Decree # 11,109/2022 (Official Gazette of June 30), promulgated the Agreement between the Federative Republic of Brazil and the Republic of Singapore to Eliminate Double Taxation with Respect to Income Taxes and to Prevent Tax Evasion and Avoidance, and its Protocol, signed in Singapore on May 7, 2018.
Noteworthy in the agreement is the inclusion of the Social Contribution on Net Profit - CSLL, which ratifies the total tax burden on income for companies in Brazil (34%), before the two contracting countries (article 2).
On company profits (art. 7), item 1, common in the Treaties, provides that the profits of a company of a Contracting State shall be taxable only in that State, unless the company carries on its activities in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business in the manner indicated, its profits may be taxed in the other State, but only in respect of that part of the profits attributable to that permanent establishment.
However, item 4 of this same article provides that where the profits include income treated separately in other Articles of this Agreement, the provisions of those other Articles shall not be affected by the provisions of article 7.
In this sense, article 13 brings specific treatment regarding remuneration for technical services, establishing that if the effective beneficiary of the remuneration is a resident of the other Contracting State, the tax so required in the State of the source of the income shall not exceed 10% of the gross value of the remuneration.
The Treaty also clarifies that the provisions of paragraph 3 of Article 12, which specifies the term royalties, will apply even to payments of any kind received as remuneration for the provision of technical assistance, whose withholding tax rate in Brazil will be:
a) 15% of the gross amount of royalties from the use, or right of use, of trademarks; or
b) 10% of the gross amount of the royalties in all other cases.
Also of note are the provisions in article 27, which deals with the exchange of information, which aims to avoid non-taxation or reduced taxation through the abusive use of the treaty.
Finally, Article 28, which governs the Right to Benefits, expressly states that the term "active conduct of a business" shall not include the following activities, or any combination thereof:
(i) operate as a Holding Company;
(ii) provide general supervision or management of a group of companies;
(iii) provide group financing (including cash pooling); or
(iv) making or managing investments, unless these activities are conducted by a bank, insurance company, or registered securities dealer in the ordinary course of its typical business.
We conclude that by ratifying this Treaty, as well as the one signed in 2021 with Switzerland, Brazil is moving, albeit slowly, towards greater adherence to international tax standards. Such indication had already occurred since the country joined the OECD BEPS actions, culminating with the formal request for accession in 2017.
This article is informative and general in nature, and does not constitute legal advice for any specific operation or business. For any additional information, please contact us by e-mail reginaldo@rastaxlaw.adv.br
Total or partial reproduction is allowed as long as the source is mentioned.
Article image credit: Wix Media.
Reginaldo Angelo dos Santos is an Academic Master candidate at Escola Paulista de Direito - EPD/SP. Area of concentration: Appropriate Methods for Corporate Dispute Resolution. He has received training in Tax Arbitration in Lisbon from FGV DIREITO SP, in partnership with CAAD, Portugal. Specialist in Corporate Law from FGV DIREITO SP and in Tax Law from PUC-SP, with extension in Tax Law from IBDT-USP. Member of the Special Committee on Tax Litigation of Brasilian Bar Association - Biennium 2019-2021. Co-author of the book "Tax Arbitration in Brazil and Portugal" - FGV DIREITO SP - 2022. Held leadership positions for over 20 years in the Legal and Tax areas in large national and multinational companies. He is currently a tax lawyer, tax advisor, MBA professor, and member of the Research Group: Appropriate Methods for Dispute Resolution in Tax Matters at FGV DIREITO SP.
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