The Dance of the Lions




Analyses of International Tax Treaties


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


(4.1.e) Permanent Establishment


§121. Let’s now analyses the Article 5, 6, of the Treaty:

The fact of a resident legal entity of a Contracting State controls a company or be controlled by a legal entity resident in the other Contracting State or that performers its activities in this other State (be trough a permanent establishment, be in an other way) it is not enough to, by itself, made the others legal entities a permanent establishment

§122. The national origin of the legal entity control, that, in practice, ends to be related directly to the nationality of the shareholders/quotaholders owner, corroborate the explanations given about the General Definitions of the Treaty among Brazil and Belgium, in which was expressed that the nationality of the legal entities, according to the Brazilian Constitutional Order, is defined by the compliance of the legal entity to the Brazilian norms and by the headquarter of the legal entity in territory controlled by the Brazilian jurisdiction. The focus issue, therefore, remains in the activities of the company, and not on the (national) origin of its capital. In other words: from what market the profit are being extracted? This market is under what jurisdiction? It is the State that regulates this market that has the right to taxing. But the earnings obtained in this market will be transferred to the owner of the capital, and in this moving of the money a decrease of the income in Brazil will generate an increase of the income in Belgium, and vice-versa; the issue of international taxation of the income always appears again, because the increase of capital to a patrimony is a global phenomenon, far beyond the nationality. Whom (which State) will give up of the income collection (or profits in economical private and general term)? The investor searches for the market (of the others jurisdiction), being this market his interest. The government of the State in whose territory will be invested the capital, moving the market and generating employments, aims this benefits originated by the arriving of the capital (it is about economical logic). Both the investor and the invested have interests. How to equalizes these interests to the point of solve the dead-lock of whom collect the taxes on the income of capital? In this situation, or both win or none. Let’s advance and try to understand how the Treaty among Brazil and Belgium equalizes the opposite, but complementary, interests.

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