INDIA and Brazil, both are original founder members of the BRIC grouping that subsequently became BRICS with the addition of South Africa and currently comprises Brazil, China, Egypt, Ethiopia, India, Indonesia, Iran, Russia, South Africa and UAE as full members. (BRICS+). Many see the grouping as a counter weight to the west dominated world order but the Forum doesn't have, as yet, much to show in terms of strategic initiatives/ approaches except perhaps for the setting up of the New Development Bank headquartered in Shanghai. There is of course a flurry of papers/ ideas that come out of different forums holding out the prospects of the BRICS+ countries in shaping a new world order following the chaos unleashed by the USA in its quest of making America great again! But today's column is not about BRICS as such but of Brazil- India relations in the income-tax field following the recent notification of the renegotiated India- Brazil double tax avoidance agreement. (Notified on the 31 st of March, 2026) 1
Brazil is the largest country and the largest economy of Latin America; is endowed with natural resources and has significant expertise in particular in aerospace, agribusiness, ethanol etc. Embraer of Brazil is a substantial player in the Aerospace market both commercial and defence. In October 2025, the company has opened a subsidiary in Delhi. The company has also reportedly entered into a JV with Adani Defence &Aerospace to establish India's first private final assembly line for commercial aircraft. Overall, though Brazilian investment in India is very limited at around only 1 bn USD while Indian investment in Brazil is about 15 billion USD mainly in Pharma and IT. Besides, in oil exploration ONGC Videsh has significant exposure in exploring several oil blocks in Brazil in collaboration with Petrobras of Brazil. In short, there is enormous potential for both bilateral trade and investments between the two countries.
The first tax treaty between India and Brazil was signed in 1988 and came into effect in 1992. It is not known when the negotiations actually began but it is safe to assume that the treaty architecture available at that time was dated. A first amending Protocol was signed in 2013 but that was limited to modernizing the Exchange of Information article in the tax treaty. In the meantime, there were important developments, particularly the finalization of the BEPS Project 1.0. Besides, developments and improvements also happened at the United Nations. Therefore, the existing tax treaty needed drastic overhaul. To that effect, renegotiations took place and a second amending Protocol was signed in 2022. Following completion of formalities in Brazil that took almost four years, the Protocol was formally notified by the Government of India on March 30, 2026 applicable in India from the FY 26-27 onwards.
Simultaneously with the double tax avoidance agreement, the two countries also negotiated a bilateral investment treaty that has come into force from December 31, 2025.
We may note that both Brazil and India have very strong positions in relation to the working of the OECD Model tax treaties as also the working of the Bilateral Investment treaties. The USA used to be Brazil's largest trading partner and is now in second place behind China. It is interesting to note that the till date the USA does not have a tax treaty with Brazil because of certain policy differences. Brazil has also refused to sign any investment treaties and has adopted its own Model (2015) which is geared to investment facilitation rather than protection. India's experience with the BITs is also bitter, particularly in the application of the investment treaty provisions in taxation disputes by the arbitral tribunals. India has, in fact, terminated its earlier investment treaties and has adopted the 2016 Model which, amongst other things, expressly keeps taxation disputes out of the ambit of the BITs. Article 2.6 of the Indian Model BIT states: 2
"This treaty shall not apply to:
(…)
iv) any taxation Measure."
Besides, the determination as to whether a particular measure is a taxation matter or not is done by the host state and such determination in this regard is final.
"Where a Host State asserts as a defence that conduct alleged to be a breach of its obligations under this Treaty is a subject matter of taxation which is excluded by this Article from the scope under this Treaty, any decision of the Host State, whether before or after the commencement of arbitral proceedings, shall be non-justiciable and it shall not be open to any arbitration tribunal to review any such decision."
In the Indian Model, there is also a separate article relating to taxation-Article 11 as follows:
"11.1 Investors and their Investments must comply with the provisions of Host State's Law on taxation including timely payment of their tax liabilities in accordance with the Law of the Host State."
The India-Brazil investment treaty is titled- "Investment cooperation and Facilitation treaty between Brazil and India" also has an exception to the application to taxation measures as follows: 3
"Article 20- Tax Measures
20.1 No provision of this Treaty shall be interpreted as an obligation of one Party to give an investor from the other Party, concerning the investment, the benefit of any treatment, preference or privilege arising out of any agreement to avoid double taxation, current or future, of which a party to this Treaty is a Party or becomes a party.
