Brazil’s International Tax Policy www.lumenjuris.com.br Editores João de Almeida João Luiz da Silva Almeida Conselho Editorial Frederico Price Grechi Lúcio Antônio Chamon Junior Adriano Pilatti Geraldo L. M. Prado Luigi Bonizzato Alexandre Bernardino Costa Gina Vidal Marcilio Pompeu Luis Carlos Alcoforado Alexandre Morais da Rosa Gisele Cittadino Luiz Henrique Sormani Barbugiani Ana Alice De Carli Gustavo Noronha de Ávila Manoel Messias Peixinho Anderson Soares Madeira Gustavo Sénéchal de Goffredo Marcellus Polastri Lima Beatriz Souza Costa Helena Elias Pinto Marcelo Ribeiro Uchôa Bleine Queiroz Caúla Jean Carlos Fernandes Márcio Ricardo Staffen Caroline Regina dos Santos Jerson Carneiro Gonçalves Junior Marco Aurélio Bezerra de Melo Daniele Maghelly Menezes Moreira João Carlos Souto Ricardo Lodi Ribeiro Diego Araujo Campos João Marcelo de Lima Assafim Roberto C. Vale Ferreira Elder Lisboa Ferreira da Costa João Theotonio Mendes de Almeida Jr. Salah Hassan Khaled Jr. Emerson Garcia José Emílio Medauar Sérgio André Rocha Firly Nascimento Filho José Ricardo Ferreira Cunha Simone Alvarez Lima Flávio Ahmed Josiane Rose Petry Veronese Sidney Guerra Frederico Antonio Lima de Oliveira Leonardo El-Amme Souza e Silva da Cunha Victor Gameiro Drummond Conselheiro benemérito: Denis Borges Barbosa (in memoriam) Marcos Juruena Villela Souto (in memoriam) Conselho Consultivo Andreya Mendes de Almeida Scherer Navarro Caio de Oliveira Lima Antonio Carlos Martins Soares Francisco de Assis M. Tavares Artur de Brito Gueiros Souza Ricardo Máximo Gomes Ferraz Filiais Sede: Rio de Janeiro Minas Gerais (Divulgação) Av. Presidente Vargas - n° 446 – Sergio Ricardo de Souza 7° andar - Sala 705 [email protected] CEP: 20071-000 Belo Horizonte – MG Centro – Rio de Janeiro – RJ Tel. (31) 9296-1764 Tel. (21) 3933-4004 / (21) 3249-2898 Santa Catarina (Divulgação) São Paulo (Distribuidor) Cristiano Alfama Mabilia Rua Sousa Lima, 75 – [email protected] CEP: 01153-020 Florianópolis – SC Barra Funda – São Paulo – SP Tel. (48) 9981-9353 Telefax (11) 5908-0240 Sergio André Rocha Brazil’s International Tax Policy Editora Lumen Juris Rio de Janeiro 2017 Copyright © 2017 by Sergio André Rocha Categoria: PRODUÇÃO EDITORIAL Livraria e Editora Lumen Juris Ltda. Diagramação: Rômulo Lentini A LIVRARIA E EDITORA LUMEN JURIS LTDA. não se responsabiliza pelas opiniões emitidas nesta obra por seu Autor. É proibida a reprodução total ou parcial, por qualquer meio ou processo, inclusive quanto às características gráficas e/ou editoriais. A violação de direitos autorais constitui crime (Código Penal, art. 184 e §§, e Lei nº 6.895, de 17/12/1980), sujeitando-se a busca e apreensão e indenizações diversas (Lei nº 9.610/98). Todos os direitos desta edição reservados à Livraria e Editora Lumen Juris Ltda. Impresso no Brasil Printed in Brazil CIP-BRASIL. CATALOGAÇÃO-NA-FONTE ________________________________________ To my wife Fernanda and our little princess Julia. Without your patience and support this book would not have been possible. Acknowlegments My sincere thanks to Carlos Alexandre de Azevedo Campos and Ramon Tomazela Santos for reading and commenting the original version of this book. My appreciation also goes to Daniel Tocci, whose help was invaluable in translating additions to the Portuguese version of this book into English. Special thanks to Hendrick Smith, the “word killer”, my English teacher for more than 10 years. Without your lessons and assistance I would never have been able to produce works like this book. Table of Contents Introduction ..................................................................................................... 1 1. The Context of this Thesis ...................................................................... 1 2. Research Problem, Questions, and Hypotheses ....................................... 9 3. Methodology .......................................................................................... 10 4. Justification .............................................................................................14 5. Brief Clarifications on Terms Used and Translations ............................ 16 1. Brazil’s Treaty Policy ................................................................................... 19 1.1. Chronology of Brazil’s Tax Treaties ..................................................... 19 1.2. Initial Impetus for Brazil’s Treaty History: Why Brazil Started Signing DTCs .....................................................21 1.3. The Impacts of the OECD and the UN Model Conventions on Brazil’s Treaty Policy ............................................... 26 1.3.1. Brief Comments on the Structure of the OECD and the UN Model Conventions .......................................... 