Contributed By Junqueira Ie Advogados
As a general rule, business is conducted in Brazil through the use of corporate forms. Even though some types of obligations can be imposed on an economic group level, such as labour obligations, and even though piercing the corporate veil is possible under specific circumstances (such as cases of fraudulent management or failure to comply with legal obligations), corporate structures more often than not offer some degree of protection to investors and are widely viewed as the better way to structure and operate businesses in Brazil.
Corporate entities in Brazil mostly make use of one of two corporate structures:
The vast majority of companies in Brazil adopt the form of a limited liability company as it is the structure subject to the least amount of regulation and bureaucracy between the two. Corporations are usually incorporated in cases where the stock owners desire to have more privacy or when the company wishes to go public in the Brazilian stock markets.
Lately, individual entrepreneur companies (EIRELI) have also been increasingly popular; however, apart from some benefits, they are subject to the general rules applicable to limited liability companies.
Each Brazilian corporation is individually taxed; however, at least until 2021, dividends are exempt from taxation.
Investment activity, on the other hand, commonly takes place through the use of Brazilian investment funds, which are jointly owned portfolios of assets, usually not subject to taxes on the portfolio level but rather on distributions.
In Brazil, there are no entities that are transparent from a tax viewpoint. It may be possible to form a consortium in order for two or more companies of different economic groups to undertake together a specific project or business usually limited in time. The consortium is not a legal entity and is transparent from a tax perspective, in the sense that each party to the consortium taxes its stake in the consortium separately. The consortium is, however, a joint venture that can enter into transactions with third parties, as represented by its administrator.
Usually, the residence of incorporated businesses and transparent entities is that of its headquarters (head office) or branch, which should be informed under the corporate constitution documents/acts (eg, the by-laws or the articles of incorporation), as well as upon registration on the taxpayers national registry (Cadastro Nacional de Pessoas Jurídicas, or CNPJ). Moreover, in what pertains to investment funds, their residency is tied to the location in which the fund’s administrator resides.
There are various taxes and contributions applicable to incorporated businesses and individuals alike that can vary according to the activities performed and the markets/businesses developed by each person.
In general, the most relevant tax difference between an individual operating through the use of a company and operating directly relates to the “direct” taxation, which encompasses taxes levied on income and revenues. In this regard, please find below the general tax rates applicable to each case.
In addition to such taxes, there are other production or consumption taxes that may apply to both companies and individuals who are in a trade or business that is typically subject to such taxes, which are:
It should be briefly noted that the CSLL taxation on general financial institutions and banks has been temporarily increased from 15% and 20% to 20% and 25% respectively. This increase takes effect as of July 2021 and should last until January 2022. The authors' comments herein are made in consideration of these new and increased tax rates; however, these rates should be reversed back to normalcy by the turn of the year.
Corporate income tax is levied under one of three tax regimes: actual profit, presumed profit and arbitrated profit.
Actual Profit Regime
The actual profit regime, which is mandatory to some specified taxpayers (such as high-income companies, financial institutions and entities with revenue/investments abroad), adopts for income tax purposes the accounting profits as its tax basis, with some adjustments (inclusions and deductions) provided by law.
The most relevant/substantial adjustments for actual profit income tax purposes are usually:
The specific additions and exclusions to the actual profit tax basis calculation are generally described under the Brazilian tax authorities’ Normative Instruction No 1.700/2017.
Under the actual profit regime, profits are taxed on an accrual basis.
Presumed or Deemed Profit regime
As an alternative to the actual basis regime, the presumed basis regime offers taxpayers a simpler tax calculation system by taxing a statutory percentage of the total gross revenues, varying from 8% to 32% depending on the type of activity and respective revenue.
Companies subject to the presumed profit regime can be taxed on either the accrual or receipts (cash) basis.
Arbitrated Profit Regime
When the accounting books of a company are unreliable, unsubstantiated or lost, the Brazilian tax authorities are allowed to estimate/arbiter the income tax basis for the taxpayer. This is usually a last resort and is mostly deemed excessively burdensome to taxpayers. The most common way to arbitrate profit is to apply an increased percentage over gross revenues but if it is not possible to determine the gross revenue, then other methods apply.
