Recent Changes to the Registration and Recordation of Technology Transfer Agreements before the INPI and Related Legislation

In 2017, when the Brazilian Patent and Trademark Office (INPI) issued Normative Instruction No. 70/2017, which entered into force on July 1, 2017, significant changes were introduced to streamline the registration and recordation of agreements.

The most important of these changes was the inclusion of the following notice in the certificates issued by the INPI:

“The INPI has not examined the agreement in light of tax, fiscal, and foreign capital remittance legislation.”

This meant that the INPI ceased intervening in matters concerning the substance of agreements submitted for registration or recordation. It therefore no longer interfered, for example, with provisions addressing contractual remuneration, relationships between the contracting companies—whether transferor or transferee—or the applicable tax-deduction period.

In other words, the INPI ceased reviewing agreements under tax, fiscal, and foreign capital remittance legislation, a review that had previously been conducted very thoroughly until Normative Instruction No. 70/2017 entered into force.

The INPI therefore began examining only the general admissibility requirements applicable to agreements, including whether there were any prior agreements already registered or recorded with the same content and purpose, and whether technology supply and technical assistance agreements fell within Article 211 of the Brazilian Industrial Property Law.

Nevertheless, the provisions of Law No. 8,383/1991, Ministry of Finance Ordinance No. 436/1958, and Law No. 4,131/1962 remained in force, and compliance with them continued to be subject to review by the Central Bank of Brazil and the financial institution handling the transaction.

What, then, has changed since 2017?

The main developments are outlined below.

The Effects of the New Foreign Exchange Framework

Law No. 14,286/2021

Law No. 14,286/2021 entered into force on December 30, 2022, and introduced significant advances, including the possibility for individuals to operate directly in the foreign currency market and the simplification of international transfers.

Regarding technology transfer agreements, the new Foreign Exchange Law eliminated the requirement to register or record such agreements with the INPI and subsequently submit them to the Central Bank of Brazil for the payment of royalties abroad. Proof of payment of the taxes applicable to the transaction, however, remains necessary.

In addition, royalty remittances between related companies are no longer subject to value limitations. This had historically been a major obstacle in technology transfer agreements, which were subject to the maximum percentages established under Ministry of Finance Ordinance No. 436/1958.

Under the Ordinance, the limit applicable to remittances between related parties was the same as the limit established for deductibility for Corporate Income Tax purposes.

Despite these significant advances, it is important to emphasize that registration or recordation with the INPI remains necessary when the corresponding payment is intended to be deducted in calculating taxable income under the actual profit method.

In other words, registration or recordation of technology transfer agreements with the INPI is still required for tax-deductibility purposes.

INPI Resolutions Concerning Technology Transfer Agreements

Greater Flexibility and Regulation | Ordinances Nos. 26 and 27/2023

On January 3, 2023, the INPI announced its intention to make the examination of technology transfer agreements more flexible.

The announcement was prompted by a document submitted by the Licensing Executives Society – LES Brazil, jointly with the International Chamber of Commerce – ICC Brazil, requesting improvements and changes to the INPI’s interpretation of certain matters.

A summary of the requests submitted and the measures approved by the INPI follows.

Notarization, Apostille, Legalization, and Digital Signatures

Requested by LES/ICC: Removal of the requirement to notarize and apostille or legalize foreign signatures, as well as acceptance of digital signatures without an ICP-Brasil certificate, including the elimination of e-notarization and e-apostille requirements.

Measure to be adopted by the INPI: It was decided that apostille or consular legalization would no longer be required when digital signatures are used. In all other circumstances, apostille or consular legalization would remain necessary.

The INPI’s Specialized Federal Attorney’s Office also concluded that digital signatures certified through ICP-Brasil could be accepted, as could other means of proving the authorship and integrity of electronic documents, even when certificates issued by other entities are used, under Article 10 of Provisional Measure No. 2,200-2/2001 and according to criteria still under assessment.

Procedures to implement this decision were to begin immediately.

Initials on Every Page

Requested by LES/ICC: Removal of the requirement for every page of the agreement to be initialed.

Measure to be adopted by the INPI: The applicant’s attorney or representative must declare, through the electronic form, that they are responsible for the accuracy of both the information provided and the documents submitted.

Changes to the electronic forms were to be implemented immediately, and the requirement to initial every page was also to be abolished immediately.

Until the electronic forms were updated, the applicant’s representative would be required to submit a declaration with the application filed before the INPI, attesting, under penalty of law, to the accuracy of the information and documents submitted.

Two Witnesses

Requested by LES/ICC: Removal of the requirement to include two witnesses when the agreement indicates a Brazilian city as the place of execution.

Measure to be adopted by the INPI: The request was accepted, and the inclusion of two witnesses became optional for the parties.

Corporate Documents

Requested by LES/ICC: Removal of the requirement to submit the articles of association, bylaws, or other organizational documents of the legal entity, as well as the latest consolidated amendment addressing its corporate purpose and legal representation, for Brazilian-domiciled or Brazilian-resident transferees, franchisees, or licensees.

