Challenges in the Brazil-USA Tax Treaty: Insights and Perspectives
120 likes | 286 Vues
This analysis by Prof. Dr. Luís Eduardo Schoueri explores the challenges inherent in the Brazil-USA tax treaty, focusing on historical and contemporary perspectives. It examines the implications of taxation principles, including territoriality, double taxation, and tax sparing versus matching credits. Insights into how treaties serve as tools for economic policy, foreign investments, and jurisdictional authority are provided, along with a critical look at the treaty's effectiveness in developing contexts and issues surrounding renegotiation and administrative overrides.
Challenges in the Brazil-USA Tax Treaty: Insights and Perspectives
E N D
Presentation Transcript
Challenges for the celebration of a tax treaty between Brazil and the USA Prof. Dr. Luís Eduardo Schoueri
Brazilian tax treaty policy 1960 Decade: Brazilian perspective: territoriality The Source State must have the exclusive right to tax Taxation at source: 25% Double taxation: illegitimate intrusion of the Residence State
Why to celebrate a treaty BRAZIL: • 1960: first treaties • Military government, foreign investments and development • Treaties are tools of economic policy • Treaties are assigned to attract investments • The decrease of the taxation at source must be in favor of the investor • Matching credit and tax sparing provisions USA: Treaties are assigned to avoid the double taxation; High taxation at source: • Mechanism to force the celebration of treaties; • Taxation is a “punishment” for those who do not have a treaty.
Tax Sparing vs Matching Credit 25% Internal rate (general) 15% Treaty rate 10% Incentive internal rate 15% Credit Matching Credit 25% Internal rate 15% Treaty rate 25% Credit Tax Sparing
Tax Sparing BRAZIL: Benefit is by the Source; There is no favor by the Residence; Recognize the jurisdiction: The tax power includes the power not to tax; Prerogative of each State in deciding about its tax policy in its jurisdiction kept in the treaty Treaties are assigned to promote investments. USA: Treaties are not an adequate way to grant benefits to Developing States; Treaties are assigned to avoid double taxation; Stanley S. Surrey (1957): refusal of the tax sparing.
Treaty Override BRAZIL: Art. 98 CTN: treaties prevail over the internal law; Override practiced by administrative authorities, but controlled by CARF/Judiciary. USA: USA reserves the right of posterior law determines the non-application of treaties; International criticism; Override is rare: • Justified in cases of abuse • L.O.B should be used in such cases Difficult to renegotiate the treaty.
Royalties BRAZIL: Taxation at Source Presence of the Market Deductibility of royalties Inclusion of Technical Services and Technical Assistance USA: Taxation at Residence • Where the technology was developed • Deductibility of R&D
Services BRAZIL: Art. 21: Taxation at Source: Normative Declaratory Act COSIT nº 01/2000 Services not included in article 12 are taxed under article 21; Brazil and Spain (2004): Wide interpreation of article 12; Brazil has promised not to apply article 12. USA: Taxation under Art. 7 (Business Profits); Art. 21: Taxation at Residence.
Concept of Permanent Establishment BRAZIL: Article 5 in Brazilian treaties Construction site PE: 6 months period UN Model Has already accepted 12 months (Ukraine and Ecuador) and 9 months (Portugal and Israel) USA: Article 5 of the US-Model • Similar to OECD Model • Construction site PE: 12 months period
Transfer Pricing BRAZIL: Rigidity in methods Pre-determined margins Arm´s Length Prohibition of the “basket approach” Royalties are excluded No corresponding adjustments No APA USA: PluralityofMethods • Preference to profit-basedmethods • Best MethodRule Formulary Approach • ConflictwithArm´s length Correspondingadjusments APAs
Major investors in Brazil (US$ millions) Source: BACEN Is a treaty really needed?
Thank you! schoueri@lacazmartins.com.br