Brazilian legislation allows for the deduction of expenses incurred with R&D and with patent registration from the income tax basis under the actual income regime. Moreover, in addition to such deduction, an additional 60% through to 80% of expenses with R&D, and another 20% of the expenses with patents/registration, can be further reduced from the income tax basis, effectively allowing for a super deduction that can reach 200% of expenses incurred.
Additionally, for the purposes of income tax calculation, Brazilian legislation allows for the accelerated depreciation of assets acquired and employed for the development of technology, as well as accelerated amortisation of expenses incurred in connection with intangible assets related to R&D.
There are also IPI tax reductions (excise tax) on:
There are limitations and requirements for the utilisation of such incentives, which should be analysed on a case-by-case basis.
There are many tax incentives for the development of businesses in some less developed areas of Brazil, such as in the Amazon Region (SUDAM) and in the Northeast Region of Brazil (SUDENE). Such benefits can include special income tax deductions of expenses incurred in business development and lowered tax rates.
Another notable incentive is the Manaus Free Trade Zone (Zona Franca de Manaus), which provides further reduction for both federal and state taxes arising from the development of business and industrial activity relating to the importation, production and sale of goods, to and from the Manaus region.
There are further income tax incentives (as deduction of expenses) regarding company investments in sports projects, cultural projects and on the catering of employees.
Brazil also provides benefits for the financing of export transactions, which includes a withholding income tax exemption on interest paid abroad on credits obtained in connection with export financing (direct and/or indirect). Other financing incentives are also provided regarding infrastructure investments and capital expenditures by companies, especially in what pertains to financing through debentures.
There are limitations and requirements for the enjoyment of these incentives, which should be analysed on a case-by-case basis.
Losses can be carried forward for compensation/offset in future fiscal years. There is no statute of limitations on losses incurred in prior fiscal years; however, the compensation is limited to 30% of the income tax for any year with positive results. If a company changes simultaneously its control and its main corporate activity, it loses the right to offset profits.
Under the actual profit taxation basis, expenses will only be deductible if they are considered to be usual and necessary for the development of the corporate business. Interest can be deductible if it observes these criteria.
There are thin capitalisation rules, however, that prevent the deduction of interest paid to related parties observing some “invested capital vs indebtedness” threshold rules. For local transactions, there is a general arm's-length principle whereby interests paid to partners and their related parties in excess of an arm's-length rate can be considered deemed distributions of profits and therefore not tax deductible.
There are no rules for consolidating profits and expenses.
At the corporate level, capital gains are included in the income tax basis and are subject to a 34% tax rate, which can go up to a 45% rate for general financial institutions and 50% for banks.
For companies, in general, the most relevant “indirect” taxes, which are levied upon business transactions, and their corresponding tax rates (not including outliers and exemptions) are as follows:
Other notable taxes applicable to business in Brazil are the following:
Businesses in Brazil mostly operate through corporate form, which are more commonly structured as corporations, limited liability companies or individual entrepreneur companies.
There are no specific rules against individual persons incorporating companies through which to carry out their professions. There is, however, a general anti-avoidance rule that prevents the abuse of legal forms for tax purposes alone. Analysis should be done on a case-by-case basis.
There are no rules to prevent closely held corporations from accumulating earnings for investment purposes.
In 2021, for the purposes of the share/quotaholder, dividends are exempt from taxation in Brazil. Dividends paid, on the other hand, are non-deductible from the corporate income taxation, except for interest on equity (JCP), which is a deduction in the actual basis corporate income tax computation (generally up to 34%) and taxed at source at 15% when paid to the individual shareholder or quotaholder.
Sales of shares and quotas are taxed at the holder’s level as capital gains, whereas the tax rate can vary according to the capital gain amount and the person who is selling the assets.
Individuals are subject to progressive capital gain tax rates of 15% to 22.5%.
Gains arising from the sale of publicly traded shares will be subject to:
Interests and royalties are subject to 15% withholding income tax when the beneficiary is not resident in a low-tax jurisdiction or 25% when the beneficiary is resident in a low-tax jurisdiction. Dividends are tax exempt (at least in 2021). Interests on export financing are tax exempt. Interests paid to beneficiaries not resident in low-tax jurisdictions under certain debentures, real estate certificates and funds whose proceeds are used to invest in capital expenditures debentures are also tax exempt.
