Brazill and Uruguay have included provisions to tackle base erosion and profit shifting in a new Double Tax Convention (DTC), signed on June 7, 2019. The new agreement incorporates the minimum standards developed by the OECD on BEPS, includes specific provisions that are intended to combat tax evasion and prevent abuse of the agreement.
The newly signed tax treaty provides the benefit limitation provision and it is applicable in situation where the contracting state does not tax the taxpayer’s profits effectively. This seems to be a request of the Brazilian authorities to enable the application of the Brazilian worldwide taxation regime.
In addition, the treaty also amends article 29 (entitlement to treaty benefit) by specifically mentions that the benefits of the tax treaty will not be extended to entities operating as a holding company, providing general supervision or administration of a group of companies, Providing group financing (including group cash flow management – cash pooling), or performing or managing investments, unless those activities are conducted by a bank, insurance company, or registered securities trader in the course of its regular business.
Articles 10, 11 and 12 provide that, for dividends, interests and royalties, the taxing rights are split. This is important in the context of the probable Brazilian tax reform to introduce a dividend withholding tax.
Article 13 was also included in the treaty that regulates fees technical services that adopt article 12A of the UN Model Convention, a set of definitional and allocation rules dealing specifically with fees for technical services.
The agreement also provides a description regarding new cooperation in information exchange between the two countries in an effort to combat tax evasion and abuse of the agreement. It will also contribute to the internationalization movement of Brazilian companies that has been observed in recent years, in addition to promoting a better environment for investments in both countries.
Source: Rolim, Viotti & Leite Campos
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TPA Global has developed a practical roadmap of 6 steps meant to guide CFOs in their Journey of rising above troubles to reach a situation of full control. These steps are presented in a series of short video clips (3-5 minutes):