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8Информация для цитирования:
Шури Л. Э., Галенди-Джуниор Р. А. БРИКС И ПЛАН БЭПС: ОБЗОР БРАЗИЛЬСКОЙ ПЕРСПЕКТИВЫ // Herald of the Euro-Asian Law Congress. 2018. № 2. С. 133-145.
Schoueri L. E., Galendi Junior R. A. THE BRICS AND THE BEPS PROJECT: AN OVERVIEW FROM A BRAZILIAN PERSPECTIVE. Herald of the Euro-Asian Law Congress. 2018. Is. 2. P. 133-145.
УДК 34
BISAC LAW 086000 / Taxation
БРИКС И ПЛАН БЭПС: ОБЗОР БРАЗИЛЬСКОЙ ПЕРСПЕКТИВЫ
ЛУИС ЭДУАРДО ШУРИ,
Институт бразильского налогового права (Сан-Паулу, Бразилия)
РИКАРДО АНДРЕ ГАЛЕНДИ-ДЖУНИОР,
Институт бразильского налогового права (Сан-Паулу, Бразилия)
Введение: настоящая статья посвящена обзору принятых в Бразилии мер в отношении плана БЭПС и поиска общих перспектив, которыми Бразилия может поделиться с другими государствами БРИКС.
Методы: анализ, сравнение, описание, толкование.
Анализ: в первой части статьи исследуются некоторые аспекты законодательства Бразилии, которые имеют отношение к плану БЭПС. Также рассматриваются договоры, в которые Бразилия недавно включила положения о борьбе со злоупотреблением. Во второй части представлены общие эволюционные аспекты договорной политики стран БРИКС, за которыми следуют соображения о необходимости сотрудничества между государствами БРИКС в целях проведения более всеобъемлющих реформ в области цифровой экономики.
Результаты: несмотря на то что в бразильском законодательстве по-прежнему не говорится об общих правилах борьбы с уклонением от налогов, Бразилия приняла специальные правила борьбы с уклонением от налогов. Кроме того, политика трансфертного ценообразования в Бразилии отклоняется от Руководящих принципов ОЭСР. Эти отклонения, если они будут надлежащим образом интерпретированы, могут способствовать решению текущих проблем применения законодательства о трансфертном ценообразовании, которое рассматривается в Руководящих принципах ОЭСР. Также указывается, почему бразильский режим налогообложения контролируемых иностранных компаний (КИК) не может быть отнесен к специальным правилам борьбы с уклонением от налогов. Кроме того, важно противопоставить бразильские меры мерам действия № 4 плана БЭПС.
Ключевые слова: БЭПС, общие правила борьбы с уклонением от налогов, специальные правила борьбы с уклонением от налогов, принципы ОЭСР, КИК, БРИКС, налогообложение, налоговые договоры
UDC 34
BISAC LAW 086000 / Taxation
THE BRICS AND THE BEPS PROJECT: AN OVERVIEW FROM A BRAZILIAN PERSPECTIVE
LUIS EDUARDO SCHOUERI,
Brazilian Tax Law Institute (Sao Paulo, Brasilia)
RICARDO ANDRÉ GALENDI JÚNIOR,
Brazilian Tax Law Institute (Sao Paulo, Brasilia)
Introduction: the present article is aimed at providing an overview of the Brazilian measures with regard to the BEPS Project and seeking the common perspectives Brazil may share with other BRICS countries.
Methods: analysis, comparison, description, interpretation.
Analysis: in its first part, the article addresses some aspects of the Brazilian legislation which are relevant for the BEPS Project Actions. In the second part, common evolutionary aspects of the treaty policies of the BRICS countries are presented, followed by considerations on the need for cooperation between the BRICS for more comprehensive reforms with regard to the digital economy.
Results: even though Brazilian legislation is still silent with respect to a General Anti-Avoidance Rule (GAAR), Brazil has enacted important Special Anti-Avoidance Rules (SAARs). Besides, Brazilian transfer pricing policy presents relevant deviations from the OECD Guidelines. These deviations, if adequately interpreted, may offer a suitable solution to current feasibility problems of the application of transfer pricing legislation as addressed in the OECD Guidelines.
It is also important to describe why Brazilian regime of taxation of controlled foreign companies cannot be considered as a SAAR. Furthermore, it is important to present Brazilian measures with regard to deductibility of interests, contrasting them with the measures of BEPS Action 4. Finally, the treaties in which Brazil has recently included specific anti-abuse provisions are addressed.
Keywords: BEP, GAAR, SAAR, OECD Guidelines, controlled foreign companies, BRICS, taxation, tax treaty
Introduction
Even though the BRICS countries share a number of similarities in terms of their position in the international economy, there is still no significant dialogue among these States with respect to tax treaty policy. There are, however, several reasons to believe that these countries could benefit from such a debate. In the context of the BEPS Project discussions, these reasons become even clearer, being relevant to point three features of the Project that make the interaction of BRICS countries essential.
The first of them is the excessive focus of the BEPS Project on the demands of OECD countries, which has lead to Actions that are not necessarily pressing for developing countries and for the BRICS countries in specific: country-by-country reporting is a clear example of this.
Secondly, the Project assumes certain common ground on domestic legislation which does not necessarily exist: the uniformity with regard to transfer pricing legislation (fundamental for Actions 8, 9 and 10) and CFC legislation (important for Action 3) is not an actual fact, and the existence of consolidated general ant abuse legislation (relevant for Actions 6 and 12) is far from the reality of many countries, as Brazil, for instance. Finally, the Project takes the allocation of taxing rights as a premise, while most countries are struggling in their bilateral negotiations to bring the boundaries of tax jurisdiction closer to what they perceive as fair.
