"Exchange of Notes (Mar 23, 1976) and Agreed Minutes"

EXCHANGE OF NOTES

Tokyo, March 23, 1976

Excellency,

I have the honour to refer to the Convention between our two countries for the avoidance of double taxation with respect to taxes on income which was signed on January 24, 1967, as amended by the Protocol modifying and supplementing the Convention signed today, and to confirm, on behalf of the Government of Federative Republic of Brazil, the following understandings reached between the Government of the Federative Republic of Brazil and the Government of Japan:

1. With reference to paragraph 2 of Article 3 of the Convention:

Where an individual is a resident of both Contracting States, the question shall be settled by mutual agreement taking into consideration the following rules:

He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (centre of vital interests);
If the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
If he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
If he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

2. With reference to sub-paragraphs (c) and (d) of paragraph 3 of Article 4 of the Convention, the term "solely for the purpose of storage, display or delivery" means the case where no sales operations are carried on in the country in which such facilities are situated.

3. With reference to paragraph 3 of Article 5 of the Convention, the term "expenses which are incurred for the purposes of the permanent establishment" means all expenses actually incurred whether in the Contracting State in which the permanent establishment is situated or elsewhere, reasonably allocable to such permanent establishment, and which have contributed to earning of profits

4. With reference to paragraph 2 of Article 7 of the Convention, the two Governments agree that, if the Government of the United States of Brazil, a political subdivision or local authority thereof introduces any taxes of a character substantially similar to the local inhabitant taxes or the enterprise tax in Japan after the date of signature of the Convention, the two Governments will consult for the purpose of amending the said provisions with a view to including those taxes.

5. With reference to paragraph 6 of Article 9 of the Convention, the terms "tax on activities of minor importance" and "excess remittance tax" mean the Brazilian tax imposed under Articles 346 and 348, respectively, of the Brazilian Income Tax Regulations as consolidated by Decree 76.186, of September 2, 1975.

6. With reference to paragraph 6 of Article 11 of the Convention, in determining whether or not the royalties are a fair and reasonable consideration in respect of the rights for which they are paid, the competent authority of a Contracting State may take into account the provisions of its own tax legislation.

7. With reference to subparagraph (b) (ii) of paragraph 2 of Article 22 of the Convention:

the special incentive measures designed to promote economic development in Brazil, which are effective on March 23, 1976 are those set forth in the following articles of Acts of Brazil:
1. (reduction of or exemption from tax on income relating to the investment in Northeastern Region of the Federative Republic of Brazil)
  1. Article 19 of Law Nº 3692 of December 15, 1959, as amended by Articles 13 and 14 of Law Nº 4239 of June 27, 1963, Articles 34 and 35 of Law Nº 5508 of October 11, 1968, Article 1 of Decree-Law Nº 1196 of December 23, 1971 and Article 1 of Decree-Law Nº 1328 of May 20, 1974.
  2. Article 34 of Law Nº 3995 of December 14, 1961, as amended by Article 18 of Law Nº 4239 of June 27, 1963, Article 18 of Law Nº 4869 of December 1, 1965, Article 38 of Law Nº 5508 of October 11, 1968 and Article 11 of Decree-Law Nº 1376 of December 12, 1974.
  3. Article 97 of Law Nº 5508 of October 11, 1968
2. (reduction of or exemption from tax on income relating to the investment in Amazonian Region of the Federative Republic of Brazil)
  1. Article 19 of Law Nº 3962 of December 15, 1959, as amended by Article 1 of Law Nº 5174 of October 27, 1966, Articles 22 and 23 of Decree-Law Nº 756 of August 11, 1969 and Article 1 of Decree-Law Nº 1328 of May 20, 1974.
  2. Article 1 of Law Nº 4069-B of June 12, 1962, as amended by Article 19 of Law Nº 5174 of October 27, 1966.
  3. Article 7 of Law Nº 5174 of October 27, 1966, as amended by Article 1 of Decree-Law Nº 756 of August 11, 1969 and Article 11 of Decree-Law Nº 1376 of December 12, 1974.
3. (reduction of or exemption from tax on income relating to the investment to an enterprise conducting hotel business)

i. Article 24 of Decree-Law Nº 55 of November 18, 1966, as amended by Articles 2and 3 of Decree-Law Nº 1191 of October 27 of 1971.
ii.Articles 25 and 26 of Decree-Law Nº 55 of November 18, 1966, as amended by Article 17 of Decree-Law Nº 157 of February 10, 1967, Article 6 of Decree-Law Nº 756 of August 11, 1969, Articles 4 and 5 of Decree-Law Nº 1191 of October 27, 1971, Article 11 of Decree-Law Nº 1376 of December 12, 1974 and Articles 4, 5, 6, 9 and 11 of Decree-Law Nº 1439 of December 30, 1975.

