One of the points of great interest in the field of intellectual property is the issue of technology acquisition or licensing, given that Brazil, as a rapidly developing country, is constantly receiving new technologies from abroad with the aim of improving its economic capacity. It is through technology transfer agreements that domestic and foreign parties negotiate and regulate such interests.
A brief history of Technology Transfer Agreements
The promotion of technology transfer in Brazil was regulated locally from the early 1970s, when, through Law No. 5,648 of December 11, 1970, the INPI was created and appointed as the public agency responsible for intervening in technology transfer agreements, understood as agreements involving the licensing of industrial property rights (patent exploitation licenses, trademark use licenses, industrial design licenses, etc.) and franchise agreements, technology supply agreements, or specialized technical assistance agreements.
As a result, on September 11, 1975, the newly created INPI promulgated Normative Act No. 15, adopting an extremely interventionist position in technology transfer agreements, which ended up making the contractual registration processes lengthy, with requirements that were issued through rules and interpretations specific to this Institute.
In addition, technology transfer agreements could not be onerous when between related parties, given that our Foreign Capital Law (Law No. 4,131 of September 3, 1962) prohibited the remittance of royalties from a subsidiary to its parent company abroad.
Starting in the 1990s, the Brazilian economy began to open up, increasingly allowing the entry of new technologies from developed countries. With Law No. 8,383/91, through its Article 50, it became possible to remit payments between subsidiaries and parent companies (controlled and controlling companies) arising from technology transfer agreements signed, registered with the INPI, and recorded with the Central Bank of Brazil (Bacen) after December 31, 1991, provided that the deductibility limits established by tax legislation are respected.
In the same decade, the rules related to the entry of technologies into Brazil were gradually relaxed with the advent of Normative Act No. 120/93 and Law No. 9,279/96 (Industrial Property Law).
Article 211 of Law 9,279/96, interpreted in conjunction with tax, fiscal, and foreign capital remittance laws, resulted in the conclusion that technology transfer agreements should be registered with the INPI for the following purposes: (i) to enable the remittance of payments abroad, provided that foreign exchange and tax rules are observed; (ii) to allow the tax deductibility of these payments, provided that tax legislation is observed; and (iii) to produce effects against third parties.
It is important to note, in this regard, that even with the enactment of the Industrial Property Law, the INPI continued and, to a certain extent, continued to intervene in the autonomy of the parties during the registration process for technology transfer agreements, particularly with regard to the prior assessment of compliance with tax and capital transfer legislation and the establishment of certain specific contractual conditions, often to the detriment of the provisions of the law.
However, over time, the INPI gradually adopted a less interventionist stance in the analysis of technology transfer agreements. Thus, with the aim of further modernizing the industrial property system in Brazil, as well as limiting the Institute’s interference in contracts submitted for registration, Normative Instruction No. 70 was issued in 2017, effective as of July 1, 2017.
Through Normative Instruction No. 70/2017, the INPI indicated that it would no longer perform tax assessments of technology transfer agreements submitted for registration; Since then, Registration Certificates have only reflected the value and term declared by the parties, with the contracting parties being responsible for the validity and legality of the contract and payment remittances.
Subsequently, on July 7, 2017, the INPI promulgated Resolution INPI/PR No. 199, which established new guidelines for the examination of technology transfers and integrated circuit topography registrations, technology transfers, and franchises, which are registrable with the Institute.
In general terms, the Resolution indicated the rules, formalities, and documents that support registration or filing requests, detailing how the formal and technical examinations of contracts will be conducted. If the guidelines established by the Resolution are not observed, the application for registration may be subject to formal and technical requirements, which may even result in the rejection and/or dismissal of the application.
INPI Resolution 199/2017 supplemented Normative Instruction No. 70/2017, which limited the INPI’s power to interfere and removed from its sphere of activity the tax and foreign exchange analysis of contracts submitted for registration. In this sense, all Certificates now include the following information note: “The INPI has not examined the Contract in light of tax, fiscal, and capital remittance legislation.”
