On May 7, 2018 the Federative Republic of Brazil and the Republic of Singapore signed an Agreement for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (Hereafter: the DTA).
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
The Pre-amble to the DTA reads as follows:
“The Republic of Singapore and the Federative Republic of Brazil,
Desiring to further develop their economic relationship and to enhance their cooperation in tax matters,
Intending to conclude an Agreement for the elimination of double taxation with respect to taxes on income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Agreement for the indirect benefit of residents of third States),
Have agreed as follows:”
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), the existing taxes to which the DTA shall apply are in particular:
a) in the case of Brazil:
(i) the federal income tax; and
(ii) the social contribution on net profit (“Contribuição Social sobre o Lucro Líquido – CSLL”, in Portuguese);
b) in the case of Singapore:
the income tax
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Article 4, Paragraph 3 of the DTA (“Resident”) arranges that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If its place of effective management cannot be determined, the competent authorities of the Contracting States shall settle the question by mutual agreement.
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that the term “permanent establishment” also encompasses a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months..
Article 5, Paragraph 4 subsequently arranges that the furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise for such purpose constitutes a permanent establishment only if activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days in any twelve-month period commencing or ending in the fiscal year concerned.
Article 5, Paragraph 8 of the DTA arranges that notwithstanding the preceding provisions of Article 5, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies..
Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 14, Paragraph 1 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 14, Paragraph 4 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the other Contracting State may be taxed in that other State.
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividends to:
a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend (for the purpose of computing that period, no account shall be taken of changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of the company that holds the shares or that pays the dividend); or
b) 15 per cent of the gross amount of the dividends in all other cases.
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over the interest to:
a) 10 per cent of the gross amount of the interest if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects; or
b) 15 per cent of the gross amount of the interest in all other cases.
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax a Source State is allowed to withhold over the royalties to:
a) 15 per cent of the gross amount of the royalties arising from the use or the right to use trademarks; or
b) 10 per cent of the gross amount of the royalties in all other cases.
Fees for Technical Services
The DTA also contains an Article with respect to fees for technical services (Article 13 of the DTA)
Article 13, Paragraph 3 of the DTA defines the term “fees for technical services” as any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made:
a) to an employee of the person making the payment;
b) for teaching in an educational institution or for teaching by an educational institution; or
c) by an individual for services for the personal use of an individual.
If the beneficial owner of the fees for technical services is a resident of the other Contracting State, Article 13, Paragraph 2 of the DTA maximizes the withholding tax a Source State is allowed to withhold over the fees for technical services to 10 per cent of the gross amount of the fees.
Limitation of benefits
Article 28 the DTA (“Entitlement to Benefits”) contains regulations that arrange that only qualified resident taxpayers are entitled to the benefits of the DTA.
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 26) and regarding the Exchange of Information (Article 27).
Click here to be forwarded to the text of the DTA as available on the website of the Inland Revenue Authority of Singapore.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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