Brazil-U.S. TIEA Takes Effect and Presages Significant New Tax Enforcement Cooperation between the Two Countries

Bruce Zagaris
Partner, Berliner Corcoran & Rowe LLP, Washington, D.C.
Founder and editor of the International Enforcement Law Reporter.

Resumo: O presente artigo trata do acordo de troca de informações tributárias entre Brasil e Estados Unidos (TIEA) que foi ratificado pelo governo brasileiro em 16 de maio de 2013, juntamente com as crescentes interarações econômicas e cooperação em alto nível que estão por trás do mesmo acordo. O artigo discute o conteúdo do TIEA e sua interação com a lei de ambos os países. O artigo termina com uma análise de como o TIEA pode ter um papel em questões de cooperação fiscal entre os dois países e aborda também uma possível cooperação adicional com a possibilidade de um tratado sobre imposto de renda, da lei norte-americana de conformidade tributária para contas estrangeiras (FATCA) e de um acordo intergovernamental (IGA)

Palavras chave: acordo de troca de informações tributárias, estratégia nacional contra a corrupção e lavagem de dinheiro, tratado fiscal duplo, FATCA; FATCA IGA

Abstract: The article discusses the US-Brazil tax information exchange agreement (TIEA) that the Brazilian government ratified on May 16, 2013, along with the increasing economic interaction and high-level cooperation behind the agreement The article discusses the substance of the TIEA and its interaction with the laws of the two countries. The article concludes by analyzing where the TIEA fits in the realm of over tax cooperation between the two countries and prospects for additional cooperation, both in the form of the possibility of an income tax treaty and a Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement (IGA).

Key words: tax information exchange agreement; national strategy against corruption and money laundering; double tax treaty; FATCA; FATCA IGA

On May 16, 2013, the Brazilian government published a decree in the country's Official Registry declaring the ratification of a recently approved tax information exchange agreement with the United States. After almost six years, Brazil finally ratified its tax information exchange agreement (TIEA) with the United States.1  On March 20, 2007, the TIEA was signed in Brasilia.2

Although the TIEA is a standard one for the U.S., it has significance because of the large size of the two countries and their close interaction. The TIEA is also significant because it illustrates a trend for countries in the Americas3 and the world to conclude TIEAs.  Brazil is the eighth largest goods trading partner with the U.S.  U.S. goods and services exports to Brazil totaled $63 billion in 2011, supporting approximately 300,000 U.S. jobs.  Another important element of the TIEA is the fact that Brazil is an emerging global player and economic powerhouse.  With a 2011 Gross Domestic Product (GDP) of nearly $2.5 trillion, Brazil is the sixth largest economy in the world and accounts for more than 60 percent of South America’s total GDP.4

I. Economic Interaction and High-Level Brazil-US Government Cooperation

The trend of economic, tourist, and other interaction is also greatly accelerating.  Two-way goods and services trade between the United States and Brazil has nearly tripled in the past decade to more than $100 billion in 2011.  In the past five years, goods and services exports from the United States to Brazil more than doubled, from $26.6 billion in 2006 to $62.7 billion in 2011.  With 195 million of the world’s consumers, and per-capita income expected to grow more than three percent per year during the next five years, Brazil’s demand for goods imports has more than tripled, from $47.2 billion in 2002 to $226.2 billion in 2011.  Since 2002, U.S. goods exports to Brazil have more than tripled, growing from $12.4 billion in 2002 to $42.9 billion in 2011.  In 2011, U.S. goods exports to Brazil were up 21 percent from 2010.5

In 2011, 1.5 million Brazilians visited the United States, a 26 percent increase compared to 2010 and up about 400,000 in 2002.  In 2011, Brazilians spent $6.8 billion on travel and tourism related goods in the United States, up 148 percent from 2009.

Bilateral investment flows between Brazil and the United States support jobs, stimulate exports, and strengthen our overall economic relationship.  At the end of 2010, total Brazilian capital investment in the United States stood at $15.5 billion, making it among the largest sources of foreign direct investment (FDI) from Latin America.

