Why the USA-Brazil TIEA Could be Great News for Your Plans to Expand in Brazil
By Christina Caamano, Director of Advisory Services, Americas
Last month, after stalling for six years in the Brazilian senate, the United States-Brazil Tax Information Exchange Agreement went into effect. If you’re doing business in Brazil or looking to expand there, this, on its face, is not especially exciting news. Basically, the agreement allows the two countries’ governments to share information regarding tax collection. In the short run, this will mean more government scrutiny and could cause some headaches in adjusting to the new regime. But in the long run, the agreement could turn out to be very good news for one simple reason: It’s a step towards a tax treaty between the U.S. and Brazil.
Currently, U.S. businesses enjoy the benefits of tax treaties with more than 60 countries, including China, the UK, India, and Turkey. The treaties allow international businesses to avoid or mitigate double taxation, a serious disincentive for operating or investing overseas. Brazil, which is in the process of opening its notoriously protectionist economy, has no treaty with the U.S.
The TIEA, though, brings the countries closer to just such a tax treaty. In Brazil last month, U.S. Deputy Commerce Secretary Rebecca Blank called it a “first step.” Major companies with an interest in such a treaty, like U.S. food giant Cargill and Brazilian aerospace conglomerate Embraer, agree.
In fact, when U.S. and Brazil first signed the agreement back in 2007, they issued a joint statement declaring that while they “diverge on a number of important areas of tax treaty policy, making the conclusion of a mutually acceptable tax treaty difficult,” the agreement would put them on the road to one.
As evidenced by the TIEA, which was signed in 2007 but went into effect March 13, 2013, you shouldn’t expect a tax treaty overnight. But the long-term outlook for the tax environment is improving.
What Else You Should Know About the TIEA
1. Under the terms of the agreement, each government must provide the other with information on the payment of any and all taxes.
2. It also allows either government to enter the territory of the other government to interview individuals and examine records related to the local laws.
3. It will apply to requests made on or after the date of the agreement’s establishment, without regard to the taxable period to which the matter relates.
4. It puts a burden on banks and investment funds to cooperate with the Internal Revenue Service and with the Brazilian tax authorities.
Looking to expand your business in Brazil? Here are five more things you should know.
For more information about expanding into Brazil, or for help with your international operations in any country, please contact Radius.