Doing Business in Brazil

Doing Business in
2018
Brazil
Doing Business
in Brazil
2018
©2018 Trench Rossi Watanabe.
All rights reserved.
This publication is copyrighted. Apart from any fair dealing for the purposes of private study or
research permitted under applicable copyright legislation, no part may be reproduced or
transmitted by any process or means without the prior permission of the editors.
The material in this guide is of the nature of general comment only. It is not offered as legal
advice on any specific issue or matter and should not be taken as such. Readers should refrain
from acting on the basis of any discussion contained in this publication without obtaining
specific legal advice on the particular facts and circumstances at issue. While the authors have
made every effort to provide accurate and up-to-date information on laws and regulations, these
matters are continuously subject to change. Furthermore, the application of these laws depends
on the particular facts and circumstances of each situation, and therefore, readers should consult
their attorney before taking any action.
Doing Business in Brazil 2018
Table of Contents
Importing into Brazil ........................................................................... 1
Import Licensing........................................................................... 1
Registration with SISCOMEX...................................................... 2
Customs Valuation........................................................................ 2
Agents ........................................................................................... 4
Local Similarity Test..................................................................... 4
Imports of Used Products.............................................................. 4
Temporary Admission Regime ..................................................... 4
Bonded Warehouse ....................................................................... 5
Leasing.......................................................................................... 5
Exchange....................................................................................... 6
Taxes on Imports........................................................................... 6
Latin American Integration Agreement (LAIA or ALADI) ......... 7
Southern Cone Common Market (MERCOSUL) ......................... 7
Manaus Free Trade Zone .............................................................. 7
Exporting from Brazil.......................................................................... 9
Export License .............................................................................. 9
Export Incentives .......................................................................... 9
Drawback Incentive ...................................................................... 9
RECOF.......................................................................................... 9
Exchange..................................................................................... 10
Taxes on Exports......................................................................... 10
Intellectual Property – Protection, Enforcement and Licensing........ 12
Patents......................................................................................... 12
Industrial Designs ....................................................................... 15
Trademarks ................................................................................. 16
Geographical Indications ............................................................ 18
Copyrights................................................................................... 19
Software ...................................................................................... 20
Enforcement of Intellectual Property Rights in Brazil................ 21
Intellectual Property Licenses and Transfer of Technology ....... 27
Other Intellectual Property Rights .............................................. 31
Trench Rossi Watanabe i

Forms of Doing Business .................................................................. 40
Branch, Representative Office or Agency of a Foreign
Business Entity............................................................................ 40
Local Business Entity ................................................................. 41
Corporations................................................................................ 41
Limited Liability Companies ...................................................... 44
EIRELI........................................................................................ 46
Audit ........................................................................................... 48
Exchange Controls............................................................................. 49
Foreign Capital in Brazil............................................................. 49
Investments ................................................................................. 49
Registration of Foreign Direct Equity Investments .................... 50
Conversion of Credits ................................................................. 50
Reinvestments ............................................................................. 51
Remittance of Dividends............................................................. 51
Interest on Equity (Juros sobre Capital Próprio) ....................... 52
Repatriation of Capital................................................................ 53
Investments in the capital market................................................ 53
Loans........................................................................................... 54
Loans in Brazilian Currency ....................................................... 55
Loans extended by Brazilian entities to foreign entities ............. 55
Export Financing......................................................................... 56
Import of products....................................................................... 56
Exports of products and services ................................................ 56
Declaration of assets maintained outside of Brazil ..................... 57
Census of Foreign Capital in Brazil............................................ 58
Taxes ................................................................................................. 60
Tax Treaties ................................................................................ 60
Local Taxation ............................................................................ 60
Corporate Income Taxes ............................................................. 60
Profits Distribution - Tax Aspects .............................................. 62
Interest on Equity........................................................................ 64
Withholding Income Tax on Payments Abroad.......................... 65
Social Contribution Tax.............................................................. 67
ii Trench Rossi Watanabe

Contribution for Intervention in the Economic Domain

(“CIDE”) ..................................................................................... 68
(“CIDE”) on Fuels ...................................................................... 69
Contribution for the Development of the National
Cinematography Industry (“CONDECINE”) ............................. 69
Federal Welfare Taxes ................................................................ 70
PIS/COFINS - Import ................................................................. 73
Import Duty................................................................................. 73
Export Tax .................................................................................. 74
Excise Tax................................................................................... 74
State Value-added Tax on Sales and Services (“ICMS”) ........... 74
Financial Transactions Tax ......................................................... 76
Provisional Tax on Banking Transfer (Contribuição
Provisória sobre Movimentação ou Transmissão de Valores e
de Créditos de Natureza Financeira – “CPMF”) ....................... 78
Tax on Transmission of Assets by Donation or Mortis Causa
(“ITCMD”) ................................................................................. 78
Municipal Services Tax .............................................................. 78
Real Estate Property Tax ............................................................ 79
Real Estate Transfer Tax............................................................. 79
Personal Income Taxation........................................................... 79
Visas............................................................................................ 79
Transfer Pricing .......................................................................... 81
Thin Capitalization Rules ......................................................... 100
Deductibility of Payments Abroad to Low Tax Jurisdictions
and Privileged Tax Regimes ..................................................... 104
Immigration ..................................................................................... 106
Business Visa ............................................................................ 106
Temporary Work Visas (main types)........................................ 106
Permanent Work Visas ............................................................ 108
Restrictions on Brazilian Companies........................................ 109
Application Process .................................................................. 109
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Competition/Antitrust Laws ............................................................ 111
Sales Representatives and Distributors............................................ 119
Sales Representatives or Agents ............................................... 119
Legislation: General Requirements........................................... 119
Formal Requirements................................................................ 120
Term of the Agreement............................................................. 120
Exclusivity of Representation ................................................... 120
Indemnification ......................................................................... 121
Commission .............................................................................. 122
Distributors ............................................................................... 122
Banking and Finance ....................................................................... 124
Regulatory Framework ............................................................. 124
Regulatory Bodies..................................................................... 124
Regulatory Environment........................................................... 126
Financial Institutions and related entities.................................. 127
Incorporation of Financial Institutions...................................... 131
Corporate Structure................................................................... 131
Branch of Foreign Entity .......................................................... 132
Representative Office................................................................ 132
Foreign-Owned Bank Subsidiaries ........................................... 133
Correspondent Banks ................................................................ 134
Correspondents for Foreign Exchange Transactions ................ 135
Operational Requirements ........................................................ 135
Bank Secrecy ............................................................................ 136
Money Laundering Rules.......................................................... 136
Domestic Branches ................................................................... 138
Bankruptcy and Reorganization................................................ 138
Payment Service Providers ....................................................... 139
Energy ............................................................................................. 141
The Power Industry................................................................... 141
Industry Overview and Trends.................................................. 142
Regulatory Overview ................................................................ 143
Trading Energy ......................................................................... 146
Environmental Controls ............................................................ 146
iv Trench Rossi Watanabe

Distribution ............................................................................... 147

Generation................................................................................. 150
Transmission............................................................................. 152
Consumers ................................................................................ 153
Consortia ................................................................................... 155
Change of Control - Prior Consent ........................................... 155
Ports................................................................................................. 157
Introduction............................................................................... 157
Institutional Framework............................................................ 157
Forms of Doing Business.......................................................... 159
The public procurement requirement........................................ 159
Private Use Terminals............................................................... 160
Tariffs (Public Terminals)......................................................... 160
Port Labor (Public Terminals) .................................................. 161
Change of Control..................................................................... 161
Airports............................................................................................ 163
Legal Framework ...................................................................... 163
Privatization .............................................................................. 164
Tariffs and Fees......................................................................... 166
Environmental Protection................................................................ 168
Scope......................................................................................... 169
Climate Change ............................................................................... 180
Consumer Protection ....................................................................... 185
Scope......................................................................................... 187
Social Responsibility....................................................................... 194
Social Responsibility and the Law............................................ 194
Social Responsibility Legal Self-Evaluation Program.............. 195
Telecommunications........................................................................ 197
Introduction and Current Topics ............................................... 197
Basic Legal Structure................................................................ 198
Trench Rossi Watanabe v

