Brazil’s Federal Revenue (RFB) has opened a public consultation aimed at regulating how mutual agreement procedure (MAP) provisions apply to conventions and international agreements created to avoid double taxation.

Brazil has conventions or agreements to avoid double taxation (DTT) with 32 countries, all including MAP provisions. When issues arise, whether from Brazil or the other contracting state, that are contrary to the DTT, they must be submitted to the analysis of both contracting states.

However, the RFB does not currently regulate MAP – there is no formal regulation or law in Brazil setting out this resolution process. Another factor affecting MAPs is the Base Erosion and Profit Shifting (BEPS) initiative arising from the OECD. As part of BEPS implementation, the RFB intends to make BEPS Action 14 effective, which will establish minimum standards for MAP.

The RFB is currently reviewing the responses to a public consultation about its plans regarding the application of MAP in DTT matters. Among the features of the RFB’s draft is a provision that says the mutual agreement procedure is not litigation, and the competent authorities from both contracting states take part in such procedure.

This request must be made to the RFB unit where the taxpayer is domiciled, filling out the appropriate form with the following information:

  • applicant's identification
  • the periods of time referred to in the application
  • of the amount of tax involved
  • identification of foreign tax authorities involved or, where appropriate, regional or local tax administration whose action led or may lead to taxation not in accordance with DTT
  • the measures taken by one or both of the contracting states as well as whether these led or may lead to taxation not in accordance with DTT
  • the relevant tax law, when applicable, which has led or may lead to taxation not in accordance with DTT
  • reference to DTT and legal provision subject to controversy
  • identification of the direct and final controllers, in the case of an application presented by a legal entity, as well as their countries of residence for tax purposes, in case the object under application involves them
  • identification of related entities or persons domiciled abroad who are involved in this procedure, where applicable, and their country or countries of residence
  • copy of any documentation received or requested by a foreign governmental authority , including the information submitted in a response
  • copy of any agreement or arrangement made with any foreign tax authority that has to do with the application
  • indication that the matter was submitted to judicial or administrative review, in Brazil or in the other contracting state, with a copy of the petition attached. This assessment covers advance pricing arrangements (APA), rulings or similar procedures.

If the provided documents are written in a language other than Portuguese, they must be accompanied by a translation to Portuguese through diplomatic channels or signed by a sworn translator, except in the case of documents in English or Spanish.

MAP will only be used for an actual factual situation and not in theory: applicants must present all documents that substantiate their case when the application is filed.

In the event that MAP involves a potential tax refund, the applicant must also submit a credit refund request by using a specific form.

MAP will be accepted by RFB when all requirements have been met and provided that the case also addresses the following taxes:

  • Income tax
  • Social contribution on net income or
  • Other[NM1] taxes in the other contracting state covered by DTT.

The application will not be accepted when it concerns:

  • a case submitted by the applicant itself for the consideration of the judicial courts, even when it may be subject to an appeal
  • a case already decided by the judicial courts, with result affecting the applicant, that no longer can be appealed
  • a case submitted by the applicant itself to administrative litigation, when a decision is pending, even when it may be subject to an appeal
  • situations involving other taxpayers, even when these belong to the same economic group, or
  • tax on which the statute of limitations is already applicable.

When RFB arrives at a resolution, it shall issue an order validating its decision, which must include:

  • interpretations or procedures adopted, and any commitments made by the competent authorities to suspend taxation not in accordance with DTT
  • facts, circumstances and legal mechanisms that underlie the solution and
  • taxes due and the periods to which they relate.

The implementation of the solution must be preceded by:

  • an agreement of the applicant and persons related domiciled abroad involved in the solution and
  • proof that the applicant has expressly and irrevocably dropped any defenses or appeals, as well as lawsuits, which cover the same matter as the MAP, waiving any future actions over such defenses, appeals or lawsuits.

If RFB cannot reach a solution to a case submitted to it, then it will issue a decision explaining the reasons.

*Alex Jorge and Humberto Marini are partners in the Tax practice of Campos Mello Advogados, an independent law firm in Brazil.