Mesa de Debates do
IBDT de 22.11.2007
Integrantes da Mesa:
Presidente
Prof. Paulo Bonilha
Luis
Eduardo Schoueri
Elidie
Palma Bifano
João
Francisco Bianco
Palestrante Convidado:
Prof.
Kees van Raad
Prof. Paulo Bonilha
– Prezados associados, bom dia. Vou dar início aos trabalhos da mesa de debates
de hoje. Contamos hoje com a honrosa presença do nosso grande amigo, professor
Kees Van Raad, que aqui está para participar dos trabalhos e eu vou,
inicialmente, convidar para compor a mesa a professora Elidie Bifano, FGV,
nossa conhecida também, por favor, que também fará parte da mesa, portanto. Eu
pediria ao professor Luís Eduardo Shoueri que fizesse a apresentação do
professor Kees Van Raad.
Luis Eduardo Schoueri – Muito obrigado, professor Paulo. Na
verdade apresentar o professor Kees Van Raad acaba sendo uma perda de tempo.
Uma perda de tempo já que o professor Kees Van Raad já é professor do próprio
IBDT. Professor Kees Van Raad esteve aqui no ano passado, já deu um curso de
uma semana e nessa semana novamente vem dar um curso. Trata-se de membro
honorário do nosso instituto. Mas também o professor Kees Van Raad é professor
titular da universidade de Leiden na Holanda. O professor Kees Van Raad é
membro do board do IBFD, International Bureau of Fiscal Documentation;
é assessor do governo holandês em matéria de tributação internacional e é sem
dúvida, Paulo, é, sem dúvida, o nome mais autorizado para falar sobre direito
tributário internacional. É o autor mais citado, é aquele que participa de todos
os eventos; é fonte de consulta constante, mas, mais do que isso, é um
professor. É um professor que gosta de ensinar; é um professor que se preocupa
em saber o quanto os alunos conhecem a matéria e procura tirar dúvidas; é
sempre presente. É emocionante ver o quanto os alunos do professor Kees Van
Raad breve se tornam seus amigos. É uma amizade forte entre Kees e cada um dos
seus alunos e também dos seus colegas; alguns que têm essa honra de pôr assim
no seu currículo dizendo “sou amigo de Kees Van Raad”. Eu me incluo nesta
parte, entre seus amigos e esse é um ponto que sempre me dá muita alegria.
Professor
Kees Van Raad, you are very welcome. We have here a group who has been
discussing international tax issues since a long time and as
João Francisco Bianco – Good
morning. Professor Kees, what has happened two weeks ago is that we were
surprised with the news, in a newspaper, that there was a decision from a
French court changing the orientation of the understanding of tax authorities
on a subject concerning the tax treaty signed between Brazil and France. The
problem, the subject that was discussed, was subject concerning the calculation
of tax-sparing credit methods and this change of understanding of the tax
authorities subject to this decision of the French court, I guess, was the
subject that was discussed here and we were…
we didn’t know the… the… what… we had just news, we didn’t know exactly
what’s happened and we asked Luis Gustavo, Luis Guilherme, sorry, we asked Luis
Guilherme to make some research on the decision, what exactly happened, and we
postponed the discussion till today and we wanted as well to take in advantage of
your presence in here, we postponed the discussion in order to be able to
listen to your opinion. My suggestion is that now we invite Luis Guilherme to
give us some highlights on the decision and what exactly happened and what was
the understanding, what’s changed, and give us some highlights on what’s
happened. Luis Guilherme, thank you.
Luis
Guilherme B. Gonçalves –
First of all, good morning for everybody. I have printed this decision from Conceil
d’Etat, is an administrative court in France, but I only
have the French version, so I don’t have an English version. Here it is.
Professor Raad.
Kees
Van Raad – Thank you.
Luis
Guilherme B. Gonçalves –
In relation to this theme, the decision was held in 2006 and was in relation to
the double taxation agreement entered between Brazil and France, and the major
point here is in concern of the interest remitted to France from a Brazilian
source. The French resident is a bank, is a taxes bank, I believe, part of its
capital belongs to the French Government and, according to the first normative
instruction issued by the French Government in 72, I believe is August 72, the
article 22 of the agreement entered between Brazil and France state that the
French Government would grant a tax of 20% in relation to the interest remitted
from Brazil to France. This was a tax bureau interpretation in 72, but the
interpretation has changed in 1997. The major point here is that the difference
is that in 72 the Government have a thought that article 22 of the agreement
would represent a tax-sparing, so in case no tax would be paid here in Brazil, the
French Government would grant a tax of 20% from the French banks. So, in 1997
this interpretation has changed and from that date on the tax bureau start to
apply a matching credit, start to consider that this article 22 is no longer a
tax-sparing provision but only a matching credit. So, the problem here is that
some remittances from Brazil to France are not taxed, are subject to a zero
rate here in Brazil, so, in case this would be interpreted as a tax-sparing,
the French Government would grant a 20% credit to the French bank. But, after
this change of interpretation in 1997, the French Government would only grant a
20% tax in case the Brazilian authorities determine the withhold any rate of
income tax, so let’s say, for instance, 5%, 10% or 15%. So, this credit would
only be granted in France in case of income tax withheld at source here in
Brazil. So, this is the major point that Concil d’Etat has ruled that
this normative instruction from the French Government is totally correct, is a
matching credit provision, not a tax-sparing. So the bank in the France would
have to pay all the onus in relation to the credit privileges granted by tax
authorities in France. So, this is the, I believe, the essence of this
decision. Is a quite short decision, is not too long; is a five pages decision
and, after that, the tax bureau inspector… So, after the decision Mr. “Pierre
Colant”, which is the inspector of the tax bureau there in France, has written a
several articles to attest that his opinions is totally right, the French
Government would have no longer… would be able no longer to grant any further
tax in relation to this agreement, on a tax-sparing basis and… but I believe
the bank went to the Court and… but we don’t have the decision from the
Judicial Court, only the Administrative Court. I believe that by the end of
2008 we will have a final pronunciation in relation to this matter from the
French Judicial Court. Do you need any further clarification? I would be glad
to assist.