Ownership by Foreign Investors ............................................... 199
State Control and Regulation .................................................... 199
Licenses .................................................................................... 200
Access and Connection Rules................................................... 202
Regulation on Free Competition............................................... 203
Satellite Communication........................................................... 203
Technical and Equipment Regulation ....................................... 204
Electronic Numbering and Address .......................................... 204
Number Portability.................................................................... 204
Specific Regulation of Services ................................................ 204
Market Description ................................................................... 209
Fees and Taxation ..................................................................... 210
Public Tender, Concession of Public Services in Brazil and Public-
Private Partnerships (PPPs)....................................................... 212
Public Tender and Administrative Contracts ............................ 212
Public Tender ............................................................................ 213
General Rules of Public Tender under the Public Procurement
Law ........................................................................................... 213
General Rules of Public Tender in the State Controlled
Companies Statute .................................................................... 215
Public Tender under the Alternative Contract Regime ............. 217
Qualification of Companies - Fundamental Principles ............. 218
Administrative Contracts .......................................................... 220
Stability and Preservation of Financial & Economic
Equilibrium in Administrative Contracts.................................. 221
Administrative Contracts for the Concession/Permission of
Public Services.......................................................................... 222
The Concessionaire’s Rights and Duties .................................. 224
Termination of Concession Contracts....................................... 225
Insurance ......................................................................................... 231
Incorporating an Insurance Company in Brazil ........................ 231
Licensing Requirements............................................................ 232
Required equity capital and risk-based capital ......................... 232
Pre-filing for Corporate Acts .................................................... 234
Operating Requirements ........................................................... 234
vi Trench Rossi Watanabe

Brokers...................................................................................... 234
Reinsurance............................................................................... 235
Operations in Foreign Currency................................................ 240
Insurance in Brazil and Abroad ................................................ 241
Employment Relations .................................................................... 243
Employment Relationships ....................................................... 243
Economic Group Concept......................................................... 244
Brazilian Labor Rights.............................................................. 244
Contract Modification Practices................................................ 246
Health, Safety and Environment Issues .................................... 246
Profit Sharing............................................................................ 247
Probation Period........................................................................ 247
Term of Employment ................................................................ 248
Part-time Employment .............................................................. 248
Termination and Severance....................................................... 248
Labor Claims and Release Agreements in Brazil ..................... 250
Social Security .......................................................................... 251
Outsourcing............................................................................... 253
Unions....................................................................................... 254
Real Estate....................................................................................... 255
Acquisition of properties........................................................... 256
Securities................................................................................... 257
Real estate lease and built to suit agreements ........................... 258
Lease in shopping centers ......................................................... 261
Acquisition and Leasing by Foreigners .................................... 263
Oil & Gas......................................................................................... 265
Midstream ................................................................................. 273
Downstream .............................................................................. 275
Exportation and importation ..................................................... 276
Environmental aspects .............................................................. 277
Tax Aspects............................................................................... 281
International Trade Regulation........................................................ 290
An Overview of the Brazilian Regime for Trade Remedies ..... 292
Trench Rossi Watanabe vii

International Trade Law in Brazilian Courts ............................ 295
Corporate Criminal Law and Compliance....................................... 297
Criminal liability Individuals.................................................... 297
Main crimes related to corporate criminal law: ........................ 298
Brazil's Anti-Corruption laws ................................................... 303
viii Trench Rossi Watanabe

Importing into Brazil

Import Licensing
Imports into Brazil are subject to government control from at least
three levels of authority: the Secretary of Foreign Trade (“SECEX”),
which supervises registration and licensing; the Central Bank of Brazil
(“BACEN”), which approves payments for financed imports; and the
Federal Revenue Department (“RFB”), which supervises valuation for
customs purposes. Control is exercised through an electronic control
system named SISCOMEX, which includes a network linking RFB,
BACEN and SECEX. The first step for the would-be importer in the
importation process is registration with SISCOMEX.
There are three kinds of imports:
1. those not subject to any kind of licensing,
2. those automatically licensed, and
3. those not automatically licensed.
To confirm the licensing requirement applicable to a specific product,

the Brazilian importer must consult SISCOMEX, which will advise,
based on the tariff classification of the product, whether or not the
product is subject to licensing.
The import of certain goods not subject to licensing does not require
any authorization from the Brazilian authorities prior to shipment to
Brazil or clearance through Customs. Products imported under the
temporary admission regime and products entitled to import duty
reductions through an “Ex-Tarifário” are not subject to licensing. In
this case, the Brazilian importer must only register the Import
Declaration when the products undergo customs clearance.
On the other hand, non-automatic licensed imports are subject to prior

examination and special control by certain governmental agencies.
Non-automatic licensing must occur before the goods are shipped
Trench Rossi Watanabe 1
from abroad. In special circumstances, such as importing goods
under the bonded warehouse regime and upon automatic licensed
imports, the import may be subject to prior examination and special
control by certain government agencies after the goods are shipped but
before these go through customs clearance procedures.
Certain products, such as herbicides, pesticides and beverages,

narcotic substances, human blood, and food are subject to approval
and special control by particular government agencies, such as the
Ministry of Agriculture (“MAPA”) or the National Health Vigilance
(“ANVISA”).
Registration with SISCOMEX
Imports into Brazil are subject to the control of Brazilian authorities
through SISCOMEX. All import documents must be registered in the
SISCOMEX system. In order to obtain access to SISCOMEX, the
Brazilian importer must request an authorization from the RFB to
operate in the system with a password. The importer may be entitled
to a Limited or Unlimited Registration. The Limited Registration
limits imports up to an amount of USD 150,000 within a 6-month
period. The Unlimited Registration has no limit on the amount or
frequency of imports. The RFB grants RADAR licenses on a
discretionary basis. The decision on the type of registration to be
granted considers the financial capacity of the company in a 6 month
period, and an analysis based on the amount of taxes collected by the
applicant company in the 5 years prior to the request. In the case of
newly incorporated companies, the legislation allows the possibility of
assessing an applicant company's financial capacity by reviewing sale
invoices issued since the company was established. Legal entities
acting as acquirers on indirect import transactions (i.e., import by
order or import on account of third parties) must also be registered
with SISCOMEX.
Customs Valuation
If the customs value declared by the Brazilian importer is too low,
the government is deprived of its rightful share of duties and taxes; if
2 Trench Rossi Watanabe

it is set too high, the result may be an excessive remittance of foreign

currency, in violation of exchange controls. For these reasons, the
RFB strictly monitors the prices of imported products.
The Brazilian customs authorities accept the World Trade

Organization ("WTO") valuation methods, since Brazil is a member of
the WTO and has adopted the WTO rules through Decree No. 1,355,
of 30 December 1994. In fact, Decree No. 1,355/94 reproduces Article
VII of the General Agreement on Tariffs and Trade ("GATT 1994")
and the Agreement on the Implementation of the Article VII of GATT
1994 ("Customs Valuation Agreement"). Apart from the WTO
regulations, Brazil has few provisions regulating customs valuation.
Therefore, from a formal standpoint, Brazil strictly follows the WTO

rules. From a practical perspective, however, the customs value
control of products imported into Brazil occurs on a selective basis
through SISCOMEX - an electronic system which involves a network
among the RFB, the BACEN and the SECEX and contains all
registrations related to imports (e.g., Import Declarations). The
products are usually submitted to customs valuation control
procedures based on SISCOMEX parameters. These parameters
correspond to minimum and maximum ranges of prices acceptable for
each tariff classification. It should be noted that these ranges are
confidential and, therefore, we do not have access to such information.
If the price of importing a specific product falls outside SISCOMEX

parameters, the customs official may request the importer to submit a
declaration of customs value and documents to attest to the adequacy
of the value declared by the Brazilian importer (e.g., distribution
agreement, export documents, official price list, packing list, purchase
order, exchange contracts, description of the negotiation process and
determination of price, etc.). The Brazilian importer may demonstrate
differences in commercial levels, quantity levels, and other relevant
elements and costs incurred by the exporter in sales to non-related
parties.

