Last March, President Obama spoke at a conference in Brasilia for Brazilian and American CEOs, noting Brazil's rise as a global economic power and emphasizing the growing importance of the investment and trade ties between the two countries - the two largest democracies and two largest economies in the Western Hemisphere, as noted by the President. ("Remarks by President Obama at CEO Business", Office of the Press Secretary For Immediate Release, March 19, 2011, U.S. Diplomatic Mission to Brazil, http://brazil.usembassy.gov/remarks-summit.html).
President Obama's joint statement with Brazil's new President, Dilma Rousseff, expressed the same theme of stronger economic ties between the two countries ("Joint Statement by President Rousseff and President Obama", March 19, 2011, U.S. Diplomatic Mission to Brazil, Press Releases, http://brazil.usembassy.gov/joint-obama-dilma2.html).
In addition, last week, Secretary of State Clinton and visiting Brazilian Foreign Minister Antônio de Aguilar Patriota noted the importance of expanding ties between the two countries. ("U.S. and Brazil Look to Expand Trade, Broaden Partnership," June 1, 2011, U.S. Diplomatic Mission to Brazil, Presss Releases, http://brazil.usembassy.gov/expand-trade.html).
The increased trade, investment, and economic ties between the U.S. and Brazil, as well as Brazil's rise as a global political power, highlight the need for a stronger relationship between the two countries, and one important step towards this end is the conclusion of a tax treaty between the two nations.
Coinciding with the President's visit to Brazil in March, Senator Lugar of Indiana, submitted Senate Resolution 108 (March 17, 2011), expressing "the importance of strengthening investment relations between the U.S. and Brazil" and urging the President to propose negotiations for a bilateral tax treaty. (See 2011 WTD 72-27, "U.S. Senator Pushes for Brazil-U.S. Tax Treaty," Worldwide Tax Daily, Tax Analysts (April 14, 2011)).
Currently, Venezuela is the only country in South America that the U.S. has a tax treaty with. (IRS Publication 901, U.S. Tax Treaties (Rev. April 2011)). As noted earlier, the U.S. and Brazil are the two largest economies in the Western Hemisphere, and the U.S. has tax treaties with countries with smaller economies than Brazil and fewer economic ties with the U.S.
Tax treaties between the U.S. and other countries primarily provide exemptions from tax for certain types of income and/or reduced rates of tax. IRS Publication 901, U.S. Tax Treaties (Rev. April 2011). The U.S. has tax treaties with several countries, including Australia, China, France, Germany, Greece, Ireland, India, Japan, Lithuania, Mexico, Russia, South Korea, Sweden, and the United Kingdom. (IRS Publication 901, U.S. Tax Treaties (Rev. April 2011)). Exemptions in tax treaties eliminate potential double taxation of income. Without tax treaties, global business and investment would often be subjected to double taxation because of "overlapping taxing authorities." See TAFT Ch. 4C:2.01. In addition, tax treaties aid in the prevention of tax evasion by providing for the exchange of information between the treaty countries. See TAFT Ch. 4C:2.01.
As to a tax treaty between the U.S. and Brazil, the resolution submitted by Senator Lugar points out that:
- Historically, the largest direct investor in Brazil has been the U.S., which invested a total of $56,692,000,000 in 2009.
- Brazil's direct investment in the U.S. was $1.4 billion in 2007 with a reduction of that amount by $647 million in 2009.
- Brazil is the only country with a gross national product of more than $1 trillion with which the U.S. does not have a bilateral tax treaty.
- Brazil is the fourth largest investor in U.S. Treasury securities.
- Brazil had 35 corporations listed in the New York Stock Exchange in 2009, ranking seventh among other countries in the number of corporations listed on the exchange in 2009. (2011 WTD 72-27, "U.S. Senator Pushes for Brazil-U.S. Tax Treaty," Worldwide Tax Daily, Tax Analysts (April 14, 2011)).