Even though Brazil has several tax treaties, the authors do not see any particular tax treaty that provides significant benefits to investors in equity of Brazilian companies. The Brazil and Japan tax treaty reduces the withholding income tax to 12.5%, which extends to branches of Japanese companies located in other countries. Some treaties provide for tax sparing or tax matching on interests received by non-residents. Bearing this in mind, the most common jurisdictions used as holding companies or financial centres to invest in Brazil are Luxembourg, the Netherlands, Spain, Austria, South Korea and Japan.
Discussions around substance on the use of treaty jurisdictions are more related to Brazilian outbound investments or to remittance of services paid to treaty jurisdictions when the parties challenge the levy of withholding income tax based on the allegation that Brazil should not tax a treaty company's main profits. Other than that, it is very difficult for treaties to provide tax benefits in Brazil and therefore for Brazil to challenge treaty application based on substance aspects, even though general anti-tax avoidance rules may apply – for treaty provisions and benefits to be duly applied in any given relationship it is important for a treaty counterparty to be formally incorporated in a treaty country and also to have substance in such country while dealing with Brazil.
Brazil has statutory transfer pricing methods that differ from the OECD arm's-length principle and in most circumstances, it may be a challenge to make Brazilian statutory limits compatible with global OECD-based transfer pricing models. Most businesses operating in Brazil have to find ways to meet both standards. In Brazil, the most common methods are, for services, cost plus, for the sale of goods, acquisition plus margin or resale less margin methods and there are specific methods that need to be observed for the purchase or sale of commodities. Interest rates are also subject to statutory rates and spreads for transfer pricing purposes. Transfer pricing applies not only to related-party transactions but also to transactions entered into with parties located in low-tax jurisdictions or with parties subject to special and lowered tax regimes.
Brazil does not adopt OECD standards. The Brazilian company will have to comply with the same statutory margins regardless of its level of risk, capital or added value in the overall business operations.
Brazil has specific statutory margins that have to be observed for transfer pricing regardless of the arm's-length principle. For instance, in the case of imported goods or services, the following methods may be theoretically available:
In the case of exported goods or services, the following methods may be theoretically available:
The criteria to adopt and prove the compared independent prices is so restrictive that they are very difficult to meet.
There are some safe harbours available and if the company can meet them, it is excepted from having to prove that the prices it adopted meet one of the criteria; however, it continues to have to explain the prices adopted and how they can be considered arm's length.
It is not common at all for Brazil to resolve transfer pricing disputes under double tax treaties and mutual agreement procedures (MAPs) since Brazil does not adopt OECD standards for transfer pricing.
When a Brazilian company is held liable to make transfer pricing adjustments to its tax computations and such adjustments involve a subsidiary or controlled company subject to controlled foreign corporation (CFC) taxation, then the Brazilian company is entitled to make such adjustment on the overall tax effect and not on the transfer pricing adjustment isolated from CFC taxation. The settlement of taxes in Brazil arising from transfer pricing adjustments may trigger tax expenses, interests for past due taxes and penalties expenses. Such expenses may be tax deductible when the taxes are PIS/COFINS and to the extent of the principal and interests amounts. There is a claim to deduct interests for past due corporate income taxes as well. The principal amount of corporate income taxes as well as penalties are not tax deductible. No other adjustments are required or available for transfer pricing purposes.
MAPs are generally not applied in Brazil, since Brazil does not adopt OECD transfer pricing standards.
Local branches of non-local corporations are taxed equally as local subsidiaries of non-local corporations.
Non-residents are subject to taxes in Brazil on capital gains arising from the sale of stock in local companies. The tax basis is the difference in Brazilian reais of the sale price less the acquisition cost and the tax rates vary from 15% to 25% depending on the size of the gain and the location of the seller. However, if a non-Brazilian seller sells the stock of another non-Brazilian holding company that, for its turn, owns the stock of the Brazilian company directly, the sale is not subject to tax in Brazil.
It is important to note that the holding company shall have substance other than operating as a shelf vehicle only for the purposes of selling the Brazilian company without taxes, since this type of situation may be caught by anti-tax avoidance rules.
Treaties signed by Brazil usually allow the taxation of capital gains and the application of occasional treaty reliefs, if available, depends on very specific case-by-case analysis.
Usually a change of control in a very indirect level much higher up in the corporate chain abroad will not trigger income taxes or duties in Brazil, also because most of the time such change of control will have economic substance and is therefore not subject to anti-tax avoidance rules in Brazil.