Agents
Commission agents may be paid either in Brazil in the national
currency, or abroad as part of the import price. No minimum or
maximum percentage is set on commissions, although the percentage
seldom exceeds 10% of the import value.
Local Similarity Test
To qualify for special tax or financial benefits or incentives, an import
must meet the “local similarity test” (teste de similaridade nacional).
This test is conducted when SECEX confirms that a similar product is
not available in Brazil.
Imports of Used Products
Although used products may be imported, SECEX subjects them to
strict scrutiny to avoid fraud in connection with obsolete products.
Moreover, used products may be imported only if the same or similar
products are not available from Brazilian producers, and if their
importation is in the interest of the national economy. The
importation of used products is subject to non-automatic licensing,
and the import license must be obtained before shipping the products
from abroad.
Temporary Admission Regime
Under Law No. 9,430 of 30 December 1996, equipment imported
under temporary admittance for economic use in Brazil will be subject
to taxes levied on importation, based on the period the goods remain
in the country. This provision is regulated by Article 353 of the
Brazilian Customs Regulations, approved by Decree No.6,759 of 5
February 2009.
According to Normative Ruling Nº 1600/2015, the temporary

admission regime may be carried out under two alternatives:
(i) The temporary importation of products without payment of taxes

(i.e., the Import Duty ["II"], Federal Excise Tax ["IPI"] and Social

Welfare Taxes on Imports ["PIS/COFINS-Import"]) in situations

expressly listed by the applicable regulations (e.g., samples, fairs,
products to be subject to reassembly process); or
(ii) The temporary import of products with proportional payment of

taxes (i.e., the II, IPI and PIS/COFINS-Import), based on a loan, rental
or service agreement between the foreign exporter and the Brazilian
importer. The proportional taxes will correspond to 1% of the total
amount of the taxes due per month in which the equipment will
remain in Brazil. For example, if the goods will remain in Brazil for
one year, the importer will pay upfront 12% of the total amount of
taxes that would be levied in a definitive importation.
The procedure for calculating the State Value-added Tax on Sales

("ICMS") on imports under the temporary admission regime may vary
from State to State. In the State of São Paulo the ICMS is due on the
total value of the equipment on imports carried out under the
temporary admission regime with proportional payment of taxes,
similar to the federal taxes.
Bonded Warehouse
Importers may also deposit imported goods in public bonded
warehouses. The products will remain in the custody of Customs
officials. The importer will pay no customs duties (storage fees only)
until the products leave the bonded warehouses for domestic
consumption. The importer will pay no customs duties if the product
is re-exported. Note that certain manufacturing activities are allowed
within the premises of these warehouses. Products deposited in the
bonded warehouse regime may be subject to assembly or repackaging
process.
Leasing
International leasing is acceptable to SECEX under special financial
conditions approved by the BACEN.

Exchange
Pursuant to Brazilian import regulations, imports into Brazil must be
carried out with exchange coverage (i.e., with payment by the
Brazilian resident to the foreign exporter). There are few exceptions
under which an importation may be carried out without exchange
coverage (i.e., without payment to the foreign exporter), such as in
case of donation, capital contribution and temporary admission
regime.
For imports with exchange coverage, once the SECEX's approved

products are effectively imported, the Brazilian importer will be
allowed to exchange local currency for the currency agreed upon with
the exporter and to pay the import price through regular banking
channels. Imports payable within a period greater than 360 days are
subject to registration by the Central Bank of Brazil, through the
Registro de Operações Financeiras (“ROF”).
Taxes on Imports
Taxes or duties on imports include the II, due on the CIF import price
at selective rates; IPI, due on the import price grossed up by the II and
based on selective rates; ICMS, due on the CIF import price grossed
up by the II, IPI, PIS/COFINS-Import (explained below) and ICMS
(rates of ICMS are 18% in most States); PIS/COFINS-Import, due on
the import price grossed up by PIS/COFINS-Import itself at a
combined rate of 11.75%; and maritime transport fee (AFRMM), due
on the value of freight (usually at the rate of 25%).
Taxes are based on the customs value of the imported product. Based
on customs valuation rules, insurance and freight must be added to
determine the customs value of the imported products. Customs
agents may question the tax basis, demand a higher basis for tax
purposes, and impose penalties on the importer, depending on the
circumstances. Under- and over-invoicing are subject to a penalty of
100% of the under- or over-invoiced difference.

Latin American Integration Agreement

(LAIA or ALADI)
Brazil is a member of the Latin American Integration Association
(LAIA or ALADI), instituted by the Treaty of Montevideo on 12
August 1980. ALADI members grant preferential duty treatment to
one another. The ALADI community includes Argentina, Bolivia,
Brazil, Colombia, Ecuador, Mexico, Panamá, Paraguay, Peru,
Uruguay, Chile, Cuba and Venezuela.
Southern Cone Common Market (MERCOSUL)
Brazil is also a member of the Southern Cone Common Market, or
Mercado Comum do Sul (MERCOSUL). MERCOSUL currently
functions as a free trade zone and a customs union, except for some
products that are still subject to quotas (e.g., vehicles). MERCOSUL
now allows most goods and services to circulate among its members
exempt from tariff and non-tariff barriers, and provides for a common
external tariff (tarifa externa comum, or TEC) for most products that
the member countries import from non-MERCOSUL countries.
MERCOSUL has executed treaties providing for duty preferences
with Bolivia (ACE 36); Chile (ACE 35); Mexico (ACE 54); Peru
(ACE 58);Venezuela, Ecuador and Colombia (ACE 59); Cuba (ACE
62), Southern Africa Customs Union (“SACU”). Treaty for fixed tariff
preferences with India, effective in Brazil as of 1 June 2009 and the
treaty for fixed tariff preferences with Israel, effective in Brazil as of
28 April 2010, and is negotiating treaties with the European
Community and Jordan, among others. The treaties signed with the
Egypt, Palestine and Peru are pending approval to become effective in
Brazil.
Manaus Free Trade Zone
The free trade zone of Manaus is designed to encourage
manufacturing for export and local sales. Raw materials, parts and
components imported into the Manaus free trade zone enjoy
deferment and reduction of customs duties and IPI exemption. These
benefits apply only to merchandise entering the free trade zone by the
Manaus Airport or the Manaus Harbor. They do not apply to the
import of weapons and ammunition, perfumes, tobacco products,
beverages or automotive vehicles. Constitutional Amendment No.
83/14 extended the applicability of these benefits until 2073.
[Revised as of April, 2017 ]

Exporting from Brazil

Export License
Exports from Brazil are supervised by the Secretary of Foreign Trade
(“SECEX”) and by the Central Bank of Brazil (“BACEN”). SECEX
is simplifying the legal requirements regarding the exportation of
goods. Currently, exporters must be registered with SISCOMEX.
Export Incentives
The Program for the Financing of Exports (“PROEX”) provides
financing to exporters. Exporters may also benefit from exemption
from the Federal Excise Tax (“IPI”), immunity from the State Value-
added Tax on Sales (“ICMS”), and exemption from Social Welfare
Taxes (“PIS/COFINS”). (See Taxes on Exports.)
Drawback Incentive
Another export incentive is available under the Drawback System
(Ordinance SECEX No. 23/11). This benefit takes the form of a
deferral or exemption from taxes on the importation of raw materials,
semi-finished and finished products, parts and components utilized in
the manufacturing of products for export.
RECOF
The RECOF is a special customs regime called the industrial bonded
warehouse regime under an electronic control system regulated by
Normative Ruling No. 1,291/12. Under this regime, the importer is
entitled to a suspension of the federal taxes levied on the importation
of goods (i.e., the Import Duty ["II"], IPI, and Social Welfare Taxes
on Imports ["PIS/COFINS-Import"]) to be used in the manufacturing
process of products to be exported. This regime applies only to
products expressly listed in the applicable regulation, such as
electronic and telecommunication products, automotive products,
aeronautical products and semiconductors.

To be entitled to the RECOF, the Brazilian company must have a
minimum net equity of BRL 10.000.000,00 and assure minimum
exports of 50% of the total amount of the goods imported under the
RECOF regime. The RECOF regulations allow the beneficiary to sell
a portion of the imported goods in the local market. After the goods
are sold in the local market, the beneficiary must pay the taxes levied
upon the importation of such goods.
Exchange
Pursuant to Brazilian export and exchange control regulations, exports
must be carried out with exchange coverage (i.e., actual payment
which ensures inflow of funds to Brazil). However, there are very few
exceptions in which the export may be carried out without exchange
coverage (i.e., without payment to the Brazilian exporter), such as
capital contribution and temporary export regime.
In the past, exchange control regulations obliged Brazilian exporters

to bring their export funds back to Brazil. Law No. 11,371/06,
however, allows exporters to maintain abroad foreign funds related to
payments for Brazilian exports of goods and services. According to
the Ruling of the National Monetary Council (“CMN”) No. 3,568/08,
Brazilian exporters may maintain 100% of the export payments
abroad. Such percentage may be amended any time by the CMN.
Taxes on Exports
The Brazilian Constitution provides that Brazilian export products are
entitled to tax immunity with respect to the IPI, ICMS and
PIS/COFINS, regardless of whether these products are manufactured
in Brazil.
Moreover, Brazilian government tax policy tends to reduce the tax

burden on exports from Brazil. Thus, most export operations from
Brazil are not subject to taxes, except for certain export products (such
as leather) which are subject to Export Tax (“IEx”). This tax applies
on an ad valorem basis at rates that vary depending on the type of
product exported.

