On June 7th, 2019, Brazil and Uruguay signed a Double Tax Convention (DTC) to avoid double taxation regarding taxes on income and prevent from tax evasion between the two jurisdictions. Now, the DTC needs to be ratified by the National Congress in order to become effective.
The purpose of the treaty is to eliminate or reduce double taxation of their residents’ income, as well as providing greater legal certainty to businesses, and fostering investment between the two countries.
The Brazil-Uruguay Convention is based on the OECD model convention, and adopts the minimum standards of the BEPS Program, especially Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements) and Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status).
The new treaty between Brazil and Uruguay contains a clause dealing with “tax disclosure entities”, such as trusts, whose income will be considered property of a resident of one of the Contracting States, due to the extent that income is treated as such by his owner.
The Treaty also addresses the possibility of adopting the Mutual Agreement Procedure (MAP) between States, in order to define the taxpayer’s residence when its effective management headquarters cannot be determined.
Finally, the DTC still provides for the concept of ‘Permanent Establishment’, and allows Brazil or Uruguay to tax an Uruguayan or a Brazilian company’s profits, respectively, when the activity performed by it is executed through a representative who typically concludes contracts in the name of the company, or plays a relevant role in the conclusion of the contracts.
RV&LC’s team of lawyers and consultants are available to answer any questions related to the topic.
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