On August 27th, 2018, the Presidential Decree No. 9.482 was published, enacting the Amendment’s Act to the Convention between Brazil and Argentina aimed at Avoiding Double Taxation and Preventing Tax Evasion on Income Taxation (DTT). Under the new Protocol, Argentina completed its internal procedures and notified Brazil on May 24th, 2018, and Brazil also completed its internal procedures and notified Argentina on June 29th, 2018.
The Convention was originally concluded in 1980 and the approved Amendment comes in order to modernize the current agreement between both countries, adjusting it to the increasing commercial exchange and internationalization of companies, as well as stimulating investments and a greater exchange of information.
The Amendment Protocol brought relevant changes to the current DTT, including (i) reduced withholding tax rates for interest and royalties, (ii) a system for the avoidance of double taxation, (iii) a definition of “technical assistance” and “technical services” and (iv) withholding tax rates on dividends, which are not currently taxed under Brazilian domestic law.
Furthermore, one of the purposes of the Amendment is also to reduce the possibilities of aggressive tax planning, with a wide-ranging article to combat Tax Evasion, adding several measures proposed in the Organization for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) Action Plan that should be taken into account by both Argentine and Brazilian taxpayers.
In this regard, one significant issue arising from the Amendment Protocol was a provision to prevent the granting of tax benefits if the company does not meet the requirements foreseen by the BEPS action plan. Additionally, the Act implements a provision regarding the exchange of information between tax administrations under internationally acceptance standards.
Generally, it is expected that the introduced changes will have substantial impact on improvement of Argentinean investments in Brazil and vice versa, increasing the cooperation between both tax administrations.
The Amendment Protocol has been in force since January 1st, 2019. Given their straightforward timeframe, it is crucial to understand the potential impact of the new provisions on current structures in order to mitigate risks.
Concerned taxpayers must ensure that they demonstrate appropriate substance in order to meet the requirements and benefit from the DTT, adapting their activities to the new procedures and provisions in force between Brazil and Argentina.
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