Following the trend of the other recently tax treaties signed by Brazil, the Agreement between Brazil and the United Arab Emirates (UAE) follows the instructions of the OECD BEPS (Base Erosion and Profit Shifting) Project, and the OECD’s New Model Treaty, with the aim of eliminating double taxation of income, but with greater attention to treaty abuse and “double non-taxation”.
Brazil did not sign the OECD’s Multilateral Convention to amend its bilateral treaties. On the contrary, the Brazilian Government negotiates the changes to its existing bilateral treaties.
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. It also describes specific rules of limitation on benefits (LOB), which limit the benefits of the treaty to (i) entities of transport, finance or coordination centers; (ii) entities whose income the UAE deems to belong to a third country, or (iii) a company whose 50% or more of equity interest belong to a resident of a non-signatory country.
The treaty also provides for the granting of presumed credits (tax sparing) related to the granting of regional CIT incentives in Brazil. In this case, the UAE will allow full tax deduction, as if the Brazilian IRPJ had not been reduced.
Finally, the Treaty between Brazil and the UAE must be approved by the National Congress and by the President, before it enters into 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.
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