On 4 November 2022, officials from Brazil and Norway signed a new income tax treaty. Once in force and effective, the new treaty will replace the 1980 tax treaty between the two countries.

Taxes Covered

The treaty covers Brazilian federal income tax and the social contribution on net profit and covers the following Norwegian taxes:

• National tax on income;
• County municipal tax on income;
• Municipal tax on income;
• National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and activities and work relating thereto, including pipeline transport of petroleum produced; and
• National tax on remuneration to non-resident artistes.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities will determine the person's residence for the purpose of the treaty through mutual agreement, having regard to its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, such person will not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such a manner as may be agreed upon by the competent authorities of the Contracting States.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or a connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

• Dividends - 10% if the beneficial owner is a company that has directly held at least 25% of the paying company's capital in at least 365 days preceding the day of payment; otherwise, 15%
• Interest - 10% if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects; otherwise, 15%
• Royalties - 15% on royalties paid for the use of or the right to use trademarks; otherwise, 10%
• Fees for Technical Services (managerial, technical, or consultancy) - 10%

Note - The final protocol to the treaty provides that with reference to Article 10 (Dividends), if either of the Contracting States should at any time after the signature of this treaty introduce a branch profit tax, the competent authorities of the Contracting States should notify each other and, subject to such notification, the following provision shall become applicable as of the date agreed upon by the competent authorities:

"Where a resident of a Contracting State has a permanent establishment in the other Contracting State, that permanent establishment may be subject to a tax withheld at source in accordance with the law of that other Contracting State. However, the tax so charged shall not exceed 10% of the gross amount of the profits of that permanent establishment determined after the payment of the corporate tax related to such profits."

The final protocol also provides that interest for the purpose of Article 11 (Interest) includes interest paid as "interest on the company's equity" ("juros sobre o capital próprio") in accordance with Brazilian law.

Lastly, the final protocol provides that Article 12 (Royalties) covers payments of any kind received as consideration for the rendering of technical assistance.

MFN Clause

The final protocol to the treaty includes an MFN clause providing that if, after the date of signature of the treaty, Brazil agrees in a tax treaty with any Member State of the OECD, excluding any state in Latin America, to rates that are lower (including any exemption) than the ones provided in:

• paragraph 2 of Article 10 (10%/15%),
• paragraph 2 of Article 11 (10%/15%),
• paragraph 2 of Article 12 (15%/10%), and
• paragraph 2 of Article 13 (10%),

then such lower rates (exemption) shall, for the purpose of the Brazil-Norway treaty, automatically apply under the same terms, from the time and for as long as such rates are applicable in such other tax treaty.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
• Gains from the alienation of shares of the capital stock of a company, the property of which consists directly or indirectly principally of immovable property situated in the other State; and
• Gains from the alienation of any property other than that referred to above that arise in the other State.

Offshore Activities

Article 23 (Offshore Activities) provides that a permanent establishment will be deemed constituted where an enterprise carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in a Contracting State, if such activities continue for a period or periods aggregating more than 30 days within any 12-month period. Substantially similar activities carried on by a closely related enterprise in a Contracting State are considered in determining if the 30-day threshold is exceeded.

Article 23 also provides that gains derived by a resident of a Contracting State may be taxed by the other State if derived from the alienation of:

• Exploration or exploitation rights;
• Property situated in the other Contracting State and used in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State; or
• Shares deriving their value or the greater part of their value directly or indirectly from such rights or such property or from such rights and such property taken together.

Entitlement to Benefits

Article 24 (Entitlement to Benefits) includes several provisions regarding a resident's entitlement to benefits under the treaty, including that a resident of a Contracting State will only be entitled to the benefits of the treaty if the resident is a qualified person (as defined in the treaty). However, the benefits of the treaty may still apply where a resident is not a qualified person, subject to certain conditions, including where:

• The resident of a Contracting State is engaged in the active conduct of a business in that State and the income derived from the other State emanates from, or is incidental to, that business, with the following activities or any combination thereof not considered the active conduct of a business:
  • operating as a holding company;
  • providing overall supervision or administration of a group of companies;
  • providing group financing (including cash pooling); or
  • making or managing investments, unless these activities are carried on by a bank, insurance enterprise, or registered securities dealer in the ordinary course of its business as such;
• At the time when the benefit would otherwise be accorded and on at least half of the days of any twelve-month period that includes that time, persons that are equivalent beneficiaries own, directly or indirectly, at least 75% of the shares of the resident (equivalent beneficiary generally means any person that would be entitled to an equivalent or more favorable benefit under the treaty or domestic law); or
• The competent authority of the Contracting State in which the benefits would otherwise be denied is satisfied that neither the establishment, acquisition, or maintenance of a resident of the other State, nor the conduct of its operations, had as one of its principal purposes the obtaining of benefits under the treaty.

Article 24 also includes the provision that the benefits of the treaty will not apply to an item of income of an enterprise of a Contracting State derived from the other State if:

• The first-mentioned State treats the income as attributable to a permanent establishment of the enterprise situated in a third jurisdiction;
• The profits attributable to that permanent establishment are exempt from tax in the first-mentioned State; and
• The tax imposed in the third jurisdiction on the income is less than 60% of the tax that would be imposed in the first-mentioned State on that item of income if that permanent establishment were situated in the first-mentioned State.

Lastly, Article 24 includes a general anti-abuse provision, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.