Legal entities depend on a range of auxiliary activities to make their businesses viable, such as legal and information technology services, advertising, accounting, human resources, and others.
To rationalize management, simplify procedures, and optimize resources, it is not uncommon for companies in the same economic group to choose to share these facilities, sharing the necessary expenses, whether to maintain internal departments or to hire external providers. These are called cost sharing agreements.
Despite being an atypical contract, not provided for in the Brazilian civil law, this instrument implies, most of the times, advance of expenditures inherent to the funding of these sectors by one of the participating entities, usually identified as a “centralizer", linked to financial reimbursement by the other beneficiaries, proportionally to the portion attributed to each entity.
Because it represents a mechanism of mutual contribution to finance advantages of common use, the duty assumed by the centralizing entity should not be confused with the provision of services covered by these structures, jointly enjoyed by the contracting companies.
This role is most often fulfilled by the agents actually hired and paid for the performance of the shared services, when the cost sharing model adopted involves the participation of third parties to deliver these services.
It is also unreasonable to affirm that the contributions made by the beneficiary companies and received by the centralizer, as reimbursement for anticipated expenses, should be considered indistinctly as revenue of the latter.
We should not forget that it is a characteristic of cost sharing that one of the contracting parties incurs expenses in advance for the benefit of the others, under a commitment to future reimbursement. In this type of arrangement, the amounts received by the centralizer, therefore, translate into a simple restoration of what was spent on behalf of the other contractual parties, without any associated economic advantage.
This insight is fundamental and the Federal Revenue Service of Brazil (RFB) had already taken it into account when it issued the Resolution of Divergence 23 of the General Coordinator’s Office of Taxation (SD Cosit 23/13), in which it expressed the understanding that it is possible to exclude from the PIS and Cofins calculation basis the amounts received as reimbursement by the centralizing legal entity of shared activities, precisely because they do not represent revenue, but rather cost recovery, without adding anything to the legal entity's assets.
The issue was addressed in a judgment by the 3rd Panel of the Superior Chamber of the Administrative Tax Appeals Board (CSRF), whose decision was published on May 11, 2022. In the judgment, by majority vote, financial income received by the centralizing company was ascribed the nature of revenue from provision of services, in the course of the flow of payments established through cost sharing, admitting the levy of PIS and Cofins on the items (Appellate Decision 9303-012.980).[1]
In a dissenting opinion, the reporting judge, Tatiana Midori, reasoned that the contractual model under analysis could not be confused with a service contract. This is because, besides not being for consideration and imposing reciprocal obligations, the amounts reimbursed would not be added to the recipient's assets, nor would they be capable of creating wealth or profit, since they represent "mere settlement of accounts". The reporting judge also pointed out that the company assessed had strictly followed the criteria for apportionment, accounting, and instrumentation,[2] listed in SD Cosit 23/13.
This view, however, was overcome by the vote of board member Luiz Eduardo Santos, according to whom the taxpayer had provided services to other legal entities (whether merely administrative or linked to the main activity) and received amounts for this.
To justify the levying of the contributions, the board member argued that:
- the characterization of revenue is independent of the division between non-core activity and core activity, with such discussion being merely doctrinaire and not originating from the law;
- there is no legal provision in the Brazilian tax legislation governing the treatment of apportionment of common expenses; and
- the Brazilian legal system provides that only in consortium contracts and powers of attorney, a certain expense can be incurred and passed on to a third party without being considered its own expense.
The reasoning above does not seem to be the most consistent with the position already expressed by the Federal Revenue Service of Brazil and, in view of this, we propose some reflections.
It is noteworthy that the decision has expressly concluded finding SD 23/13 inapplicable, understanding that it would not be of mandatory observance by Carf. However, it must be remembered that, according to article 33, of IN/RFB 2.058/21, the solutions of divergences handed down by Cosit have binding effect within the Federal Revenue Service and protect taxpayers who apply them.[3] This condition, therefore, derives from a legal standard.[4]
To finding otherwise would favor a scenario of generalized legal insecurity. This factor, in itself, would be enough to lead to the opposite result. Furthermore, the understanding on the merits reached by the CSRF itself left out, in our judgment, some crucial points that should guide the examination of the matter.
The ruling shows that it attaches too much importance to arguments that should be determinant in designating the nature of the amounts received. Even if it were possible to link to the centralizing company's activity the elements of provision of a service, which is certainly controversial,[5] as well explained in the dissenting opinion, the decision did not demonstrate the actual receipt of revenue linked to this provision of services, the taxable event of the taxes in question.