According to preliminary estimates released by the U.S. Bureau of Economic Analysis, Brazilian firms invested nearly $3.7 billion in the United States in 2011.  Top sectors for FDI from Brazil to the United States include energy – including coal, gas, oil, and alternatives and renewables – as well as the manufacture of metals, plastics, textiles, and building and construction materials.6

The United States is also a leading direct investor in Brazil.  U.S. FDI stocks reached $56.7 billion in 2009, primarily in manufacturing and finance and insurance sectors.  Notwithstanding the difficulty for some foreign companies to compete fairly with domestic actors in the Brazilian market, the U.S. private sector is increasingly positive about doing business in Brazil because the country has significantly improved issues of corruption, contract law, negotiations, and compliance with international business norms over the past several decades. However, the U.S. share of FDI in Brazil relative to GDP has declined over the past fifteen years.7     

Accompanying the explosive growth during the past twenty years has been significant financial liberalization and a deepening of Brazil’s banking sector.  Aggressive bank reforms – first in 1988 and later in 1994-95 – have served to facilitate the expansion of Brazil’s banking sector.  As a result, the size of the banking sector in terms of assets and clients has grown more than threefold since 2000.  However, a problem for the financial sector and Brazilian tax revenue has been episodes of capital flight.8  

Another important element to the environment underlying the TIEA is very high-level commitment by both governments to strengthening relations. Until the Obama Administration, the U.S. government had talked periodically about the possibility of stronger linkages with Brazil, but had done little, if anything, to develop a concrete plan of action.9  Both President Dilma Rousseff and Barack Obama made early visits to see each other in 2011 and have a genuinely cordial relationship.  Their initial meetings indicated that they are willing to forge closer ties on bilateral, regional, and global issues. 10  They have connected well, as did former Secretary of State Hillary Clinton and President Rousseff.

During the week of May 27, 2013, U.S. Vice President Joe Biden travels to Brazil five months before President Rousseff's state visit to the United States and ten years since President Bush and President Lula convened their cabinets for a joint ministerial meeting, their recognition of the strategic potential for the two democracies and their economies. Since then, hundreds of ministerial and sub-ministerial meetings have followed and countless number of private sector meetings on innovation and various types of commercial, scientific, and cultural cooperation.11

Brazil’s participation in the Global Entry Program has facilitated Brazilians traveling to the United States on business to get through immigration at U.S. airports.  Continuing efforts to increase cooperation in the area of infrastructure and take advantage of the U.S. infrastructure trade mission to Brazil in May 20-13, have created opportunities for U.S. and Brazilian companies to partner on infrastructure improvements.  The two governments have cooperated on education and workforce development issues by supporting programs like President Obama’s “100,000 Strong in the Americas” initiative and Brazil’s “Scientific Mobility Program.”  Building upon the work of the Strategic Energy Dialogue, the two governments have involved the private sector in energy infrastructure and policy discussions.  Building on cooperation between the U.S. Patent and Trademark Office (USPTO) and Brazil’s National Institute of Industrial Property (INPI), the two governments have engaged in more formal work sharing efforts to support innovation. They have also cooperated under the Aviation Partnership Agreement to advance aviation cooperation and use the Aviation Partnership as a model for other sectors.

In terms of enforcement cooperation, there are a wide-range of subjects, such as MOU  on securities enforcement12 and commodities futures13 cooperation, a customs cooperation agreement, 14 a mutual assistance in criminal matters treaty,15 Framework Agreement on Cooperation in the Peaceful Uses of Outer Space,16 an extradition treaty,17 an air transport agreement,18 an agreement regarding defense cooperation,19 and an anti-trust enforcement cooperation agreement.20

For many years Brazil and the U.S. Drug Enforcement Administration have had strong cooperation against drug trafficking, not only within Brazil, but through Brazilian intermediation with bordering countries, such as Bolivia.21

II. Background to the TIEA

The Brazilian government proposed the TIEA after a meeting of the Estrategia Nacional Contra Corrupcão e Lavagem de Dinheiro (ENCCLA) (National Strategy Against Corruption and Money Laundering), in December 2005 in Vitória, decided that the TIEA was a mechanism to more effectively prevent, as well as investigate and prosecute, tax crimes, since the United States is one of the main sources for Brazilian black money.  As the keynote speaker at ENCCLA, one of my principal recommendations was a TIEA.22 

On March 30-31, 2006, Brazilian President Luiz Inacio Lula Da Silva raised the idea of a TIEA during a working visit when he met with President Bush at Camp David, MD.  The TIEA was signed during a visit by President George W. Bush to Brasilia. 