26 1.3.2. Persons Covered (Article 1) ............................................................. 30 1.3.3. Taxes Covered (Article 2) .................................................................31 1.3.4. General Definitions (Article 3) ........................................................ 34 1.3.5. Resident (Article 4) .......................................................................... 36 1.3.6. Permanent Establishment (Article 5) ............................................... 38 1.3.7. Distributive Rules ............................................................................. 43 1.3.8. Income from Immovable Property (Article 6) .................................. 45 1.3.9. Business Profits (Article 7) ............................................................... 46 1.3.10. Shipping, Inland Waterways Transport, and Air Transport (Article 8) ............................................................51 1.3.11. Associated Enterprises (Article 9) .................................................. 52 1.3.12. Dividends (Article 10) .................................................................... 53 1.3.13. Interest (Article 11) ........................................................................ 57 1.3.14. Royalties (Article 12) ...................................................................... 59 1.3.15. Capital Gains (Article 13) .............................................................. 63 1.3.16. Independent Personal Services (Article 14) .................................... 64 1.3.17. Income from Employment (Article 15) ........................................... 66 1.3.18. Director’s Fees (Article 16) ............................................................. 67 1.3.19. Entertainers and Sportspersons (Article 17) ................................... 68 1.3.20. Pensions (Article 18) ...................................................................... 69 1.3.21. Government Service (Article 19) ................................................... 70 1.3.22. Students (Article 20) ...................................................................... 70 1.3.23. Other Income (Article 21) .............................................................. 71 1.3.24. Taxation of Capital (Article 22) ..................................................... 73 1.3.25. Methods for Elimination of Double Taxation (Article 23) ............. 73 1.3.26. Non-Discrimination (Article 24).................................................... 76 1.3.27. Mutual Agreement Procedure (Article 25) ..................................... 77 1.3.28. Exchange of Information (Article 26) ........................................... 78 1.3.29. Assistance in the Collection of Taxes (Article 27) ......................... 80 1.3.30. Member of Diplomatic Missions and Consular Posts (Article 28) . 80 1.3.31. Territorial Extension, Entry into Force, and Termination (Article 29) ............................................................ 80 1.3.32. Entry into Force and Termination (Articles 30 and 31) ................. 80 1.3.33. Conclusion Regarding Which Model has Most Influenced Brazil’s Treaty Policy .............................................. 81 1.4. How the OECD and the UN Commentaries to their Model Conventions Impact the Application of Tax Treaties by Tax Authorities and Courts in Brazil ................. 89 1.4.1. How to Read the OECD and the UN Commentaries and Assess Their Force in Brazil .............................. 90 1.4.2. Technical Service Payments and the Application of Article 7 of the Models ............................................. 91 1.4.2.1. CARF Decisions on the Characterization of a Permanent Establishment in Brazil ............................................ 98 1.4.3. Brazil’s CFC Rules and the Country’s Tax Treaties .........................101 1.4.3.1. A Historical Overview of Brazil’s CFC Regime and the Controversy Regarding International Tax Conventions .....101 1.4.3.2. Brazil’s Tax Office’s Position in COSIT’s Internal Ruling No. 18/2013 ..............................................111 1.4.3.3. The Administrative Tax Appeals Council’s Position on the Relationship Between the Country’s DTCs and Article 74 of Provisional Measure No. 2,158-35 of 2001 ..................113 1.4.3.3.1. Decision No. 108-08.765 (2006): REFRATEC Case .................113 1.4.3.3.2. Decision No. 101- 95.802 (2006): Eagle Case (1) .......................114 1.4.3.3.3. Decision No. 101-97.070 (2008): Eagle Case (2) ........................116 1.4.3.3.4. Decision No. 1402-00.391 (2011): Normus Case ........................117 1.4.3.3.5. Decision No. 1101-00.365 (2012): Camargo Correa Case ..........119 1.4.3.3.6. Decision No. 1101-000.811 (2012): Gerdau Case ...................... 120 1.4.3.3.7. Decision No. 1201