The present article is aimed at providing an overview of the Brazilian measures with regard to the BEPS Project and seeking the common perspectives Brazil may share with other BRICS countries.
Materials & Methods
The methodological basis of the study was formed by such methods of cognition as analysis, comparison, description, interpretation.
Results
1. Action 12 and Brazilian Tentative Legislation on Voluntary Disclosure. Brazil does not have a GAAR in force [Schoueri, Barbosa 2016: 109-146]. However, allegedly inspired by Action 12 of the OECD G20 BEPS Project, on July 21, 2015, the Brazilian President, without previous discussion with civil society, enacted MP No. 685, which intended to create the obligation for taxpayers to disclose aggressive tax planning. As described, there is no legal certainty with respect to what would be an «aggressive tax planning» and the proposal has brought nothing with respect to such clarification.
According to article 7 of MP 685/2015, taxpayers would be obliged to report to Brazilian tax authorities, until 30th of September of each year, the transactions carried out in the previous year, if they included elimination, reduction or deferral of taxes. This statement would have to be filed when: (a) the performed transactions would not have relevant reasons other than tax ones; (b) the adopted form would not be usual for the intended transaction, or when the contract contains clauses that result in effects different from a typical contract; or (c) the specific transactions performed by the taxpayer would be those included in a list to be enacted by the Federal Revenue Secretariat (RFB).
In case the RFB would not recognize the transactions carried out by the taxpayer as legitimate, the taxpayer would be notified to pay (or be requested to pay in installments) the taxes due with interests within 30 days. The penalty would only be applied in case the taxpayer presented the declaration after the RFB starts a tax inspection.
On the other hand, according to article 12 of this MP, the lack of declaration or the incomplete or incorrect declaration would characterize an omission intended to hide a tax evasion or tax fraud, and the RFB would charge taxes due with penalty (150 %) and interest.
Although Brazilian Government has argued that the disclosure of tax planning strategies
would be following BEPS recommendations, a closer look shows that MP 685/2015 ignored many of the OECD propositions.
As stated by the Public Discussion Draft of the BEPS Action 12: «The information that a taxpayer is required to provide under a mandatory disclosure regime is generally no greater than the information that the tax administration could require under an investigation or audit into a tax return» (OECD, Mandatory Disclosure Rules, Public Discussion Draft, Action Plan 12, 2015).
Therefore, rules related to mandatory disclosure should be precisely articulated and clearly understood in order to be easier to comply with. Besides, sanctions to encourage disclosure and to penalize those who do not comply with their obligations have to be clear. Consequently, this Draft highlights the importance of being explicit in domestic law about the consequences of reporting a scheme or transaction under a disclosure regime.
When analyzing the expressions prescribed in MP 685/2015, one shall conclude that the mandatory disclosure set forth in this law was not clear. In Brazilian domestic law, there is no definition of «relevant reasons other than tax reasons». Moreover, this law is inaccurate when refers to the «adopted form» or to the «typical contract». Also, there is no relevance in analyzing whether the adopted form is (or not) usual because, unlike, e. g., the German legislation, Brazilian domestic law does not take this aspect as a requisite as to deem an operation as abusive. Brazil simply has no tradition in applying such concepts and there is no reason to believe that they should be used as hallmarks for mandatory disclosure.
Furthermore, one may note that such information could never be found in an audit or investigation, as suggested by the OECD. In other words, the Tax Authority does not obtain from the taxpayer the information that «there was a transaction without relevant reasons other than tax reasons». The Tax Authority can only reach this conclusion on its own. Thus, MP 685/2015 would compel the taxpayer to recognize a fact against herself / himself without actually being able to predict the legal consequences of it. As a consequence, given that the lack of declaration could entail the presumption of tax fraud, MP 685/2015 could be deemed to entail self-incrimination concerns.
The problems arising from such legislation become even clearer when one considers the lack of adequate anti-avoidance legislation in Brazil. By enacting MP No. 685/15, the Brazilian Executive intended to take for granted the existence of an applicable general anti-avoidance rule in Brazil, even though its regulation has never been approved in Congress, as addressed in Section I.
In other words, the basic premise of a «mandatory disclosure rule» is clearness with respect to what shall be disclosed by the taxpayer. However, as described, in the current Brazilian tax legislation, there is no clear definition with regard to how should tax avoidance be combated by the tax administration. For this reason, the fact that the Brazilian Congress has rejected these provisions of the Provisional Measure is not surprising.
During the debates in Congress, the Government has stepped back in its proposal. The self-incrimination concerns have been eliminated and the declaration became «optional» in most cases. The taxpayer would mandatorily disclose solely the operations to be listed by the RFB. However, even this proposal has been rejected by the Deputies.
This fact makes clear that there is the need to further discuss the issue of tax avoidance in Brazil. The Brazilian tradition in tax law presents a strong rejection to open clauses which grant wide interpretation attributions to tax authorities. Whilst the Executive Branch has managed to «kidnap» the jurisdiction to tax planning cases in the last decade, a more sincere evaluation of the current scenario evidences that the alleged evolution in the Brazilian approach to tax avoidance is actually unsustainable. If the Government agrees with the doctrine applied, the Legislative surely does not and the Judiciary is still to be heard on this issue.
Such a conclusion leads to critiques not only to the Brazilian tax administration, but to the BEPS Project itself. Action 12 takes for granted that all G20 countries have effective (and similar) means of combating tax avoidance in force, which is not an actual fact. Brazil still struggles in terms of legislation and institutional capacity with this regard.
