On 28 August 2018, Decree 9.482 was published, enacting amendments to the protocol to the convention between Brazil and Argentina to avoid double taxation and prevent tax evasion (DTA) signed on July 21 2017.
In addition to the country-specific changes, the amendments reflect the trend in Brazilian treaties toward the inclusion of the OECD BEPS Action Plan, particularly relating to inserting a preamble and introducing a limitation on benefits clause.
Some of the key aspects addressed in the amendment are:
Inclusion of a BEPS-style preamble to guide the way in which the DTA should be interpreted;
Expansion of the scope of taxes covered to comprise taxes on capital as well as income;
Certain amendments and clarifications to the definition of permanent establishment, including:
Express exclusion of situations involving a fixed installation for the sole purpose of developing an auxiliary and preparatory activity;
Express inclusion of the concept of a service entity's permanent establishment.
Inclusion of a limitation of benefits (LoB) clause, providing that benefits are not granted in situations where, based on all of the relevant facts and circumstances, obtaining this benefit constituted one of the principal objectives of the resulting operation, unless granting the benefit would be in accordance with the objective and purpose of the provisions. The LoB also includes an anti-conduit clause to further reduce the potential for abusive treaty-shopping practices;
Inclusion of express withholding tax rate limits for dividends, interest, and royalties;
Removal of the previous exemptions, including relating to dividends received in Brazil from Argentina, and the application of a blanket tax credit system in relation to income and capital previously subject to tax in the other country; and
Amendment of the existing protocol concerning technical services and assistance within the royalty article, including a broad definition and clarifying how the new withholding tax limitations within the royalty article should be applied in the context of income generated from the use or license of software or rendering of technical services or assistance.
For the amendments to enter into force, Brazil and Argentina must notify each other that the local procedures to enact the amendments have been completed. In the case of Argentina, Congress must approve. Following the exchange of notifications, the amendments will enter into force 30 days after the date of the final notification and will be generally effective as of January 1 of the subsequent calendar year or tax years beginning on or after this date, where applicable.