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India-Brazil Double Taxation Avoidance Agreement (DTAA)
The governments of India and the Federative Republic of Brazil collaborated to establish a Double Taxation Avoidance Agreement (DTAA) for the avoidance of double taxation and the prevention of fiscal evasion concerning taxes on income. The agreement was initially signed on April 26, 1988, and ratified on March 11, 1992. Subsequently, amending protocols were signed on October 15, 2013, and August 24, 2022, with provisions pending ratification by both countries to align the DTAA with international standards and practices.
Applicability
The India-Brazil DTAA addresses the following taxes within the contracting states:
a. In India:
- Income tax, including any surcharges.
b. In Brazil:
- Federal income tax, excluding supplementary income tax.
- Tax on activities of minor importance.
Key Takeaways
Here are key aspects to consider regarding the India-Brazil DTAA:
- Withholding Tax Rates: The DTAA specifies applicable withholding tax rates as follows:
- Dividends: 15%, with exceptions for dividends awarded to Brazilian or foreign residents.
- Interest: 15%, with exemptions for interests earned by government or specified institutions.
- Royalties: 25% for trademark usage and 15% for all other cases.
- Capital Gains: The DTAA imposes no withholding limitation on capital gains. However, gains from the sale of ships or aircraft operated in international traffic are taxable only in the country where the company’s headquarters are located.
- Exchange of Information: The contracting states commit to exchanging any and all information that is relevant to carrying out the provisions and management of taxation. This shared information is treated as confidential.
- Reciprocal Tax Sparing Clause: The DTAA includes a reciprocal tax sparing clause that obliges India to grant tax credits at a deemed withholding rate for specific payments made by Brazilian residents and vice versa.
Significance
The India-Brazil DTAA holds significant importance in the context of international tax regulations. Its articles align with “Base Erosion and Profit Shifting” (BEPS) and “The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). This alignment is instrumental in combating tax evasion and avoidance, as well as treaty shopping practices.
The DTAA empowers companies resident in India and Brazil to benefit from the treaty, effectively avoiding double taxation and mitigating the risk of taxation at higher rates. Additionally, the agreement includes clauses related to minimum standards, BEPS, principal purpose tests, general anti-abuse provisions, and a simplified limitation of benefits (LOB) clause in line with the recommendations of the G-20 and the Organization for Economic Co-operation and Development (OECD).
In summary, the India-Brazil DTAA has significantly contributed to strengthening bilateral relations and fostering increased investments, thanks to lower tax rates, thereby benefiting both nations.
Chandrawat & Partners specializes in international tax agreements and is well-equipped to provide expert legal counsel on the India-Brazil Double Taxation Avoidance Agreement and related matters. For comprehensive legal guidance or assistance regarding this agreement, please do not hesitate to contact us. We are committed to providing professional legal services and helping you navigate the complexities of international tax laws.
For further information or to seek our expertise on this agreement or other legal matters, please reach out to us. We are here to serve your legal needs with the utmost professionalism and diligence.
To know more about DTAA relations between India and Brazil, please download our Guide.
