Federal Revenue Service clarifies taxation rules for contracting auxiliary services for air transport

On June 17, 2016, the General Coordination of Taxation of the Brazilian Federal Revenue Service (“COSIT”) published COSIT Consultation Solution No. 78/2016, through which it clarified the applicability of withholding taxes on the contracting of auxiliary services provided to air transport companies, in order to provide a clear understanding of the nature of such services for tax purposes.

Under the terms of the aforementioned Consultation Solution, it was established that the provision of auxiliary services to air transport should be understood as a leasing of labor, and, for this reason, payments made by airlines for the contracting of such services are subject to the withholding of the following taxes:

(i) Income Tax Withheld at Source (“IRRF”), at the rate of 1%; and
(ii) Contributions to PIS/COFINS and Social Contribution on Net Income (“CSLL”), at the combined rate of 4,65%.

Regarding the withholding of the Social Security Contribution (“INSS”) at the rate of 11% on the gross value of the service invoice, the Federal Revenue Service stated that such withholding is not applicable to the amounts actually paid for said services, given that the Brazilian Aeronautics Code (Federal Law No. 7.565/1986) and the Resolution of the National Civil Aviation Agency (ANAC) No. 116/2009 determine a unified treatment for activities auxiliary to air transport services, so that these are not expressly referenced among those subject to withholding, if contracted through the provision of labor.