The Administrative Council of Tax Appeals (Carf) defined that the profit of indirect subsidiaries must be taxed even if the companies are established in countries with which Brazil has treaty to avoid double taxation.
The case that was analyzed is the one that the Brazilian company has a direct subsidiary in Spain, country which Brazil has a treaty to avoid double taxation. The Spanish subsidiary had other controlled companies in Argentina and Uruguay.
The results of the indirect subsidiaries were consolidated in the Spanish company but not in Brazil. Despite of that, Brazilian authorities charged the operation arguing that the treaty signed between Brazil and Spain does not reach the profit generated in Uruguay or Argentina.
As we can see, it is a clear case of double taxation, hurting the tax agreement, because the operation was charged in Brazil and Spain.
Brazilian government defended that the Agreement does not protect profits from other countries but only the companies in Brazil or Spain.
In reality, the decision must be reviewed and it is possible to discuss it again in Judiciary because it is a clear case of double taxation, violating the Agreement signed between Brazil and Spain.
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Gabriel Quintanilha is based in Rio de Janeiro. Gabriel has been an attorney at law since 2006. He is also Professor of Tax Law at Fundação Getulio Vargas – FGV and IBMEC. Author of books and articles published in Brazil.
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