Tax Treaty Case Law around the Globe 2023

1. Introduction

The Renner Sayerlack case discusses whether the immediate taxation of profits (i.e. before their distribution as dividends) earned by foreign subsidiaries held by a parent company in Brazil breaches Article 7 of the Brazilian double taxation conventions (DTCs). As a rule, profits of an enterprise shall be taxable only in its state of residence pursuant to Article 7 of the Brazilian DTCs.

Article 76 of Law No. 12,973/2014 reformulated the Brazilian worldwide taxation regime after the previous rule (Article 25 of Law No. 9,249/1995 together with Article 74 of Provisional Measure No. 2,158-35/2001) was held to be contrary to Article 7 of the Brazilian DTCs. Thus, the expectation was on whether the new wording of law would be enough to avoid restrictions imposed by Article 7 of the DTCs.

Article 76 of Law No. 12,973/2014 determines that a parent company domiciled in Brazil shall assess the accounting result from the variation to the value of the investment corresponding to the profits or losses earned by a foreign subsidiary. In turn, Article 77 of the same law requires that the positive variation to the value of the investment corresponding to the profits earned by a fore...