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Brazil and Switzerland sign double tax treaty

Executive summary

On 3 May 2018, Brazil and Switzerland signed a treaty for the elimination of double taxation with respect to taxes on income and the prevention of tax evasion and avoidance (the Treaty). Once ratified by both jurisdictions, the Treaty will come into force. In Switzerland, the Federal Department of Finance will issue a dispatch to the Federal Parliament for approval (ratification). Under Brazilian legislation, the Treaty needs to be ratified by the National Congress and published in the Official Gazette through a Presidential Decree. This internal process is usually time consuming and, thus, it is not possible to foresee when the Treaty will come into force.

This Treaty is singular from a Brazilian perspective to the extent that it contains some clauses that are not included in any of the other 33 double tax treaties concluded by Brazil. In addition, Switzerland was considered by the Brazilian tax authorities as a low-tax jurisdiction in the past, and Swiss entities benefiting from certain privileged tax regimes in Switzerland that result in a tax rate of lower than 20% are still classified under the Brazilian “grey list,” i.e., considered privileged tax regimes.

While Switzerland has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument or MLI), which is expected to enter into force in Switzerland in 2019, Brazil has not yet signed the instrument.

The Treaty provisions are partially in line with the Organisation for Economic Co-operation and Development (OECD) standards and the OECD’s Base Erosion and Profit Shifting (BEPS) action plans.

This Alert summarizes the key provisions of the Treaty.

Detailed discussion

Persons covered

The Protocol to the signed double tax treaty addresses the issue of whether Collective Investment Vehicles (CIVs) can qualify as a covered person for treaty purposes. According to the Protocol, this is only considered to be the case to the extent that the beneficial interests in these CIVs are owned by residents of the Contracting State in which the CIVs are established.

Taxes covered

The Treaty covers taxes on income in Brazil and Switzerland. For the first time, the Brazilian Social Contribution on Net Profit (CSLL) is mentioned in the scope of the Treaty, instead of in the Protocol.

Pension funds

The Treaty considers pension funds (defined in Article 3) as residents in the Contracting State where they are established. This is the first Brazil double tax treaty to include such provisions.


The Treaty has adopted the “liable-to-tax” criteria for residence purposes. It treats as a resident in a Contracting State any entity operated exclusively for religious, charitable, scientific, cultural, sporting or educational purposes, even if all or part of its income or gains is exempt from tax under domestic law, as well as the previously mentioned pension funds.

In addition, notwithstanding the recommendations on BEPS Action 2, the place of effective management was selected as a residence tie-breaker rule for persons other than individuals.

Permanent establishment

The definition of a permanent establishment (PE) corresponds to the wording of the OECD Model Treaty with the exception for a construction-site PE. The Treaty defines a construction-site PE as conducting activities in the country for a minimum of 9 months, which deviates both from the OECD model (12 months) and the United Nations model (6 months).

Despite the existence of PE provisions in all tax treaties signed by Brazil, Brazilian domestic legislation does not have a PE provision and does not provide for the taxation of PEs. Switzerland, on the other hand, has a unilateral exemption of income attributable to a foreign PE in its domestic law.

Also, the Treaty does not include any text in accordance with the suggestions of BEPS Action 7 regarding PEs, some of which had been incorporated into the Brazil-Argentina Double Tax Treaty by means of the Protocol signed in 2017.

Transfer pricing adjustments

The Treaty does not include a corresponding adjustment clause for transactions between associated enterprises. In this sense, transfer pricing disputes should be solved by Mutual Agreement Procedure (MAP). This is a common trend in all tax treaties concluded by Brazil.


Dividends may be taxed in the source country up to the following limits:

  • 15% of the gross amount (general rule)


  • 10% of the gross amounts on dividends paid to companies that hold more than 10% for at least one year and qualify as beneficial owner

Taxation at source is not imposed when the recipient is a pension fund or the Central Bank of the other Contracting State.

This article of the Treaty is not relevant for dividends from Brazil to Switzerland, considering that the Brazilian domestic rules are still more beneficial than the provisions of the Treaty.


