The Treaty is similar to other agreements signed by Brazil, as it aims to eliminate or minimize double taxation of the income of its residents, as well as to bring greater security to businesses and strengthen the relationship between the countries.
The Treaty includes specific provisions related to taxation of technical services and technical assistance, and it allows the source taxation of dividends, interest and royalties. Articles 24 and 25 deal specifically with the methods of avoiding double taxation and non-discrimination, with emphasis on the right to deduct tax paid in the other contracting country, and prescribing the equal treatment of taxation imposed by one country to residents of the other (most favored nation clause).
The Treaty also provides for the possibility of the adoption of the Mutual Agreement Procedure (MAP) to deal with issues of disagreement with the provisions of the Treaty, which must be submitted within three years of a notification received by the taxpayer of a tax assessment.
With regard to the prevention of abusive tax planning, the treaty provides for a principle purpose test (PPT) rule, relating to the purpose of obtaining benefits from the treaty.
In addition, the treaty adopts the LOB (limitation on benefits) clause.
Finally, the Treaty still needs to be approved by the Brazilian National Congress, and ratified by the President, in order to be in force in Brazil.
The Tax Consultancy team of Rolim, Viotti & Leite Campos will keep monitoring the adaptation process of Brazil to the OECD minimum standards, and is available for further clarifications on this matter.