In line with these INPI rules, BACEN issued Circular No. 3,857/2017, regulating the administrative sanctioning procedure for the application of penalties, coercive measures, and methods for dispute resolution. Thus, irregular remittances of royalties became subject to administrative sanctioning proceedings.
Thus, although the INPI no longer interfered or made demands regarding the amount and payment terms of contracts, the contracting parties remained responsible for complying with the tax deductibility limits provided for in Ministry of Finance Ordinance No. 436/58, which, in the case of contracts between companies with direct or indirect shareholdings, also corresponded to those for remittances abroad.
A major change came in 2021 with the publication of Law No. 14,286/2021 – Marco Cambial, which brought changes to several other rules. Remittances abroad as royalties, which previously required technology transfer agreements to be registered with the INPI and the Central Bank of Brazil, now only require proof of payment of IRRF (Withholding Income Tax).
Thus, the registration of technology transfer agreements with the INPI only made the amounts of technology transfer agreements deductible for purposes of calculating actual profit, subject to the limits and conditions established by law.
Another important point regarding technology transfer agreements was the publication of Law No. 14,596/2023, which came into force in 2024 , and which brought the application of Transfer Pricing rules in relation to intangible rights and royalties. Since its entry into force, the old exchange and tax rules previously adopted for remittances and tax deductibility of royalty payments for intangible assets have been revoked.
Under this law, remittances of royalties and technical, scientific, administrative, or similar assistance must comply with Transfer Pricing rules.
One of the pillars of the transfer pricing regime is the internationally adopted “arm’s length” principle or principle of full competition. The adoption of this regime by Brazil has harmonized the national system with OECD guidelines.
This principle establishes that transactions between related parties – especially in the context of international operations – must be carried out as if they were between independent parties, that is, under the same market conditions, without influence from the corporate relationship.
Thus, for international transactions involving such payments between related companies, one of the five methods (PIC, PRL, MCL, MLT, and MDL) must be adopted, with the possibility of selecting the method most appropriate to the transaction, or even other methods, provided that the alternative methodology adopted produces a result consistent with that which would be achieved in comparable transactions between unrelated parties.
General rules applicable to technology transfer in Brazil
Contracts whose object is the license to use industrial property rights may be registered with the INPI. The following are registrable with the INPI:
- Patent exploitation agreements;
- Industrial Design Exploitation Contracts;
- Trademark License Agreements;
- Contracts for the Assignment of Patents, Industrial Designs or Trademarks;
- Technology Supply Contracts (know-how);
- Technical and Scientific Assistance Agreements;
- Integrated Circuit Topography License Agreements; and
- Franchise Agreements (Law 8.955/94).
The registration of a technology transfer agreement with the INPI is intended to produce effects against third parties.
Technology transfer agreements shall only be effective against third parties after registration with the INPI. The registration of these agreements with the INPI has the following effects:
- Guarantee of the exclusive right granted to the licensee, in the case of exclusive license agreements; and
- Legitimacy of the licensee to appear as a party in legal proceedings relating to the trademark and patent, either alone or as a co-plaintiff with the licensor, if the contract so permits.
It should be noted that, under the current law, the registration of trademark or patent license agreements does not constitute a condition for the effective use of the trademark or patent by third parties, provided that the owner can prove that the user has authorization to do so.
For related parties, the remittance of royalties abroad, which previously could not exceed the deductibility limits provided for in the Foreign Capital Law and Ministry of Finance Ordinance No. 436/58, which established the deductibility limits as between 1% and 5% of the net sales revenue of the contractual products, may be freely negotiated in view of the legislative changes mentioned above, however, the deductibility limits remain in accordance with the new Transfer Pricing Rules.
We can also mention that Law No. 14,596/2023 brought an interesting change in relation to contract terms. The revoked Article 12, § 3 of Law No. 4,131/62 determined that, for contracts for technical and scientific assistance services and technology supply, the limits on shipments and deductibility could not exceed five (5) years from the introduction of a special production process, extendable for a second period of five (5) years, provided that the need to renew the technological link was justified. This limitation ceased to exist with the enactment of Law No. 14,596/2023, making it possible to extend for periods exceeding 10 years without presenting a new contract, with an addendum to the contract being sufficient for registration purposes with the INPI.