20.2 No provision of this treaty shall be interpreted in a manner that prevents the adoption or implementation of any measure aimed at ensuring the equitable or effective imposition or collection of taxes, according to the respective law of the Parties.
20.3 For greater certainty, where the Party in which an investment is made makes it evident to the other party that a measure alleged to be a breach of its obligations under this Treaty has been adopted in compliance with a specific tax law, such measure of that Party shall not be open for review under Article 19." (Relating to disputes between Parties)"
It is thus apparent that the Brazil- India investment treaty keeps taxation matters out of its ambit.
In the matter of tax treaties also both India and Brazil differ from the standard OECD Model and tend to lean more towards the UN Model. Both the countries have understood the importance of taxation of services. This has now become manifest in the digitalised world- most of the income of the significant international players are in the nature of services. In the sphere of cross-border taxation of services, India has long adopted an article for 'fees for technical services' in its tax treaties although the utility of the same has been seriously dented by the compulsion of having a tax treaty with the USA, that treaty having adopted the concept of the so-called "included service" and "make available" stipulation that leaves very little to be taxed by the source country. Nevertheless, an article relating to fees for technical services is present in most of other Indian treaties. Surprisingly, the Article was not included in the existing India-Brazil tax treaty. As is discussed below, this is now being changed.
India also incorporates a service PE in its treaties besides having a separate article for independent personal services based on the UN Model despite its deletion in the OECD Model.
Brazil, on the other hand, has not succumbed to the US pressure and does not have any tax treaty at all with the USA. But it attaches equal importance to taxation of services. The Brazilian treaties tax technical assistance payments as royalties and does not follow net taxation even when the fees are affectively connected with a PE.
Another important specificity of the Brazilian system is the non-adoption of OECD's arm's length pricing method to counter transfer pricing. In short, the Brazilian method consisted of certain statutory fixed margins depending on the methods that were easy to administer. Brazil is however in advance talks with the OECD to become a full member and under OECD pressure is reported to have adopted the OECD TP guidelines effective January 2024.
Brazilian treaties so far, do not contain the provision relating to corresponding adjustment in Article 9(2). However, it now allows the issue to be taken to the Mutual Agreement Procedure.
Brazil originally abstained from the MLI signing ceremony in 2017 but promised to implement the minimum standards through bilateral negotiations. It was only in October,2025 that Brazil signed the MLI with certain reservations and the same will come into effect only after following a lengthy internal process.
With this background and considering the convergence of Indian and Brazilian positions in many areas, it will be useful to have a side-by-side analysis of the old and the new tax treaties in certain key areas.
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Old treaty
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New treaty
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Preamble
The Government of the Republic of India and the Government of the Federative Republic of Brazil. Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. Have agreed as follows:
ARTICLE 5 Permanent establishment
1. For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which the business, of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or other place of extraction of natural resources;
(g) a building site or construction or assembly project which, exists for more than six months;
(h) an installation, drilling rig or ship used for the exploration or exploitation of natural resources, but only if so used for a period of more than six months .
3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:
(a) the use of facilities solely for the purpose of storage or display of goods ox merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.
4. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an in dependent status to whom paragraph 5 applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
5.An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.
6.The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting Stats, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
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Preamble
"The Republic of India and the Federative Republic of Brazil, intending to conclude a Convention 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 Convention for the indirect benefit of residents of third States), Have agreed as follows:"
ARTICLE 5 Permanent establishment
1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, an oil or gas well, a quarry or other place of extraction of natural resources;
g) a building site or construction or assembly project which exists for more than six months .
3. The term "permanent establishment" also encompasses the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue within a Contracting State for a period or periods aggregating more than 183 days in any 12-month period commencing or ending in the fiscal year concerned
(Service PE provision introduced)
4. For the sole purpose of determining whether the six month period referred to in subparagraph g) of paragraph 2 has been exceeded,
a) where an enterprise of a Contracting State carries on activities in the other Contracting State at a place that constitutes a building site or construction or assembly project and these activities are carried on during one or more periods of time that, in the aggregate, exceed 30 days without exceeding six months, and;
b) connected activities are carried on at the same building site or construction or assembly project during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise, these different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on activities at that building site or construction or assembly project.
(New anti-fragmentation rule)
5. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include :
a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;
b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;
c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity;
f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e),
provided that such activity or, in the case of subparagraph f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.