[Revised as of April 2017]

Intellectual Property – Protection, Enforcement
and Licensing
The Industrial Property Law (“the IP Law”) is the primary law in the
area of patents, trademarks, industrial designs and geographical
indications, and governs their registration with the Brazilian Patent
and Trademark Office (“INPI”).
The IP Law is a modern statute that meets the requirements of the

World Trade Organization (“WTO”) legislation related to industrial
property rights (commonly referred to as TRIPS). In addition to its
affiliation with the WTO, Brazil is a member of several international
conventions and agreements, such as the Paris Convention and the
Patent Cooperation Treaty for the protection of industrial property
rights.
Patents
1. Patent Categories
The IP Law provides for two types of patents: (i) inventions and
(ii) utility models. An invention is an original concept that represents a
solution for a specific technical problem and may be industrially
manufactured or used. A utility model represents a known product
with a practical purpose that is given a new form or presentation,
improving its use or its manufacturing.
2. Non-patentable Inventions and Utility Models
Inventions and utility models that are contrary to morals and good
practices or to public safety, order and health are not patentable.
Likewise, substances or products of any kind resulting from the
transformation of the atomic nucleus are not patentable. Living
beings, in whole or in part, are not subject to patent protection either,
except for transgenic microorganisms that present the prerequisites of
patentability and provided that they are not mere discoveries.
3. Prerequisites

There are three prerequisites for the patentability of a creation:

(i) novelty; (ii) inventive activity; and (iii) industrial applicability. For
an invention to be patented, it must be considered new, which means it
is not included in the state of the art.
The state of the art comprises everything that has been made available
to the public, either by written or oral description, by usage or any
other means, in Brazil or abroad, before the filing date of the
application. The requirement of an inventive activity will be complied
with whenever, according to a person skilled in the art, the invention
does not result from the state of the art in an evident or obvious
manner. As a third prerequisite for patentability, the invention must be
capable of being applied (i.e., used or produced) in an industrial scale.
4. Priority
A right of priority shall be granted to the application filed in a country

that has entered into a treaty with Brazil or is a member of an
international organization of which Brazil is also a member, such as
the Paris Convention, during the terms provided for therein.
According to the Paris Convention, the priority-claiming term is one
(1) year for an invention patent and six (6) months for a utility model.
5. Validity
An invention patent is valid for twenty (20) years and a utility model,
for fifteen (15) years, counted as of the date of filing of their
respective applications. It should be noted, however, that such validity
terms will never be less than ten (10) years for an invention patent and
seven (7) years for a utility patent, as from the grant date, except if the
INPI has been prevented from rendering a decision by reason of force
majeure or court order.
6. Scope of Protection
The patent provides its owner with protection against unauthorized

manufacturing, use, marketing, sale or importation of the patented
product, or of the process or product directly obtained from a patented

process, by third parties, except when the unauthorized use is for
noncommercial or experimental purposes that do not harm the patent
owner’s economic interests.
7. Compulsory Licenses
According to the IP Law, patents may be subject to compulsory

licensing to be granted by the INPI or by the Federal Government in
any of the following circumstances:
(i) If the patent holder exercises his/her rights in an abusive manner

or exercises, through the patent, abuse of economic power,
which must be evidenced by an administrative or court decision
(ii) In case the patent is not fully exploited in Brazil within three (3)
years after the granting of the patent, for reasons other than lack
of economic feasibility
(iii) If the sale of the patented product or the product obtained

through a patented process does not meet market needs
(iv) In case of a dependent patent that represents substantial

technical progress vis-à-vis the original patent
(v) In case of national emergency or public interest, including

interests related to public health and environmental protection,
declared by the Federal Government, if the patent holder or
licensee does not fulfill such needs
Such compulsory licenses may be requested by any interested third

party, provided that such third party is technically and economically
qualified to carry out the efficient exploitation of the patent. The
products resulting therefrom must be earmarked mostly for the
Brazilian domestic market. Compulsory licenses will be granted only
on a non-exclusive basis and shall not be sub-licensed.
With the exception of compulsory licenses under national emergency

or public interest situations, which are declared by the Federal

Government, the other types of compulsory licenses must be requested

from the INPI, which will analyze conditions such as compensation
and term.
8. Certificate of Addition
The IP Law also provides protection for an improvement or

development introduced into the subject matter of an invention by
granting a Certificate of Addition, which is added to the patent. The
protection term of the Certificate of Addition shall be the same as that
of the corresponding patent.
9. Extinction of Patent Rights
In addition to the extinction of the patent protection due to the

expiration of its validity term, the waiver, lack of payment of any
annual fee, forfeiture for failure to cure the abuse or misuse of the
patent, or the lack of appointment of an attorney in Brazil to receive
summons will cause the extinction of the patent.
Industrial Designs
1. Creations Valid for Registration
An industrial design is a two-dimensional representation (ornamental

assembly of lines and colors) or three-dimensional object (ornamental
plastic form) that may be applied to a product, affording a new and
original look to its external configuration and may be used for
industrial production.
2. Prerequisites
The prerequisites for the registration of an industrial design are

novelty and originality. The definition of novelty is the same as that
applied to patents. The prerequisite of originality shall be met if the
industrial design has an original and distinctive visual configuration
when compared with other previously known objects. A common or
ordinary form of an object, or those determined by technical or

functional considerations, are not considered industrial designs.
Immoral designs, as well as purely artistic works, do not qualify for
registration.
3. Validity
The registration is valid for ten (10) years and may be renewed for
three (3) successive periods of five (5) years each. A renewal fee must
be paid every five (5) years.
Trademarks
1. Signs Qualified for Registration as Trademarks
Any visually perceptible, distinctive sign not prohibited by law

qualifies for registration as a trademark. The IP Law has permitted
registration of three-dimensional trademarks, but audio or olfactory
trademarks do not qualify for trademark protection in Brazil.
2. Signs not Qualified for Registration as Trademarks
The following, among other things, cannot be registered as

trademarks: (i) any expression or sign that is immoral, offensive or
discriminatory; (ii) signs commonly used to describe the nature of a
product or service; (iii) advertisement slogans and colors; (iv) false
indications of geographical origin; (v) civil names or signatures,
except upon consent of the holder of the right; (vi) technical terms
used in connection with the product or service; (vii) reproductions or
imitations of a mark belonging to a third party for identical, similar or
related products; (viii) common or necessary forms or packaging of
the product; and (ix) the reproductions or imitations of a mark that
cannot be ignored by those that work in the field of activity in which
the trademark is used.
3. Trademark Categories
Trademarks are divided into three categories:

(i) Product or service marks used to distinguish between two

products or services
(ii) Certification marks used to assert the compliance of the product

or service with certain standards of quality or technical
specifications
(iii) Collective marks used to identify products or services from

members of a certain group
4. Validity
Trademarks are registered for a ten (10)-year period and are renewable
for identical and successive terms.
5. Prerequisites
Any individual or private or public entity may apply for the

registration of a trademark in Brazil, provided that the applicant may
claim only the classes related to the business activity in which an
individual or entity is engaged, directly or through controlled
companies. The applicant for a collective mark must be a legal entity
that represents the collectivity, and the applicant for a certification
mark may include a person without commercial or industrial interest
in the certified product or service.
6. Priority
A right of priority will be granted to the application filed in a country

that has entered into a treaty with Brazil or is a member of an
international organization of which Brazil is also a member, during
the terms provided therein. The priority term provided in the Paris
Convention for trademarks is six (6) months.
7. Highly Renowned and Well-Known Marks
Special protection shall be afforded to a registered trademark deemed

highly renowned in Brazil, covering all classes of products and

services. The request for the highly renowned status is made through
an autonomous and independent proceeding. It may be requested at
any moment of the trademark’s validity, by submitting the necessary
evidence of such status (which includes, without limitation, market
and trademark image surveys of national coverage) and upon payment
of the special official fee. The highly renowned status is valid for a
10-year term as of the publication of INPI’s decision in the Official
Gazette. By the end of such term, the trademark owner may request its
renewal by filing a new request.
The trademark considered well-known in the field of activity in which

it is used, pursuant to the Paris Convention, is also afforded special
protection, regardless of whether it has been previously filed or
registered in Brazil. This also applies to service marks.
Geographical Indications
According to the IP Law, the following qualify for protection as
geographical indications and may be registered with the INPI:
1. Geographical names of countries, cities or regions that have

become known as centers for the extraction, production or
manufacture of a certain product or for the rendering of a certain
service
2. Geographical names used to designate the qualities and features

of products or services due exclusively or essentially to the
geographical environment
The name of a geographical region commonly used to designate a

product or service will not be considered a geographical indication.
Only those manufacturers or service providers that are actually
established in the geographical area shall be allowed the use of the
corresponding geographical indication.