Kees
Van Raad – Well, I think I should start first for thanking the
board for inviting me to speak here. Let’s say it is a distinct honor to be a
guest this morning and of course later it will appear why it makes any sense to
invite me here to say something on this topic because in issuing this decision
quickly and I’ve heard on the decision earlier through a publication of the IBFDAM,
so them in their text news service was announced. Of course, it is something
that… a decision that is very based on the text of the (…) so what I am going
to say, what is going to make any sense, you know, you can (…) later, I think. Let
me start out explaining, which is obvious, I think, to all of you that tax-sparing
credits and the rules that will be included in treaties to make tax-sparing
credits operate are not OECD based rules. OECD model is a model which has very
general nature and real treaties are, of course, based on the specific wishes
of the two countries involved, so countries, I don’t think that there was any
treaty existing which is for 100% identical to the OECD model, countries
usually makes smaller and larger changes. As you may know I’m, in addition to being
a professor, I am also a tax court judge in Holland, and I (…) do is treaty
matters. What I often see in tax treaty issues is that when the issue concerns
a treaty provision, which is not identical to the OECD model, but has been
modified or added by the two parties, because of a special wish to change
something or to add something, and tax-sparing credits are a perfect example of
that, countries are exposed to a great risk that what they want is not
perfectly expressed in the language they add in the treaty. The language in the
OECD model is the product of a evolution of more than a hundred years now. I
mean, the earliest models were based on stuff in your first treaty dating back to
1899, so along history, so the OECD model tax is pretty a sort of a full proof:
we know what it says; we know what it means; we know how to interpret it in the
important respect. So when a country is going to change, you’re gonna add
something, they will share the risk that, what they add may work out, the thing
will go to Court, to be little different from what they expected. We had a few
cases in Holland regarding tax-sparing credits and in those cases became clear
that the text of the treaty that tax on the tax-sparing credit did not in the
end turn out to perfectly reflect the intention of the parties. And I wonder,
in having briefly looked at the French text of the treaty version and the
English translation thereof, if this is another instance where in (…) side it
is clear that the parties wanted something different from what they basically
laid down in the new treaty text. So, going now to the new treaty text, or to
the text that, you know, was inserted in the Brazilian-French treaty was
effective to tax-sparing credit, in article 22, that is the article that deals
with the avoidance of double taxation, you know where the credit rules are laid
down, it says in letter “d”, as I read it here in the English translation, it regards to income referred to in articles 10 and 11 and paragraph 2 “c”
of article 12, this are, I guess, the articles (…) on interests and royalties,
the Brazilian tax shall be deemed, shall be considered as been levied at the
minimum rate of 20%. It is pretty simple, pretty straight forward, they say “we
deem the tax was 20%”, but then, if you go back to the basic provision, which
takes care of the credit, the general rule lay down in letter “c”, there is
something in that text that shouldn’t been take care of when they decided to
add in letter “d” a tax-sparing credit, cause in letter “c” it says, in the
English translation, as regards income refer to the articles 10, 11, 12, etc.
and then there is a sentence, which is crucial, “which has borne Brazilian tax,
in accordance with the provision of this articles, France will allow, etc.”.
The sentence in between, “which has borne Brazilian tax in accordance with the
provision of this articles” should not be there. That is a perfect sentence if
you don’t give tax-sparing credit; it is a perfect sentence if you have an
ordinary treaty that doesn’t provide for tax-sparing, but if you do have a
treaty that provide for tax-sparing, take that sentence out because that
sentence in essence provides a condition for the credit and the condition is
that tax must have been borne in Brazil. Of course, if the tax-sparing credit,
and perhaps I should have said it earlier, of course there is zillion forms of
tax-sparing credit, there is no uniform formula, we have in Holland about 23
different tax-sparing and there are no two treaties which are fully identical;
there are a zillion forms in which you can do it, you know, many forms are… you
reduce the tax at the source country pay impose on the basis of the treaty, as
a tax is maybe 10 you can reduce it to 5 or to 2, if you reduce to 0, under
this tax, you have fundamentally different situation from a reduction to 1% or
2%, because 1% or 2% still means there is tax borne in Brazil and then whole
thing is going to work. So, the problem at least from, you know, the summary
impression I have right now is simply that they forgot when they included this
treaty to take out this sentence, this sentence and words in between, where
this provision undersee who was going to apply in tax-sparing situations, cause
in tax-sparing situations, I don’t know how tax-sparing works (…) treaty but
apparently is possible that the source country, Brazil, does not withhold any
tax if you don’t withhold any tax you simply cannot make use under the language
of letter “c” of the credit, because the credit is conditioned upon that tax
has been borne in Brazil. So, again my initial reaction is this is simply a
logical consequence and if I were Court to this, I would probably rule the same,
it is a mistake made in the drafting of the treaty and Courts are there to
correct mistakes of the concluding parties. So, let’s leave it here and let’s
see how we can engage the discussion.
