Treaty between Brazil and Turkey – details — Orbitax Tax News & Alerts
Details of the Brazil - Turkey Income Tax Treaty (2010) and protocol, signed on 16 December 2010, have become available. The treaty was concluded in the Turkish, Portuguese and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model.
The maximum rates of withholding tax are:
| – | 15% on dividends in general and 10% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company holding the dividends (article 10(2)(a) and (b)); | |
| – | 15% on interest, subject to exceptions for the governments and official banks (article 11(2) and (3)); and | |
| – | 10% on royalties in general and 15% on royalties arising from the use of or the right to use trademarks (article 12(2)(a) and (b)). |
Deviations from the OECD Model include that:
| – | article 4 (Resident) does not provide for the exclusion related to persons liable to tax in a state in respect only of income from sources in that state. A "legal head office (place of incorporation)" is included as a criteria to determine the residence in a state (article 4(1)); | |
| – | in case of dual residence of a person other than an individual, the competent authorities should endeavour to resolve the case. If mutual agreement cannot be reached, such person is not entitled to any tax benefits or exemptions provided by the treaty (article 4(3)); | |
| – | article 7 (Business Profits) generally follows the OECD Model (2008). However, paragraphs 4 and 6 of this model, related to the attribution of profits to a permanent establishment, are not included in the treaty; | |
| – | article 9 (Associated Enterprises) does not include paragraph 2 of the OECD Model, which provides relief for economic double taxation; | |
| – | the term "dividends" includes income derived from an investment fund and investment trust; | |
| – | the profits of a company resident of a state carrying on business in the other state through a permanent establishment (PE) may be taxed in that state, in addition to the corporate income tax, in accordance with the provisions of article 10(2)(a); accordingly, the tax charged may not exceed 10% of the gross amount of the dividends; | |
| – | the maximum withholding tax rate on interest provided in article 11(2) does not apply to interest arising in a state and paid to a PE of an enterprise of the other state which is situated in a third state (protocol paragraph 2); | |
| – | the term "interest" includes "other income assimilated to income from money lent by the tax law" of the state in which the income arises. In addition, penalty charges for late payment are not expressly excluded. This term also includes "interest on the company's equity" ("juros sobre capital próprio") paid in accordance with the Brazilian tax law (article 11(4) and protocol paragraph 2); | |
| – | the term "royalties" also includes payments of any kind received as consideration for the rendering of technical, assistance and technical services (protocol paragraph 3); | |
| – | article 8 provides an exclusive right to tax for the state of residence of the enterprise; | |
| – | the source state has the right to tax the gains from the alienation of any property not expressly mentioned in article 13, including capital gains from the alienation of shares (article 13(4)); | |
| – | the treaty includes an article on independent personal services generally following the UN Model (2001). This provision is also applicable if the activities are performed by a company or any other body of persons; | |
| – | article 16 is applicable to director's fees and other similar payments. In the case of Brazil, the article also applies to members of the administrative and fiscal councils established under the Brazilian corporate law; | |
| – | payments to nationals made under a public scheme that is part of the social security system of a state are taxable only in that state (article 18); | |
| – | the treaty includes a provision on teachers and researchers (article 20); | |
| – | the "other income article" generally follows the UN Model (2001) (article 22); | |
| – | the treaty includes a general provision on limitation of benefits (article 28) which allows the denial of benefits by competent authorities to any person, or with respect to any transaction, if in their opinion the receipt of those benefits, under the circumstances, would constitute an abuse of the treaty considering its purposes (article 28); and | |
| – | the non-discrimination clauses are limited to the taxes covered by the treaty (article 24). |
Both states generally provide for the credit method to avoid double taxation.
In the case of Brazil, the social contribution on the net profits (Contribuição Social sobre o Lucro Líquido – CSLL) is included in the taxes covered by the treaty (protocol paragraph 1).