Transfer pricing rules generally apply and the profit margin will depend on the methods applied; however, usually a cost plus 15% margin is accepted.
It is very common for Brazilian tax authorities to challenge the deductibility of payments made by Brazilian companies for management and administrative expenses incurred by non-local affiliates and allocated to Brazil. The discussions surround the proof of the expenses and its actual relationship with the Brazilian business since allocations often take place based on managerial estimates and assumptions that are not accepted as reasonable proof in Brazil. Therefore, the Brazilian tax authorities take the view that the expense is not proven to be necessary to the Brazilian operations and therefore is not tax deductible.
Additionally, the payment itself of this type of expense may be subject to severe taxes on imported services, such as income tax, PIS/COFINS, ISS and CIDE, one levying over the others, that may reach up to 50% of the value of the expense itself.
Thin capitalisation rules apply to related-party borrowing whereby the amount of the indebtedness is limited to two times the equity that the non-Brazilian lender owns in the Brazilian company or, if this is not the case, two times the total equity of the Brazilian company. This is the limit that applies to lenders not located in low-tax jurisdictions or that are not subject to privileged tax regimes. For lenders in low-tax jurisdictions or subject to privileged tax regimes, the limit is 0.3% of the equity owned in the Brazilian company or, if this is not the case, 0.3% of the total equity of the Brazilian company. Therefore, the total limit for indebtedness may reach up to 2.3% of the total equity of the Brazilian company. Excessive interests are not tax deductible.
Furthermore, interests are subject to transfer pricing statutory rates and spreads and excessive interests are also not tax deductible.
The foreign income of local companies is taxed locally; however, the taxpayer may take credit on taxes paid abroad. Income taxes at the Brazilian corporate level are subject to a general 34% rate for general companies and up to a 45% rate for general financial institutions and a 50% rate for banks.
The income taxation of companies with foreign profits is done yearly and must necessarily be done under the actual income regime.
Not only is foreign income taxable, but also transactions carried out with related parties abroad must adhere to transfer pricing rules for the corresponding expenses to be deductible in Brazil. Any such transactions need to observe prices consonant with the activity and, as a rule of thumb, should encompass the cost of services/product and a 15% mark-up. There are rules for the arbitration of due tax when transfer pricing rules are not adhered to.
Given that income arising from foreign subsidiaries is subject to taxation at the Brazilian company level annually on an accrual basis, there should be no further income tax levied on profit/dividends distribution.
There are discussions regarding some double tax treaties signed by Brazil that exempt profits distributed by foreign subsidiaries from taxation in Brazil. The discussion is whether this exemption includes all profits abroad, regardless of whether they are distributed as dividends or not, or only the dividend remittances themselves. For other treaties that do allow taxation upon remittance of dividends but prevent taxation of business profits, the discussion is on the opposite side: whether the profits are only not taxed until such time when there is a dividend distribution.
Brazilian tax authorities usually do not allow treaty benefits at all on profits obtained abroad in foreign subsidiaries since they say that the taxes in Brazil apply on the accounting profits of the Brazilian company itself computed as a reflection of the profits obtained abroad and not on the profits of the foreign company itself. There are significant tax disputes around this debatable understanding.
As a general principle, transactions with related parties abroad should adhere to the transfer pricing rules in place. Hence, the transfer of intangibles should generally be compensated through royalty payments that would be taxed accordingly. Income taxes at the Brazilian corporate level are subject to a 34% rate for general companies, a 45% rate for general financial institutions and a 50% rate for banks. Occasionally, the statutory transfer pricing methods may apply to lower the level of royalty payments or to sell out the intangible to another entity outside Brazil.
Yearly profits accrued by foreign subsidiaries and branches of Brazilian companies abroad are subject to taxation in Brazil. Profits of foreign companies will only be taxed in proportion to the Brazilian company’s participation in its capital stock.
This regime applies to both passive or active businesses and regardless of whether they are located in low-tax jurisdictions or not.
The only difference is that active businesses may be taxed on a consolidated basis offsetting profits and losses if they are not located in low-tax jurisdictions, not subject to a privileged tax regime and not subject to low effective tax. Otherwise, foreign investments are taxed on a standalone basis and losses may only be offset with gains of the same entity in future years.
Foreign tax credits may be available depending on the availability of documentary evidence and statute of limitation rules, as well as global and individual taxation limits.