Luis
Eduardo Schoueri – Please, allow me to explain to you that this
is considered, we call it a table for debates, which means, you don’t need to
agree, you’re supposed not to agree, otherwise we… So, let’s try to think a little
bit more. First I noticed that you used the expression tax-sparing, which I
don’t agree. I understand that we should discuss matching credit and not
tax-sparing because tax-sparing usually would be in the case some that tax would
be due, but because of internal legislation the tax is not paid. In this case
the tax would never be due since the treaty itself provides for a maximum
taxation at source at 15%, but the credit of 20%. So, this would be a matching
credit and not a tax-sparing, just for question of nominating it, because
article 11 would say Brazilian maximum rate is 15%, but he used a 20% minimum
credit, which means for me matching credit not tax-sparing. This is a first
issue, but it is not the important issue here. The important issue for our discussion,
for thinking, for trying to see is 1972 treaty, which means for Brazil one of
its first treaties. So, we had after this several other treaties providing for
matching credit with much more clear text than this one. This treaty with (…)
,for you to have an idea, has no article 21, has no other income article. It is
a unique treaty. I am not sure this was a second of third treaty of Brazil,
which means we were learning how to do it. By that time, 1972, literature in
Brazil, tax literature in Brazil understood that in case of tax exemption, tax
exemption, according to Brazilian literature, the tax was due but there was
another law providing for non payment. This could explain the expression
“charged”, which in Brazil is incidido. According to tax literature in
Brazil on that time, in case of tax exemption there would be a charge of tax,
there would be a taxation, but there would be no payment because of another
rule providing for non payment. This is not the prevailing literature today,
but this was the prevailing literature in 1972. This was the understanding of
Brazilian courts in 1972. This was the understanding of the Government in 1972.
So, in case of tax exemption, Brazil understood tax is due, is charged, but not
due, it is different, it is a question of, how to explain things, we call, dispensa
de pagamento mínimo. So, and if you see the Brazilian Tax Code, even today,
even today, when you see the Brazilian Tax Code, which is a code of this time,
it provided for in case of exemption it says, the expression is “exclusion of
the credit” meaning the tax is charged but excluded. So, the wording incidido
here in Portuguese for that time could mean a charge of the tax but not a
payment because another rule providing for non payment. This could be an explanation
for letter “c” according to the Brazilian literature of that time. How you
judge, you judge, after this explanation of Brazilian literature?
Kees
Van Raad – I would find it very interesting but not very relevant.
Apologize for being blunt, but you know, for purpose of discussion, I think it
is very helpful. When I am dealing with a treaty the only thing that matters is
what the treaty says. Whatever the contracting parties were considering or whatever
the contracting parties have in their domestic law is irrelevant unless the
treaty specifically refers to that. So, the only thing I am dealing with is a
language of section “c” and “d” of article 22. The English text, I guess, is
not a authentic text, I assume that the Portuguese and the French text are the
only authentic text that we should base ourselves. At the bottom of the treaty
we can see it (…). The official French text here, so in letter “c” it says for
the words that I read in English as “which has borne Brazilian tax” it says qui ont
supporté l’impôt brésilienne. So, being a French judge, I
simply would see whether in the current situation the requirement as lay down
in letter “c” is been met. So, if no tax was levied there were simply no… you
know, the income has not been subject to Brazilian tax and whatever the
background to whatever the Brazilian domestic law, you know, rules and ideas
are irrelevant if they are not sort of refer to in the treaty. So I simply base
myself on this text and I say these texts should not be there if you want a
situation where Brazil (…) still get the tax credits.
João Francisco Bianco – Kees, I read
section “c”, but I read section “d” as well, and I wonder if there is any
incompatibility between the two sections cause section “c” states “the income
tax that was borne by the tax payer” and section “d” has different wording.
Don’t you think that they are regulating different things, because they even
refer to different articles of the tax treaty. So, my question is, aren’t they
regulating different things? Shouldn’t they have different interpretations or different
conclusions?
Kees
Van Raad – Well, if I read it correctly, letter “c” is the, if
there would be no tax-sparing credit, letter “c” is the simple rule providing
for a tax credit in cases where the source country has, under the treaty, a
taxing right, the source country will tax and the residence country will give a
credit. It is the ordinary rule based on article 23 of the OECD model. So, this
provision has been adjusted in order to accommodate for this special feature. And
we see that in “c” reference is made to income referred to in articles 10, 11,
12, 13 and other ones. And then in “d” a special rule is made in respect to
income in articles 10, 11 and 12, II, “c”. In letter “d” it says “if you are
going to apply letter ‘c’, remember that the tax for to you are entitled to a
credit shall be considered as if it were a tax imposed at the rate of 20%.
