BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior and Bruno Marques Feitosa, William Freire - Advogados Associados
1.4 Multilateral Instrument Brazil signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 20 Octo - ber 2025. However, the instrument has not yet been ratified by the National Congress and, therefore, has not entered into force for Brazil. Under the Brazilian constitutional system, international treaties require congressional approval followed by presidential rati - fication before producing legal effects domestically. Upon ratification, the MLI will modify Brazil’s cov - ered tax treaties in accordance with the reservations and notifications submitted. Brazil has provisionally accepted the principal purpose test (PPT) as the gen - eral anti-abuse rule and indicated openness to the simplified limitation on benefits (LOB) clause in certain cases. Until ratification occurs, Brazil’s treaty network con - tinues to operate solely under the terms of each bilat - eral agreement, including those recently negotiated to incorporate BEPS-related standards through direct renegotiation rather than multilateral modification.
In hierarchical terms, the framework may be summa - rised as follows: • the Federal Constitution; • duly incorporated international treaties; • complementary and ordinary tax laws; and • below them, administrative regulations and guid - ance. Administrative acts issued by the RFB must comply with treaty provisions, and domestic anti-avoidance or interpretative rules must be applied consistently with Brazil’s international obligations. 1.3 OECD Model/United Nations Influence on Treaty Practice Brazil’s treaty practice reflects a hybrid approach. Its agreements generally follow the structure of the OECD Model Convention, particularly in relation to residence, PE and methods for eliminating double taxation. How - ever, Brazil consistently incorporates elements of the UN Model in order to preserve broader source-based taxing rights. A defining feature of Brazil’s treaty policy is the empha - sis on taxation at source. Many treaties expand the definition of royalties to include technical services and technical assistance, even in the absence of technol - ogy transfer. In practice, this allows Brazil to impose withholding tax on payments that, under the OECD Model, would often fall within business profits and be taxable only in the absence of a PE. Older treaties relied more heavily on simplified word - ing and fewer anti-abuse provisions. More recent agreements – such as those signed with Switzerland and Singapore – demonstrate closer alignment with OECD/BEPS minimum standards, including enhanced dispute resolution mechanisms and anti-treaty shop - ping provisions. Overall, Brazil does not adhere strictly to either model. Instead, it adopts a pragmatic approach: an OECD- based structure combined with UN-style source taxa - tion, reflecting its long-standing policy of protecting taxing rights over inbound payments.
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation Brazil adopts a mixed system combining worldwide taxation for residents with source-based taxation for non-residents. Residents – including companies incorporated in Bra - zil and individuals considered tax resident – are taxed on their worldwide income. This includes foreign busi - ness profits, capital gains and investment income. In the case of corporations, foreign profits may be taxed on an accrual basis under CFC rules. Non-residents are taxed only on Brazilian-source income. Taxation generally occurs through withholding at source, par - ticularly on dividends, interest, royalties, services and capital gains from Brazilian assets. The concept of Brazilian-source income is broadly interpreted. Income is usually deemed sourced in Brazil when:
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