On March 20, Brazil and the United States signed an agreement for exchange of tax information. The agreement permits the exchange of information regarding the collection of taxes from individuals, legal entities and unincorporated entities. Below is a brief review of the terms of the agreement.
The agreement lists the federal taxes in the United States and in Brazil covered thereunder, as follows:
- In case of the United States:
a. Federal income taxes;
b. Federal taxes on self-employment income;
c. Federal estate and gift taxes; and
d. Federal excise taxes.
- In case of Brazil:
a. Individual and corporate income tax;
b. Industrialized products tax (IPI);
c. Financial transactions tax (IOF);
d. Rural property tax (ITR);
e. Contribution for the program of social integration (P.I.S.);
f. Social contribution for the financing of social security (COFINS) and
g. Social contribution on net profits (CSLL).
Regardless of the list of tax covered by the agreement, a clause therein provides that it will apply to any federal identical or substantially similar taxes created or imposed after its signature, if the parties so agree. Taxes imposed by political subdivisions of either country, such as states, counties or municipalities, are not covered by the agreement.
The agreement neither applies where a given proceeding is barred by the statute of limitations in the requesting country.
As for the territory of the United States, the agreement includes Puerto Rico, the Virgin Islands, Guam and any other US possession or territory.
The exchange of tax information will take place without regard to whether the country receiving the request actually needs such information for its own tax purposes or the conduct under investigation would constitute a crime under the laws of such a requested country. Any request under the agreement should be made only if the requesting country is unable to obtain the information by other reasonable means.
To the extent allowable under the domestic laws of the requested country, exchange of tax information under the agreement includes, among others (i) taking testimony or the production of books, papers, records and other tangible property; (ii) placing individuals under oath; (iii) permitting representatives of the requesting country to be present during tax examinations and document verification; (iv) questioning of individuals giving testimony; (v) obtaining copies of tax and banking information; (vi) obtaining information of companies and other legal entities and unincorporated entities.
Upon requesting information, the requesting country must follow certain procedures and formalities which include, among others, proper identification of the taxpayer, period of time with respect to which the information is requested, nature and form of the information and the reasons for believing that the requested information is relevant for the tax administration.
The agreement also contains a clause on tax investigations abroad where tax officials of one country may enter into the other country to carry on certain activities such as interviewing individuals or examining books and records.
Three are the situations where a requested country may decline to assist the requesting country:
• Where the request is not made in conformity of the agreement;
• Where the requesting country has not pursued all means available in its own territory to obtain the requested information; and
• Where disclosure of the information would be contrary to the public policy of the requested country.
The requested country, also, is not required to obtain and provide information which the requesting country would be unable to obtain in similar circumstances under its own laws for tax purposes. This clause prevents, therefore, that one country, legally unable to obtain tax information in its own territory, uses the agreement to bypass the legal restriction and obtain the same information in the other country.
The agreement also contains specific clauses on confidentiality, costs, mutual agreement procedure, mutual assistance procedures, entry into force and termination. As for mutual assistance, the agreement provides that the contracting countries may exchage technical know-how, develop new audit techniques, identify new areas of non-compliance and jointly study non-compliance areas.
For the agreement become effective in Brazil, it must first be submitted to the Brazilian Congress. Thereafter, a presidential decree is necessary to introduce the agreement into Brazil’s legal system.