Nélio Weiss		Philippe Jeffrey

The Brazilian Congress approved, by means of decree 500, published in the official gazette of August 11 2009, the text of the double tax treaty (DTT) concluded on February 17 2006 between Brazil and Peru. The DTT still needs to be officially incorporated to the Brazilian legislation through the issuance of a presidential decree in order to become effective.

The treaty, which is mainly based on the OECD model, sets forth standard regulations on permanent establishment and business profits issues and limit withholding tax rates on remittances. Yet, article 21 of the DTT, which grants taxing rights to the source country with respect to other income, still demonstrates a clear protection of exclusive source-based taxation rights, which is diverging from the OECD model convention.

Similar to the most recent treaties concluded by Brazil, the treaty with Peru also includes an article that says the provisions of the convention do not prevent a contracting state from applying the provisions of its tax law regarding thin capitalisation and controlled foreign corporations. The treaty also provides additional rules regarding the limitation of benefits deriving from the DTT for parties that do not reside in the contracting states.

The regulations of the treaty limit withholding tax rates on interests and royalties to 15% and on dividends to 10% if the shareholder is holding at least 20% of the voting shares of the company paying the dividends, or 15% in all other cases. Under Brazilian domestic tax law, payments of dividends are not subject to income tax withholding.

The protocol of the treaty also sets forth that payments of interest on net equity (as allowed by the Brazilian tax legislation), will be considered interest for the purposes of article 11 of the treaty and that payments of any kind received as consideration for the rendering of technical services and technical assistance should be covered by the application of article 12 (royalties).

Brazil has the most expansive tax treaty network in Latin America, including treaties with key nations such as Austria, Canada, France, Italy, Japan, Luxembourg, the Netherlands, Portugal and Spain. It also has treaties with the Latin American nations of Argentina, Chile and Ecuador.

In another important development in the country, the text of the Vienna Convention, concluded on May 23 1969, was approved by the Brazilian Congress (except for articles 25 and 66) through the issuance of decree 496 on July 20 2009, but still needs to be ratified by a presidential decree before entering into force in Brazil. The convention, which sets rules for interpretation and application of the DTTs and procedures for resolution of conflicts between signatory countries, may change the way Brazilian tax authorities and courts apply DTTs provisions.

Nélio Weiss (nelio.weiss@br.pwc.com) & Philippe Jeffrey (philippe.jeffrey@br.pwc.com), São Paulo