Dr Jorge Antonio Deher Rachid, Secretary of the Federal Revenue Service, International Affairs Advisory Office, Esplanade of Ministries, Block P, 7th floor, Room 723, 70048-900 Brasilia, Brazil.
Madrid, 17 February 2003
Dear sir. Deher:
I hereby propose that we formally assume the interpretation that the delegations of our two countries, Brazil and Spain, at a meeting held on 30 September 2002 in Madrid, have agreed on various controversial points of the Convention between the Spanish State and the Federative Republic of Brazil to prevent double taxation and prevent tax evasion in the area of income taxes, done in Brasilia on 14 November 1974 (hereinafter CDI), in accordance with article 25, paragraph 3, of the said Convention.
I should be grateful if you would let me know if this proposal receives your approval and, if so, send me the response signed by the competent Brazilian authority. This letter and its reply shall constitute an Agreement between Competent Authorities on the topics covered and the interpretation of the Bilateral Convention on those topics shall be as provided for in that Agreement.
1. Most-favoured-nation clause
In the light of the automatic most-favoured-nation clauses contained in the Protocol to the Convention in respect of dividends and royalties, the following is agreed:
Dividends: The CDI between Brazil and Finland of 2.04.96 (entry into force 1.01.1998) establishes a maximum rate for dividends, in certain circumstances, of 10 per 100. This maximum rate applies to Spanish residents provided that the company resident in Spain holds at least 25 per cent of the voting capital of the company resident in Brazil, as the conditions provided for in the Protocol clause relating to article 10, paragraph 2, of the ILC are met.
royalties: The CDI between Japan and Brazil, renegotiated in 23.03.76 (entry into force 29.12.77), establishes for certain royalties a rate of 12.5 per 100. This will be the rate applied to Spanish residents when they obtain such fees in Brazil, as the conditions provided for in the Protocol clause referred to in article 12, paragraph 2, of the Commission are met.
2. Fees and technical services
In relation to this type of income, the following is agreed:
All technical services or technical assistance, with the exception of what was said below, are included in the concept of a fee for the purposes of the implementation of the Commission, irrespective of whether or not those services in themselves involve a transfer of technology.
The technical services of a professional nature relating to the technical qualification of a person or group of persons are covered by article 14 of the Commission.
Accordingly, article 22 of the Commission on Other Income did not in any case apply to technical services provided by an undertaking of one contracting State in the other contracting State.
In practice, the scope of Article 7 is very narrow for this purpose.
3. Limitation of the deduction of fees paid by permanent establishments to their central houses
In order to ensure the correct application of the provisions of Article 7(2) and (3) of the Convention in relation to the domestic regulations in force respectively in Spain and Brazil, both countries agree to seek a consensus agreement, through the mutual agreement procedure referred to in Article 25 of the Convention, where there is some contradiction between the agreed standard and the domestic rules. Likewise, when authorized by their domestic laws, and in accordance with their provisions, they shall, within the shortest possible time, accept and process requests for a consensual decision for operations which have not yet been carried out.
Pending your prompt reply, I beg you, sir. Deher, the testimony of my highest esteem.
Fernando Velayos, Deputy Director-General
OFFICIO SRF/Asain No 004
Brasilia, 26 February 2003
Dear sir. Sailors:
I acknowledge receipt of your letter of the 17th of the currents, the copy of which is attached, proposing an agreement, pursuant to Article 25(3), on the interpretation and application of certain provisions of the Convention between the Kingdom of Spain and the Federative Republic of Brazil to prevent double taxation and to prevent tax evasion in respect of income taxes, done on 14 November 1974 in Brasilia.
In view of the contents of your letter, which reflects the agreements concluded between the technical areas of our respective governments, I am pleased to inform you that I agree with your proposal, which, together with this reply, becomes an agreement on the matters dealt with, in accordance with the provisions of Article 25(3) of the Convention.
I take this opportunity to reiterate to you the testimony of my esteem and consideration.
Fdo.: Jorge Antonio Deher Rachid, Federal Finance Secretary,
Sir. D. Fernando Velayos, Deputy Director General of Tax of Non-Residents, Directorate General of Taxation, Secretary of State for Finance, C/ Alcalá, 5, 28014 Madrid, Spain, What is made public for general knowledge.
Madrid, September 22, 2003.-The Technical Secretary General, Julio Núñez Montesinos.