Press Room

28 Feb 2023

The International Tax Bulletin (Feb 2023)

Dear friend,

In our first International Tax BULLETin of 2023 we take a look at some of the latest and most interesting developments in International Tax. I’m delighted that two new members of the team, Des Hanna (Director) and Chimezirim Echendu (Associate) have contributed three articles, and I also thank Andrew Parkes for his contribution.

Our aim is to keep each article to speed-read length – to distil what are, sometimes, very complex tax and commercial issues into bulletins that are free from jargon, legalese and taxspeak. We will refer to third party sources to aid your onward journey if you want to dive deeper into the issues we’ve covered.

Above all, we want you to share in our love (yes, really!) of international tax and hope you enjoy our output. As ever, we welcome comments, feedback and questions. As I say to my clients: tax can be a roller-coaster ride, it isn’t a simple yes or no, or black and white – there’s a whole load of grey between the two ends of the spectrum. This is most obviously borne out in tax cases where the decision of one court is often overturned by the higher court, and overturned yet again – on the same facts, but by different judges whose interpretation of the law (often the meaning of certain words) differs. It’s what keeps us on our toes…

Happy Reading!

Miles Dean

Head of International Tax
M:  +44 (0)7785 770 431

Brazil-UK Double Taxation Treaty

Andrew Parkes

National Technical Director
M: +44 (0)7522 229 589 or

A New Treaty

Brazil nuts?

For many years, the largest, most glaring hole in the UK’s double taxation agreement (DTA) network was Brazil.

Then, in what for treaty negotiation timelines is the blink of an eye (or an episode of a telenovela), a treaty has been signed by the UK with Brazil.

There are quite a few unusual provisions in the DTA, enough probably for a thesis, let alone an article, and so I have set out below a few of the articles that caught my eye.

Worth going to the Carnival?

Although neither the UK nor Brazil levies withholding tax (WHT) on dividends, Brazil is considering introducing a levy of 15%, with legislation drafted by the previous Government and likely to be taken forward by the current one, and we await developments. If that goes ahead, then connected companies should get a reduction to 10%, but portfolio holders will still face 15%.

For interest, the treaty does not change the picture much. Most Brazilian non-bank loans will still face 15%, the domestic Brazilian rate. However, interest paid from the UK to Brazil will have its WHT reduced by 5%.

WHT on royalties is reduced to 10%, which is a satisfactory outcome for UK recipients reducing the WHT they face from 15% to 10%, but halves the UK WHT for Brazilian ones.

The interesting aspect is technical fees. The treaty gives a declining rate over the first five years – but what are the years? Is it the first five years of the treaty, or of the contract under which the fees are paid? Sadly, I think it is per contract, but we will see. Hopefully this will be addressed in the Explanatory Memorandum that will be published alongside the Statutory Instrument for the DTA, which is expected shortly.

There is a real blast from the past, in that the treaty has an Independent Personal Services article for the self-employed. This article has actually been deleted from the OECD’s Model as it is now usual for both the self-employed and companies to be included within the Permanent Establishment article.

The Capital Gains article is quite light and there is no property rich provision. Hence, UK property held indirectly by a Brazilian resident will not be taxable in the UK if the indirect holding is sold, as the treaty takes it outside the non-resident capital gains rules. Given that Brazil’s effective tax rate is 34%, we do not expect a rush for people to take advantage of this provision.

The Other Income article is also slightly odd, as all it does is stop extraterritoriality, because the Source State is always allowed to tax any income. There is also no provision to tax distributions from trusts as if they were the underlying income (i.e. if the distribution was made up of dividends and property income, the treaty would be applied as if the beneficiary had received the dividends and property income direct).

Another article that needs mentioning is the Entitlement to Benefits, where we have the US-style Limitation on Benefits article, but with a huge improvement in that discretionary access can be given where the Competent Authority decides that there are no nefarious activities taking place. For example, the company was relying upon the equivalent beneficiaries test and one of its shareholders sells to a non-equivalent beneficiary, reducing the level below 75%. However, because the sale was for bona fide commercial reasons and the company is not seeking to take unfair advantage of the treaty, benefits can be given.

There is, however, a Principal Purpose Test (PPT) to make the limitation on benefits less mechanical. Belt and Braces or ensuring that the whole is effectively just a PPT – answers on a postcard please!

Honours even

That we have this treaty at all is to be celebrated and will come as a huge relief for some. I know that my former colleagues in HMRC will have got the very best deal they could from their counterparts and, as time goes by, I am sure there will be incremental improvements too.

