New Brazil MAP guidance aids taxpayers seeking cross-border tax relief

By Francisco Lisboa Moreira, Bichara Advogados

Continuing its effort to place Brazilian tax laws in line with international standards following Brazil’s official request to join the OECD, made May 2017, the Brazilian Revenue Authority has issued an official manual addressing the mutual agreement procedure (MAP) for resolution cross-border tax disputes.

The new Brazil MAP manual, issued December 14, 2018, highlights some of the views and interpretations of the MAP provisions agreed to by Brazil in tax treaties, as well as the general normative instruction that currently regulates the matter in Brazil, NI n. 1846/2018.

The Brazil MAP manual is presented in PowerPoint format, which is a rather unusual method for the Brazilian authorities, but still a valid format.

Starting a Brazil MAP

The manual states that a MAP procedure can be started whenever an individual or entity disagrees with a specific provision of tax legislation that may be contrary to a double tax agreement signed by the country.

An interesting feature is the guidance’s discussion of MAP for associated enterprises that face double taxation arising from a transfer pricing adjustment. Such entities should start the MAP before the competent authority of the State where such company is a resident, the guidance states.

Who may start a MAP

A Brazilian resident that believes that measures taken by Brazil or the other contracting state are not aligned with the treaty may commence a in Brazil.

Also, a Brazilian national may start a Brazil MAP if measures taken by Brazil or the other contracting state are against Brazil’s double tax agreement with Finland, Mexico, South Korea, Trinidad and Tobago, or Turkey.

The case of the treaty with Argentina, a resident in the other contracting state may start a MAP if the measures taken by Brazil or the other contracting state are not in accordance with the double tax agreement and result in double taxation.

Timing and statutes of limitations

The statute of limitations for the tax authorities to collect (or the taxpayers to recover) any tax in Brazil is five years. The manual states that when a double tax agreement is silent, a MAP must begin within five years of the date of the payment.

There is no explanation as to the commencement of the five year period to file the MAP – as in Brazil, in some cases, the statute of limitation will run as from the first day of the calendar year in which the tax authorities could have assessed the tax, and in some cases the total time of the statute of limitations may take six years as from the date of the payment of the tax. The manual also mentions that filing of the MAP request shall not interrupt or suspend the statutes of limitations, which is a common feature in some administrative procedures in Brazil.

Access to Brazil MAP

The manual mentions some of the requirements for access to MAP, stating that the direct ownership controlling entity or individual must be identified as well as the ultimate owner (ultimate beneficiary). This provision may lead to the Brazilian authorities not granting MAP access under a treaty shopping allegation.

Some of the OECD/G20 base erosion profit shifting (BEPS) Action Plan 14 requirements are included in the new Brazil MAP guidance: the MAP filings are free of charge and the secrecy of the information obtained and exchanged is guaranteed.

Brazil MAP will be started and admitted only for the Corporate Income Tax, Social Contribution Tax, or any other taxes included in the corresponding double tax agreement.

Parallel procedures

There is no timeframe for the conclusion of a Brazil MAP, which raises issues about the recovery of unduly paid taxes in Brazil.

The implementation of the solution requires proof that no other judicial or administrative discussions regarding the same matter are in place.  Requesting a MAP while filing for a judicial or administrative matter might be a strategy to safeguard the taxpayers´ rights (and forfeited if a favorable solution is reached in the MAP).

This is confirmed by the manual, as it mentions that “filing for the MAP does not require forfeiting any judicial or administrative procedure on the same matter;” however, the corresponding competent authority must be informed of the so-called “parallel” procedure.

As of today, the following tax treaties are in force in Brazil: Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Germany, Hungary, India, Israel, Italy, Japan, Luxemburg, Mexico, Netherlands, Norway, Peru, Portugal, Philippines, Russia, Slovakia, South Africa, South Korea, Spain, Sweden, Trinidad y Tobago, Turkey, Ukraine, and Venezuela.

Treaties signed with Singapore and Switzerland are pending approval before the Brazilian Congress.

The rules for the MAP may vary from treaty to treaty, and a detailed analysis of the Treaty, the internal legislation of Brazil and the other treaty partner, and the commentaries to the OECD Model Convention (as a source of soft Law) may be important when deciding where to file the MAP.