In the U.S., the TIEA is an executive agreement and hence did not require ratification.  However, it required ratification in Brazil, meaning approval by both the House of Representatives and Senate.

On October 28, 2009, the Brazilian Chamber of Deputies’ Commission of Constitution and Justice approved the TIEA signed with the United States and allowed it to move forward in the ratification process required by Brazilian law. 23

The TIEA encountered problems in the Brazilian House when the House Committee of Constitution and Justice raised questions concerning the constitutionality of the agreement and the impact to Brazilian companies.  In particular, some legislators questioned the practical consequences the agreement may bring to Brazilian companies with business in the U.S.  They were concerned that the IRS may use or abuse Brazilian tax information in order to audit Brazilian businesses and transactions in the U.S.

On July 8, 2008, Representative Regis de Oliveira argued that the House Committee should reject the agreement based on its unconstitutionality, illegality, and poor wording.  He said that because the Brazil-US TIEA is not only an agreement of minor importance, but a true treaty with major implications to Brazil’s legal system, it should have been signed by President Lula da Silva under Article 84, Item VIII of the Brazilian Federal Constitution.  Instead, Brazilian Federal Revenue Department Chief Commissioner Jorge Rachid signed the agreement.  Hence, Oliveira opined it would be formally unconstitutional.24

Oliveira also argued that the TIEA is unconstitutional because it violates Article 37, item XXII of the constitution.  The article states that the tax administration is an activity essential to the operation of Brazil and can be exercised only by Brazilian tax agents.  Since the TIEA permits several tax activities to be conducted by U.S. tax agents on Brazilian territory, the TIEA would violate article 37 and would be materially unconstitutional.

Oliveira also argued that the TIEA permits cooperation regardless of whether the requested party does not require that information for its own tax purposes.  Article V(2) of the agreement that states “The requested party shall take all relevant information gathering measures to provide the requesting party with the information requested, notwithstanding that the requested party may not, at that time, need such information for its own tax purposes.”  Oliveira argued that such a provision is unreasonable since Brazilians laws allow a request for information only in special, exceptional circumstances and not as a general rule. 25 Yet the provisions of Article 21(3) of the 2011 OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (hereafter Convention on MAATM), which both the U.S. and Brazil have signed, are virtually the same.

In addition, he questioned the provisions in Article V, 3(b), which enable the requesting party to place an individual under oath.  Oliveira took the position that the provision is illegal because, in Brazil, an individual can be put under oath only in a judicial and not in a tax administrative procedure.26 Yet Article 21(3) of the MAATM provides for tax examinations abroad.

Even after the House approved the TIEA, it was stuck in the Senate Foreign Relations Committee due to the opposition of Senator Francisco Dornelles, a former commissioner of Internal Revenue in Brazil.  Dornelles claimed that furnishing tax information to the U.S. was unconstitutional, insofar as it violated Brazil’s sovereignty and the rights of Brazilian citizens. 

On March 7, 2013 the Committee approved it, followed by full Senate approval.  The deciding factor was the push by the Brazilian financial sector, the Brazilian Central Bank, and its Internal Revenue Service to approve it in order to facilitate the negotiation of a Foreign Account Tax Compliance (FATCA) Intergovernmental Agreement (IGA). 27 

III. Substance of the TIEA

In terms of the taxes covered in the case of the U.S., the agreement covers federal income taxes, federal taxes on self-employment, income, federal estate and gift taxes, and federal excise taxes.

In the case of Brazil, the agreement covers individual and corporate income tax (IRPF and IRPJ, respectively); industrialized products taxes (Federal excise tax, or IPI); financial transactions tax (IOF); rural property tax (ITR); program for Social Integration contribution (P.I.S.); social contribution for the financial of the social security (COFINS); and Contribution for the Financing of Social Security (CSL).28

The ratification of the TIEA and conclusion of a FATCA IGA may facilitate a double tax treaty, which the two governments have negotiated periodically since the 1960s.

