DOUBLE TAXATION AGREEMENT - BRAZIL AND RUSSIA

Today, the decree that describes the DTA with Russia has been published.

As of today, Brazil has DTAs with all the BRICS countries.

The original text, in Portuguese, can be found in this link. 

Brazil adopts universal taxation for individuals and corporations - What to do?

Every time the Brazilian Revenue Service is about to lose a judicial battle, it lobbies for a change in the tax system. And gets it. Brazilian Royal Decree n. 627 from 2013 comes to further prove that saying.

*The actual name is Provisional Measure n. 627, but since it is an executive decree with the status of an act issued by the Parliament, it seems more appropriate to call it a Royal Decree, don't you think?

The aforementioned rule basically lists all the major lawsuits that the Revenue Service was losing, or about to lose, in the Superior Courts. And then gives a new, usually harsher, legal treatment to all the matters in dispute. (If only I could do that when discussing an Agreement)

Major topics are the valuation of Goodwill and complementary rules for the valuation of investments.

In my opinion, though, the greatest change has been the institution of universal taxation for individual. Or, in other words, a de facto prohibition of the use of tax havens by wealthy individuals, for tax planning.

So far, and keep in mind I'm talking about individuals only, not companies,  Brazil would only tax gains obtained abroad in two situations: first, when the values were made available directly to the individual, such as a deposit in his bank account and two, when the state of the deceased individual would have access to the gains, bringing them to Brazil.

A few years ago, Brazil had instituted universal taxation for companies that owned investments, or other companies, abroad. But the law didn't mention individuals. Thus, many companies were assigning foreign subsidiaries to this directors or shareholders, and them making use of them for tax planning purposes.

This "loophole" is now closed. Or is it?

The new rules are Byzantine, and not completely smart. I would say, for example, that the use of trusts or the use of several layers of companies would suffice to dodge them.

It seems that the main goal of the federal government was to coerce huge Brazilian companies (namely, Vale, Embraer and a few others) to retreat in their strategies to shift profits abroad.

In doing so, it has created a huge setback for Brazilians who invest in foreign retirement plans, foreign pensions or who want to manage real estate in Miami (since this kind of investment is usually made through companies).

I will discuss this Royal Decree further in future posts. 

Proud about tax planning: Google and me

Google's boss has just said that he is proud of Google's tax avoidance strategy (see below)

I'm also proud of Google's strategy to dodge taxes. That is what I do for a living and I must say that Google's lawyers have created a beautiful work of art when doing the company's tax planning. It is all there: offshore companies, subsidiaries, Dutch sandwich, money centers, tax havens. Bravo!

But Google must take UK and America's threats of taxing them seriously. They may look at Brazil and find out that the Brazilian government has seriously limited the use of offshore companies and tax havens by automatically taxing any gains from foreign subsidiaries the moment they are put on the books, and not when they are transferred to the controlling company (this last option would be the most usual in the civilized world).

Vale, the mining company, is waiting for a judgment on the legality of the Brazilian awkward (by awkward I mean unjust and crazy) tax regime. Some 15 billion US dollars are being claimed by the government. (By the way, check the development of a similar case here)

In order to avoid this kind of taxation, Brazilian companies are now making heavy use of the few Non double taxation agreements that Brazil has signed. Austria is a personal favorite, but the Netherlands are very popular.

Google, don't let the government be evil! Dodge the dogs and lions.

By the way, if you are a Brazilian individual with more than 40k USD on a bank, I'd recommend you to move your money abroad. Brazilian government has too much control over it, and the online system for money seizure is a real letdown for any businessman.

NOTE: For the pro government intervention readers (which should be none), here is the opposite view: http://treasureislands.org/google-boss-eric-schmidt-takes-a-dim-view-of-capitalism/.

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Google boss: I'm very proud of our tax avoidance scheme

Google's Chairman Eric Schmidt said £2.5 billion tax avoidance 'is called capitalism'

From:http://www.independent.co.uk/news/uk/home-news/google-boss-im-very-proud-of-our-tax-avoidance-scheme-8411974.html

The head of the internet giant Google has defiantly defended his company’s tax avoidance strategy claiming he was “proud” of the steps it had taken to cut its tax bill which were just “capitalism”.

In an interview in New York Eric Schmidt, Google’s Chairman, confirmed the company had no intention of paying more to the UK exchequer. Documents filed last month show that Google generated around £2.5 billion in UK sales last year but paid just £6m in corporation tax.

The Californian based search giant has also been revealed to have sheltered nearly $10bn of its revenues in Bermuda allowing it to avoid some $2bn in worldwide income taxes in 2011.

But Mr Schmidt said such schemes were legitimate and the company paid taxes “in the legally prescribed ways”.

“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate,” he said.

The Silicon Valley boss went on to suggest that Google would not turn down the opportunity to draw on the big savings allowed under the law in the countries it operates in: “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

He also ruled out following Starbucks in voluntarily handing more money over to the UK Government.

“There are lots of benefits to [being in Britain],” he said.

“It's very good for us, but to go back to shareholders and say, 'We looked at 200 countries but felt sorry for those British people so we want to [pay them more]', there is probably some law against doing that.”

Mr Schmidt’s defiant stance is unlikely to find favour on either side of the Atlantic with both the American and European Governments searching to find ways of forcing “stateless” internet companies such as Google to pay more tax.

The issue will be raised by George Osborne when Britain takes over the chairmanship of the G8 and will also be investigated by the Organisation for Economic Co-operation and Development (OECD).

Last week the Chancellor said he was committed to “leading the international effort” to prevent international companies transferring profits away from major economies, including Britain, to tax havens.

“We will put more resources into ensuring multi-national companies pay their proper share of taxes,” he said. “With Germany and now France, we have asked the OECD to take this work forward and we will make it an important priority of our G8 Presidency next year.”

Tonight Margaret Hodge, chairman of the powerful House of Commons Public Accounts Committee, which recently cross examined Google UK on its tax affairs said Mr Schmidt should be ashamed rather than proud of his company’s tax bill

“For Eric Schmidt to say that he is ‘proud’ of his company’s approach to paying tax is arrogant, out of touch and an insult to his customers here in the UK,” she said.

“Ordinary people who pay their taxes unquestioningly are sick and tired of seeing hugely profitable global companies like Google use every trick in the book to get out of contributing their fair share.

Google should recognise its obligations to countries like the UK from which it derives such huge benefits, and pay proper corporation tax on the profits it makes from economic activity here. It should be ashamed, not proud, to do anything less.
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