The Denouncement of the Brazil-Germany Double Taxation Treaty – Brief Comments

Double Taxation Treaty – Brief Comments Effective since 1975, the treaty between Brazil and the Federal Republic of Germany to avoid double taxation will remain in force until December 31, 2005. Its denouncement by the German government will certainly have implications and consequences for Brazilian and German companies interested in new contracts involving the transfer of technology, the licensing of trademarks, patents and technical assistance services, or even for those who desire to continue transferring know-how in order to improve products and introduce new ones.

One of the factors that contributed to the non renewal of the agreement was the concern expressed by the Brazilian government that the German proposal to reduce the maximum witholding income tax rate of 15% could result in loss of revenue. Since Brazilian legislation currently provides for a withholding tax of 15% applying to the remittance, the maximum rate permitted under the agreement with Germany in order to avoid double taxation, the Brazilian government resisted the proposal of a reduction in order to avoid that transfer of technology agreements executed with German companies would have a different tax rate. However, this position wound up contributing to or even causing the denouncement of the treaty by Germany.

The denouncement of the agreement, however, could result in loss of revenue just the same because many Brazilian companies will lose the opportunity to acquire new technological knowledge. This loss will not only lead to a lack of improvement in products, but also even make it impossible to introduce new ones, with subsequent loss of competitiveness on the export market. Summing up, the denouncement of the double taxation treaty could not come at a worse time, in as much as Brazilian exports have hit historic records, without a shadow of a doubt generating revenues for the country.