The agreement covers exchange of information on request.  The requesting party can only make a request for information when it is not able to obtain the requested information by other means, except where recourse to such means would give rise to disproportionate difficulty.  The information requested must be exchanged without regard to whether the requested party requires such information for its own tax purposes or the conduct being investigated would constitute a crime under the laws of the requested party if it had occurred in the territory of the requested state.29

If the information in the possession of the competent authority of the requested party is not sufficient to enable it to comply with the request for information, the requested party must take all relevant information gathering measures to provide the requesting party with the information requested, notwithstanding that the requested party may not, at that time, need such information for its own tax purposes.  If matters concerning privileges under the laws and practices of the requesting party are raised, they must be reserved for resolution by the requesting party.30

If the requesting party specifically requests, the requested party must, to the extent allowable under its domestic laws, (a) specify the time and place to take testimony or the production of books, papers, records, and other tangible property; (b) place the individual giving testimony or producing books, papers, records, and other tangible property under oath; (c) allow representatives of the requesting party (government officials) to be present in the offices of the requested party’s tax administration during the pertinent part of a tax examination and to verify documents, registers and other relevant data with respect to such examination; (d) provide officials allowed to be present with an opportunity to question, through the executing authority, the individual giving testimony or producing books, papers, records, and other tangible property; (e) obtain original and unedited books, papers, and records, and other tangible property, including, but not limited to, information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; (f) obtain original and unedited books, papers, and records, and other tangible property, including, but not limited to, information held by banks, other in financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; (g) obtain or produce true and correct copies of original and unedited books, papers, and records; (h) determine the authenticity of books, papers, records, and other tangible property produced, and provide authenticated copies of original records; (i) examine the individual producing books, papers, records, and other tangible property regarding purpose for which and the manner in which the item produced is or was maintained; (j)  allow the requesting party to prepare written questions to which the individual producing books, papers, records, and other tangible property is to respond regarding the item produced;  (k) obtain information regarding the ownership of companies, partnerships, trusts, foundations and other persons, ownership information on all such persons in an ownership chain; (l) perform any other act not in violation of the laws or at variance with the administrative practice of the requested party; and (m) certify either that procedures requested  by the competent authority of the requesting party were followed or that the procedures requested could not be followed, with an explanation of the deviation and the reason therefor. 31

Article VI(1) allows a requesting party to send officials into the territory of the requested party to the extent allowed under its domestic laws to interview individuals and examine records with the prior written consent of the individuals concerned.  The requesting party must notify the requested party of the time and place of the intending meeting with the individuals concerned.  Clearly, especially in the case of multinational companies, it will be easier and more effective for a requesting party to visit them at the place where their headquarters and records are kept.  Article VI(2) provides that at the request of the requesting party, the requested party may allow representatives of the competent authority of the requesting party to attend a tax examination in the territory of the requested party.  Similarly, in the case of transfer pricing and other actions where the parent took decisions, the tax authority may find it most efficient to conduct an examination at the place where most of the financial records and officials of the parent are located.

Article VII(1) provides that the requested party may decline to assist (a) where the request is not made in conformity with the TIEA; (b) where the requesting party has not pursued all means available in its own territory to obtain the information, except where recourse to such means would give rise to disproportionate difficulty; or (c) where the disclosure of the information requested would be contrary to the public policy of the requested party. 

Article VII(2) does not obligate a party (a) to provide information subject to legal privilege, nor any trade, business, industrial, commercial, or professional secret or trade process, provided that information described in Article V (3)(e) (books and records, including those held by banks and financial institutions), must not by reason of that fact alone be treated as such a secret or trade process; (b) does not require a party to carry out administrative measures at variance with its laws and administrative practices; or (c) to supply information requested by the requesting party to administer or enforce a provision of the tax law of the requesting party, or any requirement connected therewith, that would discriminate against a national of the requested party.

Article VII(3) provides that a requested state must not refuse a request for information on the ground that the tax liability giving rise to the request is disputed by the taxpayer.  Indeed, in most litigation of TIEA requests, the taxpayer disputes the matter.32   

Pursuant to Article VII(4), the requested party need not obtain and provide information which the requesting party would be unable to obtain in similar circumstances under its own laws for the purpose of the administration/enforcement of its own tax laws or in response to a valid request from the requested party.

The grounds on which the requested party may decline are not large in scope.  Most likely, at least when Brazil is the requested state, the taxpayer or interested party may well challenge the request on constitutional grounds, especially given the debates during the ratification process and in the context of recent Brazilian jurisprudence on individual rights.  Although many taxpayers have challenged TIEA requests in the U.S., the law is more settled.

The execution of U.S. tax requests in Brazil may be interesting initially.33

A recent judicial decision that impacts the exchange of information is the decision of December 15, 2010 of the Federal Supreme Court (Supremo Tribunal Federal (STF).34  It decided that tax authorities cannot obtain access to bank information of taxpayers without a prior court authorization.  In accordance with a decision RE 389.808/PR, the decision in LC no. 105/01, which permits access to tax authorities to bank accounts of taxpayers when there has been administrative proceedings or proceedings, should be interpreted in conformity with Art. 88 of Federal Constitution, which protects bank secrecy.

In this respect, the above-mentioned decision of the STF intended that to override bank secrecy of a taxpayer requires a court decision. 

According to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Review report on Brazil (hereafter OECD GF Peer Review Report), the scope of professional secrecy protected under Article 197 of the National Tax Code and the attorney-client privilege protected by Article 7 of Law 8.906/94 appears to be broader than the international standard.  Nevertheless, the report concludes this should not impede the effective EOI because the avenue to obtain such information directly from relevant entities, as well as an exception to the attorney-client privilege, remains available.35

Exchange of information, according to the OECD GF Peer Review Report, should not be subject to unreasonable, disproportionate, or unduly restrictive conditions.  There are no aspects of Brazilian domestic laws that appear to be incompatible with international standards.36

Rights and safeguards (e.g., notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.  The OECD GF Peer Review Report finds that this element is in place, but certain aspects of the legal implementation of the element need improvement.  It states that no exceptions exist to the prior summary procedure for accessing detailed bank account information.  To require in all cases that the taxpayer be first approached, and hence notified, may unduly prevent or delay the effective exchange of information in urgent cases.37  Hence the OECD GF Peer Review Report would sacrifice due process for efficiency.

If criminal matters are involved in a case, perhaps including non-tax matters, the case may involve a mutual assistance request.  When Brazil responds to requests for public records or serving documents, the liaison will be directly between the U.S. and Brazil central authorities.  However, if the request requires measures impinging on fundamental rights in Brazil, such as transferring of persons, bank records, searches and seizures, or the evidence is for admission in a trial or similar proceeding, Brazilian law requires a court ruling prior to granting assistance.38

If the defendant or a third person makes the request, it would likely be made by means of letters rogatory, since the MLAT states that it does not give rise to the use of MLATs by defendants or third parties.   A letter rogatory request would go to the Superior Tribunal of Justice, which is a national court one level lower than the Brazil Supreme Court.  In 2005, the latter court issued a resolution regulating the defendant=s rights during the execution of these requests.  Brazilian law requires that interested persons receive notice of the letters rogatory request before or after its execution depending on the nature of the evidence to be obtained; the right to private or public counsel; and the right to challenge the request, but not the material content.  Challenges must be limited to issues of sovereignty, jurisdiction, and essential interests, etc. The President of the Court adjudicates the challenges.  There exists a right to appeal against the granting of the execution of the request.39

If the request is made under the MLAT, it will often be sent to the Brazilian Competent Authority, which is the Attorney General, and then to a local prosecutor to make the request before a first instance judge. If the MLAT request involves a foreign court decision with a need to enforce it in Brazil, it must be sent to the STJ. These requests may occur in cases concerning evidence gathering that in Brazil depend on judicial intervention, such as obtaining witness statements for trials, obtaining bank records, obtaining access to electronic and oral communications, and conducting search and seizure of assets.

The deficiency of legislation has importance.  The Supreme Tribunal of Justice resolution constitutes an additional internal regulation of that court and does not bind other judges who will deal with the requests.  Brazilian law does not appear to require procedural due process, such as the STJ resolution, except on the limited points of issues of sovereignty, jurisdiction, and essential interests, etc.  As a result, the target may not obtain notice of the request and hence a public defense attorney will not be appointed and participate.  Hence, challenges will not normally be submitted against the request and, if they are, are limited to issues of sovereignty, jurisdiction, and essential interests, etc. 

The judge handling the request will have no way to learn of the potential factual and legal problems surrounding a request because of the lack of notice and participation by interested persons, such as the defendant and third party.  In any case, to the extent there are challenges, the judge can only review issues of sovereignty, jurisdiction, and essential interests, etc.  

An example of the lack of rights could concern a U.S. request for bank records of an individual or corporation.  Since the Brazil Supreme Court has found that bank secrecy is a constitutional guarantee, a judge must make a ruling to lift it.40  A judge must lift bank secrecy only based on well-founded elements of suspicion that a crime has been committed and a need exists for the measure to proceed with the investigation.  However, if a Brazilian judge adjudicating the request is not aware of the potential problems surrounding the request, the judge will likely rubber stamp and approve the request, thereby depriving the interested parties of their notice to procedural due process.41  In any event, the Brazilian judge only has authority to determine whether the request respects legal and constitutional requirements of Brazil.