Besides the critiques with respect to the actual involvement of non-OECD countries in the Pro-
ject, one may also take the Brazilian experience of an example of how harmful it is to take solely the tax administration perspective during debates. In Brazil, if one asks tax officials whether there are sufficient mechanisms to combat tax avoidance, the answer will surely be «yes, and they work very well». However, a closer look shows that taxpayers in Brazil are actually submitted to a high degree of uncertainty, due to the lack of legal basis for the assessments of tax authorities. Since the final decision ends up being handed down by the tax authorities themselves, they are able to seek in substance over form, business purpose and/or abuse of law doctrines the arguments that better fit their needs, even though Congress has clearly rejected both Provisional Measures which tried to introduce such criteria in Brazilian Legal System.
In the meantime, Brazil remains with no further developments with regard to enhancing the relationship between tax administration and tax authorities. In Brazil there is a form of tax ruling (Solugao de Consulta), whereby the taxpayer is allowed to submit a query before the RFB, with regard to interpretation of tax legislation and classification of services and intangibles. In 2013, the regulations were improved. The outcome of a Solugao de Consulta is now binding to the tax administration, not only when applying the rules to the taxpayer who requested the tax ruling (as in the former regulations), but also to any and every taxpayer in the same conditions of the consulting person. Another important development on the tax rulings is that the reasoning of the solution met by the tax administration shall be disclosed. This shows that Rulings are not intended to benefit only the taxpayer concerned; they are rather a clarification of tax authorities' understanding in cases they are asked for.
2. BEPS Actions 8, 9 and 10 and the Brazilian Fixed Margins. As per Law 9,430/1996, Brazilian transfer pricing rules are applicable to imports and exports of products, services and rights, in controlled transactions. The rules are also mandatory to intercompany loans and to any and every import and export uncontrolled transaction between a Brazilian resident (either an individual or a legal entity), and residents in low tax jurisdictions, or in jurisdictions whose domestic legislation provide for the secrecy of corporate ownership. These ju-
risdictions are listed by the Brazilian tax authorities, along with privileged tax regimes, to which TP rules are also mandatorily applicable.
Therefore, the anti-avoidance intent of Brazilian transfer pricing legislation is clear: not only does it aims at controlled transactions, whose price may not follow market price, but also to uncontrolled transactions carried out between a Brazilian resident and a resident in a listed jurisdiction.
The transactions described must be evaluated on an annually basis, under any of the methods available in Brazilian legislation. Even though there is no «best method rule», the same method must be applied consistently to the same product or transaction in a same fiscal year. It is possible, however, to apply different methods to transactions involving distinct products or services, or to transactions involving the same product or service, but occurring in different fiscal years.
The methods concerning the import of goods, services or rights are: i) the Comparable Independent Price Method (PIC); ii) the Resale Price Less Profit Method (PRL); iii) the Production Cost Plus Profit Method (CPL); and iv) the Quotation Price on Imports Method (PCI). For exports, the methods applicable are: i) the Export Sales Price Method (PVEx); ii) the Resale Price Method (RPM); iii) the Purchase or Production Cost-Plus Tax and Profit Method (CAP); and iv) the Quotation Price on Exports Method (PCEX).
The main deviation from the international standards lies in the adoption of predetermined profit margins under the equivalents of the resale and cost plus methods. The so-called «fixed margins» should not be confused with Formulary Apportionment (FA). The Brazilian Approach does not pursue a division of the global profit of the MNEs among the entities. Neither does it take into consideration the amount of profits to be paid to the other entities of the group. The Brazilian legislation only takes into consideration the profits of the Brazilian entity. Therefore, it is clearly not a FA-based method, since neither does it take into account the global profit of the MNE, nor does it disregard the intra-group transactions. The fixed margins approach is essentially a transactional approach.
As per the fixed margins approach, countries may establish «different profit margins per
economic sector, line of business or, even more specifically according to the kind of goods or services dealt with, to calculate the parameter price» (Practical Manual on Transfer Pricing for Developing Countries, New York, 2013), on the application of the relevant ALS-base methods. The profit margins must be determined with basis on market researches. These pricing researches could be both carried out by the tax administration, or purchased from third parties, being important that it is previously submitted to discussion with the economic groups to which they will be applied.
If the legislation establishes numerous and very specific margins, the chances that the applicable margins correspond to a consensus concerning reality increase. The Brazilian Chapter on the UN Practical Manual highlights that in some cases the existence of many different margins may not be necessary, depending on the diversity of goods and services exported and imported by the country. Determining how numerous and how specific the fixed margins are is deemed to be a policy decision, which may vary according to the characteristics of the State's economy.
The legislation may establish fixed margins by economic sector (distinguishing, e. g. extraction or production of raw materials, manufacturing and services) or more specifically with reference to the relevant activities of the MNE. As suggested by the UN Practical Model, «the country could use a margin for the chemical industry as a whole, or different margins for different types of products of the chemical industry (agrochemical, petrochemical, explosives, cosmetics etc.)».
The Brazilian Chapter in the UN Practical Model deems possible to establish «range of profit margins». It is important to note that the current Brazilian legislation does not include such a mechanism. In some cases, it would be necessary to determine a maximum and a minimum profit margin which would statistically correspond to the available relevant data of uncontrolled transactions. This range would represent «an acceptable divergence margin». In this case, the legislation should establish ranges instead of margins. In case the pricing researches find out that some companies have a 25 percent margin and other a 38 percent margin, the range would be advisable instead of fixed margins, in a sense that margins within 25 and 38 percent would be acceptable. If the range be-
come too wide, it may be the case for further specification concerning the products or activities.
