Search

 

Cablegate: Brazil: Tax Treaty Roundtable with Receita Federal

VZCZCXRO0372
PP RUEHRG
DE RUEHBR #0824/01 1681359
ZNR UUUUU ZZH
P 161359Z JUN 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 1888
INFO RUEHBR/AMEMBASSY BRASILIA
RUEHRI/AMCONSUL RIO DE JANEIRO 6272
RUEHSO/AMCONSUL SAO PAULO 2242
RUEHRG/AMCONSUL RECIFE 8147
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BRASILIA 000824

SENSITIVE
SIPDIS

STATE PASS USTR FOR DUCKWORTH
TREASURY FOR OASIA HOEK AND TRAN
USDOC FOR 4332/ITA/MAC/WH/OLAC/ADRISCOLL

E.0. 12958: N/A
TAGS: EFIN ECON EINV BR
SUBJECT: Brazil: Tax Treaty Roundtable with Receita Federal

Refs: a) 4/11/08 e-mail Erath/NSC/Treas/DOS/DOC re April 10 tax and
investment lunch

(U)1. SUMMARY: Treasury DAS Brian O'Neill's roundtable, hosted by
the Ambassador, with the head of Receita Federal Jorge Rachid,
Senator Tasso Jereissati, Deputy Antonio Palocci, CEO Forum chair
Josue Gomes da Silva, Finance Ministry Chief of Staff Luis Malin,
Casa Civil International Affairs advisor Carlos Teixeira, and
Receita Federal's head of international tax affairs Marcus Pontes
made progress in revitalizing Brazilian government interest and
willingness to negotiate substantively on a bilateral tax treaty.
Congressional participants urged both sides to look for creative
solutions and possible language to bridge differences. The CEO
Forum chair strongly underlined the interest of the Brazilian
business community in concluding a BTT that would decrease the tax
burden and increase the incentive to invest in the United States.
Rachid and congressional representatives agreed that the key
political issues that must be resolved are tax sparing, information
exchange and limitation on benefits. Tax sparing, participants
indicated, is likely to pose the greatest political challenge to
resolve. Rachid agreed that the negotiating team would engage
substantively during the June 10-12 session in Washington to try to
find ways to address creatively both sides' needs. END SUMMARY

TAX SPARING

(U) 2. While the technical economic impact of inclusion or
non-inclusion of a tax sparing provision may be insignificant in the
present day, Rachid emphasized that GOB believes that if Brazil has
to give up tax revenue as a consequence of tax incentives, the
United States must also forgo this revenue to be fair. DAS O'Neill
noted that the US Senate has historically and currently objected
categorically to providing in essence a subsidy for US investment
abroad that is tied to incentives a foreign country may choose to
offer. Jereissati and Palocci agreed that a treaty that explicitly
excludes tax sparing would be extremely difficult to ratify in the
Brazilian Congress. In a separate O'Neill meeting with Senator
Francisco Dornelles, the acknowledged authority within the Brazilian
Congress on tax issues who enjoys strong political influence in tax
matters, the Senator underlined that a tax sparing provision is
critical to his acceptance of any BTT. Both Rachid and Dornelles
emphasized the strong desire to avoid re-negotiating existing tax
sparing provisions in tax treaties with European countries, Japan
and Canada. These treaties contain MFN obligations and these
countries have already indicated strong interest in eliminating
their tax sparing provisions, according to Rachid and Dornelles (the
latter corroborated by post conversations with these embassies in
Brazil). Jereissati, Palocci and Gomes urged negotiators to explore
creative drafting solutions and Rachid indicated willingness to
explore further in the bilateral tax negotiations in Washington June
10-12. All participants acknowledged that tax sparing may
ultimately prove the most politically challenging issue to resolve.