Luis
Eduardo Schoueri – Kees, let’s try again. Let’s put as if it had been
imposed, you are given an emphasis on the “minimum rate”, but you can also give
an emphasis on as “having been imposed”, which means, it doesn’t have to have
been imposed, it will be considered as having been imposed, which means, as you
said, an exception to “c” to see, you please, hey you, consider that tax has
been imposed because I, myself, I who made the treaty, I know that in article
11 I provided for the case there would … in no case, in no case there will be a
taxation of 20%, because a maximum rate will be 15%. Hey, consider as it had
been imposed at 20%. So, if you put the emphasis on the “have been imposed”
perhaps you could have another explanation for this.
Kees Van Raad – I think that we are in full agreement in that
respect. Again, letter “d” simply says “the Brazilian tax shall be considered
as been imposed at a minimum rate of 20%”. In French: En
ce qui concerne les revenus visés aux articles 10, 11 et au paragraphe 2 c de
l'article
Luis Eduardo Schoueri – Sobre os quais tenha incidido.
Kees
Van Raad – Great. If those words would have been left out,
there would have been… the effect would have been, you know, perfectly
accomplished and I’ve checked this morning early some Dutch treaties with
tax-sparing credits and what they typically say, in the paragraph corresponding
to letter “c”, you get a credit for tax paid in accordance with articles, the
whole roll, and then in letter “d” it would simply say “and the tax paid as
referred to under letter ‘c’ is supposed to amount 20% in this and that case”.
So, the language they added in letter “c” is language that simply kills the
effect because the language contains a condition and there is no need for that
condition. Why do you, in letter “c” need to add the words that income has
borne Brazilian tax. Of course, if you are going to have a credit, you only get
a credit for tax paid, so the condition that tax has to be borne is obvious
because it was already paid, and if it wasn’t paid you wouldn’t get a credit.
So, my point is, they should not have inserted these words, they don’t give a function
for giving a credit in an ordinary situation and they kill the effect of letter
“d” by imposing a condition that makes letter “d” inapplicable if not tax was
imposed in Brazil.
Elidie
Bifano – Professor, when we discussed what caused the same
rule related to the (…) and the Brazil tax treaty and the wording is the same,
I defined that letter “c” could be a general rule to tax credit and the letter
“d” could be a specific rule related to royal and interest. Is possible to
understand this in this case, exemption and the zero rate could be applicable
in every situation?
Kees
Van Raad – Yes, so the effect of letter “d” is that when
letter “c” refers to you get a credit for tax which has been paid, letter “d”
replaces tax which has been paid by, tax which is deemed to have been paid. So
then we’re going to read article, or letter “c” with the words “tax which has
been deemed to be paid”, but we still are stuck with these words that I don’t
like in letter “c” and these words contain a condition and the condition is
that you get a credit only when for income has borne Brazilian tax. So, the
effect is still looked accomplished because letter “c” says two things, you get
a credit for the tax that was paid or tax that was deemed to be paid, fine, but
we still have a condition, you get only a credit in cases that tax, in cases
where the income has borne Brazilian tax and if the tax is zero, there was no
Brazilian tax borne.
Luis
Eduardo Schoueri – Professor Kees Van Raad, this gives us a good opportunity
for you to teach us about tax treaty interpretation in case of two languages
with different senses, because you said borne, you said supporté,
which means borne and we have here incidido. Incidido, as I tried
to explain to you, according to Brazilian literature, at least in 1972 this was
really the understanding in Brazil, incidência, incidir, is not
to borne it’s really something different is whenever you have a rule applying
to a case you said there is incidence, which is different, really, it is
not the same as supporté, so there is a difference in the
two languages; Brazilian language and the French language. So, we have a
problem of interpretation of tax treaties for which the Vienna Convention for Interpretation
of Treaties should apply. So, please, go ahead, please go ahead with this
problem of two languages saying different things: supporté, incidé,
incidence, which is different.
Kees
Van Raad – Well… indeed if
I am not familiar to correctly, you know, of course understand the Portuguese
text. If your position is that the Portuguese text is, in this fundamental
regards, not fully corresponding with the French text, and the Portuguese and
French are the only authentic texts, then we do have an issue we can discover
by the Vienna Convention on the Law of Treaties, which says in article 33, III:
“The terms of the treaty are presumed to have the same meaning in each
authentic text”. So, the starting point is that they are supposed to be the
same. Paragraph 4: “Except where a particular text prevails”; well, that is not
the case, cause they are equally authentic. “When a comparison of the authentic
texts discloses a difference of meaning which the application of articles 31
and 32 does not remove”, 31 and 32 provide for general rules of interpretation
of treaties, “the meaning which best reconciles, having regard to the object
and purpose of the treaty, shall be adopted.” So, I would conclude that if in
French court proceedings the issue was brought to the court that the lawyer for
a taxpayer should have explained to the court that there was an issue here and,
of course, the French court probably not being capable of reading the
Portuguese text will base itself on the French text on the ordinary assumption
that the two texts are identical. And if you believe that the Portuguese text
may be different in this respect, which is an extremely important respect, it
should have been explained to the court, and the court should have taken that
into account. Well, not having the full text of the proceedings here in front
of me, I have no clue whether this point was made in the French court, and if
so it’s a missed opportunity.