The advantages of the fixed margins are immediate: i) they may avoid the need for specific comparables; ii) they can be applied both by tax administrations and the companies without the need for technical knowledge on specific transfer pricing issues, which is a scarce human resource both for companies and tax administrations in developing countries; iii) they grant legal certainty to taxpayer, since this is an ex ante objective alternative, not relying on further subjective analysis; iv) they reduce costs for both tax administrations and taxpayers, since they diminish the need to empirically determine gross margins in a comparability analysis; v) they privilege competition among enterprises in the state, submitting them to the same tax burden.
However, if not correctly considered, the approach may be incompatible with the Arm's Length Standard. Despite important for tax policy considerations, the «Comments for Countries Considering the Adoption of Fixed Margins» in the UN Practical Manual ignores the need for rebut-table presumptions.
The Brazilian Chapter was written by the Brazilian tax administration and, as a consequence, it does nothing more than expressing the Revenue Service interpretation of the Brazilian legislation. Hence, it considers as a «weakness» of the method the «unavoidable» outcome «that some Brazilian enterprises will be taxed at (higher or lower) profit margins not compatible with their profit-ability», which would be due to the fact that «the fixed margin method applies regardless of the cost structures of taxpayers». The Brazilian tax administration also regards that «[t]he approach may lead to double taxation in case there is no access to competent authorities to negotiate relief of double taxation» [Haufler, Mardan, Schindler 2018: 25].
Therefore, the Brazilian Chapter ignores the ALS may be inferred from the Brazilian tax legislation [Schoueri 2013] and is also included in every single tax treaty signed by Brazil. If the tax authorities' interpretation is adopted, then the allegedly «unavoidable» outcome of the methods applied clearly violates provisions of the Brazilian tax system. This interpretation is liable for the worldwide rejection of Brazilian transfer pricing legislation, given that, put in the terms contended by the tax administration, the Brazilian Approach
is clearly in breach to the international agreements signed by Brazil.
The only reasonable interpretation of the fixed profit margins is that the margins set forth by the legislation are rebuttable. The taxpayer must be entitled to bring arguments to convince that an ALS margin in the transaction described would probably be distinct from the margin reached by the tax administration, or would not fall within the range of margins provided. A distinct interpretation would imply a violation both to domestic legislation and tax treaties providing for the ALS. Unfortunately, the Brazilian tax administration still does not share this perspective, and the Brazilian transfer pricing legislation has been deemed compatible with Brazilian tax treaties, with no further need to consider the fixed margins as rebut-table presumptions (see, e. g., CARF, Judgment No. 108-09.763, decided on 11.13.2008; Judgment No. 1401-000.801, decided on 06.12.2012).
When one reads the text of Law 9,430/1996, as amended in 2012, it is clear that margins may be revised. However, this has not been a practice in Brazil. It is difficult to determine the reason why taxpayers have not challenged the determined margins. It is true that previous legislation required an enormous documentation for any application for revision of margins, which made any such request virtually infeasible. However, this legislation is not in force anymore, what could offer taxpayers and tax administration the opportunity of discussing industry-specific margins. The circumstance that this has not occurred so far may be considered the major weakness in Brazilian practice. This shows that Brazilian present practice may not be considered as a final solution, but rather a methodology under construction.
Another failure of the fixed margins, as presently existing in the Brazilian practice, is that there is scarce evidence concerning the methodology employed to reach said margins. Such opacity implies a clear lack of legitimacy of the presumption itself, since no one can convincingly argue that the margins are reasonable, or not. A further development of the method seems therefore necessary for the methodology, as well as the data collected and employed, to be transparent, thus allowing a control of the presumption.
Under such conditions, the Brazilian transfer pricing legislation can certainly be compatible with the ALS and could be seen as an important
tool to circumvent the feasibility issues present in the current OECD Guidelines. The Brazilian present practice is not a final solution: it should be considered as an alternative under construction, which demands further corrections.
3. BEPS Action 4 and Limits on the deduction of interests in the Brazilian Legislation. BEPS Action 4 includes rules which limit the level of interest expense or debt in an entity with reference to a fixed ratio. Examples of these rules include debt to equity ratios, interest to EBITDA ratios and interest to assets ratios.
As per Law No. 12,249/2010, interests paid or credited by a Brazilian source to an individual or a legal person resident abroad are deductible only to the extent that they are an expense deemed necessary for the economic activity of the Brazilian company (Art. 24). As to comply with such requirement, there is a debt to equity fixed ratio that limits the deduction of interests.
In case of controlled cross-border transactions, interest expenses are only deductible if the debt value does not exceed twice the value of the Brazilian company's equity (Art. 24, II). If the foreign company holds shares in the Brazilian company, the debt value cannot exceed twice the value of the participation of the foreign company in the Brazilian company's equity (Art. 24, I). If the foreign individual or legal entity is located in a tax heaven or is under a privileged tax regime, the debt value cannot exceed 30 % of the equity of the Brazilian company (Art. 25).
In any case, there is also a constructive ownership rule, whereby in case the Brazilian company pays interests to more than one individual or legal entity abroad, the limitation applies in taking the sum of the debt values into account (Art. 24, III).
It is reasonable to conclude that since 2010 Brazil adopts rules that can be deemed even more restrictive than the ones suggested by the BEPS Project, considering the express discrimination of tax heavens and privileged tax regimes, not mentioned in Action 4.
4. BEPS Action 3 and the «Brazilian CFC rules»: no-deferral universal taxation regime is not a SAAR. «Brazilian CFC rules» are not properly CFC rules, as commonly seen in the international experience. Most importantly: «Brazilian CFC rules» are certainly not SAARs. Unlike the profile of the CFC regime found elsewhere, the Brazilian
rules are broad and applicable to any and every Brazilian controlled foreign company. Hence, Brazilian rules concerning the taxation of foreign profits have been under serious questioning since their enactment, back in 1995.
