I just read an article over at Forbes’ Bric Breaker blog, authored by Kenneth Rapoza. The article, Brazil businessmen Urge Obama to Sign Double Taxation Treaty, reports that U.S. and Brazilian executives asked President Obama today [March 19, 2011] to sign a treaty that would end double taxation of goods traded between the two countries.
Given Brazil’s emergence as a world economic leader in the past decade, the signing of a double taxation treaty between the two countries would greatly benefit U.S. and Brazilian investors.
The Treaty to Prevent Double Taxation is in force with 26 countries around the world. These countries include Brazil, India and China. A double taxation prevention treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other, in this way preventing double taxation.
Another key factor of a double taxation treaty is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the double taxation treaty.
From political, economic and legal standpoints, the conclusion of a double taxation treaty would be an important milestone toward widening diplomatic and economic relations between both countries. The treaty would create new investment opportunities as a result of the legal security that would extend to both Brazilian and U.S. investors.
The conclusion of a double taxation treaty between both countries should generate tax benefits particularly for Brazilian investors. Assuming that the treaty would limit withholding income tax to 15% (as it is normally the case in the current Brazilian double taxation treaties), Brazilian investors would benefit from a U.S. tax reduction given that withholding tax under U.S. law is normally levied at the rate of 30%.
This would be a win-win for both the U.S. and Brazil–what do you think?