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Amendments to the Double Taxation Agreement entered into by and between Argentina and Brazil

Amendments to the Double Taxation Agreement entered into by and between Argentina and Brazil

The Protocol of Amendment to the Agreement to Avoid Double Taxation and Prevent Tax Evasion with regard to Income Taxes between the Republic of Argentina and the Republic of Brazil and its Protocol (the “Amendment”), as approved by Law No. 27,441 (published in the Official Bulletin on 05/23/2018), entered into force on July 29, 2018.  The purpose of the Amendment is to adjust the Double Taxation Agreement (the “DTA” originally signed between both countries in 1980) to the new international scenario as concerns inter-State conventions by following the guidelines of the Organisation for Economic Co-operation and Development (OECD) and, in particular, the standards of the Base Erosion and Profit Shifting (“BEPS”) Project created to avoid abusive tax planning practices and improve information exchange mechanisms.

Below, we will provide a brief overview of some of the most important aspects of the Amendment:

  1. Wealth taxes are included within the scope of the DTA; thus, it will be applicable to Income Tax, Minimum Presumptive Income Tax and Tax on Personal Assets.
  2. The definition of Permanent Establishment (“PE”) is amended and a new subsection is included referring to PEs of insurance companies. According to such new subsection, it will be understood that an insurance company has a PE in the other Contracting State if it collects premiums in the territory of such other Contracting State or if it ensures risks located in such other State through a person other than an independent agent.
  3. As regards dividends, it provides that dividends will be taxable by both Contracting States but sets a cap of 10% of the gross dividend amount if the payee is a company that holds at least 25% of the capital stock of the payor, and a 15% cap in all other cases.
  4. Both Contracting States shall have the same rights regarding taxation of interest, which will be subject to a rate that may not exceed 15% of the gross amount thereof.
  5. Royalties shall be taxable at a rate that may not exceed 15% of the gross amount thereof – if such royalties derive from the use or license of trademarks– and 10% in the other cases.
  6. In addition, the definitions of “technical service” and “technical assistance” are included in the Protocol of the DTA.
  7. Other significant amendment refers to the method adopted by the DTA to avoid double taxation. The original wording provided for the exemption method for Argentina which, in some cases, led to double non-taxation situations. Under the new provisions, the tax credit method is allowed whereby credit is granted for the same tax paid in the other Contracting State.
  8. Another important aspect to be highlighted is the inclusion of the OECD guidelines on exchange of information, even though the original wording of the DTA contained some provisions in this connection.
  9. In order to include anti-abuse policies and in line with the provisions of the BEPS Project, the Amendment contemplates a limitation of benefits in those cases where it may be reasonably concluded that the obtention of the benefit granted by the DTA was the main purpose of the concluded deal, business or transaction.
  10. The changes provided for in the Amendment to the DTA:
  • will apply to the amounts paid as from January 2019 as regards sums withheld at source; and
  • for all other income and wealth taxes, the effects will apply to taxable events completed during fiscal years staring on January 1, 2019.

If you need any additional clarification or information on this issue, please contact Leandro Cáceres at 4319-7100 or by email at  lcaceres@brons.com.ar.