Accordingly, profits derived by a foreign controlled company shall be deemed available to the Brazilian parent company on an annual term. No relevant distinction is made with respect to the jurisdiction where the subsidiary is located (the «designated jurisdiction approach»), nor any reference to the nature of the income derived by the company (the «tainted income approach»). If a Brazilian company develops heavy industry activities in Germany through a subsidiary, the profits of such subsidiary shall be taxed in Brazil on a yearly basis, as if they were distributed to the Brazilian parent company, even if they are not.
Hence and despite the reasoning adopted by the Explanatory Memorandum of Law No. 9,249/95, nothing in the profile of the former Brazilian legislation leads to the conclusion that it has been specifically drafted to counter abusive behavior.
The only aspect that has always been clear with respect to them was the Government's intention to tax profits derived by Brazilian CFCs irrespective of the need of actual distribution. Questioning the constitutionality of the rule was the natural reaction expected from taxpayers. Unexpected, however, was that the decision of the Supreme Court would take twelve years to be completed, with a mostly inconclusive outcome (Supreme Court, Direct Action of Unconstitutionality No. 2588, decided on 04.10.2013).
Under Brazilian judicial review, the majority principle must be observed in order to deem a rule as constitutional or unconstitutional: six out of eleven Justices must consider the rule as constitutional or unconstitutional (Law No. 9.868, of November 10, 1998, article 23). In the CFC rules judgment, one of the Justices had been previously involved with the case as General-Attorney and could not vote. Four Justices considered that the regime was unconstitutional, and four considered that it was compatible with the constitution. Another Justice considered that the Article was unconstitutional only with respect to associate companies.
The last remaining opinion was finally issued in 2013. Justice Barbosa understood, on the one
hand, that «the obsolescence of tax legislation» could not «be evoked as to protect [the practice of] tax evasion», but admitted, on the other hand, that «as it has been written, the Brazilian rule deems, indistinctively, that every controlled or associated foreign company has avoidance or evasion purposes».
After a brief description of the international experience on CFC rules, Justice Barbosa decided that the application of the Brazilian regime should be limited to the taxation of associate or controlled foreign companies that are situated in low tax jurisdictions or countries that lack transparent corporate regulations, «usually known as tax havens» [Coppola 2015: 588]. He also considered that, «in case of companies not situated in tax havens, the tax authorities must contend and prove the tax evasion». Thus, as per his understanding, even in the case of companies not located in tax havens, Brazilian CFC rules would only be applicable in exceptional situations.
Summarizing Justice Barbosa's view, in cases involving companies incorporated in tax havens, this newly conceived SAAR would be applicable. If the company is not in a low tax jurisdiction, tax authorities would have to prove the case of tax evasion in order to apply the CFC rules.
Due to the diversity of opinions, the outcome of the decision is mostly inconclusive. As per the Supreme Court's «average opinion» system, the majority decided that: (i) the taxation of controlled companies located in tax havens is constitutional; and (ii) the taxation of associated companies not located in tax havens is unconstitutional. The decision is silent with respect to controlled companies not located in tax haven and associated companies incorporated in tax havens.
Where the position of the Supreme Court with respect to the taxation of foreign profits remains unclear, the reform proposed by the Government still lacks proportionality and harms competitiveness of Brazilian investors. Provisional Measure No. 627, from November 11, 2013, amended the legislation in view of the unconstitutionality of its application to associate companies not located in tax havens, though still generally maintaining the taxation of CFC profits regardless of distribution to the country and also comprising within its scope companies indirectly held (second and further tiers). The Provisional Measure was later
converted into Law No. 12,973/14, excluding the part applicable to individuals.
As a conclusion, while European countries aim to sharpen their respective CFC rules, as to target solely the wholly artificial arrangements, and the U. S. discuss restrictions to the taxation of their CFCs due to competitiveness concerns, Brazilian legislation goes against the grain, punishing legitimate investments abroad without setting a clear and definitive distinction between actual economic activity and abusive behavior.
The reaction of the Executive Branch to the Supreme Court decision shows that there is no intention of the Brazilian Government to adopt legislation similar to those observed in the US or in the European Union.
Under the current no-deferral universal taxation regime, there is no need to actual CFC rules, since the situation of abuse envisaged by such rules is not present. According to the BEPS Action Plan, «[o]ne of the sources of BEPS concerns is the possibility of creating affiliated non-resident taxpayers and routing income of a resident enterprise through the non-resident affiliate». Law No. 12,973 does not allow such a situation. If Action 3 aims to strengthen CFC rules, the Brazilian legislation is surely a case where there is no space for «strengthening».
Any form of standardization proposed by the BEPS Project would demand that Brazil «weak-ens» its current regime, and not the contrary. There is no evidence as to conclude that the Brazilian Government is willing to do so. In any case, it must be clear that the Brazilian rules are not an anti-abuse regime, but rather a general regime, applicable to any and every Brazilian company carrying out activities through subsidiaries abroad.
5. Action 6 and Brazilian SAARs in tax treaties. Brazil has also recently inserted SAARs in tax treaties, what may be deemed to be a part of its treaty negotiation policy. It is not clear, however, whether the initiative to include such provisions came from Brazilian negotiators, since one does not find a uniform reading in recent treaties.
