On November 29, 2022, Brazil signed another international treaty, this time with the United Kingdom, to eliminate double taxation on income and prevent tax evasion. Until now, the two countries did not have such a treaty signed and the new measure will contribute to greater legal security between them, potential increase in the flow of investments and reduced tax burden.
This agreement is in line with the Convention Model of the Organization for Economic Cooperation & Development (OECD) guidance and with the OECD’s project for Erosion of the Domestic Tax Base and Shifting of Profits (BEPS), and has been developed by this international institution in a clear movement in the process of Brazil signing on to the OECD.
The Treaty with the UK has introduced certain novelties in relation to those already signed by Brazil with other nations so far, notably: (i) tax rate of 10% levied on the payment of royalties (rather than 15% as in most of the agreements signed by Brazil with other countries); (ii) a specific article to regulate taxation of payments for technical services, including reduction of rates applicable in the first years of effect; and (iii) mutual agreement procedure for granting adjustments on operations subject to transfer pricing operations.
The final text further depends on certain procedures in Brazil and the UK and will require the text to be ratified by Brazil’s Congress and signed into law by the President of the Republic.