Measure to be adopted by the INPI: The recommendation was accepted, and the system would be updated to remove this requirement.

Licensing of Unpatented Technology

Requested by LES/ICC: Express acceptance of agreements concerning the licensing of unpatented technology, also known as know-how licensing.

Measure to be adopted by the INPI: The INPI confirmed that this type of agreement would be accepted.

Royalty Payments Relating to Pending Applications

Requested by LES/ICC: Removal of the prohibition against royalty payments involving pending patent, industrial design, and trademark applications.

Measure to be adopted by the INPI: The INPI decided that it would no longer create obstacles that could prevent payments agreed upon by the contracting parties when registering or recording agreements involving patents, industrial designs, and trademarks.

It should be noted that this conclusion had already been addressed in a legal opinion concerning trademark applications.

The INPI therefore decided to consult its Federal Attorney’s Office regarding the possibility of extending this interpretation to patents, industrial designs, and other intellectual property assets, where applicable.

For trademarks, the date to be considered as the beginning of the period indicated in the “Term Declared in the Agreement” field of the certificate issued by the INPI must be the date stated in the agreement submitted for recordation.

It should be noted, however, that in the week following the INPI’s announcement—on January 10, 2023—the Institute issued a new notice stating the following:

“In view of the publication, on January 3, 2023, of the minutes of the meeting held on December 28, 2022, we clarify that the resolutions contained therein require regulatory revision. Therefore, until the updated regulations are published, the existing rules concerning the registration and recordation of agreements remain in force.”

The INPI also published the interpretation to be adopted regarding the possibility of remitting royalties in connection with pending trademark applications.

This represented a significant change because, until then, trademark application licensing agreements were accepted only when they were royalty-free. When the agreements provided for payment, remittances could only be made after the trademark had been registered, and retroactive remittances were not permitted, unlike the practice applicable to patents.

It was therefore recommended that the following provisions of INPI Resolution No. 199/2017 be revoked or revised:

Article 13

The “Term Declared in the Agreement” field of the Certificate of Recordation or Registration shall comply with the parties’ intention as expressed in the agreement, subject to the following:

Paragraph 3: The initial date for the recordation of trademark applications that become registered trademarks shall be the date of publication, in the Industrial Property Gazette, of the approval of the issuance of the Trademark Registration Certificate.

Article 14

In agreements concerning the licensing of industrial property rights and integrated circuit topographies, technology transfer, and franchising, the “Value Declared in the Agreement” field of the Certificate of Recordation or Registration shall correspond to the value stated in the agreement, subject to the following:

Item V: Any amendment to the value stated in the Certificate of Recordation or Registration must be made through the submission of an amendment to the agreement by means of an application for the issuance of a new Certificate of Recordation or Registration, except as provided under Paragraph 4 of Article 14 of the Annex to this Resolution.

To regulate the measures approved by the INPI, the Institute issued Ordinances Nos. 26 and 27/2023 on July 11, 2023.

These Ordinances amended the formal and technical requirements described above, providing greater legal certainty to parties requesting the registration or recordation of technology transfer agreements.

The Effects of Provisional Measure No. 1,152/2022, Subsequently Converted into Law

Law No. 14,596/2023

Law No. 14,596/2023, originating from Provisional Measure No. 1,152/2022, was expected to enter into force on January 1, 2024.

Taxpayers could also elect to apply the new rules during the 2023 calendar year. At the time, however, the Brazilian Federal Revenue Service had not yet clarified how this election would be exercised, as originally provided under Article 46, Paragraph 2, of the Provisional Measure and subsequently under Article 45, Paragraph 2, of Law No. 14,596/2023.

The Provisional Measure—and subsequently the Law—introduced important changes to the legislation governing Corporate Income Tax and the Social Contribution on Net Profit by establishing transfer-pricing rules aligned with the international standards adopted by the Organisation for Economic Co-operation and Development (OECD).

The legislation also introduced new transfer-pricing rules applicable to royalties and transactions with related parties located abroad.

In summary, the most relevant changes scheduled to apply from January 2024 were as follows:

• International transactions involving royalty payments between related companies would be subject to one of five transfer-pricing methods:

  • Comparable Uncontrolled Price Method – PIC;

  • Resale Price Method – PRL;

  • Cost Plus Method – MCL;

  • Transactional Net Margin Method – MLT;

  • Profit Split Method – MDL.

• Other methods could also be adopted, provided that the alternative methodology produced a result consistent with that which would have been obtained in comparable transactions between unrelated parties;

• The fixed margins established under Ministry of Finance Ordinance No. 436/1958 would no longer apply;

• The arm’s length principle would be expressly adopted for the calculation of Corporate Income Tax and the Social Contribution on Net Profit. In other words, the conditions of a transaction between related parties must be equivalent to those that would have been agreed between independent parties;

• Remittances to tax havens would not be tax-deductible.

As may be seen, numerous changes introduced since 2017 have affected technology transfer agreements, particularly by simplifying transactions and reducing bureaucracy.

The practical effects of these measures will certainly become increasingly apparent and should contribute to Brazil’s economic development.