Copyrights
1. Scope of Protection and Requirements
The Brazilian Copyright Law provides for the protection of

intellectual and creative works (expressed in any physical media) such
as: (i) literary, artistic, scientific or photographic works;
(ii) architectural projects; and (iii) designs and paintings, among many
others. The protection of copyrights in Brazil does not depend on the
registration of the work with any government authority. Nevertheless,
the author may register the work to indicate, among other things, the
date of creation of the work.
Depending on the nature of the work, the competent entities for

registration are: (i) the National Library (“Biblioteca Nacional”); (ii)
the School of Music of the Federal University of Rio de Janeiro
(“Escola de Música da Universidade Federal do Rio de Janeiro”);
(iii) the School of Fine Arts of the Federal University of Rio de
Janeiro (“Escola de Belas Artes da Universidade Federal do Rio de
Janeiro”); (iv) the National Institute of Cinema (“Instituto Nacional
do Cinema”); (v) the National Council of Engineering and Agronomy
(“Conselho Nacional de Engenharia, e Agronomia”); and (vi) the
Council of Architecture and Urban Planning of Brazil (“Conselho de
Arquitetura e Urbanismo do Brasil”).
Copyrights in Brazil comprise the economic rights of the author and

the author’s moral rights. Such moral rights cannot be licensed,
transferred or waived. As to the author’s economic rights, the
protection of copyright lasts for seventy (70) years as of 1 January of
the year following the author’s death or as of the work’s first
publication, in case of anonymous or pseudonymous works,
audiovisual and photographic works.
2. Limitations to the Author’s Rights
According to the Copyright Law, the following actions, among others,

do not represent copyright infringement:

(i) Reproduction in daily newspapers and other publications of
news or articles previously published, provided that the author’s
name (if signed) and the original publication are mentioned
(ii) Reproduction, in only one sample, of small parts of the work for
private use by the person who has made the copy, with no profit
purposes
(iii) Use of literary, artistic or scientific works, phonograms and

television and radio transmission in commercial establishments,
exclusively for the purpose of demonstrating the equipment or
media that allow the use of the works
Software
1. Scope of Protection and Requirements
The Software Law grants software copyright protection and defines a

computer program as “the expression of an organized set of
instructions in natural or codified language, contained in a physical
media of any kind, and necessarily applied in automatic machines for
information processing, devices, peripheral instruments or equipment,
operated under digital or analogue techniques which make them work
in a certain way and for a certain purpose.” In spite of the same
protection regime applied to copyright, the Software Law provides
that the moral rights of the author do not apply to computer programs,
except for the right of the software creator to assert its authorship and
to oppose unauthorized alterations of the software that may damage
the author’s honor and reputation. The protection of software does not
depend on the registration of the program and lasts for fifty (50) years
as of 1 January of the year following the publication or creation of the
software. The author may, however, register the software and, in this
case, the application for registration must be filed with the INPI. In
case of any transfer of technology of software, registration of the
related agreement with the INPI is then required, and the delivery of
the complete documentation, source code and additional information
by the supplier to the technology recipient is mandatory under the law.

2. Limitations to Software Copyrights
According to the Software Law, the following actions do not represent

infringement of software copyrights and do not depend on the prior
authorization of the copyright holder:
(i) Reproduction of one copy of the software by the licensee for

backup or electronic storage
(ii) Citation of part of the software for educational purposes,

provided that the protected work and its author are indicated in
the citation
(iii) Similarities between computer programs resulting from the

functional characteristics of their applications or from the
compliance with legal and technical requirements or from
limited alternatives for their expression
(iv) Integration of the software with an application or operational

system that is technically essential for the user’s needs, provided
that the basic characteristics of the software are maintained, and
the integration is for the sole use of the person who has carried it
out
Enforcement of Intellectual Property Rights in Brazil

The intellectual property laws also include provisions pertaining to
crimes and violations of rights, and provide for remedies in case of
infringement of intellectual property rights. Below are examples of the
most useful remedies available:
1. Extrajudicial cease-and-desist letter
The purpose of the extrajudicial cease-and-desist letter is to make the

infringing party aware of the corresponding violation. It may also
constitute an effective means of obtaining a settlement between the
parties.

2. Judicial cease-and-desist letter
The purpose of the judicial cease-and-desist letter is also to make the

infringing party aware of the violation. However, the judicial cease-
and-desist letter may be a more effective tool for obtaining a
settlement with the infringing party due to its official and judicial
character.
3. Administrative Remedies
Administrative remedies are used during the period of examination of

applications for registration of industrial property rights with the INPI,
or immediately after such rights are granted. The competent agency to
receive and decide on the said remedies is the INPI.
At the administrative level, a patent, trademark or industrial design

may be declared null and void in the event of any formal flaw in the
registration proceedings. The INPI may initiate the nullity proceeding
itself or upon the request of any third party having a legitimate
interest, within a term of six (6) months as from the date of grant for
patents and trademarks, and five (5) years as from the date of grant for
industrial designs. The industrial property owner may reply to such
declaration and the president of the INPI shall decide the appeal,
closing the administrative level.
In addition to such nullity proceedings, a legal nullity action may be

pursued before a federal court.
4. Preliminary Search and Seizure procedures
The owner of an intellectual property right (either copyright and

software, or industrial property rights such as trademarks, patents and
industrial designs) has two different avenues to obtain a search-and-
seizure order on infringing products: (i) the criminal procedure, in
which: (a) the seizure will be limited to a number of samples of the
counterfeit product sufficient to allow a technical examination in
crimes against intellectual property rights and unfair competition or
(b) the seizure will involve all products illegally produced or

reproduced in crimes against copyright and trademark (when the

imitation of the trademark is obvious) and (ii) the civil procedure, in
which the seizure will include all the counterfeit materials, related
manufacturing equipment, molds, and packaging and advertising
materials.
For this order to be granted, proof of counterfeiting must be

unequivocal, and the risk of financial losses and irreparable damages
to the intellectual property right owner must be accurately evidenced.
5. Injunctions
It is possible for intellectual property right owners to obtain

injunctions against infringers so that infringers are forced to cease the
manufacturing, launching, use, reproduction, offering for sale, sale or
import of the infringing products in the market. Injunctions may be
obtained either: (i) to prevent irreparable harm caused by the
infringement and the delay in having a final court decision or (ii) to
anticipate the effects of the final decision in view of strong evidence
that the plaintiff’s claim is well-grounded. In both cases, strong
evidence of the alleged infringement and of the potential irreparable
harm to the plaintiff must be submitted to the judge.
6. Ordinary Civil Lawsuit
An ordinary civil lawsuit is usually filed against the infringing party

for three purposes: (i) discontinuance of any unauthorized use of the
corresponding intellectual property right; (ii) imposition of a fine for
non-compliance with the discontinuance of the use thereof; and (iii)
compensation for losses and damages caused by counterfeiting.
With regard to the collection of losses and damages, the IP Law

establishes that the loss of profits is determined by the following
criteria, as is most favorable to the industrial property right owner: (i)
the profits that would have been obtained by the industrial property
right owner if the infringement had not taken place; (ii) the profits
obtained by the infringing party; or (iii) the compensation that the
infringing party would have paid to the industrial property right owner

for a license that would have allowed it to lawfully exploit the object
of the rights.
7. Crimes against Industrial Property and Unfair Competition
The IP Law provides for the following criminal penalties in case of

violation of industrial property rights:
(i) Imprisonment of three (3) months to one (1) year, or a fine, in

case of the following:
1. Unauthorized use or manufacture of products whose

application for a patent is pending
2. Reproduction or alteration of a trademark
3. Manufacture of products whose application for industrial

design has been approved
(ii) Imprisonment of one (1) to three (3) months for other cases such
as use of trademark or advertisement expression to indicate false
origin of a product, or use of false geographical
indication - Such penalties may be increased when the violating
party is a sales representative/agent or an authorized individual,
company, partner or employee of the industrial property owner
or its licensee, and also if the violated trademark is a famous,
certified or collective mark.
The IP Law also treats as crimes certain unfair competition practices,

such as the employment of fraudulent means or false statements for
the purpose of obtaining an advantage vis-à-vis a competitor,
diversion of clientele, deliberate misleading of consumers,
unauthorized use of a third party’s corporate name or confidential
information and other fraudulent acts. The IP Law provides for a
penalty of imprisonment of three (3) months to one (1) year, or a fine.
These actions, as well as other unfair competition practices not
defined as crimes, are subject to civil lawsuits and may entitle any
competitor harmed by such practices to losses and damages.

