Protocol (Jan 9, 1978)

The Government of the Federative Republic of Brazil and the Government of Japan,

Desiring to modify and supplement the "Convention between the United States of Brazil and Japan for the Avoidance of Double Taxation with respect to Taxes on Income, signed at Tokyo on January 24, 1967,

Have agreed as follows:

Paragraph (2) of Article 9 shall be deleted and replaced by the following:

"(2). However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that Contracting State, but the tax so charged shall not exceed 12,5 per cent of the gross amount of the dividends."

Paragraph (2) of Article 10 shall be deleted and replaced by the following:

"(2) However, such interest may be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but the tax so charged shall not exceed 12,5 per cent of the gross amount of the interest."

1. Paragraph (2) of Article 11 shall be deleted and replaced by the following:

"(2) However, such royalties may be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but the tax so charged shall not exceed:

2. Paragraph (3) of Article 11 shall be deleted and replaced by the following:

"(3) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience."

Sub-paragraphs (a), (b), and (c) of paragraph (2) of Article 22 shall be deleted and replaced by the following:

"(a) (i) Where a resident of Japan derives income from Brazil which may be taxed in Brazil in accordance with the provisions of this Convention, the amount of the Brazilian tax payable in respect of that income shall be allowed as a credit against the Japanese tax imposed on that resident. The amount of credit, however, shall not exceed that part of the Japanese tax which is appropriate to that income.

(ii) Where the income derived from Brazil is a dividend paid by a company which is a resident of Brazil to a company which is a resident of Japan and which owns at least 10 per cent either of the voting shares of the company paying such dividend, or of the total shares issued by that company, the credit referred to in (i) above shall take into account the Brazilian tax payable by the company paying the dividend in respect of its income.

(b) (i) For the purposes of the credit referred to in sub-paragraph (a) (i) above, Brazilian tax shall always be considered as having been paid:

(A) at the rate of 25 per cent in the case of dividends to which the provisions of paragraphs (2) and (5) of Article 9 apply, and of royalties to which the provisions of sub-paragraphs (b) and (c) of paragraph (2) of Article 11 apply;

(B) at the rate of 20 per cent in the case of interest to which the provisions of paragraph (2) of Article 10 apply.

(ii) For the purposes of the credit referred to in sub-paragraph (a) above, Brazilian tax shall be deemed to include the amount of Brazilian tax which would have been paid if the Brazilian tax had not been exempted or reduced in accordance with the special incentive measures designed to promote economic development in Brazil, which are effective on March 23, 1976, or which may be introduced thereafter in the Brazilian tax laws in modification of, or in addition to, the existing measures, provided that the scope of the benefit accorded to the taxpayer by those measures shall be agreed to by the Governments of both Contracting States.

c) In the application of the provisions of sub-paragraph "b" (ii) above, there shall not, in any event, be deemed to have been paid an amount of tax higher than that which, but for the exemption or reduction of tax due to the special incentive measures, would result from the application of the Brazilian tax laws effective on March 23, 1976."

The term "United States of Brazil", wherever used in the aforesaid Convention, shall be deleted and replaced by the term "Federative Republic of Brazil".

1. The present Protocol shall be ratified and the instruments of ratification shall be exchanged at Brasilia as soon as possible.

2. The present Protocol shall enter into force on the thirtieth day after the date of exchange of instruments of ratification and shall have effect as respects income derived during the taxable years beginning on or after the first day of January in the calendar year next following that in which the present Protocol enters into force, provided that as respects income derived during the taxable years prior to the above-mentioned taxable years, the relevant provisions of the afore said Convention shall continue to apply.

3. The present Protocol shall continue in force as long as the aforesaid Convention remains in force.

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments, have signed the present Protocol.

DONE in duplicate at Tokyo on March 23, 1976 in the Portuguese, Japanese and English languages, each text being equally authentic. In case of any divergence of interpretation, the English text shall prevail.