The text of the Agreement, which had already been approved in Switzerland in 2019 by the Council of States (Ständerat) and the National Council (Bundesrat), was approved in Brazil both in the House of Representatives, on March 5, 2020, and in the Federal Senate, on February 24, 2021, and now depends only on publication by means of a Presidential Decree to start producing legal effects in Brazil.
In its 30 articles, the Agreement regulates some of the main issues involving cross-border tax relations, eliminating uncertainties and distortions and encouraging the flow of investment from individuals and companies between the two countries, among which we highlight:
a) Inclusion of the following Brazilian taxes (i) IRPJ (Corporate Income Tax); (ii) IRPF (Personal Income Tax), and (iii) CSLL (Social Contribution on Net Profit) – which is expressly provided for in the Agreement – and the recognition on the Swiss side of the inclusion of cantonal taxes in its scope;
b) Besides aiming to avoid double taxation and possible double non-taxation, and containing a general anti-abuse clause (“Limitation of Benefit or simply LoB Clause”), the Agreement includes both transparent entities (partnerships, trusts) and collective investment vehicles (investment funds);
c) Although until now dividends have not been taxed at source in Brazil, the Agreement includes a provision that reduces to 10% the withholding tax (IRRF) on dividends paid to the beneficial owner of a company that holds at least 10% of its capital;
d) With regard to interest, it determines the reduction of the IRRF rate to 10% on interest on loans granted for a minimum term of 5 years, granted by banks for the purchase of equipment and/or investment projects;
e) Royalties are also now subject to the reduced rate of 10%, except for those arising from the use, or right of use, of industrial and commercial trademarks; and
f) Technical services were given a specific definition, which no longer includes services of an administrative or scientific nature. The IRRF rate here has also been limited to 10% – lower than the general Brazilian rule, which provides for a rate of 15%;
The tax team of Stüssi-Neves Advogados are following closely the publication by Presidential Decree and are available to answer any questions regarding the Agreement.
Arthur Stüssi Neves
Partner in the Tax Area – Rio de Janeiro