In such crimes, the prosecution of the infringer depends on the request

of the holder whose rights have been violated.
8. Crimes against Copyrights
The Criminal Code establishes that the partial or total reproduction of

a copyrighted work for economic purpose, without the author’s
express authorization, constitutes a crime and subjects the agent to a
penalty of two (2) to four (4) years of imprisonment. The same
penalty applies to the one who distributes, sells, offers for sale, rents,
introduces in the country, acquires or keeps in storage the original or a
copy of a copyrighted work reproduced in violation of the author’s
rights. In both cases, a public attorney may initiate the criminal claim,
taking into account the relevant public interest involved in the issue,
regardless of the initiative of the victim.
A penalty of two (2) to four (4) years of imprisonment is applied to

the party who offers to the public, without the author’s or performer’s
express authorization, any copyrighted work by means of cable,
optical fiber, satellite, waves or any other system.
The Software Law also establishes that the violation of software

copyrights is a crime and shall subject the infringer to imprisonment
of six (6) months to two (2) years, or a fine. In case such violation
consists of the unauthorized reproduction of the software (or part
thereof) for purposes of resale, the penalty shall include imprisonment
of one (1) to four (4) years and a penalty.
9. Parallel Imports into Brazil
“Parallel import” is the unauthorized importation of an original

product covered by a patent and/or trademark by a third party other
than the legitimate holder or authorized licensees or distributors of
such patent and/or trademark.
The Brazilian IP Law has adopted the national exhaustion of rights –

that is, the owner of a Brazilian patent cannot prevent the sale or use
of a patented product or a product manufactured under a patented

process if such product was placed in the Brazilian market by the
patent owner or with his/her consent.
The same principle applies to trademarks. The IP Law sets forth that
the trademark owner cannot prevent the free circulation of a product
bearing its trademark if such product was introduced in the Brazilian
market by the trademark owner or by a third party with the trademark
owner’s consent (except for specific situations concerning patented
products subject to compulsory license or for which manufacturing in
Brazil is not economically feasible).
Therefore, in case of parallel import - that is if the owner of the patent

or trademark has not imported a legitimate product into Brazil or
consented thereto, or manufactured under his/her patent or bearing
his/her trademarks - the patent or trademark owner or authorized
licensee may prevent the importation, seize the imported products
and/or claim damages, depending on the factual verification.
10. Customs’ Control
The IP Law establishes that products bearing false, modified or

imitated trademarks or false indications of origin may be seized by
customs officers at the time of clearance or upon the request of an
interested party.
A different situation encompasses “gray market” products resulting

from parallel import. As these products are not counterfeit, their
import into Brazil does not constitute a crime and, consequently, the
customs officers cannot seize these products without a specific
judicial order for this purpose.
11. National Directory of Trademarks for Combating Counterfeiting

(the “Directory”)
The purpose of the Directory is to bring trademark owners and

governmental authorities to work jointly toward the protection of
trademark rights by allowing: (i) the appointment of the trademark
owner’s legal representatives/attorneys for anti-counterfeit purposes

(which can differ from the IP agent responsible for the IP portfolio
management) and (ii) the insertion of additional strategic information
and documentation relating to the products covered by the owner’s
trademark.
Trademark owners may insert any information or documentation that

they consider relevant for combating anti-counterfeiting in Brazil. All
such information must be provided in the Portuguese language and is
deemed non-confidential.
Although the Directory is still in test phase (with no deadline for

completion), the database is already available for Brazilian
governmental authorities. Until now, no official fees are being
charged by INPI to include and control the records within the
Directory.
Intellectual Property Licenses and Transfer of Technology

Types of agreements subject to registration with the INPI
1. Supply of Technology Agreements
Agreements involving the transfer of technology must be registered

with the INPI to be effective vis-à-vis third parties. The INPI does not
accept technology licenses and understands that the technology is
permanently transferred to the Brazilian recipient. Thus, the INPI
usually imposes certain restrictions in connection with the
confidentiality and terms of the agreements, among others.
Brazilian laws limit the tax deduction of payments remitted in

consideration for the supply of technology. This limit varies according
to the industry involved, reaching a maximum of 5 percent, calculated
upon net sales of the products manufactured or the services rendered
under the agreement, and includes payments in consideration for the
transfer of technology, rendering of technical assistance and licensing
of patents and trademarks in aggregate. In case of an agreement
entered into with a foreign related company, the same percentage
applies as a limit for remittance of payments.

2. Specialized Technical Services and Technical Assistance
Agreements
This category includes agreements regarding services that involve

technology transfer (i.e., technical assistance agreements for the
incorporation/absorption of the technology by the recipient company)
or services related to the main industrial activity of the recipient
company (i.e., specialized technical services in connection with the
engineering project for a manufacturing facility, start-up of a
production or assembly line and installation of industrial equipment,
among others). They are also subject to registration with the INPI.
Specialized technical service agreements entered into with a related
company with headquarters abroad are subject to the Brazilian transfer
pricing rules.
3. Patent License Agreements
Agreements for the license of patents applied for or granted in Brazil

must be registered with the INPI to be effective vis-à-vis third parties.
The deduction and remittance caps mentioned above for the supply of
technology agreements also apply to the remittance of payments
abroad in consideration for patent licenses.
4. Trademark License Agreements
Agreements for the license of trademarks registered or applied for in

Brazil are subject to registration with the INPI. The tax deduction of
royalty payments for trademark licenses is capped at 1 percent of the
licensee’s net sales. In case of trademark license agreements entered
into with a foreign related company, the INPI will allow only the
remittance of royalties in consideration for the trademark license as
long as the use of the trademark is not directly connected with
products or services manufactured and/or rendered under a supply of
technology, technical assistance, and/or patent license agreements (in
force) between the parties.

5. Franchise Agreements
Franchise has been legally defined as the system through which a

franchisor grants to a franchisee the right to use the franchisor’s
trademarks or patents, along with the exclusive or semi-exclusive right
to distribute products or services and, in some cases, also with the
right to use the technology for the implementation and management of
specific businesses or operating systems developed by the franchisor.
Franchise Agreements are subject to registration with the INPI to be

effective vis-à-vis third parties. The Franchise Law sets forth the
franchisor’s obligation to convey to the potential franchisee the
corresponding franchise offering letters with certain information on
the franchise, which must be delivered to the franchisee at least 10
days before the execution of the contract (or letter of intent) or before
any payments from franchisee to franchisor are made.
In case of an agreement with a foreign licensor or supplier of

technology, the registration with the INPI is also a condition precedent
for the remittance of payments abroad and deduction of payments by
the Brazilian licensee or recipient. After its registration with the INPI,
such agreements must also be registered with the Central Bank of
Brazil, as they call for payments in foreign currency.
Types of agreements not subject to registration with the INPI
1. Professional Services Agreements
Agreements for the rendering of professional, consulting,

administrative, financial or managerial services are not subject to
registration with any Brazilian governmental authority. Payments
thereunder may be remitted abroad through any commercial bank
authorized to perform exchange operations upon presentation of the
agreement, its translation into Portuguese and the corresponding
invoice. In order to qualify as professional services, these services
cannot involve any licensing of intellectual property, transfer of
technology or production of intellectual (scientific) knowledge.
Professional services contracted abroad between related companies

are subject to the deductibility limits established by the Brazilian
transfer pricing rules.
2. Copyright Agreements
Except for certain specific cases, copyright agreements (such as

editing agreements, agreements for assignment of rights, production
agreements, agreements for future works of art, representation and
execution agreements) are not subject to registration with any
Brazilian government authority, and the applicable copyright fees may
be remitted abroad without any registration. The regulation for such
remittance is less strict than the rules covering the remittance of
royalties and technical assistance fees, although the amount of the
remittances may be reviewed by the tax authorities and the Central
Bank of Brazil as part of foreign exchange controls. Certain types of
copyright fees must be approved by government agencies, such as
those related to audiovisual works. Copyright agreements contracted
abroad between related companies are subject to the Brazilian transfer
pricing rules.
3. Software Agreements
Software may be licensed in Brazil in either of the following

manner:
1. Directly by the holder of the rights to the software or the

authorized licensor to end users
2. Through a reseller, distributor or other similar vendor
In both cases, registration of the relevant agreement is not required,

unless the software license involves the transfer of technology, and in
which case, the applicable agreement will be subject to the restrictions
set out in item (a) (Supply of Technology Agreements) above.
In August 2009, the Brazilian Patent and Trademark Office published

in its website a new list of software related agreements that are not
subject to registration. Among several services, the list includes

support, maintenance, installation, implementation and integration

services, the fees for which may be remitted abroad without any
specific approval.
There is no limit to the fees that may be remitted abroad under

software agreements. However, if such agreements are entered into
between related companies, Brazilian transfer pricing rules shall
apply.
Other Intellectual Property Rights

