Taxation on telecommunications activity: development of the sector faces high tax burden and fiscal particularities

By Amanda Martines

Brazil has a very high tax burden on telecommunications services, which considered one of the main factors that make the full development of the sector difficult. Moreover, the taxation form is very specific, especially concerning the Tax on Operations Related to the Circulation of Goods and Services of Interstate and Intermunicipal Transport and Communication - ICMS.

The experience shows us that even companies that operate for a long time in the Brazilian market with Telecom services, have difficulty in maintaining the conformity, either for the main obligation (ICMS) or for the proper accessory obligations of the sector.

It is necessary to comprehend the nature of the service, the involved rates, the State of origin and destination in order to draw up the best tax planning and ensure compliance with due obligations to avoid risks and penalties.

In the sequence are related some particularities that indicate the importance of technical knowledge and technological support are utmost to fully meet the requirements of this segment.

Taxes on the operation and its specific accessory obligations

ICMS

The telecommunication service has a specific collection and/or provision form. These service provision categories influence in the location (Federation Unit) where the ICMS is payable. In effect, each State establishes its internal rate, which therefore influences the tax burden of the service. So, the important categories are as follows:

Measured services - From the tax point of view, the measured services are those charged (usage time count). Therefore, the billing by the telecommunication service provider will be according to the service utilization period of the user.

The ICMS in this modality is due to the State where the company providing the service is established.

Unmeasured services - those whose own nature prevents the quantification of the communicative flow involved in the provision of the service, since it is remunerated at a fixed price, which varies depending on the package purchased by the user.

ICMS with or with no sharing for unmeasured services

ICMS in this modality, when it involves a service purchaser (person who will pay for the service) in different Federation Units, must be paid in equal parts to the Federation units where the service provider and the service purchaser are located.

However, the company can choose to fully pay the tax in the destination state. In this case, it is necessary to have state registration in the purchaser (destination) State.

Although the costs incurred in the procedures for issuing the state taxpayer registration and maintaining the accessory tax obligations, depending on the origin and destination State, this can be an extremely advantageous option. On the other hand, if the purchaser's location State has a high ICMS tax rate, it is necessary to use the ICMS sharing system.

For the specific accessory obligations, there is the tax document to be issued for the provision of services, which is the telecommunication services invoice (Template 22). It is issued in a single copy, and the Digital Authentication Code (Código de Autenticação Digital - CAD) ensures the validity of this invoice. This hast code is generated using the data of each invoice as parameters.

The hast code is, therefore, a digital control encryption key for authentication security that is determined by state tax authorities based on the company's registration number with CNPJ and other documents.

There is also the filing of a digital file, in accordance with ICMS Agreement 115/2003, for the provision of information related to the tax documents issued, with issuance in a single original by an electronic data processing system.

PIS / COFINS

The PIS and COFINS contributions on Telecom services billing are calculated using the cumulative regime with rates of 0.65% and 3%, respectively, regardless of the IRPJ/CSLL determination criteria.

Taxes on the income (profit)

The IRPJ will be on the profit by 15% the rate plus an additional 10% of that exceeding BRL 20 thousand in the calculation period. CSLL is also levied on profit at a 9% rate.

Determination criteria:

Real Profit that considers the gross revenue minus taxes, the necessary costs and expenses or, if the company has annual revenue of up to BRL 78 million, it can adopt the Presumed Profit criteria based on an estimated 32% of gross revenue and the rates already mentioned.

Sector-based contributions

In addition to taxes, there are sector-based contributions calculated on billing:

• Telecommunications Services Universalization Fund (Fundo de Universalização dos Serviços de Telecomunicações - “Fust”);
• Telecommunications Technological Development Fund (Fundo para o Desenvolvimento Tecnológico das Telecomunicações - “Funttel”).

Both are made up of a monthly charge of 1% and 0.5%, respectively, from the gross operating revenue of the telecommunications service providers, after deducting the tax payments.

Effective tax burden

Since the highest tax rate over the telecommunications sector is the ICMS, a state tax, the tax burden over the services will depend on the tax rate applied in each state, which can vary from 25% to 37%.

Exemples

1. A Telecom company established in Rio de Janeiro has an effective rate of 50.71%, according to the following statement:

TAXES	RATE	NOTE
ICMS	30%	Includes 2% for state poverty reduction fund
PIS	0.65%
COFINS	3%
FUST	1%
FUNTTEL	0.50%
Factor	1.5071%

2.A Telecom company established in São Paulo has an effective rate of 40.15%, according to the following statement:

TAXES	RATE	NOTE
ICMS	25%
PIS	0.65%
COFINS	3%
FUST	1%
FUNTTEL	0.50%
Factor	1.4015%

3.A Telecom company established in São Paulo providing unmeasured service to a purchaser in Rio de Janeiro, effective rate of 39.17%, according to the following statement:

TAXES	RATE	OBS
ICMS SP	12.50%	Half of 25%
ICMS RJ	15.00%	Half of 30%
PIS	0.65%
COFINS	3%
FUST	1%
FUNTTEL	0.50%
Factor	1.3917%

Count on DPC's expertise in the Telecom area

The DPC team operates in a specific orientation to comply with the requirements that fall on this area, considering all the involved tax and variable obligations.