISS taxation.  These include the processing, storage or hosting of data, text, images, videos, electronic pages, applications and information systems, among other formats, as well as the non-definitive provision of audio, video, image and text content via the Internet.

According to Tathiane Piscitelli and Roberto Vasconcellos, merely comparing some of the items on the ISS list with the ICMS Agreement 181 is enough to reveal a conflict of authority between the states and municipalities, when it comes to cloud transactions. According to them, all of these issues are still pending and require attention.

“The purpose of FGV Direito SP’s Taxation and New Technologies Group is to actively participate in this debate, developing research and discussing the subject with different players affected by it, in order to help devise a solution that avoids judicialization and is reasonable both from a standpoint of collection and attraction of investments and international practice,” said Tathiane Piscitelli.