A measure reducing Brazil’s withholding tax rate from 15 percent to 10 percent on royalties paid to beneficiaries in Mexico was published in the official gazette on March 2.
Interpretative Declaratory Act 1/2007, which reduces Brazil’s withholding tax rate from 15 percent to 10 percent on royalties paid to beneficiaries in Mexico, was published in the official gazette on March 2. The measure, which does not apply to royalties for trademarks, is applicable with retroactive effect from January 1.
The reduction was triggered by the Brazil-South Africa treaty, which was introduced in Brazil’s legislation by Decree 5,922 of October 3, 2006. Article 12 of the treaty provides for a 15 percent tax rate applicable to royalties arising from the use of, or the right to use, trademarks; in all other cases, the rate is 10 percent.
The protocol to the Brazil-Mexico treaty (signed in Mexico City on September 25, 2003, and introduced in Brazil’s legal system by Decree 6,000, which was published in the official gazette on December 27, 2006) provides that if Brazil grants a lower tax rate (including an exemption) to any other country with which it signs a tax treaty, that lower rate will be extended to royalties paid to Mexico. The protocol further provides that in any event, the rate for royalties payable to Mexico cannot be less than 10 percent.
Originally published at the March 8 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)