On 25 March 2025, the Brazilian Federal Revenue Service issued Cosit Ruling No. 54/2025, clarifying that payments made by a Brazilian company to its French-based parent company for software licensing should be classified as royalties and subject to a 10% withholding income tax (IRRF) rate. This reduced rate applies under the Brazil–France Double Taxation Treaty, compared to the standard 15% rate typically applied to royalties.
The decision presents a significant opportunity for Brazilian companies with parent entities in France that currently face higher withholding tax burdens on outbound payments. It may also benefit companies with parent entities in other countries that have double taxation treaties with Brazil, provided those treaties offer similar treatment.
In this case, a Brazilian company questioned whether payments made to its French parent company for a software distribution license qualified as royalties under the Brazil–France Double Taxation Treaty. The key issue was whether these payments fell within the treaty’s definition of royalties as amounts “paid for the use of, or the right to use, a copyright.”
The company argued that the payments did not fall within the treaty’s definition of royalties and should therefore be taxed only in the parent company’s country (France), with an exemption from withholding income tax (IRRF) in Brazil under the treaty article governing business profits.
The Brazilian Federal Revenue Service reached a different conclusion, focusing on two key points. First, it held that payments for licenses involving software distribution, commercialization, and sublicensing qualify as royalties, as they represent “remuneration for the use of, or the right to use, a copyright.” Second, it confirmed that while Brazil’s 2018 Income Tax Regulations (RIR/2018) set a general 15% withholding rate for royalties, the Brazil–France Treaty prevails, setting the rate at 10%. This position is based on Article XII of the treaty, which applies the reduced rate to “payments of any kind received as consideration for the use of, or the right to use, a copyright.”
Under this interpretation, Brazilian companies making payments to France for software licenses—including distribution and sublicensing rights—may apply the 10% IRRF rate, provided the payments qualify as royalties under the Brazil–France Treaty.
Glossary
Cosit Ruling: An official interpretative decision issued by the General Tax Coordination Office (Cosit) of the Brazilian Federal Revenue Service, providing guidance on the application of tax laws.
Brazilian Federal Revenue Service: The federal agency responsible for tax administration and enforcement in Brazil.
Withholding Income Tax (IRRF): A Brazilian tax withheld at source on payments made to non-residents, including royalties, interest, and service fees.
Brazil–France Double Taxation Treaty: A bilateral agreement between Brazil and France designed to prevent double taxation and avoid fiscal evasion, providing specific tax treatment for cross-border transactions.
Royalties: Payments made for the use of, or the right to use, intellectual property rights such as copyrights, trademarks, and patents.
Business Profits Article: A provision typically found in double taxation treaties that allocates taxing rights over business profits to the country where the company is resident, unless the company has a permanent establishment in the other country.
Brazil’s 2018 Income Tax Regulations (RIR/2018): The set of rules that govern the assessment and collection of income tax in Brazil, including the general withholding tax rates applicable to cross-border payments.
Article XII of the Treaty: The article of the Brazil–France Double Taxation Treaty that sets a 10% withholding tax rate on royalties, defined as payments for the use of, or the right to use, a copyright.