For decades, the OECD has sustained that states willing to apply their domestic anti-avoidance legislation to situations within the scope of a tax treaty should negotiate specific provisions in order to do so. As from 2003, however, the organization has changed its position, suggesting
that the application of anti-avoidance domestic provisions to situations governed by a tax treaty would not be troublesome, even in cases where the domestic legislation of a contracting party does not provide for the abuse of treaties.
Traditionally, Brazilian treaty negotiators were not likely to consider the inclusion of specific anti-abuse provisions when signing a tax treaty. Since 2002, however, tax treaties signed by Brazil provide for limitations on the treaty benefits and for situations in which domestic legislation is considered applicable.
In a couple of treaties, such clauses are much less comprehensive than LOB and PPP clauses found elsewhere, namely within the US treaty framework, and are solely intended to forbid third-country residents from obtaining treaty benefits. The treaties concluded with South Africa (2003) and Peru (2006) provide, in general terms, that the treaty benefits shall not be granted to a resident of a contracting state the majority of shares of which is directly or indirectly held by persons who are not a resident in that contracting state, unless the entity concerned develops therein a «substantial business activity» other than holding investments.
In the treaties concluded with Mexico (2003), Israel (2002) and Turkey (2010), much broader clauses were adopted. The treaty with Mexico includes a specific provision as per the contracting states may use the mutual agreement procedure in order to deny treaty benefits if it is their opinion that granting those benefits would constitute «a treaty abuse according to its purpose». In the treaty with Israel, such denial does not require the mutual agreement, and a «notice of the application» of the provision to the authorities of the other contracting state is considered sufficient. As per the treaty with Turkey, neither the mutual procedure, nor the referred notice, is necessary to deny the treaty benefits in a situation of abuse.
Apart from the clauses described above, the treaties with Mexico and Turkey also set forth that the provisions of the treaty do not prevent the contracting states from applying their domestic thin capitalization and CFC rules, or «any similar legislation». The treaty with Peru does not mention thin capitalization rules, but includes the broader «any similar legislation» expression. The treaty with Israel includes a provision that solely makes reference to the thin capitalization rules, not mentioning other situations.
It is the author's opinion that such references are necessary to make domestic legislation applicable to situations governed by a tax treaty. Absent such clauses, the application of domestic provisions would constitute a treaty override, which is not acceptable under the Brazilian Constitution.
With regard to the PPT or the LOB proposals currently present in Action 6 of the BEPS Project, the author does not consider them desirable in their proposed form, since they entail too much discretion to tax authorities in the application of tax conventions. Moreover, since several Brazilian treaties entail tax advantages, including matching credit provisions, it is not clear that PPT would correspond to Brazilian treaty policy. Finally, there are some concerns on the legal effect of including Action 6 in a multilateral instrument (Action 15), due to its compatibility with the object and purpose of treaties signed with traditional Brazilian investors. Notwithstanding, from a Brazilian tax authority perspective, there is no reason to believe that such clauses would be rejected in a negotiation, even though there could be resistance in Congress upon the ratification of the treaty.
Discussion
After addressing the main aspects of Brazilian legislation which are relevant for the BEPS Project, the present topic approaches similarities with respect to evolutionary aspects of the BRICS treaty policies. Further, it is argued that there is space and need for cooperation between the countries in the context of the digital economy.
1. Common developments of BRICS countries in tax treaties. China and India have managed to develop two of the largest treaty networks in the international community, having concluded treaties with developed countries, emerging economies and developing countries. Russia and South Africa are also approaching a hundred of tax treaties signed each. The exception in the BRICS with regard to the extension of its treaty network is Brazil, which currently holds a relatively small number of 32 tax treaties in force.
While negotiating treaties with OECD countries during the 1980s, China took the position of a capital-importing country, thus bargaining for source-based taxation and tax sparing provisions, which ensured that «the Chinese tax incentives benefit the investors as opposed to the treasury
of the residence country» [Li 2012: 453]. The same approach was followed by India and South Africa, which would request for tax sparing clauses in its negotiations. Likewise, Brazil has kept a very strong position, demanding not only tax sparing clauses, but also important deviations with respect to the taxation of technical services at source. The exception with this respect is Russia, which, despite negotiating source taxation for certain items of income, includes tax sparing clauses in only a few tax treaties.
The last two decades have brought new trends to the BRICS treaty policies. In the Chinese treaty policy, from 2000 on, there was a trend towards more antiabuse and exchange of information provisions and most of the treaties signed with OECD countries during the 1980s were renegotiated. In the renegotiated treaty signed with Germany in 2014, for instance, there is a provision on exchange of information in line with the 2010 OECD-MC, while in the 1985 treaty there were no provisions similar to 26(4) and 26(5) of the 2010 OECD-MC. Another difference in the renegotiated treaty is that the tax sparing granted by Germany for interest and royalty payments has been abolished.
The same trend is observed in India, where treaties are being renegotiated in order to include ant abuse provisions, «correct aberrations» and provide for exchange of information. Likewise, tax sparing provisions are not as usual as before, not being included in renegotiations, and some of the tax sparing provisions of the older treaties have already expired, as in the treaty with Germany (1996), which provided for a time limit of 12 years.
Since 2005, South Africa has also abandoned the policy to request tax sparing in treaty negotiations, by deleting its reservation on Article 23 of the OECD-MC, due to «perceived abusive arrangements, although no such cases have been tested before the South African courts». Reportedly, this approach was also motivated by the need to refuse requests of including tax sparing provisions by smaller African and Asian countries.
