SUMMARY OF THE COURSE:
This course aims to provide for a structured analysis of the mechanisms for taxation of income on cross-border transactions. It will discuss the interplay between the income tax rules of different jurisdictions, double taxation treaties, and the formation of a so-called “international tax system” comprising such rules. It will analyze in depth the main Brazilian income tax rules applicable to cross-border transactions, especially in relation to: (i) outbound income flows earned by non-residents in inbound transactions; (ii) inbound income flows earned by Brazilian residents on outbound transactions; and (iii) transfer pricing and other rules for allocation of taxable income within a group.
LEARNING GOALS:
The course aims to provide the student a thorough view on how income from cross-border transactions is taxed in Brazil and how such Brazilian tax rules are situated on an international scenario. This will allow the student to better understand how global value chains and multinationals respond to tax mecanisms of different countries and how these tax rules may influence corporate decisions on the structuring of such chains and of the multinational group itself. Through complex cases, it is expected that the students, by the end of the course, will be able to:
1. Calculate the tax liability on different types of income earned by non-residents, such as income earned on foreign direct investments, service, income derived from a permanent establishment and portfolio income.
2. Calculate the tax liability on income earned by resident individuals and corporations on foreign direct and portfolio investments, accounting for the foreign tax credit, foreign losses and treatment of active and passive income.
3. Apply tax treaty rules to the cases above, understanding the different results the application of each individual treaty may lead to.
4. Understand how transfer pricing and choices of capital structure between different business units located on different jurisdictions may lead to different tax results and how transfer pricing rules may limit the ability of multinational companies to engage in profit shifting.
5. Apply Brazilian and OECD standard transfer pricing rules to different transactions, with knowledge on the basic working mechanisms of each transfer pricing method, best method choice, database selection, comparability adjustments and necessary contents on a local and a master file.
6. Apply Brazilian thin-capitalization rules, calculating the allowed debt/equity ratio on different scenarios in order to determine the deductible interests paid abroad by Brazilian companies.
7. Understand how the digitalization of global value chains may affect the application of current rules on taxation of cross-border income and the initiatives to deal with this issue (Digital Service Taxes, Digital PE, Pillar 1 etc.)
8. Understand how the move to (partial) territoriality on the taxation of foreign sourced corporate income may increase global incentives for harmful tax competition and how Pillar 2 of the Globe Initiative intends to deal with this.
9. Acquire basic knowledge on how to calculate Pillar 2 income and tax liability.
Method
LEARNING METHOD:
The course will by taught with the following learning methods
1. In-class lessons using Socratic method;
2. In-class discussion of the readingsç
3. In-class discussion of cases;
4. Individual take-home activities: quizzes, cases and exams;
5. Group take-home activities: complex cases to be solved in group and then discussed during the classes.
ABILITIES TO BE DEVELOPED:
Given the scope of the course and the learning methods used, one expects that students develop the Ability to (i) deal with income taxation of cross-border transactions, being able to identify the relevant countries that may tax such transactions and the applicable Brazilian rules to assess Brazilian taxation on such transactions; (ii) apply the relevant tax treaties to cross-border situations, assessing how such treaties may limit Brazil’s ability to tax the income derived therefrom; (iii) discuss policy choices in international taxation, being able to analyze critically Brazilian policy choices and rules that implement them; (iv) analyze complex international structures and cases, being able to strategically assess tax implications and risks; (v) understand the necessary steps for a transfer pricing analysis for Brazilian companies.
Syllabus
1. INTERNATION TAX, NEXUS FOR TAXATION AND ALLOCATION OF TAXING RIGHTS
1.1. International transactions and taxation
1.2. Nexus for taxation
1.3. Source, residency and nationality
1.4. Definition of residence and domicile
1.5. World-wide taxation and territoriality
2. DOUBLE TAXATION AND METHODS FOR ITS ELIMINATION: CAPITAL IMPORT AND CAPITAL EXPORT NEUTRALITY
2.1. Cases of double taxation: dual residency, dual source, source/residency
2.2. Juridical and economical double taxation
2.3. Multi-jurisdiction taxation
2.4. Capital Export and Capital Import Neutrality
2.5. Deduction, credit, exemption, matching credit and tax sparing
2.6. Double non-taxation
3. DOUBLE TAXATION CONVENTIONS
3.1. Double taxation conventions (“DTCs”) and their role in eliminating double taxation
3.2. History of DTCs
3.3. Roles of the UN, the OECD, their models and commentaries
3.4. How to apply a DTC
3.5. Subjective scope and residency test
3.6. Taxes covered
3.7. Allocation rules
3.8. Methods to eliminate double taxation
3.9. Other provisions
4. TAXATION OF NON-RESIDENT PERSONS
4.1. Foreign Direct Investment (“FDI”) in Brazil
4.2. Taxation of active income earned by non-residents
4.3. Passive income categories and applicable taxation (interests, dividends, royalties, capital gains, other)
4.4. Service and labor income earned by non-residents
4.5. Non-residents in tax havens and withholding tax (“WHT”) rates
4.6. Portfolio income earned by non-residents
5. TAXATION OF FOREIGN SOURCE INCOME EARNED BY INDIVIDUALS
5.1. Active foreign income earned by individuals
5.2. Passive and portfolio foreign income earned by individuals
5.3. Income earned through controlled foreign corporations (“CFCs”) owned by individuals
5.4. Check-the-box regime for CFCs owned by individuals
5.5. Foreign Trusts
5.6. Foreign Insurance
5.7. Accounting for the profits of CFCs
5.8. Foreign tax credit for individuals
6. TAXATION OF CORPORATE FOREIGN SOURCED INCOME
6.1. Passive foreign income earned directly by a corporation
6.2. Active foreign income and treatment of foreign permanent establishments (“PEs") of Brazilian corporations
6.3. Income earned through foreign subsidiaries and affiliates
6.4. Treatment of foreign losses and mixing rules
6.5. Active income and deferral
6.6. Foreign tax credit for corporations
6.7. Corporate inversions
7. TRANSFER PRICING AND THIN CAPITALIZATION
7.1. Profit shifting and base erosion through transfer pricing
7.2. Capital structure and base erosion and profit shifting
7.3. Transfer pricing methods under OECD standards
7.4. Databases for transfer pricing analysis
7.5. Best method choice
7.6. Comparability adjustments
7.7. Master file and local file
7.8. Advance Pricing Agreements
7.9. Brazilian thin-capitalization rules and BEPS Action 4 standards
8. DIGITAL ECONOMY, HARMFUL TAX COMPETITION AND PILLAR 2 TAXATION
8.1. Digital economy and its effects on global value chains
8.2. Digitalization of economy and international tax paradigms
8.3. Digital services tax, digital PE and Pillar 1
8.4. Move to territoriality and tax competition
8.5. Pillar 2 as a global minimum tax
8.6. Pillar 2 income: a new tax accounting standard?