Senator Lugar's resolution notes that a tax treaty between the two countries would "enhance the partnerships between investors in the U.S. and Brazil and benefit small- and medium-sized enterprises in the U.S. and Brazil" and "promote a greater flow of investment between Brazil and the U.S. by creating the certainty that comes with a commitment to reduce taxation and eliminate double taxation". (2011 WTD 72-27, "U.S. Senator Pushes for Brazil-U.S. Tax Treaty," Worldwide Tax Daily, Tax Analysts (April 14, 2011)).
In addition, in a press release accompanying the submission of the resolution, Senator Lugar emphasized the importance of a tax treaty between the two countries:
"The U.S. is the largest North American economy and Brazil is the largest South American economy. A tax treaty reflecting the modern policy principles underlying the internationally recognized Organization for Economic Co-operation and Development (OECD) Model Tax Convention with respect to transfer pricing, information exchange, withholding rates, tax dispute resolution and tax sparing will provide a solid basis for development and growth for these two nations of the Western Hemisphere. Such a modern tax treaty is supported by numerous U.S. and Brazilian companies as a mutually beneficial way to increase economic output in both nations and strengthen investment relations."
"The overall benefit of the tax treaty is that [U.S.] companies will become more competitive in the Brazilian market. . ." [Press Release of Senator Lugar, "Lugar Urges President Obama to Proposed U.S.-Brazil Tax Treaty," Friday, March 18, 2011, http://lugar.senate.gov/news/record.cfm?id=332042&&. See also 2011 WTD 72-27, "U.S. Senator Pushes for Brazil-U.S. Tax Treaty," Worldwide Tax Daily, Tax Analysts (April 14, 2011)].
The press release also notes that Brazil currently has several tax agreements with other countries reducing double taxation. [Press Release of Senator Lugar, "Lugar Urges President Obama to Proposed U.S.-Brazil Tax Treaty," Friday, March 18, 2011, http://lugar.senate.gov/news/record.cfm?id=332042&&;].
The U.S. and Brazil do have a Tax Information Exchange Agreement, which is seen as a step towards a potential tax treaty between the two countries. Please see 2007 WTD 63-4, "Brazil-U.S. TIEA May Lead to Tax Treaty," Worldwide Tax Daily, Tax Analysts (March 30, 2007), and also "Ambassador Shannon's Remarks at the Brazilian Center for International Relations-CEBRI", U.S. Diplomatic Mission to Brazil, May 5, 2010, http://brazil.usembassy.gov/about-us/the-ambassador/ambassadors-remarks/ambassador-shannons-remarks-at-the-brazilian-center-for-international-relations---cebri-05/05/2010.html).
However, the TIEA has been a source of debate in the Brazilian Senate and has yet to be approved. See 2010 TNT 240-7, "Brazil's Senate Commission Questions Brazil-U.S. TIEA", Tax Notes Today, Tax Analysts (December 15, 2010). See also TAFT Ch. 4D:2.09, Proposed TIEAs (not yet in force).
In an age of economic uncertainty, Brazil's rise has been incredible. As noted by President Obama in his remarks before the CEO group, Brazil currently has the seventh largest economy, has one of the fastest growing economies, is the source of much of the world's food supply, and will host two of the largest international events in the coming years - the World Cup in 2014 and the Olympics in 2016. ("Remarks by President Obama at CEO Business", Press Releases, Office of the Press Secretary For Immediate Release, March 19, 2011, U.S. Diplomatic Mission to Brazil, http://brazil.usembassy.gov/remarks-summit.html). In addition, the Brazilian real is one of the fastest growing foreign currencies, and in recent years, U.S. and international corporations and firms have opened offices in Sao Paolo and Rio de Janeiro, and joint ventures with Brazilian corporations have increased. (For example, please see Rogerio Jelmayer, "Cosan, Shell Formalize Brazil Joint Venture," The Wall Street Journal (online), June 2, 2011, http://online.wsj.com/article/SB10001424052702303745304576361591493853316.html?KEYWORDS=cosan). Investment between the United States and Brazil continues to grow, and a Brazilian-U.S. tax treaty would pave the way for even greater investment.
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