Brazil proposal would enhance tax incentives for technology R&D 

By Doris Canen, International Tax LLM, Kings College/UK, Brazil 

A bill to extend the benefits of Brazil’s research and development (R&D) tax incentive is pending before the Commission for Economic Development, Industry, Commerce, and Service. As of April 19, the bill was pending, awaiting the end of the comment period for suggesting amendments by Congress and the public.

The project aims to enhance Brazil’s “Good Law” or “Lei do Bem,” namely, Law 11.196/2005. The Good Law grants tax or legal entities that invest in R&D in the technology sector deductions for their expenditures to encourage and increase technological innovation in Brazil.  

The new bill would enhance the R&D tax incentive to allow unused deductions to be applied against net profit in later tax years.

Congresswoman Luisa Canziani, who drafted the proposal, explained that it is difficult for a legal entity to have a profit in the first year of R&D, which makes benefit inefficient, according to a Brazilian Chamber of Deputies’ News Agency interview.

The bill would also modify the Brazilian tax deduction to allow micro and small companies receive the benefits foreseen in the legislation. Under the current scheme, if a legal entity uses a smaller company to conduct the research, the R&D tax benefit is not available.

The bill would also allow partners of research companies to have their remuneration considered as payment for researchers and be deducted from the legal entity’s taxable base.

The bill, Bill 4944/2020, is based on Bills 2707/20 and 2838/20 and was received by the Chamber of Deputies in 2020. It was subsequently presented to the Brazilian Senate.

Brazilian law provides multiple tax incentives for R&D. As per article 17 of Brazil’s corporate income tax legislation – IRPJ,  R&D expenses are deductible for the purpose of calculating net income if classified as operating expenses. A deduction is also available for technological research and development of technological innovation contracted in the country with a university, research institution, or independent inventor if the legal entity that made the expenditure bears the responsibility, business risk, management, and control over the use of the results of the invested values.  

Another benefit is a reduction of 50% of the excise tax. Further, the IPI, the Brazilian tax on industrial products, is not levied on equipment, machinery, apparatus, and instruments, as well as spare accessories and tools that accompany these goods, intended for research and technological development. Full depreciation is allowed in the year of acquisition of new machinery, equipment, devices and instruments, intended for use in technological research and technological innovation development activities, for purpose of calculating the corporate income tax -IRPJ and the social contribution on net income  -CSLL.  

Moreover, for purposes of calculating the corporate income tax -IRPJ, accelerated amortization is granted by deductions as an operating cost or expense in the period in which the expense is made for expenses related to the acquisition of intangible assets that are linked exclusively to technological research and technological innovation development activities, classified in the beneficiary’s deferred assets. Finally, withholding tax is reduced to zero on remittances abroad for the registration and maintenance of trademarks, patents, and cultivars.