International Tax Alert - July 2014
A longstanding Brazilian tax issue that has existed for more than a decade, with respect to the application of the business profits clause ("Article 7") of Income Tax Treaties (also known as Double Taxation Treaties or "DTTs"), has evolved in a positive direction. For more than a decade, the Brazilian tax agency ("RFB") applied a literal interpretation of the definition of business profits under Article 7 of DTTs. The RFB took a narrow position on the application of Article 7 of DTTs relating to net profits generated by a non-Brazilian person. Applying this narrow position, the RFB determined that a non-Brazilian person's items of gross income should not be covered by Article 7.