Promulgated Convention between Brazil and Switzerland to eliminate double taxation on income.

Enacted the Convention between the Federative Republic of Brazil and the Swiss Confederation to Eliminate Double Taxation with respect to Taxes on Income and to Prevent Tax Evasion and Avoidance, and its Protocol, signed in Brasilia, on May 3, 2018.

The convention sets limits to the tax powers of the contracting countries, eliminating or minimizing the possibilities of double taxation of income and brings greater security to business in general. In line with the commitments made by Brazil within the G20, the new agreement incorporates the minimum standards of the OECD's Project on Tax Erosion and Profit Shifting (BEPS Project), as well as, other relevant recommendations of the Project. It also includes a specific article to combat tax avoidance and abuse of the agreement.

A positive aspect of the agreement is the inclusion of the CSLL, which ratifies the total tax burden on income for companies in Brazil (34%), compared to contracting jurisdiction. it is clear that Brazil is moving, albeit slowly, towards greater adherence to international tax standards. This indication had already occurred since the country joined the OECD BEPS actions, culminating with the formal request for accession in 2017.

On the other hand, the interpretation given by Brazilian tax authorities to certain concepts, although clear and internationally consolidated, remains a point of concern, for example, technical services and technical assistance, not provided by a permanent establishment in Brazil and without technology transfer, under the allegation of the existence of a protocol and, therefore, subject to withholding income tax based on art. 12, rejecting the application of art. 7, which would be more appropriate.

Finally, the enactment reflects Brazil's efforts to expand and modernize its tax treaty network in a context of increasing mobility of commercial activities and internationalization of companies.

With the publication of the Presidential Decree, the Convention will enter into force on June 9, 2021.

Note: 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 at reginaldo@rastaxlaw.adv.br.

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