Written by Brazil and Switzerland have entered into a double tax agreement. The Convention for Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (the “DTA”) was signed on 3 May 2018 and applies to residents of one or both of Brazil and Switzerland.
The DTA is a major development, considering that in Brazil some Swiss legal entities are still regarded as being under a “privileged tax regime” for the purposes of transfer pricing rules and until 2014 Switzerland was regarded as a tax heaven for income tax purposes.
Importantly, even though the DTA was signed by both Brazil and Switzerland, it is likely that it will take some time until it comes into full force and effect. On 6 March 2019 the Swiss parliament ratified the DTA (by 40 votes in favour with only one against) but Brazil’s ratification and implementation process is yet to take place.
The DTA:
- adopts certain minimum standards provided in the OECD’s BEPS project, largely following the OECD model treaty;
- contains anti-abuse clause and an administrative assistance clause (which includes the standard exchange of information between the two countries);
- has a specific article addressing the taxation of technical services;
- does not contain an exclusion for the withholding of taxes for independent personal services; and
- expressly applies to Brazil’s Social Contribution on Net Profits (a corporate tax) as well as federal income tax.
The DTA provides the following maximum rates to apply:
| Type of Income | Maximum Rate | |
| Dividends | general rule | 15% |
| if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend | 10% | |
| if a resident of one country has a permanent establishment in the other and it is subjected to withholding tax at source in accordance with the law of that other country | 10% | |
| if beneficiary is a pension fund | Not taxed at the source country | |
| Interest | general rule | 15% |
| if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects | 10% | |
| if beneficiary is a pension fund | Not taxed at the source country | |
| Royalties | general rule | 10% |
| arising from the use or the right to use trademarks | 15% | |
| Fees for technical services (defined wider than under Brazilian law) | 10% over the gross amount of the fees |
There are also specific rules applicable to the different types of income:
| Type of Income | Rule | |
| Capital gains | from the alienation (transfer) of immovable property | May be taxed in both countries |
| from the alienation (transfer) of movable property forming part of the business property of a permanent establishment which an enterprise of a country has in the other country or of movable property pertaining to a fixed base available to a resident of a country in the other country for the purpose of performing independent services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base | May be taxed in both countries | |
| from the alienation (transfer) of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft | Only taxed in the country where the effective management of the enterprise is situated | |
| from the alienation (transfer) of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property | May be taxed in both countries | |
| from the alienation (transfer) of any property other than that referred to above that arise in the other country | May be taxed in both countries | |
| from the alienation (transfer) of any property other than that referred above | Only taxed in the country where the alienator (transferor) resides |
|
| Independent personal services (professional services included) | Only taxed in the country where the provider resides | |
| Employment | general rule | Only taxed in both countries if the employment is exercised in the other country |
| if exercised aboard a ship or aircraft operated in international traffic | Only taxed in the country where the employee resides | |
| Directors’ fees | directors’ fees and similar payments derived by a resident of a country in that person’s capacity as a member of the board of directors or of any council of a company which is a resident of the other country | May be taxed in the other country |
| Entertainers (including sportspersons) | from the entertainer's personal activities as such exercised in the other country | May be taxed in the other country |
| where income in respect of personal activities exercised by an entertainer or a sportsperson in his or her capacity as such accrues not to the entertainer or sportsperson himself or herself but to another person | May be taxed in the country where the activities are exercised | |
| if the activities performed are wholly or mainly supported by public funds or the other country or a political subdivision or a local authority of the other country or by a government controlled institution | Only taxed in the country where the entertainer or sportsperson resides | |
| Pensions and annuities | arising in one of the two countries and paid to a resident of the other country | May be taxed in the country in which they arise, according to the law of that country |
| pensions or funds related to services rendered to the country or a political subdivision or a local authority thereof in the discharge of functions of a governmental nature | Only taxed in the country where the services were rendered | |
| Students and apprentices | payments generally | Not be taxed in the country where the student or apprentice is solely for the purpose of his education or training |
| grants, scholarships and remuneration from employment | During education or training, entitled to the same exemptions, reliefs or reductions in respect of taxes available to residents of the country visited | |
| Other | items of income not specifically dealt by the DTA | Only taxed in the country of residence |
The DTA improves and clarifies the legal framework for those companies and individuals with businesses with connections with Brazil and Switzerland. I hope that the DTA will come into force in both countries sooner rather than later.
For more information contact me.
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Last modified: October 30, 2019
The site is managed by Fabiano Deffenti, a lawyer admitted to practise in Brazil and Australia, enrolled as a barrister and solicitor in New Zealand and licensed as an attorney-at-law in New York.