INFORMATION EXCHANGE

(U) 3. Jereissati and Palocci strongly reiterated the consensus of
the April 10 congressional lunch (ref A). They and other
legislators could conceivably accept creative solutions to exchange
of information where no domestic tax interest exists, although a
treaty that explicitly stated such a requirement would have great
difficulty achieving ratification in Congress. However, the
Brazilian Congress would oppose any agreement that would permit
Receita Federal to access and exchange any specific types of
information the agency does not currently have the right to access.
Receita Federal and the Finance Chief of Staff indicated vigorous
agreement with this position, being well aware of the political
sensitivities surrounding privacy concerns. On the TIEA, Rachid
underlined the importance GOB attaches to ratification of agreement
by the Brazilian Congress. The Ambassador agreed that, while the
TIEA is not the same as a full BTT, it is an important step and USG
hopes the agreement will be ratified soon. (NOTE: The TIEA is
still in the House under Committee consideration. On 5/29, the Tax
and Finance Committee raporteur issued a favorable recommendation to
the Committee, which must now vote to move the legislation to the
plenary for a vote. END NOTE). In the separate one-on-one meeting
with Senator Dornelles, he indicated that he did not believe that
Rachid had the authority to sign the TIEA on behalf of the Brazilian
government and has requested a legal opinion from MRE. Dornelles
also noted that various lawyers and lobbyists for the financial
sector have raised objections with him regarding the substantive
provisions of the TIEA. He planned to study the merits of those

BRASILIA 00000824 002 OF 002


objections, and had asked for constitutional lawyers' opinions,
before taking a position.

LIMITATION ON BENEFITS

(U) 4. Rachid indicated that a provision on limitation on benefits
will need to be carefully drafted. While Brazil wants to explore
text development that will address the problems of treaty
shopping/free-riders, there is some concern that a provision that is
too broadly drafted could unwittingly capture Brazilian companies
that should legitimately benefit from the tax treaty.

OTHER ISSUES

(U) 5. The roundtable did not substantively address other issues
such as services, transfer pricing, taxing rights or arbitration.
Receita Federal confirmed Rachid had sent a letter June 2 to the
Ambassador responding to his May 12 request for Brazilian feedback
on GOB priorities and redlines for a BTT (response forwarded
electronically to Treasury June 5). In DAS O'Neill's meeting with
Dornelles, in addition to issues discussed above, transfer pricing
was discussed. Transfer pricing was the one area where Dornelles
expressed enthusiasm, saying the US was the recognized expert in
this area. He encouraged the US to provide technical assistance to
Receita Federal to help the agency move toward OECD standards. "I
give my full support for any kind of technical assistance or
administrative help; that would be extremely useful for Brazil. You
have my full support on transfer pricing - my problem is tax
sparing." Dornelles indicated he planned to ask his friend and CEO
Forum member Jorge Gerdau to provide a list of ten points explaining
why the Brazilian business community wants a BTT and asked Treasury
to facilitate obtaining a similar document from the US side of the
Forum (finatt is following up on this request).

(SBU) 6. On the margins of the meeting, Finance quietly indicated
that garnering internal agreement for Rachid's participation in the
roundtable had been extremely challenging. After the March
negotiating session in Brasilia, Finance had decided at the highest
level to suspend engagement on tax treaty negotiations with the
United States and had intended the Washington discussions in June to
be pro forma and final. After much internal high-level discussion,
Rachid was given permission to attend the roundtable provided
Finance accompanied. The concrete, substantive discussion at the
roundtable, including the obvious congressional interest and the
impassioned support vocalized by the CEO Forum Chair, had clearly
revitalized GOB interest in engaging substantively with the US, per
Finance. Finance informed the Ambassador that President Lula has
received on-going updates regarding the BTT and is fully aware of
the issues.

COMMENT

(SBU) 7. The roundtable's influential participants provided an
opportunity to underline congressional and business interest in
moving forward with substantive BTT negotiations. Rachid engaged
concretely on the issues discussed, highlighting both political
challenges and his own willingness to engage. He signaled that if
the United States was prepared to demonstrate some flexibility on
the politically challenging areas, an agreement could be possible.
He indicated that the Brazilian delegation will be prepared to
engage substantively in technical discussions in Washington June
10-12. Post believes this roundtable was key in stimulating GOB
substantive engagement and interest in concluding a bilateral tax
treaty with the United States. Intensified pressure from the
Brazilian business community and high-level political engagement
will continue to be required to ensure these negotiations move
forward productively. END COMMENT

SOBEL

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC