Last month, after stalling for six years in the Brazilian senate, the United States-Brazil
Currently, U.S. businesses enjoy the benefits of tax treaties with more than 60 countries, including China, the UK, India, and Turkey. The treaties allow international businesses to avoid or mitigate double taxation, a serious disincentive for operating or investing overseas. Brazil, which is in the process of opening its notoriously protectionist economy, has no treaty with the U.S.
The TIEA, though, brings the countries closer to just such a tax treaty. In Brazil last month, U.S. Deputy Commerce Secretary Rebecca Blank called it a “first step.” Major companies with an interest in such a treaty, like U.S. food giant Cargill and Brazilian aerospace conglomerate Embraer, agree.
In fact, when U.S. and Brazil first signed the agreement back in 2007, they issued a joint statement declaring that while they “diverge on a number of important areas of tax treaty policy, making the conclusion of a mutually acceptable tax treaty difficult,” the agreement would put them on the road to one.
As evidenced by the TIEA, which was signed in 2007 but went into effect March 13, 2013, you shouldn’t expect a tax treaty overnight. But the long-term outlook for the tax environment is improving.
What Else You Should Know About the TIEA
1. Under the terms of the agreement, each government must provide the other with information on the payment of any and all taxes.
2. It also allows either government to enter the territory of the other government to interview individuals and examine records related to the local laws.
3. It will apply to requests made on or after the date of the agreement’s establishment, without regard to the taxable period to which the matter relates.
4. It puts a burden on banks and investment funds to cooperate with the Internal Revenue Service and with the Brazilian tax authorities.
Looking to expand your business in Brazil? Here are five more things you should know. This post was written by Christina Caamano, HSP Director of Advisory Services, Americas.