Tax Treaty Case Law around the Globe 2025

1. Introduction

This chapter examines the PRIMEIROPAY/TH Brasil case as decided by the Federal Court of 3rd Region. It involves the double tax convention between Brazil and Luxembourg (DTC-BRA-LUX) and concerns taxing profits earned by a company resident in Luxembourg and the possible existence of a permanent establishment (PE) in Brazil. Art. 7(2) of the Brazil-Luxembourg Tax Convention states that, if a company resident in Luxembourg conducts business through a PE in Brazil, the profits attributable to that PE are also taxable in Brazil.

This case is significant as it addresses the criteria required to define a PE which is an issue that is not frequently analyzed by Brazilian courts. In this regard, the applicable legal provision is Art. 685(II)(a) of Decree No. 3.000 of 26 March 1999. It provides that income, capital gains, and other proceeds paid, credited, delivered, employed, or remitted by a source located in Brazil to an individual or legal entity resident abroad are subject to withholding tax at a rate of 25%.

2. Facts of the Case

PRIMEIROPAY is a company that is resident in Luxembourg and holds licenses to market its services in Brazil. It engages in the hospitality services ...