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The UK and the BRICs: Key Treaties Issues and Recent Developments BRAZIL

The UK and the BRICs: Key Treaties Issues and Recent Developments BRAZIL. Dr. João Dácio Rolim Tax Partner at Rolim, Godoi , Viotti & Leite Campos Advogados , 16/02/2011 j.d.rolim@rolimgvlc.com www.rolimgvlc.com . I - Key tax treaty issues (2011-2013)? .

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The UK and the BRICs: Key Treaties Issues and Recent Developments BRAZIL

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  1. The UK and the BRICs:Key Treaties Issues and Recent DevelopmentsBRAZIL Dr. João Dácio Rolim Tax Partner at Rolim, Godoi, Viotti & Leite Campos Advogados, 16/02/2011 j.d.rolim@rolimgvlc.com www.rolimgvlc.com

  2. I - Key tax treaty issues (2011-2013)? • treaty or judicial overriding (Arts 7x21) technical services (see below Copesul case) 2. transfer pricing (Art 9): *Would domestic legislation compatible with it? *Secondary adjustments (Germany 2006). 3. CFC rules and DTC (Arts 5 and 7 x 10) *Deemed dividends (8th Panel Decision 108-08.765/2006) *Undistributed Profits, entity approach (1st Panel Decision 101-97.070/2008).

  3. I - Key tax treaty issues (2011-2013)? 4. Application of domestic business purpose approach to international transactions and under DTCs (Vodafone case in India) 5. CIDE (social contribution on royalties) Law 10168/2000 (WHT 15% plus CIDE at 10% = 25%) *Art 2(2) DTCs taxes covered (‘any identical or substantially similar taxes on income’) *Art 24 DTC non-discrimination (case law?) *TRIPS Agreement (WTO): non-discrimination

  4. II - Which is a representative leading case of tax treaty interpretation? Art 7 x 21 (other income) Copesul case (E.I. N° 2002.71.00.006530-5/RS) 26 June 2009 * Facts: foreign provider of services with no PE in Brazil, payments fall within under Art 21 or 7? * Treaty prevails over domestic law * Purposive interpretation of treaties * OECD Commentaries: (Art 32 Vienna Conv.) * Other late decision (TRF 2RJ, 2010) completely just the opposite (rather narrow and literal, no mention to OECD Commentaries)

  5. III - Role of the OECD Transfer Pricing Guidelines and similar OECD documents in DTT interpretation? Source of inspiration and secondary means; It may be persuasive, not binding (Copesul); On TP domestic legislation under Art 9 DTC, see Administrative Tax Court Decisions: a) Germany/Brazil, no para 2 in Art 9, source country may define transfer pricing rules (103-21.859/2005); b) no fourth method (103-22.016/2005); c) no basket approach (101-96.665 of 2008); d) but possible the lowest tax burden not necessarily the best method (101-94.888/2005)

  6. IV - Evolutionary path of transfer pricing dispute resolution 1996 (1997): Apparently rigid profit margins Ongoing litigation (costs and length of cases) Administrative courts dealt with over 40 cases  In 2009 clearer powers were conferred to the Ministry of Finance to change the fixed profit margins (by sectors or economic activities). But neither APAs nor MAPs (no precedent) Draft legislation on tax arbitration for dispute resolution (2008) www.rolimgvlc.com

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