Double Tax Treaty with Brazil: An opportunity for Cyprus?
BY MARINA THEODOTOU
Jim O’Neill a global economist at Goldman Sachs first coined the acronym back in the beginning of the decade, to highlight the emerging markets of Brazil, Russia, India and China. While all four countries have vast differences in culture, language and history, they share at least one commonality: they are the economic powerhouses that will propel us out of the global economic crisis and into a new decade. Combined, they account for 40% of the world’s population, 25% of the global GDP, they are cash rich and have made sizable investments abroad.
A snapshot today
Brazil
Brazil has recovered brilliantly in the last decade and has well developed agricultural, mining, manufacturing and service sectors. Through its outward investment strategy, Brazilian multinationals are seeking lower cost tax jurisdictions and place investments in services, logistics, consumer goods and R&D. Some of the key opportunities for improvement for Brazil, include decreasing the debt burden, managing inflationary pressures and increasing the number of double tax treaties they have with key tax jurisdictions.
Russian Federation
Russia is quite familiar to the Cypriot accounting professionals and has had ten years of straight growth averaging 7% annually since 1998. Recently, Russia created two sovereign wealth funds: a reserve fund to cover budgetary expenditures in case of a fall in the price of oil, and a national welfare fund, to finance pensions and infrastructure development. The key opportunities for improvement include decreasing corruption, accelerating judicial reform, stabilizing exchange rates and addressing the ageing population issue.
India
With a rapidly growing middle class, increased consumption in real estate, consumer goods, vehicles and cellular subscriptions among everything else, India, is no longer only producing cheap electronics, textiles and outsourcing, but is now gaining strength in shipbuilding, chemicals, steel and telecoms. Key opportunities for reform include further privatization of government owned industries, lowering tariff spikes in key sectors and speeding up reforms, especially to integrate the undereducated and poorer populations.
China
This powerhouse is outpacing all the others, or as a finfacts.com article headline notes, in 2010, ‘The Dragon is expected to outpace the Jaguar, the Tiger and the Bear’.
In 2008, China’s GDP grew at real growth rate of 9%. The same year, the Chinese invested about 149 USD billion abroad and received 758 USD billion in investment from abroad. The Chinese outward FDI strategy is focusing on strengthening the ‘National Champions’ state owned enterprises in sectors of strategic growth for the economy. While the Chinese economy is on fire, there are several opportunities for improvement including strengthening the social safety net, dealing with an ageing population, sustaining adequate job growth, reducing corruption and containing environmental damage.
Looking ahead
All four countries are expected to contribute 50% of the global GDP by 2050. This is not news though. OECD studies show that back in 1800, Brazil, Russia, India and China were again the main contributors to 50% of the global GDP. By 2050, the combined nominal GDP of the BRICs will be two and half times more than the combined GDP of the G3 (US, Japan and Germany).
Double Tax Treaty with Brazil: An opportunity for Cyprus?
While Cyprus has leveraged extremely well the double tax treaty with Russia and to a certain extent those with China and India, it does not appear to have a treaty with Brazil. In August 2009, based on an article published by Luis Alfonso Lima and Octavio e Barros in conjunction with the Vale Columbia Center on Sustainable International Investment at Columbia University, focusing on Brazil’s direct investment abroad and the challenges it faces, the article highlights that Brazilian multinationals are concerned by the lack of double taxation treaties with key jurisdictions. Brazil signed only 12 double tax treaties in the past 10 years. Could this be an opportunity Cyprus ought to focus on, if not already?
Sources: GoldmanSachs, finfacts.com, Columbia University, DoingBusiness Report, CIAFactbook, International Economy.
Marina Theodotou, BA (Honors), MA is an economist and Six Sigma Black Belt .