Given the difficulty in Brazil of obtaining requests requiring measures impinging on fundamental rights in Brazil in international criminal cases, it will be interesting to observe requests in purely civil tax cases.  Nevertheless, the requirement of a court authorization to breach bank secrecy will also impact requests for information in pure civil tax cases.

When the U.S. is the requested state, the IRS sometimes resorts to informal methods, such as sending a letter to the custodian of the records, asking him or her to provide the information requested by the requesting state.  In many cases, the IRS will issue a summons under Title 26 and the taxpayer can intervene and try to suppress all or part of the summons if s/he believes it is unfair, overbroad, or otherwise illegal.

Article VIII(1) requires that any information received by the requesting party under the TIEA must be treated as confidential and may be disclosed to persons or authorities (including  courts and administrative bodies) in the jurisdiction of the requesting party concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the TIEA, or to supervisory bodies, and only to the extent necessary for those persons, authorities, or supervisory bodies to perform their respective responsibilities. The persons or authorities in the requesting state must use such information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. The information must not be disclosed any other person or entity or authority or another jurisdiction without the express written consent of the requested party.

Article VIII(2) provides that any liability under the domestic law of the requesting party arising from the requesting party’s use of information provided under this Agreement will be solely the responsibility of the requesting party. 

An example of the way in which confidentiality may arise is the State of California and/or the State of São Paulo may have tax disputes with a taxpayer.  They may try to participate in the tax enforcement cooperation.  However, the Brazil-US TIEA does not extend to state or local governments, so neither California nor São Paulo would be able to benefit from the TIEA.

Article X(1) provides that the competent authorities will adopt and implement procedures that are necessary to facilitate the implementation of the TIEA, including such additional forms for the exchange of information as shall promote the most effective use of the information.  It is

quite common that competent authorities develop forms to authentic evidence transmitted so that it facilitates their admission into evidence in the requesting state.

Under Article XI, if both competent authorities of the parties consider it appropriate to do so, they may agree to exchange technical know-how, develop new audit techniques, identify new areas of non-compliance, and jointly study non-compliance areas.  Given the amount of trade and investment between the two countries, the tax gaps in both countries, and the amount of enforcement cooperation already between the two governments, it would not be surprising if the governments decided to cooperate.  For instance, the U.S. is the headquarters for the Joint International Tax Shelter Information Center, in which participating tax authorities supplement the ongoing work of tax administrations in identifying and curbing abusive tax avoidance transactions, arrangements, and schemes.42 The Brazilian tax authority may want to participate.  The Treasury Office of Technical Tax Assistance and other parts of the U.S. government already provide know how to tax and law enforcement authorities in Latin America.  Article XI of the TIEA may result in discussions of such cooperation.

IV. Analysis

The TIEA is a small but important step in the context of tax enforcement cooperation.  Unlike U.S. and Mexico, which already have a FATCA IGA, there is no automatic exchange of information.  Unlike the U.S. and Mexico, there are no simultaneous criminal and/or civil examinations and no spontaneous exchanges of tax information.  However, the demand by the Brazilian financial community for a FATCA IGA facilitated the ratification of the TIEA. 

Given the size of the Brazilian and U.S. financial communities and the amount of business, the TIEA and FATCA together will generate a significant amount of regulatory and enforcement work.  Inevitably, given the amount of cross-border investment and trade by all types of businesses and the complexities of the tax systems in both countries, there will be a lot of cross-border examinations and cases.43

V. Future

The absence of a double tax treaty (DTA) is a major complication for many U.S. companies looking to establish operations in Brazil and for Brazilians with investments in the U.S..  The two countries have tried since the 1960s to negotiate a DTA.