Luis
Eduardo Schoueri – So, since Guilherme told us this is not a final
decision, as far as understand, this is not a final decision, entendeu,
believing this perhaps, one were to inform French courts that in Brazil in 1972,
I insist on this, because now there’s been a new literature on this, but in
1972 if one would research what the word incidir
means was not supporté, was not
charge, really not. One could bring this as a doubt and then, considering what a
matching credit is, considering letter “d”, considering one could really say
that the intention of the parties when they signed the treaty was to have a
normal matching credit, which would mean notwithstanding the fact that no tax
was due or not, there would be a 20% credit. Provided, of course, one can bring
the evidence of the Brazilian literature of 1972, which, let’s assume, I
believe at least Paulo Bonilha could confirm here of that times. In 1972 incidência, I mean, in case of
exemption, there was incidência but
there was dispensa do pagamento. This
was the real belief in that time. So, this was the understanding, this was a
meaning of the words, at least at that time. Today not, today really I would
say that this is not the major literature, but in 72 this was the understanding
of the parties and this would be in full … instead of saying uau what (…) this is quite queer (…) you
recognize this is queer, why they put this? If you consider what I am saying
now, if you would say incidência in
every case, you say this is not a problem because it is completely coherent
with matching credit of letter “d” and you have the credit of 20%.
Kees
Van Raad – I … let me make clear that in my view in treaty
interpretation, when I say we should be extremely careful with attacking what the
parties meant when they concluded the treaty. As been sometimes said in some
tax treaty, (…) court decisions, the treaty negotiators are the last persons
you ever should ask to explain what the treaty means cause they won’t say what
the treaty text says, they will say what they had in mind to accomplish with
concluding the treaty. So they are, you know, sort of the worst informants for
you for explaining the meaning of the treaty. The starting point for explaining
a treaty text is the text itself. And only when it’s beyond any doubt, and
paragraph 4 of article 31 refers to that, a special meaning shall be given to a
term and this verb being used is supporté
and the equivalent in Portuguese, special meaning shall be given to a term only
when it is established that the parties so intended. So, you need pretty strong
evidence to make sure that a party said something which is not sort of the
ordinary meaning of that particular word. So, when the French said supporté I think you need pretty strong
evidence that they meant something different from ordinary meaning of supporté. I don’t say it’s impossible,
but I just want to say that be careful by referring to what people thought and
said in 1972, because those people are not the best interpreters of a treaty
text that are dealing with you. I don’t think it isn’t going to work, I only
say, be careful, do nor overstate the importance of what people thought and
meant in 1972.
Luis
Eduardo Schoueri – Kees, really, I’m sorry for, but I think this is
the point we’re trying to make this debate. How do you read a matching credit
clause? I must (…) this because I have seen the literature, I’d say most
northern literature, would say matching credit is a case of tax incentive. It’s
a case of almost an aid for development of developing countries. But, at least
once, at least by a professor who I respect very much and, of course, you know
I’m talking about. This very nice German professor wrote that matching credit
was a partial recognition of territoriality.
When a State rends a matching credit it recognizes that in principal the
taxation would be at source, source would have the priority of taxing and in
this case … so, territoriality should prevail. It is a different approach for
the role. Is this, I mean, is this state of residence saying “well… I shall
help you developing country, I help you, I agree, support developing country”,
is one approach. In another one, now I recognize this income has been earned in
your country; you’re the source country; you have the priority for taxing, so I
grant you this priority by granting a matching credit. What’s your view of the
matching credit?
Kees
Van Raad – Of course I do
not know all the treaties of matching credit; I do not know the use that is
made in practice of matching credits; what I do know is that Holland, which has
been very liberal since
As we
all know tax sparing credits and matching credits often used in constructions
which in the end don’t particularly benefit the given developing country. A lot
of constructions simply make use of this particular feature to have investments
in other countries benefit from this tax benefit. So, if I would be court in
such a matter, I would be dealing with a case where it is obvious that the
particular use made of this feature, perhaps, its is in full agreement with the
text of the provision, but it is not in agree with the spirit of the provision.
If would have means on the base of the language of the provision to stop that
particular use, I probably would do so. So, I agree with you it is useful to
look into the policy background of why countries included this, but then I say
if you do look into policy background and you do find out the (…), many
instances where the provision is used this not fit in this policy background
that I have less difficulty dismissing a case on the basis of a strict
interpretation of the words.
Luis
Eduardo Schoueri – I am sorry,
but I really want you have this answered. According to your view, as a
professor is this an aid for developing countries, or is this at least a
partial recognition of the priority of taxation by the source country?
Kees
Van Raad – I think that the point that I tried to make was a
little different. I think over half of the airplanes that fly around in the
world today have, with regards to financing, benefited from the Dutch-Singapore
treaty and the tax sparing credit as it was available as (…) since under the
treaty has not been to the benefit of Singapore, but of many companies that
through clever planning could make use of the treaty with Singapore. So, what I
am saying is tax sparing was set up originally as a very simple and effective method
to assist developing countries through the double case issues provided for tax
treaties. It turned out quickly that the way in which the tax sparing credits
and the matching credits were granted was too simple that abuse was too easy.
