The Dance of the Lions




Analyses of International Tax Treaties


(4.1) Double Taxation Treaty (DTT) Brazil-Belgium


(4.1.c) General Definitions


§118. In this part of the Tax Treaty are defined the meanings of the used terms in the juridical-political instrument among the States. In the Treaty under analyses there is an apparent (false) antinomy (conflict of norms)in respect to the nationality of companies. This because the Convention, that entered in force in July, 1973, states that:

the expressions ‘company of a Contracting State’ and ‘company of the other Contracting State’ designates, respectively, a company explored by a resident of one Contracting State and a company explored by a resident of another Contracting State“ (Article 3, 1, f),

while the Brazilian Federal Constitution, with its amended from 1995, defines the idea of nationality by expressions as:

company constituted under the Brazilian laws and that has its headquarter and administration in Brazil” (Article 175, §1º) and “favored treatment for small companies constituted under the Brazilian laws and that has its headquarter and administration in Brazil” (Article 170, IX),

observing yet that was suppress form the constitutional original text from 1988, by the Constitutional Amendment nº6, of 1995, the idea of the nationality of the company as related to the nationality of the capital partners (old Article 170, IX) or the idea of the nationality of the company based on the nationality of whom owns the effective control (old Article 171, II). Such normative transformation crystallized in the infra constitutional legislation of the Article 1126, of the Brazilian Civil Code, that states:

It is national the organized entity in compliance with the Brazilian law and that has in Brazil its headquarter and administration

§119. Let’s think on a practical situation, considering the normative development in the time, the structure of the juridical order hierarchy and the equity judgment: the case consist in a company with headquarter in Brazil, constituted under a corporate form of the Brazilian legislation (Ltda., S.A., etc.), having only Belgium foreign partners. Question: What is the nationality of this company? Brazilian or Belgian? For an interpretation that considers only the International Tax Treaty, in force since 1973, the nationality is Belgium. Occurs that, from 1995, the Brazilian constitutional order revoke the hypothesis of nationality determination of a company based on the nationality of the owners of the shares/quotas of this legal entity, as above explored. From 1995 the nationality starts to be considered from the constitution of the company in compliance with the Brazilian legislation and the existence of the headquarter of the company in Brazilian national territory. And what are the impact in the tax order of collecting that exist if we consider the nationality from the nationality of the owners of the company’s capital?And what are the tax impact of we consider the nationality based on the legal constitution and the headquarter in Brazil? The difference consist in the fact that, according to the example above, if the nationality of the company is Belgian because the nationality of the owners, it is lost force in the argument of taxing the income of this company by Brazil. This is the reason for the changing of transformation of the normative framework. If the company is in Brazil, and produces income in Brazil, they shall contribute with this State. But at the same time, it is unfair, not equal, do with the foreign owner pay impost on the income of the company in Brazil, and, also, on its income in Belgium, when the shareholders/quotaholders receives dividends, sent from Brazil to Belgium. Will not be fair because the Belgian would pay taxes twice, decreasing, by consequence, his capitalist reasons to invest in Brazil, an activity that generate employment and business. Avoid the double taxation is the exactly motive of the International Tax Treaty, but the nationality of the company shall be interpreted from the Brazilian constitutional order in force. I observes, at the end, that this interpretation is validity not only for a time issue, of a posterior law that revokes a previously one, but, mainly, by an issue of coherence in the Brazilian normative order. In the Double Tax Treaty among Brazil and Belgium, the issue of the nationality comeback to be in evidence, in a more convergent way with the Brazilian constitutional and infra constitutional framework, in the terms of the Article 23, 2, b:

The term ‘nationals’ means:...b) every legal persons, persons associations and collegias constituted in compliance with the legislation in force in a Contracting State”.


contents | previous | next

All rights reserved. Prohibited to copy and distribute, without permission of Rafael De Conti


CONTACT for legal advice


Rafael De Conti, Rafael Augusto De Conti, Brazilian Tax Lawyer, Lawyer in Brazil