As can be seen, the judge builds his theory based on loosening of the concepts of “core activity" and “non-core activity" to portray the obtaining of revenue. In his view, practical experience makes this differentiation unfeasible, since certain services can fall into one category or another, depending on the allocation given by the company that receives them.
To justify the statement, the example of legal services is brought in, which could be understood as core activities, when consumed directly for the achievement of core activities, such as the conclusion of a company's business. The same expenditure would be classified as a core activity when reverted to the performance of activities of the same nature, citing tax planning as an example.
Thus, he explains that the cost sharing contract may gather services that assume a double condition, since, at certain times, they will be considered a core activity (due to their acting in favor of activities of this nature) and, at other times, they will be a secondary activity (due to their being invested in activities considered ancillary). Under this pretext, it is alleged that it would not be possible to rule out the nature of provision of a service performed by the centralizing company.
However, the function of any core activity on behalf of a legal entity is to produce consequences on its business, regardless of the sector in which it is absorbed and the degree of proximity with the corporate purpose. To some extent, all the activities contracted by the entity act to generate positive effects on its core business.
The fact that an activity is closer to the acts that are part of the entity's corporate purpose is not an impeding or excluding criterion to characterize it as a core activity. In other words, it is incorrect to state that core activities will be only those invested in ancillary activities of the entity.
Any activity performed on an auxiliary basis that is not typical of the core business should be interpreted as a non-core activity. The word itself is self-explanatory: “core activity" encompasses every role that does not have a purpose in itself, but serves as an instrument to achieve the corporate objective, whatever the business line may be.
Taking the example given in the judgment, the common objective of all legal services is essentially the same, that is, to provide legal support for the entity that avails itself of them. It will be, in any case, a non-core activity, which aims to optimize the result of the core activity, regardless of the context in which it is performed.
Furthermore, the grounds against the taxpayer neither invalidate nor counteract the premise that the expenses advanced by the taxpayer were incurred for the exclusive benefit of third parties, which is to say, the other beneficiaries of the cost sharing. Given this picture, the question is: how is it possible to ascribe the nature of revenue per se to the reimbursements received?
The answer could not be more straightforward: these amounts are not revenue. The taxpayer does not experience an increase in net worth capable of constituting revenue from the provision of services.
The application of this precept also inspires repercussion on the possibility of appropriating a PIS and Cofins credit on all of the amounts paid by the centralizing company under these contracts, when it involves the hiring of legal entities. That has to be guaranteed.
But the guarantee that should be pursued, after all, is not to see funds that do not have this characteristic taxed as revenue, as recognized by the Public Administration itself in SD Cosit 23/13.
Among the ills that plague our tax system and affect the good development of the business environment and the economy in Brazil, legal insecurity and lack of predictability in tax matters stand out. If, on the one hand, structural reforms that are difficult to implement can bring about a permanent solution, on the other hand, more targeted actions, potentially resulting from a necessary change in culture, would make a big difference.
It would be of enormous value to have the many doubts that permeate the application of our tax legislation answered by the Federal Revenue Service, as happened in the case of cost sharing. But this achievement will be worthless if the taxpayer cannot be sure that the agency's understanding will be generally followed by the Public Administration.
[1] Administrative Proceeding 19515.003333/2004-51.
[2] SD 23/2013 establishes that the portion attributed to each entity is calculated based on reasonable and objective apportionment criteria, previously agreed upon, formalized by an instrument signed between the intervening parties; that they correspond to the actual expense of each company and to the global price paid for the goods and services; that the centralizing company of the operation appropriates as an expense only the portion attributable to it according to the apportionment criteria, in an identical manner to the decentralized companies that are beneficiaries of the goods and services, and accounts for the portions to be reimbursed as rights to recoverable credits; separate accounting of all acts directly related to the apportionment of administrative expenses.
[3] Article 33. The solutions of consultations issued by Cosit, as of the date of their publication:
I - have a binding effect within the RFB; and
II - support taxpayers who apply them, even if thety are not the respective inquirer, as long as they fit into the scenario covered by them, without prejudice to confirmation of their actual classification by the tax authority in an inspection proceeding.
[4] National Tax Code (CTN):
Article 100. The following are complementary rules to laws, international treaties and conventions, and decrees:
I - normative acts issued by administrative authorities;
(...) Sole paragraph. Compliance with the standards referred to in this article rules out the imposition of penalties, charging of default interest, and adjustment for inflation of the monetary value of the tax calculation basis.
[5] The adoption of this premise seems to be materially inconceivable, since it would place the taxpayer in the simultaneous condition of provider and recipient of a single and indivisible service, as though it could be reproduced and passed on, as an effect of the contractual arrangement adopted.
