Originally published on the march 15 edition of World Tax Daily (Copyrights Tax Analysts www.taxanalysts.com )
Brazil and the United States are in the process of negotiating an agreement for the exchange of tax information between the two countries.
Brazil and the United States are in the process of negotiating an agreement for the exchange of tax information between the two countries. The Brazilian Federal Revenue Department and the U.S. Treasury Department have met on at least two occasions in recent months. The forthcoming agreement may be the first step in negotiating a long-awaited comprehensive double tax convention between the two countries.
In meetings held March 9 in São Paulo, Brazilian President Luiz Inácio Lula da Silva and U.S. President George W. Bush limited their talks to ethanol and other trade issues. However, the business community in Brazil and the United States hopes that the two presidents will discuss the possibility of negotiating a bilateral income tax treaty when Lula da Silva visits Camp David in late March.
Business associations in both countries have been advocating that the tax treaty issue be elevated to the level of presidential talks. In a February letter, 46 multinational corporations, including Alcoa, Cargill, Dow, Brazilian Embraer, General Motors, IBM, and Microsoft, asked Bush to raise the tax treaty issue with Lula da Silva. The multinational corporations said that a comprehensive income tax treaty between the two countries would stimulate bilateral investment and economic development.
A tax treaty would be advantageous to companies in both countries because it would permit both countries to lower taxes. Although the United States has a broad and complex set of rules on foreign-source income, a tax treaty should make conducting business easier and the tax system more efficient. From the Brazilian perspective, a tax treaty should maximize tax credits and minimize investigations by tax authorities of the tax treatment of some transactions.
There is a significant obstacle to the negotiation of a tax treaty. The United States will insist that the two countries also negotiate an agreement to protect U.S. investments in Brazil, whereby disputes initiated in Brazil could be decided by international courts of arbitration. Brazil is opposed to linking the two issues. Many attempts to negotiate similar agreements with other countries have faced fierce opposition in the Brazilian Congress and have never become a reality.