There is a general anti-avoidance principle in Brazil, which requires that companies have economic substance (ie, have assets and personnel compatible with the activities performed). This principle is extended to non-local affiliates, especially those located in treaty jurisdictions, located in low-tax jurisdictions or listed as subject to privileged tax regimes (under Normative Instruction No 1.037/2010).
Capital gains incurred by Brazilian companies, locally or abroad, are subject to income taxes at a 34% rate for general companies, a 45% rate for general financial institutions and a 50% rate for banks.
In 2001, a general anti-avoidance rule was introduced in the Brazilian Tax Code that was meant to enable the Brazilian tax authorities to disregard acts and transactions carried out with the purpose of disguising the occurrence of tax-triggering events. Brazilian tax authorities have been enforcing said rules though the use of a “general anti-avoidance policy”, which is mostly supported by administrative jurisprudence.
As per the anti-avoidance policy, transactions are evaluated on a substance-over-form basis, whereas legitimate and legal structures/transactions can be disregarded by the tax authorities if the taxpayers are not able to demonstrate the existence of effective economic and legal extra-tax substance to them.
Most taxes in Brazil are self-reported, where the taxpayer is required to file the tax information and pay the ensuing taxes. As a result, tax authorities have a five-year interval to audit the taxpayer’s reports and payments.
The tax authorities release annual agendas disclosing key audit targets and annual objectives; however, there is no limitation on which persons or which matters can be audited.
There are some matters subject to closer scrutiny by the tax authorities that are frequently audited throughout the year.
In relation to Action 5 (Harmful Tax Practices and Exchange of Information) and Action 13 (Country-by-Country Reporting), Brazil signed and is enforcing the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters that allows automatic exchange of information and exchange of information amongst tax authorities upon consultation. In this regard, the Brazilian tax authorities enacted several normative rulings to set the basis to obtain and share information on country-by-country taxation, the ultimate beneficial owner database, the Common Reporting Standard and tax rulings, among others (Normative Rulings IN RFB Nos 1,634, 1,680, 1,681, 1,689). Concerning Action 14 (Dispute Resolution), the Brazilian tax authorities also issued a normative ruling to set the basis for dispute resolution related to treaty applications (IN RFB No 1,689).
Concerning Action 3 (Controlled Foreign Corporation), the Brazilian tax authorities issued a normative ruling to set the basis to analyse the economic and operational substance of legal entities (IN RFB No 1,658).
Other changes to tax legislation on hybrid instruments, such as interests on equity, have not been approved by Congress.
So far, the Brazilian tax authorities have not taken any concrete actions to make any other changes related to the BEPS task force.
The Brazilian tax authorities are participating in an OECD forum to discuss BEPS and are implementing actions related to sharing information amongst countries and tax authorities. The purpose of the Brazilian tax authorities is to protect the Brazilian tax basis and tax revenues, and implement changes to the tax legislation that allow it also to improve the mechanisms and awareness of key topics for auditing international tax matters and international groups.
International tax does not play such a significant role in Brazil as it could and international tax disputes are more related to withholding taxes and Brazilian investments abroad. Therefore, the authors expect BEPS implementation to remain slow, to the extent that it depends on Congress actions as well as on the Brazilian tax authorities giving up non-OECD-standard legislation. One point that may act as an incentive to implement BEPS is the potential wish of certain authorities in the country for the country to become part of the OECD itself, which is often the subject of speculation.
Unfortunately, competitive tax policy has not been part of the agenda of the Federal Revenue of Brazil so far.
In response to BEPS, for some time now the Brazilian tax authorities have been willing to void the interest on equity tax benefit. Interest on equity was created during the 1990s to allow the application of a long-term interest rate on invested equity, the distribution of which would be tax deductible from the corporate profits (at 34% to 50%) but would be treated as income by the beneficiary and thus be subject to withholding taxation (at 15% to 25%). This tax treatment differs from dividends, which are not tax deductible but are also tax exempt to the beneficiary. The objective of the interest on equity was to, in a way, replace the inflationary adjustment that used to exist until that time and that would allow an inflationary allowance on net fixed assets.
Because of BEPS, the authorities wish now to pierce and void the interest on equity deduction while submitting all profit distributions, including the dividends, to taxation at source, probably at 15%, and as a taxable earning to the beneficiary.
One hybrid instrument in general available based on Brazilian local legislation only is the interest on equity and the authors believe it is likely to be disallowed in the near future.
