Brazil and International Tax Treaties
Worldwide agreements regarding tax policies are crucial for a good business flow among countries. In this matter, Brazil seeks to expand its Double Tax Treaties as a way to avoid double taxation.
The interdependence between Brazil and several world economies, along with the presence of large foreign investments in the national territory imply the need for appropriate international taxation policies. On this regard, efforts concentrate on avoiding international double taxation, a known obstacle to nations' economic, social, and cultural development. On the one hand, double taxation hinders and reduces the exchange of technology, people, assets, capital and services; on the other hand, it fosters tax sheltering and tax avoidance.
Aware of that, countries keep negotiating bilateral Double Taxation Treaties, the DTTs. With this convention signed, only one of the states involved is granted the power to impose taxes on the companies' revenue or patrimony. This way, countries have their tax base and investments attraction preserved and companies can maintain their competitiveness.
Another key factor of a DDT is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the double taxation treaty.
Brazil follows the Convention-Model of the Organization for Economic Co-operation and Development (OECD) on its double taxation agreements. This model forecasts two methods to eliminate double taxation:
- Tax credit method: consists of a tax credit concession. This credit permits to deduce the tax already paid in one of the countries from the other country's tax.
- Tax exemption method: a country detains the exclusive right to tax incomes. Incomes taxed in this country shall be exempted in the other country.
Signed conventions
Brazil signed its first bilateral agreement to avoid double taxation in 1967, following an international postwar trend. Today, Brazil holds double taxation conventions with the following 28 countries:
- Argentina
- Austria
- Belgium
- Canada
- Chile
- China
- Czech Republic
- Denmark
- Ecuador
- Finland
- France
- Holland
- Hungary
- India
- Israel
- Italy
- Japan
- Korea
- Luxembourg
- Mexico
- Netherlands
- Norway
- Peru
- Philippines
- Portugal
- Slovakia
- South Africa
- Spain
- Sweden
- Ukraine
Check each convention document in their entirety here
In July of 1995, Brazil and Switzerland signed a statement to resume negotiations for a bilateral agreement to prevent double taxation, however, up to this date, this has not materialized. The same applies to Romania, Trinidad & Tobago, United Kingdom and the United States.
Brazil had a Double Taxation Treaty set with Germany, which is not in force since 2006, waiting to be rewritten.
Negotiations with United States and United Kingdom
Even though the United States are one of the world's most important trade partner of Brazil, the countries still have not signed a Double Taxation Treaty. The bilateral agenda has evolved in several matters, but lacks discussions on the commerce and investments regulatory framework.
The United States has a lot of bilateral DTTs signed, comprehending negotiations with more than 65 countries. Brazil is actually the only BRICS country that did not sign a double tax treaty with the US: China did it in 1984, India, in 1989, Russia, in 1992 and South Africa in 1997.
Because of the increasing Brazilian investments in the US, it makes sense to negotiate a DTT between the two countries. In his last visit to Brazil, in 2011, President Barack Obama was pressured by Brazilian investors towards organizing an agreement, but since then, very little has been discussed. A US/Brazil Double Tax Treaty would bring balance to the countries' relations, as US investments in Brazil are still much higher than the other way around, partly because of double taxation, that affects Brazilians in a worse way than Americans.
As for the United Kingdom, the country holds taxation agreements with about 120 countries, but Brazil remains outside the list. Although the countries do not hold a whole Double Taxation Treaty, Brazil and UK have a treaty to avoid double taxation when it comes to air and sea transport incomes.