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Brazil: Attorney general of the National Treasury issues opinion so as to apply treaty provisions regarding the payment of service fees

Durval Portela
Gustavo Carmona
On December 21 2013, the National Treasury's Attorney General's Office (PGFN) published Opinion No. 2363/2013, through which it formalised a new understanding regarding the incidence of withholding income tax on remittances to non-residents regarding the payment of services rendered without transfer of technology, in cases where the beneficiary of the payment is resident in a jurisdiction with which Brazil has concluded a double tax treaty (DTT).

Until publication of the new opinion, both the PGFN and the Federal Revenue (RFB) had the understanding that such payments should not be classified under Article 7 of DTTs (business profits), but rather under Article 21 or 22 (other income), in which case such income would also be subject to withholding tax (WHT) at 15% according to Brazilian domestic tax law, since Article 21/22 of DTTs signed by Brazil allow for taxation in both states. This understanding was strongly criticised by taxpayers and scholars.

In May 2012, the Superior Court of Justice (STJ) unanimously decided against the levy of WHT on service fees remitted by a Brazilian source to foreign service providers located in countries with which Brazil signed DTTs. The court held that the tax authorities' understanding of the term "business profits" was too restricted, and that it in fact encompasses a company's main and ancillary activities, which would include income (and its related profit) received from the supply of services.

In view of this the PGFN reassessed its previous interpretation on the matter and issued a new opinion which is substantially grounded in the STJ decision with a wider view of the term "business profits", thus urging the Brazilian tax authorities to review their official position included in a Declaratory Act from 2000 (ADI 01/2000).

Nonetheless, the opinion also emphasised that Article 7 of DTTs signed by Brazil should only be applicable to cases where the services provided do not include the transfer of technology and where service fees are not included in the definition of royalties either because of the provisions of Article 12 or of the protocol to the relevant DTT. In such cases, Brazil would be allowed to levy WHT at rates varying from 10% to 15% on such payments, pursuant to the wording of Article 12 of the relevant DTT.

Note that the majority of tax treaties signed by Brazil include protocols which define technical services as royalties under Article 12 – exceptions exist – and the debate now may be related to whether or not the service fees paid to the non-resident indeed falls into Article 12 of the applicable DTT.

Durval Portela ( and Gustavo Carmona (

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