Reuters recently reported that the United States and Brazil have signed a tax information exchange agreement. The agreement is designed to prevent tax evasion by Brazilians living in the United States and Americans living in Brazil. The agreement is the first step toward a comprehensive treaty that could prevent double taxation for American firms operating in Brazil and Brazilian companies operating in the United States.
The tax information exchange agreement was put on hold in 2013 when media reports revealed that American intelligence agencies had spied on Brazilian President Dilma Rousseff. The revelation chilled relations between the two countries. President Rousseff cancelled a state visit to the United States in protest and demanded that President Obama issue a formal apology. The United States issued a statement that said that it “regretted” the spying. Though it fell short of a formal apology, Brazil was apparently satisfied enough that it agreed to proceed on the tax information exchange agreement.
The tax information exchange agreement, which is part of a wider effort of the Group of 20 to stamp down on tax evasion, will allow the IRS to provide the Brazilian tax authorities financial information on Brazilians living in the United States. In return, the Brazilians will provide the same information on Americans living in Brazil.
Brazil is one of just a handful of countries that does not have a treaty with the United States that prevents double taxation. Double taxation treaties generally involve one country waiving the right to levy taxes on a company that has equivalent taxes levied on it by the other country.
The tax information exchange agreement is just one more step taken by the US government to combat foreign tax evasion. It complements other tax laws, such as the Foreign Account Tax Compliance Act, which requires foreign financial institutions operating in the United States to report certain information about accounts held by US taxpayers.
While the latest agreement suggests a warming of relations between the United States and Brazil, it remains to be seen whether agreement on a comprehensive double taxation treaty can be reached.