1. Brazilian Biodiversity and Traditional Knowledge
The Brazilian Constitution promotes the protection of biodiversity

among its fundamental environmental principles. In this sense, a
federal decree ratified the “International Convention on Biodiversity
Protection,” signed during the United Nations Environmental
Convention held in Rio de Janeiro in 1992. The convention is aimed at
the protection and preservation of biodiversity, the sustainable use of
its resources and the fair sharing of the benefits resulting from the use
of genetic resources. In addition to the convention, there are other
relevant legal documents enacted to obligate individuals and legal
entities, such as the Provisional Act that incorporates the principles
and purposes of the convention and governs the access to genetic
resources and traditional knowledge and creates mechanisms for
benefit-sharing.
The Provisional Act establishes that the access to any genetic resource
existent in Brazil and to any traditional knowledge associated thereto
for purposes of scientific research, technological development or
biodiversity prospecting is subject to the prior authorization of the
Brazilian Genetic Resource Management Council (Conselho de
Gestão do Patrimônio Genético – “CGEN”).
Only Brazilian public or private institutions that perform research and

development activities in the biological and related fields shall be
authorized to have access thereto. The participation of foreign
companies in expeditions to collect samples of any component of

Brazilian genetic resources and to access any traditional knowledge
associated thereto shall be authorized only if it occurs jointly with a
public national institution that must coordinate the activities.
Additionally, if there is any perspective of commercial use of the

genetic resources and/or the traditional knowledge associated thereto,
it is also necessary to execute an “Agreement for Use of Genetic
Resource and Benefit-Sharing,” which must establish, among other
things, a fair and equitable share among the parties of benefits arising
out of the economic exploitation of the product or process resulting
from the access. The benefit-sharing may be made by the sharing of
profits, the payment of royalties, the access and transfer of technology
or the licensing, free of charge, of products and processes, among
other means. In cases where the Brazilian government is not a party to
the agreement, it shall nonetheless be entitled to a part of the benefits.
In order to be effective, the Agreement for Use of Genetic Resources
and Benefit-Sharing must be submitted to the CGEN for approval and
registration purposes.
The economic exploitation of products or processes developed from

samples of any component of the Brazilian genetic resources or
associated traditional knowledge accessed in violation of the
provisions of the Provisional Act shall subject the infringer to the
payment of damages corresponding to, at least, 20 percent of the gross
revenues obtained in the commercialization of the relevant product or
of the royalties obtained from third parties due to the licensing of the
relevant product, process or use of the technology, in addition to the
applicable administrative fines (the fine may reach BRL50 million)
and penalties.
Brazilian House of Representatives recently proposed Bill of Law No.

2/2015 (“Bill of Law”), also known as the Biodiversity Legal
Framework. The Bill of Law aims to facilitate the research of native
plants and animals and regulates the benefit-sharing from the
commercial use of such genetic resources, as well as of traditional
knowledge. The Bill of Law still has to be approved by the Brazilian
Congress and sanctioned by the President to become a law and may
suffer changes during such process.
2. Domain Names
Domain names at the top level “.br” are granted by the Center of
Information and Coordination (“NIC”), by delegation of the Managing
Committee for Internet of the Ministries of Communication and
Science and Technology (“CGI”).
There are several top-level domains corresponding to certain types of

activity, such as “.com.br” for commercial purposes, “.ind.br” for
industries and “.org.br” for nonprofit organizations, among others.
The registration of “.br” domain names is conducted electronically.
Brazil adopts the “first-to-file” system. Therefore, apart from: (i)

official names; (ii) offensive names; and (iii) any other names
prohibited under the Brazilian Industrial Property Law or as further
defined by CGI, any combination of at most 26 words and numbers
may be registered at the top-level “.br” domain name. Domain names
may contain accent marks or hyphens. Only Brazilian individuals or
entities may register domain names in Brazil. The number of domain
names that may be registered at the same top-level domain is
unlimited. For foreign individuals or entities, the NIC sets forth
additional requirements, such as the obligation of a foreign entity to
initiate its activities and establish a local presence in Brazil within one
year as of the registration of the domain name.
Finally, CGI has recently implemented an informal dispute resolution

proceeding (SACI-Adm), which provides for specific rules applicable
to an out-of-court proceeding for the resolution of conflicts involving
trademark’s rights of domain name’s holders and third parties. Those
proceedings are conducted through accredited arbitration chambers,
which must register with CGI. Each chamber must develop its own
rules pertaining to the dispute resolution proceeding. The decisions are
limited to maintaining, determining assignment or cancellation of the
domain name. Currently, the SACI-Adm is limited to new domain
names. Therefore, any conflicts associated with domain names
registered or renewed before the enactment of such regulation must be
solved in courts.

3. Plant Varieties
The protection of intellectual property rights related to plant varieties

is accomplished by the granting of a Plant Variety Protection (“PVP”)
Certificate. For purposes of legal protection, the plant variety must be
a superior vegetable variety of any type or species and clearly
distinguishable from other known plant varieties by a minimum
number of features. It must also have a distinguishing denomination
and must be homogeneous and stable with regard to its features
throughout successive generations.
In order for a plant variety to be granted legal protection, it must be

new or essentially derived from another variety.
The government agency responsible for the protection of plant

varieties is the National Service for Plant Varieties Protection
(“SNPC”) of the Ministry of Agriculture and Supply, which regularly
publishes the names of vegetable species and the minimum features
necessary for an application for plant variety protection. The three
requisites with regard to applications for plant variety protection are as
follows:
(i) The plant variety has not been commercialized abroad in the last
four years.
(ii) The plant variety has not been commercialized in Brazil in the
previous year.
(iii) The plant variety is distinctive, homogeneous and stable.
The PVP Certificate is valid for 15 years, counted as of the date of

granting of a provisional certificate of protection by the SNPC, except
for vines, fruit trees and forest and ornamental trees whose term of
protection shall be 18 years. After the expiration of the certificate’s
validity term, the variety’s ownership will become public. The PVP
Certificate provides protection against the unauthorized growing of
the material, propagation of the variety for commercial purposes, as
well as against marketing or offers for sale without the owner’s

authorization. However, such exclusive rights of the owner of the

protected plant variety shall not be deemed infringed under the
following circumstances:
(i) Stocking or cultivating of the seeds for one’s own use
(ii) Using or selling the product obtained from a variety as food or

raw material (except for reproduction purposes)
(iii) Using the variety as basis for variation in genetic improvements

or scientific research studies
(iv) A small rural producer multiplies the seeds for donation or

exchange, exclusively to other small rural producers, within the
scope of financing or supporting programs for the benefit of
small rural producers, conducted by public entities or non-
governmental agencies authorized by the Public Administration.
4. Trade Secrets
In Brazil, the protection of trade secrets does not grant the owner
proprietary rights over information involving the protection of trade
secrets and the prevention of the same from being disclosed, exploited
or used without authorization. This conduct may be characterized
under Brazilian law as unfair competition. The IP Law characterizes
the unauthorized disclosure, exploitation or use of a trade secret as an
unfair competition crime that entitles its legitimate holder to claim
losses and damages arising therefrom. Nevertheless, if a third party,
by its own independent means, develops the same trade secret, it will
also be its legitimate holder.
The nature of the information constituting a trade secret is not relevant

for legal protection in Brazil, as the term “trade secret” is not defined
by law. The information can be of technological, commercial,
administrative, economic, fiscal or any other nature, provided that it
has economic value. Certain kinds of information cannot qualify as
trade secrets, such as information obtained illegally by the owner,

information of an unlawful nature or information that is obvious to a
person skilled in the art or which is already public knowledge.
Trade secret protection is granted by the Brazilian Courts on a case-

