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by Erica Aoki
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Since 1996, the Brazilian Government made extensive efforts to comply with the rules determined by TRIPS - Trade Related Aspects of Intellectual Property Rights, negotiated under GATT- Uruguay Round by enacting new laws to protect and rule the rights on Trademark, Patents, Copyrights and Software. 

The Brazilian intellectual property laws, which were traditionally considered insufficient to guarantee protection to intellectual property owners’ rights, are now in compliance with international standards. The consciousness of the general public on the importance of intellectual property rights increased considerably. Nevertheless, Brazil is still and is seen by the international community, as a country that sustains one of the largest piracy rates. The capacity of Brazil to enforce the intellectual property laws is always criticized.  

The scandal involving piracy of certain drugs in 1999 brought the patent piracy issue to the attention of the general public in Brazil. The population reacted and insisted on tighter control by the Government.  

Brazil is no longer denying the necessity to protect intellectual property rights. However, Brazilian Government still needs to understand and learn how to treat intellectual property rights as an important asset to the individuals, companies and the State. The Government must also analyze the role of intellectual property rights under the international trade scenario.

The Brazilian Government must start revising tax and hard currency remittance policies on payments to license and transfer intellectual property rights.  The present rules are functioning as trade barriers and must be reviewed.

Payments of licenses for patents, trademarks and technology transfer has limited tax deductibility. Under Brazilian tax laws, tax deductions are set forth in a variable rate of 1 to 5 percent of the net sales, depending on the field of business. For trademark license, tax deductibility is limited to 1 percent of the net sales. 

Also, deductibility is allowed only for up to five years, although it may, subject to approval from a Brazilian authority, be renewed for an additional five-year term.

The tax deductibility of the royalty payment is still governed by a 1958 rule.  The 1958 laws reflect the economic policy of that decade, which were based on the import substitution policy and protection of national production. 

All remittances of payment levy a withholding income tax of 15 percent calculated over the payment amount. Since 2001, Brazilian companies acquiring foreign technology or licensing patents or trademarks must pay a social contribution of 10 percent calculated over the payment amount. Although some credits are granted for the payment of the social contribution, this measure has increased the burden to the Brazilian companies acquiring intellectual property rights from overseas.

Payment remittance of royalty by a Brazilian subsidiary to its foreign parent company is also limited up to the amount of the tax deductibility already mentioned.

Payment remittances and tax deductibility are allowed only if the license or transfer agreements are duly registered by the Brazilian Patent and Trademark Office (Instituto Nacional da Propriedade Industrial – INPI). The Central Bank of Brazil must also approve the agreement for payment remittance purposes.

These registrations are not required if both acquiring and licensing companies are Brazilian, with the exception that registration with the INPI is a condition precedent for its validity against third parties.

The tax deductibility restriction, the limitation on the parties to determine the royalties rate (only for related companies), and the social contribution imposed on Brazilian companies are making the acquisition of intellectual property rights from overseas very expensive, and penalizing the Brazilian companies. These rules may also jeopardize foreign companies’ interest in trading intellectual property rights with Brazil, either for commercial or tax reasons.

The liberalization of the remittance policy might not happen within the next few years, considering the present reality of the Brazilian economy.  However, tax laws that are penalizing the Brazilian companies and preventing them from acquiring new technologies necessary to provide progress to the country need to be quickly revised.

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