Income Tax is levied on vessel charters, decides Carf

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Income Tax is levied on money received to pay for boat rental. This was decided by the 1st Ordinary Panel of the 3rd Chamber of the Administrative Council of Tax Appeals (Carf), in a discussion about the incidence or not of income tax withheld at source (IRRF) from a company that prospected seismic data for Petrobras.


According to the ruling, published this week, the contract for the provision of seismic data prospecting services, even if nautical equipment or scientific vessels are used, is not a charter as its purpose is not to transport people or cargo.  

“Payments for the use of industrial, commercial or B2B Lead scientific equipment and for information concerning experience acquired in the industrial, commercial or scientific sector constitute royalties, in accordance with the Convention to Avoid Double Taxation and Prevent Fiscal Evasion in Tax Matters concluded between the Brazil and France. The Convention authorizes the levy of IRRF on the payment of royalties. There is no double taxation when the amount of tax withheld in Brazil can be offset against the tax due in France”, states the ruling.

The discussion began after the Notice of Infraction was drawn up against a Brazilian company seeking to collect Income Tax Withheld at Source, for the calendar year 2009. According to the Tax Report, it was verified that the company entered into three separate contracts with the company CGC Veritas Services SA, based in France, contracted to provide Specialized Technical Services for Maritime Seismic Prospecting, with delimitation of the area for exploration and determination of the vessel to be used.


The tax authority then concluded that the aforementioned contracts do not deal with chartering, but rather Contracts for the Provision of Specialized Technical Services for Seismic Data Survey, without technology transfer.

International Celebration
The rapporteur, counselor Marcelo Freitas de Souza Costa, understood that the concept of "company profit" contained in article 7 of the Convention to avoid Double Taxation celebrated between Brazil and France must be interpreted based on the concept of profit in national legislation. In this way, profit would be the result of the comparison between revenues and expenses.

“Brazil, by concluding conventions to avoid double taxation, aims to stimulate economic relations between Brazilian and foreign companies, eliminating or mitigating double taxation, however, the Tax Administration ends up restricting the application of said conventions by unilaterally establishing restrictive understandings, especially with in relation to article 7 of the conventions”, he said.



Divergence won
Based on this understanding, advisor João Maurício Vital disagreed with the rapporteur and understood that this was not the application of article 7 (company profit), but rather of article 12 (royalties) of the Treaty.