Brazil has adopted, through Normative Instruction (NI) 1,669/16, the minimum standard of Action 14 of the BEPS project for resolving treaty-related disputes. The NI prohibits taxpayers from using the mutual agreement procedure (MAP) when an issue has been resolved through an administrative or judicial proceeding, even though Brazil's tax treaties state that the MAP is available irrespective of the remedies provided under domestic law.

The Brazilian revenue authority (Receita Federal do Brasil- — RFB) published, on November 10, 2016, NI 1,669/16, which contains procedural and other rules on the MAP under treaties for the avoidance of double taxation. The NI adopts the minimum standard for the resolution of treaty-related disputes under Action 14 of the BEPS Action Plan, but does not adopt the set of best practices set forth in Action 14.

The NI distinguishes between a unilateral phase and a bilateral phase in the resolution of treaty-related disputes under the MAP. During the unilateral phase, the RFB determines whether a domestic solution can be found without involving the treaty partner. This phase may be followed by a bilateral phase in which the RFB involves the treaty partner. Under NI 1,669/16, a decision reached under the MAP cannot be appealed in either an administrative or a judicial court. Separate forms have been developed for a Brazilian taxpayer to initiate a MAP.

A major issue for the Brazilian tax practice will be how the MAP interacts with the domestic dispute resolution mechanisms. Typically, if a tax dispute arises, taxpayers in Brazil may either initiate an administrative or a judicial proceeding. In practice, taxpayers tend to first discuss the tax challenges at an administrative level and, if not successful in the dispute, initiate a judicial proceeding. At the administrative level, tax disputes are first decided by local RFB offices. A taxpayer or the RFB may appeal the determination to the Administrative Court of Tax Appeals.  Tax disputes in Brazil generally take a few years to be settled.

A taxpayer must make the decision to initiate the administrative procedure, as a general rule, within one month of the receipt of the notice from the RFB requesting the collection of additional taxes or imposing penalties. NI 1,669/16 denies the taxpayer access to the MAP when a decision in an administrative or judicial proceeding on the matter has been reached, even though Brazil's tax treaties stipulate that a MAP is available "irrespective of the remedies provided by the domestic law." It does not provide that an administrative (or judicial) proceeding must be paused when a MAP is initiated. With the NI prohibiting access to the MAP when there is a decision in an administrative or judicial proceeding, the question arises whether this position complies with Brazil's obligations under its treaties for the avoidance of double taxation and the minimum standard of Action 14.

On a positive note, NI 1,669/16 clarifies that transfer pricing matters can be the subject of a MAP. It remains to be seen whether this NI opens the door for further alignment between Brazil's transfer pricing rules and those of other countries.

The RFB has not provided for arbitration as a dispute resolution mechanism. Arbitration is part of the set of best practices under Action 14.

NI 1,669/2016 is effective November 10, 2016.

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