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Brazil's Tax Attorneys' Office reviews strategy in treaty cases

A December 2013 opinion from the Federal Tax Attorneys’ Office in Brazil about whether remittances abroad should be taxed at source could be a change in reasoning rather than position

Since 2000, Brazil’s Revenue Office (Receita Federal do Brasil) has essentially formalised its interpretation that remittances abroad in connection with providing services without transfer of technology are subject to withholding taxation at source. The applicable rate is 15%.

Normative Declaratory Act no 1/2000 (ADN no. 1/2000) says:

"in Double Taxation Conventions signed by Brazil, this income [resulting from providing services without transfer of technology] is classified in the article headed Income Other Income, […] which shall also occur in the event that the convention does not contemplate this article."

Tax experts strongly criticised the position adopted in ADN no 1/2000, principally since it incorrectly interpreted both article 7 and article 22 of the Brazilian DTCs. It is worth noting here that the conventions entered into by Brazil diverge from the OECD Model Convention as regards the article of “Other Income”. In fact, while the Brazilian treaties attribute to both contracting states the right to tax such income, the model convention establishes the exclusive competence of the residence state to tax it.

Last December, the Federal Tax Attorneys’ Office (Procuradoria Geral da Fazenda Nacional) issued an opinion (Parecer/PGFN/CAT no 2363/2013) indicating that the interpretation established in ADN no 1/2000 was mistaken and should be reviewed.

This opinion stated that the position of Brazil's tax authorities - that payments for technical services without transfer of technology should be treated as "Other Income" - reflects a narrow and mistaken interpretation of the term "profits" in article 7 of Brazil's tax treaties. Therefore, in their view, the official position of Brazil's revenue authorities regarding the interpretation of article 7 should be reviewed.

Though at first the conclusion of Opinion no 2363/2013 appears to strike a blow against Brazil's source taxation, an analysis of the entire document shows that actually the opinion is more a change in the line of reasoning rather than a final position concluding that service payments should not be taxed at source in Brazil.

In Opinion no 2363/2013, the Federal Tax Attorneys’ Office has clearly stated that source taxation is allowed whenever the treaty contains a specific rule providing for it and the opinion uses as examples those treaties with protocols establishing that technical services should be treated as royalties. In those cases, article 12 would apply and therefore Brazil's source taxation would also apply (Article 12 in Brazil’s DTCs allows taxation at source). The same could result if the service in a given case falls under article 14. Brazil still includes article 14 in its treaties

Therefore, it seems that the new opinion regarding the position of Brazil's tax authorities on the taxation of payments abroad for services without transfer of technology should not be viewed as a death certificate for judicial discussions about this topic - at least not in those cases where tax treaties include a provision treating technical services as royalties. Conversely, when a treaty does not have such a provision (for example, Austria, Finland, France, Japan, and Sweden), the new interpretation will actually be beneficial unless the tax authorities can claim that article 14 of such treaties should apply.

Sergio André Rocha (, Principal at Andrade Advogados

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