As a result of that, as we all know, the OECD released a report on tax sparing
credit and the change at countries may consider, some (…) years ago, on the
mechanism to give tax sparing credit. So, what I trying to say is if this case
had went to the court in France, was a case where truly Brazil was going to
benefit, if it was truly a case for which the tax sparing credit and a matching
credit were included in the treaty then I sympathize with an interpretation
along the line we have just discussed and an interpretation perhaps should lead
to the matching credit being granted. If, however, in this particular case, it
was obviously a case where a sort of unintended use of the tax sparing and
matching feature were made, then as a court I would have less difficulty being
very strict in my interpretation. So, it varies with what was been done in this
case. Was this case where indeed the tax sparing and matching credit was gonna
benefit Brazil or it was simply a tax planning case where the benefits here was
primarily the tax payer itself.
Luis
Eduardo Schoueri – I am really trying to explore more of your
knowledge, again, this difference between tax-sparing and matching credit. From
what I have understood until today, and perhaps you shall change my understanding
of confirm, is that a matching credit is broader than a tax-sparing because in
the case of a tax-sparing, you should first see what would be the normal
taxation in the country, then look for a reduction on this normal taxation. And
then the treaty would say, in case there is reduction on the normal taxation,
then a credit shall be granted as if the transaction were normally taxed, which
is a very difficult clause, a very limited clause, application very limited. A
matching credit, on the other hand, does not question this. It is broader
because it couldn’t care less about what would be the normal taxation of the
country. Actually, as a matter of fact, in the case of matching credit, the
parties themselves know that there would be no taxation of 20%, the maximum
rate would be 15%, but the granted 20%. So, in my mind, until today, I would be
able to make matching credit and tax-sparing as two circles, seeing that tax-sparing
is a benefit which would always be within a matching credit. Why am I asking
you this, in this sense, to say that there are different techniques, but when
you have this, all of the cases of tax-sparing would be already inserted, so,
see, while I couldn’t care less about your normal taxation and the reductions
you have made, since I grant you the 20% basis per credit. Why am I asking you
this in this way? Because again I have this C and D. I have this D which is
clearly a matching credit. But according to your reading, or, sorry, to the
French court’s reading, which you tend to support, this would be a unique case,
in which a matching credit would grant a benefit which would be smaller than a
tax-sparing. Why am I saying this? Because we are, in our concrete case,
talking about taxation of interests, which are regularly taxed in Brazil on a
15% basis. However, internal Brazilian legislation provides for exemptions of
some cases, so 0 rate for some cases. In case of tax-sparing, a tax-sparing
clause would say, well, if the normal rate is 15% and the Brazilian internal
legislation provides for a 0 rate for special cases, then I grant you the
normal credit of 15%, the normal taxation […]. This would be a regular tax
sparing, so if regularly Brazil would tax 15% but if tax incentives provide for
0%, I grant a 15% credit. This is a tax-sparing. A matching credit says no, I
could grant you 20%, I couldn’t care less. What you are telling me is that if
Brazil and France were to have agreed to a tax-sparing, not a matching credit,
then the fact that there would be no taxation in Brazil would not jeopardize
the French tax payer’s right of having the 15% credit. But since the parties
have not agreed to a tax-sparing but rather on a matching credit, which would
be broader, the tax payer is in a worse position. What would you say about
this?
Kees
Van Raad – I am sort of at a loss to understand why you insist
on this particular difference. My view is simple and straightforward. Under the
ordinary OECD rules, you only get credit if the tax is effectively paid. And
there are two instruments, tax-sparing and tax matching, distinct, but closely
related, where you get credit that does not correspond necessarily with the tax
really paid. Agreed? These two instruments are used to provide the incentive
for investment in developing countries. Whether they worked that way is another
matter, but that was their aim, I dare to say. So, countries are including
these incentives in their treaties on the basis of (…) themselves. If a court is going to interpret these special
clauses and the court knows and the court sees in cases that there may be
constructions that technically would qualify for application of either the tax-sparing
or the tax matching credits, but the case is not in line with the underlying
purpose, that is, providing an incentive for an investment in these countries,
the court will look carefully at the language and if it turns out that the
language is such that in the case (…) the
court can on the base of the language refuse to give the credits, I can see the
court looking at the particular case where indeed the constriction may be not
to provide an incentive for real investment in developing countries but simply
to assist it in investment it in other countries, but technically it fits under
the language of the treaty that the court says, it doesn’t work. So, it seems
that we are simply talking past one another. I don’t particularly care about
the distinction between the two things. I simply say both methods are
exceptions to the general rule. A court, looking at that exception, like
looking at any treaty rule, will apply the treaty rule as it is phrased. If it
turns out that the treaty rule is phrased in a deficient, faulty way, the court
will not pardon that faulty way in cases where the court perceives it as an
abuse. If the case is in agreement with the purposes of the treaty, the court
may be benevolent and sort of say O.K, the wording isn’t perfect but I see that
given the underlying case that we are dealing with, you know, I shouldn’t be
difficult with that. So, I do not know what the underlying case was, but if I
were court in such a case I certainly would see if I were dealing with a bona
fide case, where the benefit of tax sparing or matching credit was invoked or
if I were looking at a particular tax
planning case where the underlying purpose of the treaty is not met. So, again,
your point of making that distinction, I see that you can make such a
distinction, but I don’t see that it really matters for the discussion we are
having here. And I do hope that we sort of don’t continue talking past one
another, it somehow seems to be happening.