Unlike India and China, Brazil has not engaged in renegotiations of its tax treaties. However, there has been an increasing trend towards antiabuse provisions in tax treaties, and in recent treaties, no tax sparing provisions have been ne-
gotiated. There is no clear justification for this approach to tax sparing, being possible to attribute this position to the perception that the contracting States in recent treaties are not traditional capital exporters in its relations with Brazil. As the other BRICS, Brazil might be strategically refraining from negotiating tax sparing provisions not because those clauses are perceived as leading to abusive behavior, but rather due to the countries' role in the international economy. If tax sparing clauses are aimed at ensuring that benefits granted by the source state are not converted in tax revenues for the State of residence, when negotiating with smaller economies, the other contracting party would be the one expected to ask for a tax sparing provision. However, there is no public information as to whether Brazil has ever refused to grant a tax sparing in its negotiations. On the contrary, the treaty with Spain, which includes a reciprocal tax sparing clause for interests and royalties, denotes that the country would be willing to include such clauses even in its relations with OECD countries.
On the other hand, the issue of exchange of information has been dealt with more substantially outside of double tax conventions. Besides several TIEAs signed, in June 2015, the Brazilian Congress approved the Intergovernmental Agreement (IGA) for the implementation of the FATCA [Dharmapala 2016: 29]. The IGA approved is based on Model 1A, whereby the financial institutions exchange information with their own Governments, which further carry out the exchange of information with the other contracting State [Immordino, Russo 2016]. Brazil has also signed and approved the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
2. The challenges of the Digital Economy. The digital economy has significantly changed several aspects of economic transactions and structuring of value chains, which are relevant for taxation. As a consequence, it is obvious that problems arising from the digital economy cannot (and should not) be solved by means of interpretation of the old rules, as the OECD has for long tried to do, but require a new form of allocation of taxing rights. The need for physical presence to attract jurisdiction is a tremendous anachronism on which developed countries conveniently rely.
Therefore, scholars have recently provided relevant contributions to «justify the exercise of the taxing jurisdiction by the market country» in respect of income arising from the digital economy. In the same sense, China and India have engaged more intensively in adopting the concept of permanent establishment to the digital economy.
The Final Report of Action 1 is the clearest signal that the BEPS Project should not be taken as final for the purpose of debating the allocation of taxing rights in the digital economy. OECD's trend towards understating the relevance of the digital economy is repeated in Action 1, which considers that «broader direct tax challenges currently raised by the digital economy are expected to be mitigated once the BEPS measures are implemented».
Action 1 considered some responses to the challenges of the digital economy: i) the creation of a new nexus to cover situations in which there is significant digital presence in the source State; ii) the enactment of withholding taxes in digital economy transactions; iii) the charging of an equalization levy, which would be levied in cases of significant digital presence. Such proposals would surely affect the allocation of taxing rights. However, even though they were examined in the context of Action 1, the Final Report has not recommended any of them, because «measures developed in the BEPS Project will have a substantial impact on BEPS issues previously identified in the digital economy». As concluded by the Final Report, «certain BEPS measures will mitigate some aspects of the broader tax challenges», and «consumption taxes will be levied effectively in the market coun-try» (OECD, Addressing the Tax Challenges of the Digital Economy, Final Report, 2015).
Essentially, while concrete proposals on direct taxation in the digital economy were expected, the Report changed the subject, recommending countries «to apply the principles of the International VAT / GST Guidelines for the collection of VAT on cross-border B2C supplies of services and intangibles and consider the introduction of the collection mechanisms included therein». In summary, the only proposal actually recommended by the BEPS Project is not a measure on direct taxation. With respect to the other three proposals, which would in fact influence the allocation of jurisdiction, the Final Report considers that countries could «introduce any of the options in their domestic laws
as additional safeguards against BEPS, provided they respect existing treaty obligations, or in their bilateral tax treaties» (OECD, Addressing the Tax Challenges of the Digital Economy, Final Report, 2015).
The BEPS Project could have been an opportunity to acknowledge the importance of the demand for the creation of value. However, the Project has chosen to consider only the supply side, and refused measures aimed at implementing a more comprehensive notion of creation of value. The Project has also shown that the anti-avoidance rhetoric was developed as an effective means to avoid relevant debates on allocation of jurisdiction. The most extreme example is that one of the most relevant actions of a Project dealing with «profit shifting» ended up presenting a solution based on indirect taxation [Rocha, Ulys-sea, Rachter 2018: 28].
Scholars have shown that there are feasible alternatives to substantially change the allocation of taxing rights as a response to fundamental changes brought by the digital economy. These changes encompass recognizing factors that «arise in the market country and that can influence the performance of business and value creation arising in such context» [Hongler, Pistone 2015: 19]. In fact, as argued by Brauner, «source has never been about moral or economic correctness, but rather about legitimacy and practicality» [Brauner 2014: 68]. Making such changes happen demands cooperation among the countries who could benefit from such proposals, which include not only the BRICS countries, but also the developing world as a whole.
Conclusions
From a Brazilian perspective, it is clear that, while aimed at tax administrations, the BEPS Project has failed to bring more incisive statements on the protection of taxpayers' rights. Even though there are recommendations to strengthen antiabuse legislation, the Action has served to justify excessively harsh measures, which bring more harm than good. Excessively discretionary measures are not compatible with the reality of the developing world and the need to objectively control the acts of the tax administration is central even for emerging economies such as Brazil.
2018. Вып. 2
OF THE EURO-ASIAN LAW CONGRESS
The main challenge for BRICS countries is to adhere to standards of combating abusive behavior and simultaneously keep an independent policy in its relations with capital exporting countries. Combating abusive behavior should never be confused with allocating taxing rights. Signing treaties with smaller economies implies
a completely different scenario, where BRICS countries face the very same pleads they made during the 1970s and 1980s. The question is whether the BRICS countries will adopt the negotiation positions of a developed country or whether they will be able to meet the developing world halfway.
