Global Tax Alert (News from Transfer Pricing and Americas Tax Center) | 8 December 2016

Brazil publishes Normative Instruction on mutual agreement procedures under tax treaties

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The Brazilian Revenue Authority (Receita Federal do Brasil – RFB) published, on 10 November 2016, NI 1,669/16, which contains procedural and other rules on the mutual agreement procedure (MAP) under treaties for the avoidance of double taxation. The NI adopts the minimum standard for the resolution of treaty-related disputes under Action 14 of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) Action Plan, but does not adopt the set of best practices set forth in BEPS Action 14.

The NI distinguishes between a unilateral phase and a bilateral phase in the resolution of treaty-related disputes under the MAP. During the unilateral phase, the RFB determines whether a domestic solution can be found without involving the treaty partner. This phase may be followed by a bilateral phase in which the RFB involves the treaty partner. Under NI 1,669/16, a decision reached under the MAP cannot be appealed in either an administrative or a judicial court. Separate forms have been developed for a Brazilian taxpayer to initiate a MAP.

A major issue for the Brazilian tax practice will be how the MAP interacts with the domestic dispute resolution mechanisms. Typically, if a tax dispute arises, taxpayers in Brazil may either initiate an administrative or a judicial proceeding. In practice, taxpayers tend to first discuss the tax challenges at an administrative level and, if not successful in the dispute, initiate a judicial proceeding. At the administrative level, tax disputes are first decided by local RFB offices. A taxpayer or the RFB may appeal the determination to the Administrative Court of Tax Appeals. Tax disputes in Brazil generally take a few years to be settled.

A taxpayer must make the decision to initiate the administrative procedure, as a general rule, within one month of the receipt of the notice from the RFB requesting the collection of additional taxes or imposing penalties. NI 1,669/16 denies the taxpayer access to the MAP when a decision in an administrative or judicial proceeding on the matter has been reached, even though Brazil’s tax treaties stipulate that a MAP is available “irrespective of the remedies provided by the domestic law.” It does not provide that an administrative (or judicial) proceeding must be paused when a MAP is initiated. With the NI prohibiting access to the MAP when there is a decision in an administrative or judicial proceeding, the question arises whether this position complies with Brazil’s obligations under its treaties for the avoidance of double taxation and the minimum standard of BEPS Action 14.

On a positive note, NI 1,669/16 clarifies that transfer pricing matters can be the subject of a MAP. It remains to be seen whether this NI opens the door for further alignment between Brazil’s transfer pricing rules and those of other countries.

The RFB has not provided for arbitration as a dispute resolution mechanism. Arbitration is part of the set of best practices under BEPS Action 14.

NI 1,669/2016 is effective 10 November 2016.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Serviços Tributários S.S., International Tax Services, São Paulo
  • Willem Bon
    +55 11 2573 4081
  • Ana L. Marra
    +55 11 2573 4450
  • Gil F Mendes
    +55 11 2573 3466
Ernst & Young LLP (United Kingdom), Brazilian Tax Desk, London
  • Felipe Bastos Fortes
    +44 20 7980 0534
Ernst & Young LLP, Brazilian Tax Desk, New York
  • Erlan Valverde
    +1 212 773 7829
  • Francine B. Rosalem
    +1 212 773 9755
Ernst & Young LLP, Latin American Business Center, New York
  • Ana Mingramm
    +1 212 773 9190
  • Pablo Wejcman
    +1 212 773 5129
  • Enrique Perez Grovas
    +1 212 773 1594
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
  • Jose Padilla
    +44 20 7760 9253

EYG no. 04294-161Gbl