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V0798-17 28 March 2017 · SG de Fiscalidad Internacional Criterion in force
IRNR · cánones

Engineering technical services provided in Brazil classified as royalties under the Double Taxation Convention

A Spanish company sought clarification on whether its engineering and technical consultancy services provided in Brazil should be classified as royalties. The Directorate General for Taxes (DGT) ruled that, pursuant to the convention and interpretation agreements, these services qualify as royalties and establishes the applicable withholding tax limit.

The question raised

Whether the technical consultancy services to be provided by the applicant are considered royalties for the purposes of the provisions of the Resolution of September 22, 2003, of the General Technical Secretariat, which provides for the publication of the Letters of February 17 and February 26, 2013, exchanged between Spain and Brazil regarding the interpretation, based on Article 25 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income between the Spanish State and the Federative Republic of Brazil, concluded in Brasilia on November 14, 1974, published in the BOE on December 31, 1975.

The DGT's ruling

Technical services or technical assistance services are included in the concept of royalties, regardless of whether there is a transfer of technology, unless they are professional services involving the technical qualification of persons. In this case, the engineering and technical consultancy services provided are classified as royalties. Due to the most-favored-nation clause, a maximum withholding tax of 10% applies in Brazil. For the purpose of the double taxation deduction in Spain, it shall be considered that the royalties have been taxed in Brazil at a rate of 25%.

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