New Double Taxation Treaty Between Brazil and Norway: Key Highlights

New Double Taxation Treaty Between Brazil and Norway: Key Highlights

It was recently approved by the Brazilian Congress the new Double Taxation Treaty (DTT) signed in November 2022 between Brazil and Norway to modernize their tax relationship and foster economic cooperation. This treaty replaces the previous agreement signed in 1980, introducing significant updates to align with modern international tax principles and address emerging sectors like offshore energy exploration.

Context of the Treaty Signing

Brazil and Norway have long been economic partners, particularly in sectors such as renewable energy, oil and gas, and maritime industries. Offshore oil and gas exploration, in particular, is a cornerstone of the relationship between the two nations. The previous DTT, signed in 1980, no longer reflected the complexities of the modern global economy or recent international tax developments. The signing of the 2022 treaty follows Brazil’s efforts to align its tax treaties with OECD standards, considering its pending accession to the OECD. This agreement aims to:

  • Avoid double taxation, ensuring income is not taxed in both jurisdictions;
  • Prevent tax evasion;
  • Provide clarity for businesses and individuals operating in both countries;
  • Encourage foreign direct investment (FDI) by fostering a predictable tax environment.

Key Changes Compared to the Previous Treaty

  1. Permanent Establishment (PE) Rules:
    The new treaty introduces updated PE definitions, reflecting the OECD Model Tax Convention principles. This includes detailed rules for offshore activities in Article 23.
  2. Taxation of Dividends, Interest, and Royalties:
    Tax rates for dividends, interest, and royalties have been renegotiated, aligning with current international tax practices.
  3. Anti-Tax Avoidance Measures:
    The treaty incorporates provisions for the exchange of tax information and other measures to prevent base erosion and profit shifting (BEPS).
  4. Offshore Activity-Specific Rules:
    Article 23 introduces detailed provisions addressing offshore energy and natural resource operations, reflecting the strategic importance of these industries for both countries.

1.Provisions in Article 23: Offshore Activities

Given the significant role of offshore oil, gas, and maritime sectors in the Brazil-Norway economic relationship, Article 23 establishes clear rules for the taxation of offshore activities:

  1. Permanent Establishment for Offshore Activities:
    Companies or individuals from one country engaging in offshore activities (e.g., exploration or exploitation of the seabed, subsoil, and natural resources) in the other country are deemed to have a permanent establishment (PE) in that country. This applies regardless of physical infrastructure.
  2. Short-Term Activity Exemption:
    Offshore activities lasting 30 days or less in a 12-month period are exempt from PE rules. However, if related companies perform similar activities, the days are aggregated to determine whether the threshold is exceeded.
  3. Transportation and Auxiliary Services:
    Profits from transporting supplies or personnel to offshore locations, or between such locations, and from operating auxiliary vessels like tugboats, are taxable only in the enterprise’s country of residence.
  4. Employment Income:
    Salaries for offshore workers are taxable in the country where the duties are performed if they exceed 30 days in a 12-month period. Exceptions apply if the employer is not a resident of that country, in which case taxation remains in the worker’s country of residence.
  5. Capital Gains:
    Gains from selling offshore rights, property, or shares deriving most of their value from such assets are taxable in the country where the offshore resources are located.

Conclusion

The 2022 treaty represents a progressive step in Brazil-Norway relations, particularly for offshore industries. By modernizing tax rules and addressing offshore activities explicitly, the treaty creates a balanced framework to avoid double taxation and foster economic growth. Businesses and individuals involved in offshore exploration, transportation, and related operations will benefit from greater clarity, reduced tax burdens, and improved cooperation between the two countries.

Text by:

Michel Siqueira Batista/Vieira Rezende

Celma Hellebust / Hellebust International Consultant

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