d. (reduction of or exemption from tax on income relating to the investment to an enterprise conducting fishing business)

Articles 80, 81 and 89 of Decree-Law Nº 221 of February 28, 1967, as amended by Article 1 of Decree-Law Nº 1217 of May 9, 1972 and Article 11 of Decree-Law Nº 1376 of December 12, 1974.

e. (reduction of tax on income relating to the investment to an enterprise conducting forest business)

Article 1 of Law Nº 5106 of September 2, 1966 and Article 1 of Decree-Law Nº 1134 of November 16, 1970, as amended by Article 4 of Decree-Law Nº 1307 of January 16, 1974 and Article 11 of Decree-Law Nº 1376 of December 12, 1974.

f. (reduction of tax on income relating to the investment to an enterprise conducting aircraft business) Article 7 of Decree-Law Nº 770 of August 19, 1969, as amended by Article 11 of Decree-Law Nº 1376 of September 12, 1974 and Article 1 of Decree-Law Nº 1408 of July 7, 1975.

g. (reduction of tax on income relating to the investment in the State of Espirito Santo)

Article 4 of Decree-Law Nº 880 of September 18, 1969, as amended by Article 1 of Decree-Law Nº 1345 of September 19, 1974 and Article 11 of Decree-Law Nº 1376 of December 12, 1974.

2. if new legislation is enacted in Brazil within the scope of the special incentive measures mentioned in the said

        Article or in substitution for the Articles of the Brazilian legislation enumerated in paragraph 1 above effective
        on March 23, 1976, the Government of the Federative Republic of Brazil will inform the Government of Japan
        on such legislation and the two Governments will consult for the purpose of a new exchange of notes with a
        view to including those modifications which arise from the above legislation.

8. The understandings effected by the Exchange of Notes dated January 24, 1967 shall terminate on the date of the entry into force of the present understandings, provided that as respects income derived during the taxable years prior to those to which the provisions of the afore said Protocol apply in accordance with the provisions of paragraph 2 of Article 6 of the aforesaid Protocol, the former understandings shall continue to apply.

9. The present understandings shall have effect as respects income derived during the taxable years to which the provisions of the aforesaid Protocol apply in accordance with the provisions of paragraph 2 of Article 6 of the aforesaid Protocol.

I have further the honour to propose that the present Note and Your Excellency’s Note in reply confirming the foregoing understandings shall be regarded as constituting an agreement between the two Governments, which will enter into force on the date of entry into force of the aforesaid Protocol.

I avail myself of this opportunity to extend to Your Excellency the assurances of my highest consideration.

His Excellency Kiichi Miyazawa	Hélio de Burgos-Cabal
Minister of Foreign Affairs of Japan	Ambassador Extraordinary and Plenipotentiary of the Federative Republic of Brazil

Tokyo, March 23, 1976

Excellency,

I have the honour to acknowledge the receipt of Your Excellency’s Note of today’s date, which reads as follows:

[see I]

I have further the honour to confirm the foregoing understandings on behalf of the Government of Japan and to agree that Your Excellency’s Note and this Note shall be regarded as constituting an agreement between the two Governments which will enter into force on the date of entry into force of the aforesaid Protocol.

I avail myself of this opportunity to extend to Your Excellency the assurances of my highest consideration.

His Excellency Mr. Hélio de Burgos-Cabal	Kiichi Miyazawa
Ambassador Extraordinary and Plenipotentiary of the Federative Republic of Brazil	Minister of Foreign Affairs of Japan

"AGREED MINUTES"

The representatives of the Government of Japan and the Government of the Federative Republic of Brazil hereby record the following understandings which have been reached between the two Governments during the course of negotiations for the conclusion of the Protocol modifying and supplementing the Convention between our two countries for the avoidance of double taxation with respect to taxes on income, which was signed today.

1. It is understood that the capitalized amounts of non-distributed profits, whether or not with issuance of shares, are considered as falling as dividends as defined in paragraph 4of Article 9 of the convention, and that accordingly the provision of subparagraph (b)(i) of paragraph 2 of Article 22 of the convention will apply to them, unless they are dividends referred to in paragraph 7 of Article 9 of the Convention.

2. It is understood that the amount of the Brazilian company tax destined to the Social Integration Program established by the Complementary Law Nº 7 of 1970 is included in Brazilian tax referred to in paragraph 1(a) of Article 1 of the Convention.

Tokyo, March 23, 1976