[Following Art.5(4) of UN Model]
5.1. Paragraph 5 shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and
a) that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Article, or
b) the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character,
provided that the business activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, constitute complementary functions that are part of a cohesive business operation
6. Notwithstanding the provisions of paragraphs 1 and 2, but subject to the provisions of paragraph 7, where a person is acting in a Contracting State on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are
a) in the name of the enterprise, or
b) for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or
c) for the provision of services by that enterprise,
that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 5 which, if exercised through a fixed place of business (other than a fixed place of business to which paragraph 5.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
[Article 5(6) of the UN Model relating to insurance PE is missing]
7. Paragraph 6 shall not apply where the person acting in a Contracting State on behalf of an enterprise of the other Contracting State carries on business in the first-mentioned State as an independent agent and acts for the enterprise in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to any such enterprise.
8. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
(There is no change in language here)
9. For the purposes of this Article, a person or enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, a person or enterprise shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interest in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) or if another person or enterprise possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) in the person and the enterprise or in the two enterprises."
(Article 15 of the MLI) [5(9) of the UN Model]
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Article 9- Associated enterprises -
Where-
(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly
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No change
However, the Protocol item no 4 states:
It is understood that the absence of a clause providing for an obligation of a Contracting State to make an appropriate corresponding adjustment cannot be construed so as to hinder a Contracting State to make such an appropriate adjustment if it has been agreed to in the course of a mutual agreement procedure.
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Article 12
ROYALTIES
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed:
(a) 25 per cent of the gross amount of the royalties arising from the use or the right to use trademarks;
(b) 15 per cent of the gross amount of the royalties in all other cases.
3. The term "royalties' as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, films or tapes for television or radio broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.
4. The provisions of paragraph 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the "royalties arise, through a permanent establishment situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment then such royalties shall be deemed to arise in the State in which the permanent establishment is situated.
6. Where, by reason of a special relationship between the payer and the beneficial owner between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this convention.
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No change
2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 15 per cent of the gross amount of the royalties arising from the use or the right to use trademarks;
b) 10 per cent of the gross amount of the royalties in all other cases.
(Rate of tax on royalties reduced)
No change
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply.
5. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
No change
New Protocol item no 8
It is understood that the provisions of the Brazilian tax law on the limitation of deductibility of royalties, as defined in paragraph 3 of Article 12, while determining taxable income of a permanent establishment under paragraph 3 of Article 7 are not in conflict with the provisions of paragraph 2 of Article 24 of the present Convention ."
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No specific article for FTS.
But the Protocol item no 2 stated-
It is understood that the provisions of paragraph 3 of Article 12 shall apply to payments of any kind to any person, other than payments to an employee of a person making such payments, in consideration for the rendering of assistance or services of a managerial, administrative, scientific, technical or consultancy nature.
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Article 12A
Fees for technical services
1. Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, notwithstanding the provisions of Article 14 and subject to the provisions of Articles 8, 16 and 17, fees for technical services arising in a Contracting State may also be taxed in the Contracting State in which they arise and according to the laws of that State, but the beneficial owner of the fees is a resident of the other Contracting State, the tax so charged shall not exceed 10 percent of the gross amount of the fees.
3. The term "fees for technical services" as used in this Article means 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.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise through a permanent establishment situated in that other State, or performs in the other Contracting State independent personal services from a fixed base situated in that other State, and the fees for technical services are effectively connected with such permanent establishment or fixed base.
[Not included- UN Model-(b) business activities referred to in (c) of paragraph 1 of Article 7.]
In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply.
5. For the purposes of this Article, subject to paragraph 6, fees for technical services shall be deemed to arise in a Contracting State if the payer is a resident of that State or if the person paying the fees, whether that person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the fees was incurred, and such fees are borne by the permanent establishment or fixed base.
6. For the purposes of this Article, fees for technical services shall be deemed not to arise in a Contracting State if the payer is a resident of that State and carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and such fees are borne by that permanent establishment or fixed base.
7. Where, by reason of a special relationship between the payer and the beneficial owner of the fees for technical services or between both of them and some other person, the amount of the fees, having regard to the services for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the fees shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention."
New Protocol item no 6 specifically mentions :
6. With reference to Article 12-A It is understood that the provisions of paragraph 3 of Article 12-A shall apply to payments of any kind received as consideration for the rendering of technical assistance.
