The deductibility limit for expenses with the payment of royalties abroad for the use of the right to brand and sell products also covers the income of sub-franchisees. The understanding is of the 1st Ordinary Panel of the 4th Chamber of the 1st Section of the Administrative Council of Tax Appeals (Carf). reproduction The deductibility limit for royalty expenses is subject to the franchisee Reproduction The understanding of the rapporteur, counselor LetÃcia Domingues Costa Braga, prevailed. For her, the franchise agreement is not a simple contract that the parties decided to establish between themselves. It is a complex contract that has several peculiarities that, in itself, should not be treated by the legislator as a simple royalty, as previously judged by this Carf, rulings 105-16,140 and 105-16,169.
However, it is observed that the legislation that limits the deductibility of royalties does so to prevent the evasion of foreign currency in a disguised manner or even the reduction of profits in Brazil. For this reason, there is a limit in the legislation that is understood as reasonable to allow its deductibility, and this limit is 4% of the net revenue of the product manufactured or sold." According to the rapporteur, it Israel Mobile Number List should be noted that a franchise agreement that has the complexity and quality control as presented in the case file, could not be verified and exercised with the necessary excellence if the legal entity that supervised the entire operation was domiciled in the exterior. "Thus, it is easy to imagine that, given the peculiarities of the contract and the need to monitor the entire production process, a national person would be needed with the ability to verify compliance with all the rules established in the contract.
To this end, nothing It would be more logical for the appellant to ume this position and p on to the master franchisee abroad the value of royalties from its contractors", he said. According to the counselor, it would not be up to tax law to destroy the business model just because it fails to understand that the result of the operation is the same. "The legislation is complied with in its entirety. For the purposes of measuring the established percentage, only the income of the master franchisee and the income of the sub-franchisees are considered. If there was a non-compliance considering all these incomes, then yes, the legislation would be in breach. But in the case at hand, an unreasonable solution cannot be given to the dispute.The rapporteur also stated that it is not the form of payment that makes it illegal, but rather the interpretation of the fact that must be used to verify compliance with the legislation.