João
Francisco Bianco – Leaving the specific text of the tax treaty between
France and Brazil, I have two questions I would like to ask you and to know
your opinion about. First question, suppose we are before a simple regular tax
treaty that section that the wording clearly provides for matching credits, do
you think that there is any difference between a case of 0 tax rate or an
exemption, given by one of the contracting states that could modify the
conclusion of the interpretation of the application of the tax treaty? Did you
understand my question? Do you think this difference is relevant to change the
conclusion of the application of the tax treaty?
Kees
Van Raad – It all depends on the pertinent treaty language, if
the treaty is phrased in such a way that you read in the provisions that the
benefit is going to be given in cases tax was paid, they’ll have a problem if
no taxes were paid. So, in the 20 Dutch treaty of tax sparing
credits there are not two treaties that are identical. So whatever I am saying depends on the particular treaty language.
João
Francisco Bianco – Suppose the treaty language is the contracting state
is going to grant credit even if the tax is not paid. But the reason why the
tax was not paid is either an exemption was granted or that you have a 0 tax
rate. Do you think these two different causes of nonpayment are relevant in
order to modify the conclusion of the application?
Kees
Van Raad – No. If the treaty is phrased in such a broad way it
is not relevant.
João
Francisco Bianco – Thank you. Second question, suppose there is no
doubt that the presumed matching credit is granted. What is the tax payer going
to do with that amount of credit? Do you think that that amount of credit should
be added to the amount of income that is going to be recognized in the tax
payers´ books? Or not? For instance, a tax payer earned 1,000 dollars of income
and he didn’t pay tax because of a specific exemption, then in the residence
country he is granted a matching credit of 15%. So he has 150 dollars of
matching credit. What is he going to do in his books? Is he going to recognize
an income of 1,150 dollars of total income, granted the 150 dollars of tax
credit, or is he going to recognize as income only 1,000 and the 150 is an
amount that he is not going to recognize directly as income but when he is
going to calculate the amount of income tax he has to pay. Did you understand
the question? Elidie has some…
Elidie Bifano – In other
words, is the tax credit taxable in the State?
Kees
Van Raad – It’s like when you have an imputation system for
individuals, you know, when they are entitled to get a credit for the
underlying corporate income tax, they typically have to include that the imputation
credit as part of the taxable income. Well, I’m not an accountant, I mean (…)
my own listening is always been that if you are entitled to a credit, you
haven’t paid anything that the credit itself, and I believe that’s true for
Holland, but of course I cannot speak for other countries, you do not need to
include the credit in your income. So, if you are entitled to a credit of 150
and you haven´t paid that and your income is 1,000, I think we would simply
include an income 1,000 and our tax rate would be 25%. We would compute our tax in the amount of 250,
take the credit of 150 and pay 100. That’s it. So, no gross up of the
underlying income of 1,000 up to 1,150.
Luis Eduardo Schoueri – This question
is especially interesting for us because we have here taxation not only on
income but also on gross revenues. So for Holland, you could say that’s the
same because if you recognize this, then you have a greater tax expense; but
for us it’s not the same because revenue for us is also a taxable event.
Prof.
Paulo Bonilha –
Dear professor, first excuse my poor English. Second, I want to say thank you
very much.
Meus caros, alguma questão, alguma
pergunta? Temos ainda 15 minutos e o professor ficaria até o final. Sim, né? Então
vamos aguardar, tem mais alguma questão? Nós temos uma questão em pauta, mas
não sei se o proponente está presente. Guerra fiscal e ICMS. Alguém deseja
falar alguma coisa? Uma questão rápida ainda dá tempo, alguns minutos.
Luis
Eduardo Schoueri – May
I suggest you to use our last minutes, because our discussion here is also
published for all of our members. Perhaps you could spend some minutes talking
about international tax scenario and perhaps also about Leiden in this
international tax scenario. Not only for people here but also for our records.
So, generally, international taxation what’s the importance of it and what has
been done in Leiden for this purpose?