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CAPITAL GAINS
1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6, when Situated in the other Contracting State, may be taxed in the other State.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise), may be taxed in the other State.
However gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
3. Gains from the alienation of any property other than that referred to in paragraphs 1 and 2, may be taxed in both Contracting States.
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"ARTICLE 13 Capital gains
1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6, which is situated in the other Contracting State, may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
3. Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
4. Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State.
5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 may be taxed in both Contracting States.
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Article 22
Other income
Items of income of a resident of a Contracting State, arising in the other Contracting State and not dealt with in the foregoing Articles of this Convention, may be taxed in that other State.
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No change.
This is a deviation from both OECD and UN Models and is pure source taxation
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Article 23
METHODS FOR THE ELIMINATION OF DOUBLE TAXATION
1. Subject to the provisions of paragraphs 3 and 4, where a resident of a Contracting State derives income which in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to the income which may be taxed in that other State.
2. For the deduction, mentioned in paragraph 1, the tax paid in that other State shall always be deemed to have been paid at the rate of 25 per cent of the gross amount of interest referred to in paragraph 2 of Article 11 and of royalties referred to in paragraph 2 of Article 12, provided however, that the tax so deemed to have been paid shall not exceed the tax leviable on that income in the first-mentioned State.
3. Where a company which is a resident of a Contracting State derives dividends which in accordance with the provisions of paragraph 2 of Article 10, may be taxed in the other Contracting State, the first-mentioned State shall exempt such dividends from tax.
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Methods for the elimination of double taxation
1. Where a resident of a Contracting State derives income which may be taxed in the other Contracting State, in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State), the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in that other State. Such deduction in either case shall not, however, exceed that part of the income tax, as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in that other State.
2. Where, in accordance with any provision of this Convention, income derived by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income."
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Brazil, in its tax treaties always insisted on having a tax sparing / matching credit clause. In the old India- Brazil tax treaty also there was this provision of matching tax credit in respect of dividends and royalties. In old Indian tax treaties also, there were tax sparing provisions. However, because developed countries used to consider the inclusion of a tax sparing provision as a form of development assistance, India has stopped insisting on such a clause for a long time now. Brazil has been more dogmatic in this regard and one of the reasons of Brazil not having a tax treaty with the USA is the former's insistence and the latter's refusal to have such a provision in tax treaties. The revised India-Brazil no longer has this provision indicating perhaps a change of attitude in Brazil.
Although there is change in the PE definition, there is no change in Article 7 which implies that the Authorised OECD Approach in relation to allocation of business profits to permanent establishments will not apply.
Apart from the above, there are also changes in the dividends and interest articles in the treaty mainly relating to the limit of state taxation which is now reduced from the existing 15% to 10% in case where at least 20% of the capital of the paying company is held for at least 365 days. For the purpose of calculation of the period, it is clarified that no account shall be taken of changes of ownership that would directly result from a merger or divisive reorganisation, or from a change of legal form, of the company that holds the shares or that pays the dividend.
The rate of tax by the source State in respect of interest has also been reduced from the general 15% to 10% in case of banks and the loan is granted for at least five years for the financing of the purchase of equipment or of investment projects. It is also stipulated that the reduced rate will not apply to interest arising in a Contracting State and paid to a PE of the other State situated in a third State if it is taxed there at a lower rate.
As mentioned earlier, the treaty retains article 14 relating to independent personal services while the same was deleted from the OECD Model. The formulation has undergone change though. Earlier, the source state could tax only when the remuneration was borne by a PE or a resident therein. The revised version gives such right in the case of the existence of a fixed base or stay in excess of 183 days.
These are then some of the important points of the now revamped India- Brazil tax treaty along with a new Investment treaty and one only hopes that bilateral trade and investments between the two countries reach their potential.
1 https://www.incometaxindia.gov.in/documents/81799/15509036/Notification-no-39-2026.pdf/4674c3df-a3ad-ef38-5cb6-ba85fcb5c85b?t=1774958075672
2 https://www.iisd.org/toolkits/sustainability-toolkit-for-trade-negotiators/wp-content/uploads/2016/06/Model-Text-for-the-Indian-Bilateral-Investment-Treaty.pdf
3 https://dea.gov.in/files/bilateral_investment_treaties_document/India_Brazil_ICFT.pdf
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