The current registration/registration process at the INPI is entirely digital, and there is no need to submit a physical copy of the contract or any other documents, unless expressly requested by the INPI, and the Institute now accepts digital signatures (without the need for an ICP-Brasil certificate), in which case apostille/consular legalization is also not required. In all other cases, physical signatures outside Brazil still require apostille/consular legalization.
Although the INPI is more rigorous regarding the formal aspects of contracts, the flexibility in the analysis of contracts has meant a substantial reduction in the time required for the registration of contracts, since most Certificates are now issued within 2 to 3 months – half the time it took a few years ago.
Technology Supply Contracts
In Brazil, the Industrial Property Law did not provide any specific definition or criteria for the protection and defense of unpatented technologies, except for liability for the misuse of knowledge, information, or confidential data that can be used in industry, commerce, or the provision of services, which were classified as crimes of unfair competition.
In this sense, the INPI had been adopting the understanding that knowledge and techniques that are not protected by intellectual property rights (know-how) could not be the subject of licensing, and that contracts should be established as the acquisition or mere disclosure of knowledge. This understanding was modified at the end of 2022, when, through the Minutes of the Meeting of December 28, 2022, effective as of January 23, 2023, the agency, seeking alignment with international best practices, began to admit the possibility of licensing non-patented technology, understanding that it is an atypical contract, accepted by art. 425 of the Civil Code.
Reflecting this understanding, INPI Ordinances Nos. 26/2023 and 27/2023 adopt a more flexible approach, allowing technology transfer agreements for unpatented technology to cover:
- definitive acquisition; and
- temporary licensing for the use of knowledge and techniques that are not covered by industrial property rights, with the purpose of supporting the production of goods and services in the country.
Traditionally, technology supply contracts are defined in Brazil as any type of transaction where one party transfers to the other technical knowledge used in the manufacture of a product or service, provided that such transfer has not been carried out mainly through the provision of technical services.
In this sense, what helps to characterize technology supply contracts is the delivery of technical documents, such as manuals, guides, or drawings, and the remuneration, which, in these cases, is calculated based on a royalty rate on the net sale of the products or services developed with the transferred technology.
Software Contracts
With regard to software contracts, cases where there is an effective transfer of technology to the Brazilian company must be registered with the INPI, i.e., when there is an acquisition or transfer of complete documentation on the software, in particular the commented source code, descriptive memorial, internal functional specifications, diagrams, flowcharts, or other technical data necessary for the absorption of the technology, so that such contracts are effective in relation to third parties (Article 11 of the Software Law – No. 9,609/98).
Software licenses do not need to be reviewed by the INPI, and royalty payments may be made directly through a commercial bank accredited by Bacen.
Taxation
With regard to the taxation of technology contracts and other intellectual property rights between domestic and foreign companies, depending on the type of contract, the following taxes may be levied: Withholding Income Tax (IRF) – 15%; Contribution of Intervention in the Economic Domain (CIDE) – 10%, with the possibility of credit in trademark and patent license agreements; Tax on the Importation of Services (ISS-Importação) – maximum rate of 5%; Contribution to Social Integration Programs and Civil Servant Asset Formation levied on the Importation of Foreign Products or Services (PIS/PASEP-Import) – 1.65%; Social Contribution for Social Security Financing payable by Importers of Foreign Goods or Services (COFINS-Import) – 7.6%; and Tax on Financial Transactions (IOF) – 0.38%.
The constitutionality and effective application of some of the above taxes are still questionable and may be subject to review by the Brazilian Judiciary.
Author: Marina Inês Fuzita Karakanian
Dannemann Siemsen
Av. Rodolfo Amoedo, 300 – Barra da Tijuca
22620-350 Rio de Janeiro- RJ
Phone: (21) 2237 8700
E-mail: [email protected]
Av. Brigadeiro Faria Lima, 4.221 – 3º andar
04538-133 São Paulo – SP
Phone: (11) 2155 9500
E-mail: [email protected]
Internet: www.dannemann.com.br
Patents, trademarks, designs, technology transfer, licensing, franchising, software, trade names, unfair competition.