Brazil: Tax authorities say French not-for-profit organisations subject to tax

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil: Tax authorities say French not-for-profit organisations subject to tax

Sponsored by

sponsored-firms-pwc.png
money-charity-beggar 320 x 215

Brazilian tax authorities have said that no relief should be granted for withholding tax on payment to foreign not-for-profit organisations under the Brazil-France double tax agreement (DTA).



The Federal Brazilian tax authorities (RFB) published Solução de Consulta – Cosit 184/2018 (dated September 28 2018) on October 2 2018, providing that a remittances abroad to a French not-for-profit organisation should be subject to income withholding tax at a rate of 15%.

The opinion contemplated the application of the DTA between Brazil and France, specifically in relation to a payment made by a Brazilian resident taxpayer to a foreign not-for-profit organisation located in France.

The opinion considered and concluded that the membership fee paid to the French not-for-profit organisation should not be classified within one of the specific income items contemplated by the DTA, such as dividends (Article 10), interest (Article 11), royalties (Article 12), etc. It subsequently considered whether relief was available under the ‘business profits’ or ‘lucro da empresa’ provisions under Article 7 of the DTA.

Following the commentary of the United Nations model double tax convention between developed and developing countries, the RFB turned to the domestic Brazilian law to determine whether the payment should be classified within the meaning of the article. Having regard to the Brazilian domestic law and citing commentary from respected international tax scholars, the RFB focused on the not-for-profit nature of the recipient organisation, concluding that an activity undertaken without a profit objective cannot be considered a business and consequently should not be entitled to relief under Article 7 of the DTA.

The opinion noted that unlike certain other Brazilian tax treaties, the DTA with France does not contain an article that allocates taxation rights for ‘other income’. In the absence of this, both countries have the right to tax in accordance with their domestic laws. In applying the domestic law, the RFB confirmed that the exemptions available to Brazilian not-for-profit organisations should not apply to their counterparts located abroad and therefore the general rules related to income withholding tax should apply to the transaction.

Finally, the RFB highlighted that the responsibility for withholding lies with the Brazilian entity making the payment. Where this entity assumes the onus of income tax liability, the total value of the amount due to the beneficiary abroad should be grossed-up to account for the relevant income withholding tax.

While a Solução de Consulta does not represent law or a legal precedent, it does provide further support and guidance for Brazilian entities in relation to how the RFB are treating such arrangements.



giacobbo.jpg
Conomy

Fernando Giacobbo

Mark Conomy

Fernando Giacobbo (fernando.giacobbo@pwc.com) and Mark Conomy (conomy.mark@pwc.com)

PwC

Website: www.pwc.com.br

more across site & shared bottom lb ros

More from across our site

The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
The directive will extend cooperation and information exchange around pillar two, according to the Council of the EU
Audit engagement partner Christopher Voogd has also been hit with a £32,500 charge over the firm’s work with Stirling Water Seafield Finance
Gift this article