Interest may be taxed in the source country up to the following limits:

  • 15% of the gross amount (general rule)


  • 10% of the gross amount, if the beneficial owner is a bank and the loan has been granted for at least five years, for the financing of the purchase of equipment or of investment projects

Taxation at source is not imposed when the recipient is a pension fund or the Government, political subdivision, local authority, agency wholly owned by that Government or the Central Bank of a Contracting State.

The Brazilian interest on net equity (JCP) was included in the definition of interest in the Protocol. Switzerland does not levy Swiss withholding tax on interest deriving from regular loan agreements. However, interest on bonds and bond-like loans, as well as bank interest, are generally subject to Swiss withholding tax.


Royalties may be taxed in the source country up to the following limits:

  • 10% of the gross amount (general rule)


  • 15% of the gross amount of the royalties arising from the use or the right to use trademarks

The Protocol defines technical assistance as royalties, but technical services were considered out of Article 12’s scope.

Switzerland does not levy Swiss withholding tax on royalties.

Technical services

Fees from technical services are addressed in a separate article, under which they may be taxed in both Contracting States. This is the first Brazilian treaty in which such a provision has been included separately.

Unlike the recently signed Protocol to the Argentina-Brazil Treaty, the Treaty between Brazil and Switzerland does not adopt as broad a definition of technical services as that included in Brazilian Normative Instruction 1,455/14. According to NI 1,455/14, technical services also encompass administrative services and the use of automated structures with a technological content.

Technical services may be subject to withholding tax in the source country of up to 10%. This article, however, does not apply to: (i) fees paid to an employee of the payer; (ii) fees for teaching in an educational institution or for teaching by an educational institution; and (iii) fees paid by an individual for services for his personal use. This 10% rate is lower than the 15% rate provided by Brazilian domestic law.

Switzerland does not levy Swiss withholding tax on fees from technical services.

Alienation of property

Gains from the disposal of shares or comparable interests in land-rich entities will be taxable in the country where the land is situated. This is the first time, such a provision was included in a treaty concluded by Brazil.

Elimination of double taxation

The Treaty determined that a Swiss company receiving dividends from a Brazilian company shall be entitled, for Swiss tax purposes, to the same relief that would be granted if the company paying dividends were resident in Switzerland. In this way, this provision allows a credit even if dividends are not taxed in Brazil (the current withholding tax is zero).

No matching credit clause was provided in the Treaty.


Non-discrimination rules will generally prevent Brazil and Switzerland from treating each other’s nationals any less favorably – for tax purposes – than they would treat their own nationals in similar circumstances.

Non-discrimination applies only to taxes defined under the treaty, and cannot be extended to auxiliary obligations related to these taxes.

Notwithstanding the recommendations on BEPS Actions 3 and 4, there are no express provisions regarding controlled foreign company (CFC) and thin capitalization rules included in the treaty.

Brazilian CFC rules and tax treaties

Most recent treaties signed by Brazil explicitly mention that the provisions of the treaty should not be used to avoid the application of CFC and thin capitalization rules by any of the Contracting States. The Treaty with Switzerland solely contains a paragraph in the Protocol stating that the provisions of the Treaty should not prevent the application of anti-avoidance rules imposed by any Contracting State. This may raise discussions regarding the nature of Brazilian rules regarding taxation of profits generated abroad (if they are anti-avoidance rules or not) and the capacity of the Treaty to avoid application of such rules.

Mutual Agreement Procedure

Taxpayers will have three years to seek the competent authorities’ assistance for the resolution of tax disputes arising as to the interpretation or application of the Treaty. The implementation of a three-year limit in connection with a MAP case is new from a Brazilian perspective.

Notwithstanding Action 14 of BEPS, no arbitration clause was included in the Treaty.

Exchange of information

The Treaty contains a legal basis for the exchange of taxpayer information between tax officials upon request.

In 2015, Brazil and Switzerland had signed a tax information exchange agreement. However, this agreement has not been ratified to date.

Entitlement to benefits

In line with the recommendations from BEPS Action 6, the Treaty provides for a detailed principal purpose test and limitation of benefits clause.

Most Favored Nation clause

According to the Protocol, if after the signature of the Treaty, Brazil agrees with another country on rates that are lower (including exemptions) than the ones provided under the articles on dividends, interest, royalties or technical services, such rates shall be extended to this treaty.

EYG no. 02813-181Gbl

Download this Tax Alert as a PDF file.

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