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18 May 2018
Brazil is the most important trading partner for Switzerland in Latin America, while Switzerland is the sixth largest investor in Brazil. The two countries recently took steps to strengthen their economic ties.
On May 3 2018 Switzerland and Brazil signed a double taxation agreement, which is a major achievement for both countries and has been a long-standing demand of the private sector. The new agreement will significantly increase Switzerland's attractiveness for Latin American investments and provide investors with legal certainty in tax matters.
Although Brazil is not (yet) a member state of the Organisation for Economic Cooperation and Development (OECD), the agreement has been drafted in line with the OECD's recommendations and is aligned with the base erosion and profit shifting actions. Specifically, it provides for:
The agreement includes the following provisions to facilitate international cross-border investments and financial transactions:
In addition to and deviating from other double taxation agreements entered into by Brazil, the latest agreement includes the following provisions:
Under Article 23 of the agreement, Brazil eliminates any relevant double taxation by applying the credit method, whereas Switzerland applies either the credit or the exemption method, depending on the source of income. In line with the OECD's recommendations, the agreement contains no tax sparing or tax matching clauses.
As a next step, the agreement must be approved by the Brazilian National Congress and the Swiss Parliament. Only once it has been ratified by both countries will the agreement enter into force. At this stage, it is hard to predict when this will happen.
Companies and corporate groups should review their structuring opportunities under the double taxation agreement, both for existing structures and international expansions. This may also apply to corporate groups with headquarters in third countries that substantially operate or plan to substantially operate in both Brazil and Switzerland.
For further information on this topic please contact Maurus Winzap or Martin Busenhart at Walder Wyss by telephone (+41 58 658 58 58) or email (email@example.com or firstname.lastname@example.org). The Walder Wyss website can be accessed at www.walderwyss.com.
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