Brazilian and Swiss governments signed a Double Tax Treaty (DTT) on 3 May 2018 that regulates the income tax treatment between both countries. The DTT includes provisions to facilitate international cross border investments and transactions such as dividends, royalties, interest and capital flows and is aligned with the Base Erosion and Profit Shifting (BEPS) actions, such as treaty abuse provisions, mutual agreement procedure as well as exchange of tax information.
The DTT as a next step will need to be ratified by both jurisdictions in accordance with their respective domestic law. On the Brazilian side, the DTT must be ratified by the National Congress and on the Swiss side, also the parliament will need to ratify the DTT. Only once ratified by both jurisdictions, the treaty can enter into force. At this stage, it cannot be predicted when exactly the DTT will enter into force though.
Switzerland is one of the biggest investors in the Brazilian market and the DTT demonstrates the high interest in the continuous development of the commercial relationship between the countries by providing investors with clear tax rules and the same time increase transparency.
It is important to highlight that Brazil and Switzerland already signed an Automatic Exchange of Information agreement, which entered into force on 1 January 2018, which will allow the countries to share financial information regarding enterprises and individuals even if the DTT is not in force yet. Switzerland already has an attractive double tax treaty network with Latin American jurisdictions and ratifying and putting into force the Swiss Brazilian DTT will enhance Switzerland’s position for Latin American investments.
In addition, in February 2018, the OECD and Brazil also launched a joint project to examine the similarities and gaps between the Brazilian and OECD approaches to valuing cross-border transactions between associated firms for tax purposes. The project will also assess the potential for Brazil to move closer to the OECD’s transfer pricing rules, which are a critical benchmark for OECD member countries and followed by countries around the world. The development of further DTT’s as well as the intention to close the gap with the OECD also demonstrates that Brazil is seeking to align its practice to the global standards and facilitate investments.
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