A DTA would eliminate double taxation on investment. Brazil is the only country with a GNP greater than $1 trillion that does not have a DTA with the United States. To encourage Brazilians to do business in the United States and vice versa, in 2011 the Council of Foreign Relations Independent Task Force on Brazil-U.S. relations recommended that both governments take steps to reduce or altogether eliminate double taxation by working toward a bilateral tax treaty and to pursue reforms toward a fair climate for foreign investment.44

The TIEA is a stepping stone not only to a FATCA IGA, but also to a DTA.  Major companies such as Minneapolis-based Cargill and Brazilian airplane manufacturer Embraer have said the U.S.-Brazil TIEA is key to the two countries one day inking a tax treaty to end double taxation.45

The U.S.-Brazil Business Council and high-level officials in both countries have long clamored for a DTA.46

Regardless of whether the two governments conclude a DTA quickly, they are likely to conclude a FATCA Intergovernmental Agreement Model 1a, whereby financial institutions will send reporting information to the tax authority and then to the respective FATCA jurisdictions.  Brazil has the same incentive as the U.S. to obtain automatic exchange of information to reduce evasion and avoidance by its own taxpayers.

Brazil and the U.S. have also signed the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters.  As a result, once the U.S. and Brazil ratify the Convention and give notice, they will have even more robust tax enforcement cooperation arrangements. As of July 17, 2012, Brazil already had 40 DTAs and 7 TIEAs as of May 22, 2013.47  As of May 24, 2013, the U.S. had 60 DTAs and 31 TIEAs.48 

In the short-term future the FATCA IGA and the Convention on Administrative Assistance in Tax Matters will enable tax enforcement cooperation to take a major leap forward.