Another hybrid instrument may be preferred shares, which are treated as equity for tax purposes and generate exempt dividends, but from an accounting and economic perspective, may sometimes be treated as debt. In 2014, the tax law confirmed their nature as equity and therefore the authors do not expect changes in this regard.
Brazil has a worldwide tax regime and there is no territorial tax regime available to opt out of the worldwide tax regime. Brazil has thin capitalisation rules as well as transfer pricing rules that apply to interest deductions. Interest is also subject to the general rule, according to which, expenses are only deductible if necessary to the corporate business. The authors expect these principles to continue to apply and they do not expect a lot of changes in this area of the law.
Brazil is a high-tax jurisdiction and the decision to fund the Brazilian operations with debt or equity needs to take place at the very beginning of the operations, since a change from equity to debt in the middle may be subject to discussions around substance over form and deductibility of interests. This continues to be the key point for people investing in Brazil. For people investing from Brazil, the very aggressive taxation of profits abroad continues to be the key point and ways to optimise the use of foreign subsidiaries to be more competitive in the trading of products, outsourcing of services, placement of intellectual property and payment of royalties.
Not applicable to Brazil.
For some time now, Brazilian authorities have disallowed treaty benefits for investments of Brazilian companies abroad. The authors expect that the rules around substance will help Brazilian companies to win disputes where there is adequate substance in treaty jurisdictions and BEPS guidelines are generally observed. For inbound investments, the authors do not expect such rules to have a significant impact on investors or Brazilian companies.
Brazil does not follow OECD standards on transfer pricing and the authors do not expect such changes to impact local rules.
The authors understand that the OECD has made an effort to improve transparency on tax matters with country-by-country reporting and it is a start. On one hand, it may help companies and tax authorities to have a very broad and general view on the split of profits and operational efforts amongst jurisdictions. The authors understand that this is creating in global groups a greater awareness among senior management of the importance to have substance and look good in addition to do good.
However, the statistics are still very superficial, and the insights may not be conclusive, may not point in the right direction and may work better for some sectors and activities rather than others. Therefore, a significant open issue is the way the tool will be adopted by each country, the impact that it will actually have on tax auditing activities and on past practices still not subject to the statute of limitation, and therefore on the type of tax challenges that it may give rise to.
The authors are very optimistic about the use of this type of tool to improve transparency and to create an incentive for a more sustainable, fair and reasonable economic and tax competitive environment. The countries and tax authorities should, however, use the new tool to improve legal stability and safety rather than the opposite. Instead of giving rise to bilateral tax disputes, the tool should be used to improve international negotiation among countries, internal tax instructions, rulings and laws in local jurisdictions.
Recently, there has been no tax legislation on digital economy businesses operating outside Brazil but with customers in Brazil, even though the authors see this type of business growing a lot and representing a significant portion of the digital market.
The authors understand, on the other hand, that Brazil has several protective tax and regulatory rules in place that limit the competitiveness or scope of businesses operating from abroad and that at some point they tend to create local operations or have local partners joining their operations. Some examples are the limitations imposed on the use of credit or debit cards to pay international purchases. These purchases are subject to 6.38% IOF tax and have to be paid in non-Brazilian currency with significantly high foreign currency conversion rates. Most customers acknowledging this may prefer to purchase from sites that offer local payment methods.
Another example is the high import taxes that apply to the importation of goods and services, which may reach 50% to 150% of the value of the purchase.
One alternative would be to pay with bitcoin; however, the purchase of digital currency may also be subject to taxes, on the one hand, and the purchase, sale and use of digital currency in Brazil or to Brazilian parties may also be subject to reporting, in other cases.
The Brazilian tax authorities have not yet taken a formal position on the BEPS proposals for digital taxation.
Brazil imposes withholding income tax on the payment of royalties for the use of intellectual property in Brazil, which is usually 15% but may increase to 25% for residents in low-tax jurisdictions. In the case of tax treaties, it is necessary to analyse whether the royalty can be subject to withholding income tax depending on whether it is treated as business profits, royalties or other earnings, and the treatment may vary depending on the specific country and treaty.
Depending on the type of intellectual property, it is also subject to registration with the National Institute of Industrial Property and the deduction of the royalty is subject to such registration. The deduction of royalties may also be subject to specific statutory limits as well as transfer pricing limits.