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June 17, 2021

Brazil and Switzerland: The treaty for the avoidance of double taxation between the countries has been ratified by the Brazilian President's sanction

The new treaty defines permanent establishment and sets out withholding tax rates for dividends, royalties, interest and technical service.

The treaty for the avoidance of double taxation between Brazil and Switzerland (Treaty) has been ratified and promulgated. The new tax treaty between Switzerland and Brazil will be effective as from 1 January 2022.

Detailed discussion

The Treaty was approved on 6 March 2019, by the Swiss Parliament and on 25 February 2021 by the Brazilian Senate.On 9 June 2021, Decree No. 10.714, signed by the President of Brazil, was published promulgating the Treaty, which will become effective on 1 January 2022.

The Treaty improves the Brazilian business environment by facilitating investments from Switzerland into the largest economy in Latin America. Like Brazil’s business environment, Switzerland’s business environment is improved because the Treaty facilitates investments from Brazil into Switzerland.

The Treaty provisions are generally aligned with the standards of the United Nations (UN), and the Organisation for Economic Co-operation and Development (OECD), as well as the OECD’s Base Erosion and Profit Shifting (BEPS) action plans.

The Treaty provides a welcome addition for both Brazil’s and Switzerland’s double tax treaty (DTT) networks. Brazil will now have 35 DTTs in force while Switzerland will have more than 100 DTTs worldwide, including those with Latin American countries such as Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Trinidad and Tobago, Uruguay and Venezuela.

The key aspects of the Treaty are as follows:

  • Residence
    • Effective place of management as tie-breaker rule
  • Persons covered
    • Applies only to persons who are residents in the Contracting States
    • Limits the use of transparent entities to unduly obtain treaty benefits
    • Treats certain collective investment vehicles from both Contracting States as an individual for treaty purposes
  • Taxes covered
    • Federal income taxes of both Contracting States, including Social Contribution Tax (CSLL),  and Swiss cantonal and communal income taxes
  • Permanent establishment definition
    • Fixed place of business through which the business of an enterprise is wholly or partly carried on, corresponding to the definition of the OECD’s Model Tax Convention

Additionally, the Treaty includes a most-favored-nation clause, which allows the withholding tax rates for interest, royalties and technical services in another treaty into which Brazil or Switzerland enter to apply to the Treaty between Brazil and Switzerland if those rates are lower than the rates in the Treaty. The Treaty also eliminates double taxation as follows:

  • Brazil – Credit method under which Brazilian residents would be entitled to claim a credit for the income tax paid in Switzerland
  • Switzerland - Exemption method in general and credit method for dividends, royalties, interest and technical services2

The Treaty includes provisions for Mutual Agreement Procedures. The Treaty requires the case to be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention. The Treaty also has an anti-abuse clause generally aligned with the principal purpose test.

The provisions of the treaty should not prevent the application of anti-avoidance rules imposed by any of Contracting State.

The withholding tax (WHT) Treaty rates are as follows:

  1. Dividends

15% - General rule

10% - “Qualified participation” (at least 10% participation and minimum holding period of 365 days)

0% - Taxes dividends paid to pension or sovereign funds only in the Contracting State where the fund is resident

  1. Interest

15% - General rule

10% or 0% - Reduced WHT rates are subject to certain conditions being met.
Taxes interest paid to pension or sovereign funds only in the Contracting State where the fund is resident

Interest on net equity (INE) will be treated as an interest payment for Treaty purposes

  1. Royalties

15% of the gross amount of the royalties arising from the use or the

right to use trademarks

10% of the gross amount of the royalties in all other cases

  1. Technical services


Although the Treaty does not provide a 0% rate, dividends paid by a Brazilian entity after 1996 are not subject to WHT under current Brazilian tax Legislation, regardless of the location of the beneficiary. That being said, Switzerland levies WHT on dividends at a domestic rate of 35%, which is thus reduced by the Treaty.

Several tax reform proposals are under discussion in Brazil, which could establish a WHT on dividends paid to individuals and nonresident shareholders at a 10% or 15% rate.

Switzerland is not considered a low-tax jurisdiction under Brazilian law. Certain taxation regimes in Switzerland, however, could be considered a privileged tax regime (PTR) for Brazilian tax purposes, even though they fully align with the OECD BEPS standard.

The patent box or research and development super deduction, for example, could be deemed a PTR to the extent those regimes would cumulatively (i) be governed by a Swiss tax ruling; and (ii) lead to a Swiss combined (federal, cantonal and communal levels) tax rate equal to or lower than 20%.

When Swiss tax regimes are deemed to be PTRs for Brazilian tax purposes, Treaty benefits will not be adversely affected.  However, stricter deductibility requirements for thin capitalization and transfer pricing purposes will still apply.


Multinational groups doing business in Brazil and with a nexus in Switzerland and vice versa, should review their current situation to evaluate the available Treaty benefits. Likewise, groups should review if any actions are needed to mitigate possible adverse consequences from a PTR qualification.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Assessoria Empresarial Ltda, São Paulo

Ernst & Young Assessoria Empresarial Ltda, Rio de Janeiro

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

Ernst & Young LLP (United States), Switzerland Tax Desk, New York

Ernst & Young LLP (United States), Switzerland Tax Desk, San Francisco

Ernst & Young Ltd, Zurich

Ernst & Young Ltd, Bern

Ernst & Young Ltd, Geneva



  1. See EY Global Tax Alert, Brazilian Senate approves three new treaties for the avoidance of double taxation, dated 8 March 2021.
  2. Brazil does not currently impose withholding tax on dividends.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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