1 Decree No. 8.003 of the Brazilian President Civil Unit Subchief for Legal Affairs, May 15, 2013, Promulgating the Agreement between the Brazilian Government and the United States Government for Exchange of Information Relative to Taxes, Signed in Brasilia, on March 20, 2007 (Presidência de República Casa Civil Subchefia para Assuntos Jurídicos, de 15 Maio de 2013, Promulga o Acordo entre o Governo da República Federativa do Brasil e o Governo dos Estados Unidos da América para o Intercambio de Informações Relativos a Tributos, Firmando em Brasilia, em 20 de Março, 2007).
2 For more information see Ed Taylor, U.S.-Brazil TIEA Accord Takes Effect After Approval by Brazil's Senate; the FATCA Factor, DAILY REP. FOR EXEC., March 15, 2013, at I-2.
3 For a useful review of developments in TIEAs in the Americas, see Erika Litvak, Selected Update on Tax Information Exchange Agreements in the Americas, 16 Law & Busin. Rev. of the Americas 335 (2010).
4 White House, Fact Sheet: The U.S.-Brazil Economic Relationship, Apr. 9, 2012.
5 Id.
6 Id.
7 Samuel W. Bodman and James D. Wolfensohn, Chairs, Julia E. Sweig, Project DirectorGlobal Brazil and U.S.-Brazil Relations, Independent Task Force Report No. 66, 69 (2011)
8 Riordan Roett, THE NEW BRAZIL 122 (Brookings 2010).
9 Id. at 143.
10 Id. at 64.
11 Julia E. Sweig, The View Toward Closer U.S.-Brazil Relations, Folha de Sao Paulo, May 22, 2013
12 MOU between the SEC and  the Brazilian Commissão de Valores Mobiliários, July 1, 1988
13 MOU between the CFTC and the Brazilian Commissão de Valores Mobiliários, signed April 12, 1991
14 A Brazil-U.S. Customs Cooperation MOU of June 20, 2002, implemented by Brazilian Decree of April 8, 2005
15 US-Brazil MLAT, signed on Oct. 14, 1997, entered into force, Feb. 21, 2011, TIAS 12889
16 Framework Agreement on Cooperation in the Peaceful Uses of Outer Space, Mar. 1, 1996
17 Signed Jan. 13, 1961 and June 18, 1962 respectively, entered into force, Dec. 17, 1964;
18 Air Transport Agreement (ASA), Mar 1, 2011
19 Agreement Regarding Defense Cooperation, April 12, 2010, (DCA)
20 Agreement Regarding Cooperation Between Their Competition Authorities in the Enforcement of Their Competition Laws, Oct. 26, 1999
21 Bodman and James D. Wolfensohn, supra, at 70.
22 See, e.g., Bruce Zagaris, Brazil Announces Third Money Laundering Strategy, 22 Int’l Enforcement L. Rep.  50 (Feb. 2006)
23 David Roberto R. Soares da Silva, Brazilian Parliamentary Commission Approves TIEA With U.S., 2009 Worldwide Tax Daily 211-2 (2009)
24 Brazil’s House Commission Questions Brazil-U.S. Tax Information Exchange Agreement, Azevedo Sette Advogados,
25 Id..
26 Id.
27 Taylor, supra.
28 Brazil-US TIEA, Art. III.
29 Id., Art. V(1).
30 Id., Art. V(2).
31 Id. Art V(3).
32 See, e.g., Salomon Juan Marcos Villarreal v. U.S., U.S. Court of App. for the 10th Cir., Order and Judgment, Apr  22, 2013; Bruce Zagaris, U.S. Appellate Court Affirms Subpoena in Support of Mexico’s TIEA Request, 29 Int’l Enforcement L. Rep. 262 (July 2013) (appellate court affirms district court’s decision in favor of the IRS and against the taxpayer, notwithstanding taxpayer’s dispute with the Mexican tax authority and argument that irregularities in the process in Mexico had occurred).
33Much of the discussion of the prospective execution of U.S. TIEA requests is taken from Bruce Zagaris, U.S.-Brazil and International Evidence Gathering:  The Need for Better Due Process, 99 Revista Brasileira de Ciéncias Criminais 241,263-65 (Nov-Dec. 2012).
34 Supremo Tribunal Federal. Recurso Extraordinário n. 389.808. Relator. Min. Marco Aurélio (Dec. 15, 2010).
35 OECD, Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Review report on Brazil 2012: Phase 1: Legal and Regulatory Framework, 75. 79 (OECD Publishing), http://dx/
36 Id. at 77.
37 Id. at 80.
38 Heloisa Estellita, Cross border enforcement: the role of prosecutors, regulators, and defense attorneys, 10th Annual International Litigation and Arbitration Conference (Course No. 1387R), Florida Bar International Law Section CLE, Miami, Feb. 24, 2012, at 5; and conference with Pedro Gomes Periera, former DCRI official.
39 Id.  For additional discussion of the Brazilian jurisprudence when it receives letters rogatories in criminal matters, see Antenor Madruga, O Brasil e a jurisprudência do STF na Idade Média da Cooperação Jurídica Internacional (Brazil and the jurisprudence of the STF in the Middle Age of International Judicial Cooperation), in Lavagem de Dinheiro e Recuperação de Ativos: Brasil, Nigéria, Reino Unido e Suíça (Money Laundering and Recovery of Assets: Brazil, Nigeria, the U.K. and Switzerland), (Maíra Rocha Machado and Domingos Fernando Refinetti, eds.) 77-104 (2006); Maíra Rocha Machado, Cooperação penal internacional e o intercámbio de informações bancárias: as decisões do STF sobre quebra de sigilio em cartas rogatórias (International Criminal Cooperation and Exchange of Bank Information: STF Decisions on Breaking Bank Secrecy in Letters Rogatory),   Lavagem de Dinheiro e Recuperação de Ativos, 99-115.
40 Estellita, supra, citing STJ on the HC92.726 (Dec. 13, 2007).
41 Id.
43 For more discussion on Brazil-U.S. international tax cooperation from a Brazilian perspective, see Heloisa Estellita and Frederico Silva Bastos, Developments in Information Exchange and International Cooperation in Tax Matters, ABA Conference on International Tax Enforcement, New York, Nov. 8-9, 2012. See also Frederico Silva Bastos, Globalização, Direito Tributário e Desevolvimento; tensões entre direito e política no percurso doacordo para troca de informações tributárias entre Brasil e Estados Unidos — Decreto n 8.003/2013 [Globalization, Tax Law, and Development: Tensions between Law and Politics in the Start of the Agreement to Exchange Information between Brazil and the U.S., Revista dos Tribunais, Vol. III (2013).
44 Samuel W. Bodman and James D. Wolfensohn, Chairs, Julia E. Sweig, Project Director Global Brazil and U.S.-Brazil Relations, Independent Task Force Report No. 66, 68-69 (2011).
45 Reuters, U.S.-Brazil tax deal advances anti-tax evasion dragnet –lawyers, Mar. 21, 2013
46 Gabrielle Trebat, Calling For a Brazil-U.S. Tax Treaty, Mar 13, 2009 (discussing the call of the U.S.-Brazil Business Council for a DTA as Presidents Obama and Lula prepared to meet).
47 OECD Global Forum on Tax Transparency, OECD website, accessed May 22, 2013.
48 Id., accessed May 23, 2013.