André de Almeida
On May 3, 2018, the Convention between the Swiss Confederation and The Federative Republic of Brazil for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance was signed.
Its immediate objective is to foster the economic relationship between the two countries, to be benefited by the establishing of limits to each signatory’s tax competencies, eliminating or minimizing the possibility of double taxation on income, conveying greater juridical certainty and security relative to their business transactions.
Such treaties for the elimination of double taxation are important instruments for the promotion of international trade and investment and many internationally-oriented institutions such as the Organization for Economic Cooperation and Development (OECD) of the United Nations espouse their application.
This being said, due to their technical nature the magnitude of these conventions is often not fully grasped by those without direct experience in the area, thus follows below a brief contextualization of the concept.
The increasing internationalization and sophisticated structuring of business, particularly following the growth of the digital economy, continually presents new challenges with respect to the rules, both international and national, that apply to taxation, and country governments are estimated to be losing hundreds of billions of U.S. dollars in fraudulent activity cost.
Therefore, faced with the inherent tension between the legitimate interest of companies in having greater tax efficiency relative to their business activities and the interest of country governments in implementing their fiscal policies, an international consensus is being formed with respect to the ethical and legal bases of a more just and effective global tax system.
According to the OECD, this system should be supported by several pillars, including which are transparency and the exchange of tax information between country governments, reason for which it founded the The Global Forum on Transparency and Exchange of Information for Tax Purposes, which promotes and monitors the implementation of agreed-upon standards in their respect within its membership, which includes Brazil.
Another supporting pillar to the system are measures taken against tax avoidance by way of company adoption of tax planning strategies that do not facilitate the transfer of profits to lower tax regimes and away from the geographic place where the economic activities actually occur and where value is created, which shifting of profits from (tax base erosion of the) higher tax jurisdictions is commonly referred to by the acronym BEPS (Base Erosion and Profit Shifting).
More so than ever, coordinated action and the joining of the greatest number of countries as possible to the cause will be necessary, needless to say just taxation being an essential element of sustainable and balanced global economic growth and that the reiterated employment of tax fraud has incited indignation in the public opinion.
Along these lines, it is noteworthy to highlight that the Switzerland-Brazil double taxation agreement incorporates the OECD’s standards, including specific clauses addressing the combat of tax evasion and its abusive use.
Given that such tax treaties accelerate economic cooperation between countries and promote economic advantage there is clear interest of Brazil in their prompt implementation.
Switzerland had taken the necessary measures, with the text of the Switzerland-Brazil double taxation treaty being duly approved by its parliament in such a way to render impossible the Brazilian government’s Executive Branch deferring its analysis or its Legislative Branch its approval.
There is no reason for Brazil to delay its adoption. Switzerland has already completed its homework and we need to show that we too capable of assuming our responsibilities with identical speed and precision.