Spain and Brazil have jointly agreed to treat Brazilian interest on net equity (JCP) as interest under their 1974 tax treaty, following an exchange of notes completed in March 2026. The clarification ensures consistent taxation under Article 11 of the treaty and provides certainty for cross-border investors in both countries.
Spain’s Ministry of Finance has announced that Brazilian interest on net equity, known as juros sobre o capital próprio (JCP), will be treated as interest under the 1974 tax treaty between Spain and Brazil. This clarification follows an exchange of diplomatic notes signed on 25 November 2025 and 12 March 2026 by the competent authorities of both countries.
The mutual agreement was reached under paragraph 3 of Article 25 of the Convention between Spain and Brazil for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income. According to the understanding, JCP payments regulated under Brazilian Federal Law No. 9,249/1995 of 26 December 1995 will now fall within the definition of interest as outlined in paragraph 5 of Article 11 of the treaty.
As a result of this agreement, JCP will be subject to taxation under the interest provisions of Article 11 of the treaty. The elimination of double taxation on these payments will be implemented according to paragraphs 1 and 2 of Article 23 of the Convention. Brazil’s Ministry of Finance has confirmed this interpretation through RFB Interpretative Declaratory Act No. 3 2026, ensuring consistent application of the agreement by both tax authorities.
This clarification provides certainty for cross-border investments between Spain and Brazil regarding the tax treatment of this specific form of remuneration on equity capital.