If you have any queries about the UK’s tax treaty network (or DTA issues generally), please contact me, Andrew Parkes +44 (0)7522 229 589 or


Hong Kong: Highlights of the New Foreign Source Income Exemption Regime

Chimezirim Echendu

On the 1st of January 2023, Hong Kong’s (HK) new regime for foreign source income came into effect. The regime seeks to align the preferential foreign source income regime with economic presence, following pressure from the EU.

As might be expected, the Foreign Source Income Exemption (FSIE) covers foreign source interest, dividends, gains from the disposal of equities and income from intellectual property. However, foreign source income of certain entities does not qualify for the exemption. The excluded entities include those offering regulated financial services, such as insurance, banking, and securities trading.

The new regime applies only to multinational enterprises (MNE). A group is formed, per the legislation, where one entity or permanent establishment (PE) of the group is located in a jurisdiction different from that of the ultimate parent entity.

Any legal person (other than a natural person) and any “arrangement” that prepares separate financial accounts, such as partnerships and trusts, can all qualify as “entities” under the legislation. Furthermore, PE’s of an entity of the MNE group, or an agent of the group, will also qualify as an “MNE entity” for the purpose of the legislation.

Find out more

Beneficial Ownership Registers and The Recent ECJ Decision

Des Hanna

The mandatory introduction of Beneficial Ownership registers by organisations such as the OECD and the EU must, in many ways, be applauded. The intention of the registers is to make it much more difficult for criminals and terrorist organisations to hide or launder money, by making it obligatory to disclose the true or ultimate owner of a company, which may contain the proceeds of criminal activity.

To some extent, the registers have undoubtedly made it more difficult for criminal and terrorist organisations to carry out their nefarious financial activities, but it would also be naive to believe that they are a panacea. Where there’s a will there’s always a way.

A regular point of discussion with clients and their advisers is Beneficial Ownership registers. The UK is a common example. The PSC (People with Significant Control) register requires the ultimate controller of a UK company to record their details with Companies House.

Failure to furnish these details could result in a two-year prison sentence and/or a fine. It is not known how widely the authorities police the register or, indeed, if anyone has been prosecuted by the UK authorities since the introduction of the PSC register (in 2016) for providing incorrect information.

Find out more


The OECD’s Corporate Tax Framework

Chimezirim Echendu

International Associate
M: +44 (0)7496 410 126 or

OECD: Pillar 1 and 2 update

The Organisation for Economic Co-operation Development’s (OECD) work on Action 1 of the Base Erosion and Profit Shifting Project (BEPS) has centred on aligning the principles and rules of international taxation to suit the demands of a digitalised economy. The main thrust has been to ensure Multinational Enterprises (MNEs) pay their “fair share of tax” (whatever that means), by using the “two pillar” approach. To date, 138 countries have signed up to this new corporate tax landscape.

Pillar 1 creates a new tax nexus for the biggest companies by reallocating taxing rights to jurisdictions where they carry on business and earn profits, regardless of the existence of a physical presence in that jurisdiction (Amount A). And a fixed return in line with the Arm’s Length Principle for MNEs that physically perform marketing and distribution activities for related parties in a jurisdiction (Amount B).

Pillar 2 aims to put a stop to the perceived race to the bottom for corporate income tax rates by introducing a minimum corporate income tax rate of 15% from 2024. Never one to race to the bottom, the UK reacted by increasing the CT rate to 25% from April this year.

Pillar 1

On 20 December 2022, the OECD released its public consultation document on the draft multilateral convention provisions on Digital Services Taxes (DSTs) and other relevant measures. The document closed for comments on 20 January 2023. Highlights of the draft convention include an article removing existing DST measures and an article stopping countries that impose DSTs and similar measures from benefiting from the profit reallocation at the heart of the proposal. In other words, residual profits earned by a MNE in a jurisdiction that imposes a DST, or a similar measure, will not be allocated to that jurisdiction, nor will the jurisdiction be allowed to impose tax on such profits using its domestic, Amount A, implementing law. However, progress on the implementation of Pillar 1 has stalled with the United States, India and Saudi Arabia accused of being the transgressors.

Pillar 2

On 2 February 2023, the OECD released global technical administrative guidance to assist governments in the implementation of the new minimum tax rules. The technical document provides guidance on weighty issues such as currency conversion to domestic currencies from Euros (which has been the default currency in the BEPS project).

Guidance is also provided on deemed consolidation rules in scenarios where an ultimate parent entity does not prepare financial statements, definition of sovereign wealth funds and ultimate beneficial entity, as well as clarity on the definition of excluded entities.

Other issues addressed include the application of the global anti-base erosion rules to insurance investment companies, transitional provisions and guidance of Double Tax Agreement tax credits and commentary on qualified domestic minimum top-up taxes.

We can highly recommend this document as a cure for insomnia.