Kees
Van Raad – When I studied myself in Leiden as a student in the
1960s, in the (…) tax course, the professor who taught that course included two
hours of international tax law. And I remember that he had brought copies of
the OECD model and he said that on page 1 you see the article 1 and 2 and if
you turn the page you get articles 3 and 4. And, after an hour or so we had
gone through the entire model and that was our exposure to international tax
law at the time. As a student I visited briefly the United States in the 1960s
and being there I learned that there were a lot of foreign students in the
States, and I thought, gee that looks interesting so when I got back in 67,
having spent the summer in the United States and I still having two years of
law school to go, I decided to try to get a scholarship for studying in the
United States and trying to get a scholarship I said I’d be interested in
studying business administration and they said it would be very difficult to
get a scholarship for that because there were many students interested in that,
but since you study tax law why don’t you specialize in international tax law
because we have a very nice scholarship to go to Georgetown University. I said
sure, no matter what I go to Georgetown University. So I studied international
tax law and when I went back to Holland I was 23 and had been trained in
international tax law. The reason I am seating here goes back to 1967 when I
learned I could get a scholarship for international tax law. Later, I
understood I had been extremely lucky, just by circumstances, to have chosen
this topic because it was almost a non-topic in the early 70s and later it
became a big topic. I wrote my dissertation on a topic of international tax law
on 86. I was appointed in 86 right away in Leiden on a chair, I think it was the first chair in the world just for
international tax law. So I have been extremely fortunate, just by coincidence,
of ending up in this area. It was extremely fortunate because Holland has
always been sort of a hub in Europe for international trade and development. So
Holland has always been a country where both inbound and outbound investment has
been important. So as a consequence, Holland has also been a country where
international tax law developed quite early. So in the 70s and 80s, very
different from what I told you about the 60s, international tax law did become
an important topic also in law school. What I am learning in recent years – let
me tell you something: I got my chair in 86 I’ve been teaching international
tax in Leiden through the years. I stopped teaching, actually, ordinary
students because we have three professors in international tax law in Leiden. So
my younger colleagues teach ordinary students. I mostly work now for the
international tax center in Leiden, which
focuses on international tax law, a post-graduate program where we teach
international tax law in enormous detail to foreign students. Right now in
Leiden the treaty course going on we teach each course after the other so we
have never at a given time two or more courses so students are doing now tax
treaty law and that takes 200 hours. Can you imagine 200 hours just on tax
treaty law? So it is enormously detailed and it is particularly aimed at those
countries like Brazil, like China and Taiwan and India, which until recently
were just dealing with inbound investment, but are increasingly now seeing that
outbound investment is something that is going to grow rapidly. And typically
in these countries, the knowledge, the operational knowledge of tax treaty law,
of tax treaty application, for outbound investment is quite limited. So, that’s
one of our teaching aims in Leiden, to
train and educate young aspiring tax lawyers from these countries in the fine
points of tax treaty law and transfer pricing for these outbound transactions.
So my current aim and goal in teaching the (…) program at Leiden is
particularly to assist these countries in sending over to Leiden students which
want to choose as sort of the main topic, the main orientation for future
years, tax treaties and transfer pricing
and in this way assist these countries through their practitioners working
in this area to do a better job than they could be doing otherwise. So in that
regard we have sort of continuously developed and further shaped this full year
program. Last year we decided to add to the full year program also two weeks of
summer course for those people who are not able to come for a full year. And of
course, full year if you have a family, if you have a career to attend to is
quite demanding. So we try to offer in a nutshell a basic week (…) of tax
treaty law in July in the summer courses and our hope is that firms that are
unable to send students for a full year to Leiden will perhaps consider as
perhaps a bonus for very well performing associates to give them the
opportunity to go to Leiden for one or two weeks in July. To still have the benefit
of learning in a very condensed form these basic things about tax treaty law.
So that’s how things have developed in Leiden and also the reason I am here
this week is part of that effort. You know, I’m teaching in a very condescended
freeing work, basics of tax treaty law with respect to business taxation,
dividend interest taxation, employment income taxation with the hope that there
will be students who have the background and opportunity to come to Europe to
study this in much greater detail. And, I must say that I feel extremely
fortunate and privileged to be given the opportunity to do this. I am 61 now
and many of my colleagues are sort of planning their retirements and I must say
I am right in the middle of planning the second half of my life and it is going
to be as exciting as the first part. I am an extremely happy person and again I
am very grateful for the opportunity of being here and giving more contribution
to my professional pleasure which is enormous.
Paulo – Thank you professor.
Antes de terminar os trabalhos eu quero
fazer uma comunicação que o professor Diogo Leite Campos que esteve conosco,
professor da Universidade de Coimbra, Faculdade de Direito da Universidade de
Coimbra. Em uma das últimas mesas
ele esteve aqui e fez uma exposição, né, e seguido de debates também extremamente
interessantes e ele mandou pelo correio três obras. A primeira sobre o tema que
ele falou aqui, créditos futuros, titularização e regime fiscal. Exatamente o tema tratado naquele dia, um dia do ano
2006, muito interessante. Um Sistema Tributário no Estado dos Cidadãos
em que ele examina o tema tributação sobre aspectos modernos, como da
tributação como norma indutora de comportamentos, aplicação dos direitos e
garantias etc. Muito interessante esse livro, que eu já tive oportunidade de
ler. E a lei geral tributária de Portugal comentada e anotada. Então essas três
obras estão sendo incorporadas à Biblioteca e estão à disposição de todos. O
professor mandou uma mensagem muito amável agradecendo a atenção de todos e
falando do professor Ruy Barbosa Nogueira que ele conheceu. Aliás o professor
Diogo é nosso associado
honorário daquele ingresso de associados do tempo do professor Ruy. Muito bom. Então, nada mais tendo para
tratar, agradecendo mais uma vez a presença ilustre do professor Kees
Van Raad, que tem tanto ajudado o instituto brasileiro de direito tributário eu
do por encerrado os trabalhos. Muito Obrigado.
revisado jfb
22.11.2007.doc