Brazilian Federal Tax Authority clarifies rules related to the taxation of airport ground handling services

On June 17th 2016, the Brazilian Federal Tax Authority issued COSIT Ruling No. 78/2016 clarifying the tax withholdings applicable to airport ground handling services rendered to airline companies, so as to provide a clear understanding on the nature of such services for tax purposes.

The Ruling consolidated the understanding that airport ground handling services must be considered as a lease of workers, and, for such reason, payments made by airline companies for the hiring of such services must be subject to the following tax withholdings:

(i) Withholding income tax (“IRRF”) at a rate of 1%; and
(ii) PIS/COFINS contributions and Social Security Contribution on Net Profits (“CSLL”) at a combined rate of 4.65%.

With regards to the withholding of Social Security Contribution (“INSS”) at the rate of 11% on the gross amount of the service invoice, the Brazilian Federal Tax Authority also considered that it is not levied on the amounts effectively paid for airport ground handling services, since the Brazilian Aeronautical Code (Federal Law No. 7,565/1986) and Nacional Civil Aviation Agency (ANAC) Resolution No. 116/2009 provide a unified treatment for ancillary air transportation services. Thus, such services are not among those expressly subject to the withholding of INSS in such workforce outsourcing scenario.