Obligation to file CbC report when there is no effective
competent authority agreement in place for its automatic
On July 27 2017, the Brazilian tax authorities published
Normative Instruction 1.722/2017, clarifying that Brazilian
affiliates of non-Brazilian multinational enterprises may be
required to file the country-by-country report (CbCR) in
Brazil, in relation to the fiscal year 2016, even if a CbCR has
been filed by either the ultimate parent entity (UPE) or a
surrogate entity (SE) in another jurisdiction.
According to Normative Instruction RFB 1681/2016, a
Brazilian affiliate of a non-Brazilian multinational enterprise
(MNE) meeting certain revenue thresholds is required to file,
with its 2016 Brazilian income tax return, a 2016 CbCR for the
entire MNE, if:
1) UPE of the MNE is not obliged to file a
CbCR in its jurisdiction of residence for tax purposes;
2) An eligible SE is not appointed;
3) There is an agreement in place for the
exchange of tax-related information between Brazil and the
jurisdiction where the MNE' s 2016 CbCR is to be filed, but the
competent authority agreement (CAA) authorising its automatic
exchange is not in place; or
4) A systemic failure has occurred.
To ensure that automatic exchange of information takes place
(as in item 3 above), Brazil signed the Multilateral Convention
on Mutual Administrative Assistance (MCMAA), which has been in
force for Brazil since October 2016, and in effect for fiscal
years starting as of January 1 2017. Under the framework of the
MCMAA, Brazil signed a Multilateral Competent Authority
Agreement (MCAA), allowing tax authorities to automatically
exchange the CbCR.
Although the MCAA for the exchange of the CbCR is only
effective for fiscal years starting as of January 1 2017, and
the Brazilian legislation requires an effective MCAA as of
January 1 2016, Brazil will accept that Brazilian affiliates of
non-Brazilian MNEs appoint their UPE as the filing entity for
the CbCR (for fiscal year 2016), provided all the other
conditions in the legislation are satisfied.
Note, however, that such Brazilian affiliates may be
required, in the future, to file a CbCR in Brazil within 60
- Before December 31 2017, the UPE's
jurisdiction of residence, for tax purposes, has not taken
actions to retroactively introduce an automatic exchange of
CbCR with Brazil for the fiscal year 2016; and
- Such jurisdiction requires local
affiliates of Brazilian MNEs to file a CbCR for the fiscal
year 2016 due to the MCAA not being in place.
Multinationals are encouraged to monitor the development of
this situation as it may result in the need to file CbCR in
more than one jurisdiction.
Double tax treaty with Russia now in force
On August 1 2017, the executive branch of the Brazilian
government promulgated Decree No. 9.115/2017, which converts
into internal legislation the convention to avoid double
taxation (DTT) between Brazil and Russia, signed on November 22
2004 and ratified by the Brazilian Senate on May 25 2017.
As it has become usual in Brazilian DTT practice, the DTT
between Brazil and Russia treats technical services and
technical assistance as royalties. Further, it does not
restrict the application of thin capitalisation and controlled
foreign corporation rules.
In contrast with other DTTs signed by Brazil, remittances of
interest on net equity are expressly regarded as interest,
leaving no room for potential discussions on their
characterisation for DTT purposes.
Finally, the DTT between Brazil and Russia includes a
provision on limitation of benefits (LoB), aimed at preventing
Moving forward, the DTT is expected to apply to tax years
starting as of January 1 2018 as the final note for its entry
into force was exchanged on June 16 2017.
Fernando Giacobbo (firstname.lastname@example.org)
and Ruben Gottberg (email@example.com)