Список литературы
Brauner Y. What the BEPS // Florida Tax Review. 2014. Vol. 16. № 55. URL: http://scholarship.law.ufl.edu/ facultypub/642 (дата обращения: 29.07.2018).
Coppola D. P. Chapter 10: Participants - Multilateral Organizations and International Financial Institutions // Introduction to International Disaster Management. Singapore: Butterworth-Heinemann, 2015. P 588-680.
Dharmapala D. Cross-border tax evasion under a unilateral FATCA regime // Journal of Public Economics. 2016. Vol. 141. P. 29-37.
Haufler A., Mardan M., Schindler D. Double tax discrimination to attract FDI and fight profit shifting: The role of CFC rules // Journal of International Economics. 2018. Vol. 114. P. 25-43.
Hongler P., Pistone P. Blueprints for a New PE Nexus to Tax Business Income in the Era of the Digital Economy // URL: http://epub.wu.ac.at/4509/4/SSRN-id2591829.pdf (дата обращения: 29.07.2018).
Immordino G., Russo F. F. Cashless payments and tax evasion // CSEF Working Papers. Naples: Centre for Studies in Economics and Finance, 2016. 445 p.
Li J. The Great Fiscal Wall of China: Tax Treaties and Their Role in Defining and Defending China's Tax Base // Comparative Research in Law & Political Economy. 2012. № 44. URL: http://digitalcommons.osgoode. yorku.ca/clpe/36 (дата обращения: 29.07.2018).
Rocha R., Ulyssea G., Rachter L. Do lower taxes reduce informality? Evidence from Brazil // Journal of Development Economics. 2018. Vol. 134. P. 28-49.
Schoueri L. E. Pregos de Transferencia no Direito Tributario Brasileiro (Transfer Pricing in Brazilian Tax Law). Säo Paulo: Dialetica, 2013. 200 p.
Schoueri L. E., Barbosa M. C. Brazil // GAARs - A Key Element of Tax Systems in the Post-BEPS Tax World? / ed. by M. Lang et. al. Rust: IBFD, 2016. P. 109-146.
References
Brauner Y. What the BEPS, Florida Tax Review, 2014, vol. 16, no. 55, available at: http://scholarship.law. ufl.edu/facultypub/642 (accessed: 29.07.2018).
Coppola D. P. Chapter 10: Participants - Multilateral Organizations and International Financial Institutions, Introduction to International Disaster Management, Singapore, Butterworth-Heinemann, 2015, pp. 588-680.
Dharmapala D. Cross-Border Tax Evasion under a Unilateral FATCA Regime, Journal of Public Economics, 2016, vol. 141, pp. 29-37.
Haufler A., Mardan M., Schindler D. Double Tax Discrimination to Attract FDI and Fight Profit Shifting: The role of CFC rules, Journal of International Economics, 2018, vol. 114, pp. 25-43.
Hongler P., Pistone P. Blueprints for a New PE Nexus to Tax Business Income in the Era of the Digital Economy, available at: http://epub.wu.ac.at/4509/4/SSRN-id2591829.pdf (accessed: 29.07.2018).
Immordino G., Russo F. F. Cashless Payments and Tax Evasion, CSEF Working Papers, Naples, Centre for Studies in Economics and Finance, 2016, 445 p.
Li J. The Great Fiscal Wall of China: Tax Treaties and Their Role in Defining and Defending China's Tax Base, Comparative Research in Law & Political Economy, 2012, no. 44, available at: http://digitalcommons. osgoode.yorku.ca/clpe/36 (accessed: 29.07.2018).
Rocha R., Ulyssea G., Rachter L. Do Lower Taxes Reduce Informality? Evidence from Brazil, Journal of Development Economics, 2018, vol. 134, pp. 28-49.
Schoueri L. E. Pregos de Transferencia no Direito Tributario Brasileiro [Transfer Pricing in Brazilian Tax Law], Säo Paulo, Dialetica, 2013, 200 p.
Schoueri L. E., Barbosa M. C. Brazil, Lang M. et. al. (eds.) GAARs - A Key Element of Tax Systems in the Post-BEPS Tax World? Rust, IBFD, 2016, pp. 109-146.
Информация об авторах
Луис Эдуардо Шури - доктор юридических наук, профессор налогового права Университета Сан-Паулу, вице-президент Бразильского института налогового права (ул. Руа Падре Жоао Мануэль, д. 923, Сан-Паулу, Бразилия 01411-001; e-mail: [email protected]).
Рикардо Андре Галенди-Джуниор - бакалавр права, практикующий юрист, Университет Сан-Паулу (ул. Руа Падре Жоао Мануэль, д. 923, Сан-Паулу, Бразилия 01411-001; e-mail: schoueri@lacazmartins. com.br).
Information about the authors
Luis Eduardo Schoueri - doctor of juridical sciences, professor of the Tax Law at the University of Sao Paulo, vice president of the Brazilian Tax Law Institute (923 Rua Padre Joao Manoel, Sao Paulo, 01411-001, Brazil; e-mail: [email protected]).
Ricardo Andre Galendi Júnior - bachelor of laws from the University of Sao Paulo, lawyer in Sao Paulo (923 Rua Padre Joao Manoel, Sao Paulo, 01411-001, Brazil; e-mail: [email protected]).
Дата поступления в редакцию / Received: 15.07.2018
Дата принятия решения об опубликовании / Accepted: 30.08.2018
© Л. Э. Шури, 2018 © Р. А. Галенди-Джуниор, 2018
