In the last few days, by means of consultation No. 6,557, the criteria of the DGI regarding the software development services included to access the IRAE exemption was made known. Below we will comment on the most relevant aspects of the consultation and its regulatory context.
By way of regulatory context, the Regulatory Decree of Law 19,637 of 2018, exempts up to 100% of the Income Tax on Economic Activities ("IRAE") to income from production activities and provision of software development services and related services, provided that such activities are developed by the taxpayer of such tax, in national territory.
Software production
Income derived from the lease, use, transfer of use or disposal of intangible assets (software) is exempt from IRAE, provided that the asset has been developed in the national territory and is registered with the National Library in accordance with the intellectual property regulations (Law No. 9,739).
The percentage of the tax to be exempted will result from applying the following coefficient to the income derived from such activity:
Exoneration % = Direct expenses and costs incurred to develop the Asset x 1.30 / Total expenses and costs incurred to develop the Asset
Software development services and related services
The aforementioned Decree 244/018 includes in this concept:
a) Software development services for third parties, not registered by the developer, including research, innovation, analysis, design, construction, homologation, adaptation and customization (GAPs), and parameterization; and,
b) Services related to software developed by the provider or by third parties, namely: client implementation, integration, technical support, version updates and corrections, corrective and evolutionary maintenance, data conversion and migration, quality testing and certification, IT risk, security and training.
Income derived from the services described above will be 100% exempt from IRAE as long as the activity is developed by the taxpayer in national territory. It will be considered that the activity is developed in national territory when:
- Human resources are employed on a full-time basis in numbers commensurate with the services rendered, qualified and adequately remunerated.
- The amount of direct costs and expenses incurred in the country for the provision of such services is appropriate and exceeds 50% of the amount of total direct costs and expenses incurred in the year.
It is important to note the importance of keeping in mind which concepts are included in the regulations as provision of services in order to be able to access the aforementioned exemption. Within the framework of such regulations, the DGI Consultation Commission, through consultation 6,557, issued a ruling in response to a taxpayer's consultation regarding the IRAE exemption for income obtained from the rendering of software development services.
In this consultation, the taxpayer lists the list of services rendered under the exemption described above. The Consultation Commission does not share the taxpayer's position because the list includes services that exceed those defined in the Decree.
The DGI understood that certain services performed by the company would not be included in the exemption because they are advisory services, support of voice, data and network requirements, implementation of customer service processes, infrastructure supervision and response to calls related to customer service, all activities that do not have a direct relationship with the development of software, nor with the related activities referred to in the regulations.
In view of this, it can be concluded that the services mentioned in the regulation become an exhaustive list and not merely enunciative.