by-case basis. The central issue is usually the characterization of the
disclosed information as a trade secret. For that purpose, the value of
the information derives from its secrecy. Thus, the company’s internal
policies on the handling and confidentiality of its relevant information
are of utmost importance.
5. Genetically Modified Organisms
Brazil’s Biosafety Law establishes a set of rules aimed at controlling

the use of genetic engineering techniques for the development,
breeding, handling, transportation, marketing, consumption, release
and discharge of Genetically Modified Organisms (“GMOs”) into the
environment. The law aims to protect human, animal and plant life
and health, as well as the environment. A GMO is any organism
whose genetic material has been modified by any technique of genetic
engineering.
The Biosafety Law says that the release of any GMO into the
environment shall be subject to prior authorization from the Brazilian
National Technical Biosafety Commission (“CTNBio”). In addition to
the authorization, any company willing to develop activities in
connection with biotechnology in Brazil, including research,
development of technology and industrial production, must: (i) obtain
a Certificate on Biosafety Quality and (ii) establish an Internal
Committee for Biosafety.
The importation of GMOs or products containing GMOs into Brazil is

subject to the authorization of the Ministry of Agriculture, which, in
turn, depends on a technical opinion to be issued by the CTNBio. In
order to import genetically modified vegetables or plants, the importer
must also: (i) obtain from the CTNBio a Certificate on Biosafety
Quality and (ii) submit an import request to the Vegetal Inspection
and Protection Department of the Ministry of Agriculture, detailing
the exact quantity of GMOs to be imported and the place where the

research will take place. As soon as GMOs enter the country, they
must be sent to the National Center of Genetic Resources and
Biosafety for laboratory tests prior to its release by the importer.
Additionally, some environmental licenses may be required, such as

operation license. Such requirements depend on CTNBio’s expert
opinion, which shall establish whether a GMO presents risks to the
environment and, therefore, will be subject to environmental
licensing.
6. Integrated Circuits Topography
Even though legal protection regarding layout-designs (topographies)

of integrated circuits has been internationally ruled by the TRIPS
agreement since 1994, it was only in 2007, that Brazil enacted an
internal legislation protecting topographies as an intellectual property
right.
The protection, which is granted to the topography’s creator, is subject

to registration with the INPI, being valid for a 10-year period counted
as from the date of filing the application or from the first commercial
exploitation, whichever occurs first.
To obtain protection under Brazilian laws, the topography must be

original in the sense that it results from the creator’s own intellectual
effort and cannot be commonplace among technicians and
manufacturers in the specific field at the time of its creation.
Nevertheless, these requirements will not be examined by the INPI for
the registration of topography. The INPI will conduct a formal
analysis of the required documents and paperwork and will not review
their content. Any dispute concerning these two requirements or any
issue arising from the registration of topographies must be judicially
discussed and decided by the courts.
The registration grants to its owner the right to authorize or prohibit

the importation, sale or distribution in Brazil of the protected
topography for commercial purposes. The exclusive rights do not
apply to the reproduction for the purpose of analyzing or teaching the

concepts, processes, systems or techniques resulting from the
topography.
Additionally, the violation of topography rights by the reproduction,

manufacturing, importation, sale or distribution of a protected
topography or a product that embodies a protected topography is
considered a crime, and the violator is subject to a fine or
imprisonment.
With the enactment of the law, the INPI has issued Resolution No.
187/2008, which governs the procedures for filling new applications
for the registration of topographies of integrated circuits and the
internal procedures for processing applications.
Internet Law and Privacy

The Brazilian Internet Legal Framework establishes general
principles, warranties, rights and duties that shall govern the Internet
in Brazil. According to the Internet Legal Framework, the use of the
Internet shall be based on the principles of freedom of expression,
privacy and data protection, and network neutrality, among others.
1. Network Neutrality
In regard to net neutrality principle, the Internet Legal Framework

establishes that “the party responsible for data transmission,
commutation or routing has the duty to treat equally all data packages,
without any distinction based on content, origin and destination,
service, terminal or application.”
The exceptions to this general rule shall only be allowed: (i) if they
result from an imperative technical requirement for the adequate
provision of services and applications to users or (ii) in order to give
priority to emergency services. In addition, exceptions are subject to
regulation by decree issued by the President, with the opinion of the
Managing Committee for Internet of the Ministries of Communication
and Science and Technology (“CGI”) and the Brazilian
Telecommunications Agency (ANATEL).

2. Liability for user generated content
As a general rule, under the Internet Legal Framework, websites may

be liable for user-generated content if they fail to comply with court
orders determining the removal of content. Websites may also be
liable on a secondary basis for violations of intimacy resulting from
the unauthorized disclosure of material containing nudity or private
sexual acts, provided that the website fails to diligently take down
such content after notice from any person appearing in the content or
his/her legal representative.
The Internet Legal Framework expressly excludes copyright

infringement cases from the rules above. Instead, it provides that such
cases shall be contingent to the enactment of a specific statute, subject
to the constitutional guarantee of freedom of expression and other
fundamental guarantees in the Brazilian Constitution.
3. Privacy and Data Protection
Under the Internet Legal Framework, websites must obtain consent

from users for the collection, use, storage and processing of personal
data, and such consent needs to stand out from other contractual
conditions. Also, personal data may only be transferred to third parties
upon the free, express and informed consent of the data subject.
Furthermore, information stored by websites and the contents of

private communications may only be disclosed upon a relevant court
order.
It should be noted that the Brazilian Ministry of Justice is currently

discussing a Draft Bill of Law for the Protection of Personal Data
(“Draft Bill”). As of March 2015, the Draft Bill has been subject to
public consultation. After which a new, revised draft will be prepared
and sent to the Brazilian Congress for discussions and voting.
[Revised as of March 2015]

Forms of Doing Business
As a general rule, Brazilian law does not prohibit or restrict the
participation of foreign investment in business activities. Except for
certain limitations, foreign investors are free to establish any business
in Brazil.
Those few areas in which foreign investment is either totally

prohibited or limited to a certain minority interest include some
telecommunications services and media segments. In these restricted
areas, foreign investors are required to enter into joint venture types of
arrangements with Brazilian companies or individuals or organize a
subsidiary company under Brazilian laws, depending on the specific
case.
Notwithstanding the above, foreign investors sometimes also adopt

joint venture arrangements even in situations that are not restricted –
for instance, when they seek the experience and expertise of locals in
the Brazilian market.
A business presence in Brazil may, at least in principle, take the form

of either
1. a branch, representative office or agency of a foreign business

entity, or
2. a company organized under the laws of Brazil.
Branch, Representative Office or Agency of a Foreign

Business Entity
Though permits to establish branches of companies organized under
the Brazilian laws are in most cases freely granted, the prior
authorization of the President of Brazil is required to establish a
branch of a foreign company. The granting process is entirely
discretionary and lengthy, lasting more than six (6) months. In
addition, adverse liability and tax consequences render this choice
inappropriate in most cases.
Local Business Entity

The establishment of a business entity in Brazil generally does not
require any prior government approval. Most nonresident investors
find advisable to organize a business by setting up any of the
following:
1. corporation - sociedade anônima (“S.A.”) in which liability is

limited to the amount of the capital invested by each
shareholder;
2. sociedade limitada (“limitada”) which may be a more flexible

form of a limited liability company. The liability is also limited
to the amount of the capital invested by each quotaholder,
however if the capital is not fully paid-in, the liability relates to
the total amount of the company’s capital; or
3. Empresa Individual de Responsabilidade Limitada (“EIRELI”)

which is a limited liability entity owned by a sole owner.
Corporations
The general basic requirements of the S.A. are as follows:
1. Shareholders
There must be at least two (2). There are no residency or nationality

requirements.
The shareholder that is not a Brazilian resident must appoint an

attorney-in-fact resident in Brazil vested with powers to receive
services of process on its behalf.
2. Capital
At least ten percent (10%) of the stated capital must be paid-in in cash
at the time of incorporation. No minimum capital is required, except

to carry out certain regulated activities, e.g., banking, insurance, and
trading companies. The capital of the S.A. is divided into shares.
According to the rights attributed to their holders, the shares may also
be qualified as common or preferred.
According to the law, holders of preferred shares may have full voting
rights, no voting rights or voting rights restricted. The number of
preferred shares without the right to vote or with restrictions on the
exercise of such a right cannot exceed fifty percent (50%) of the total
number of shares issued by the S.A. The holders of preferred shares
with no voting rights or with restricted voting rights must be entitled
to certain financial rights, such as the priority:
(i) to receive dividends, fixed or minimum;
(ii) to receive the reimbursement of capital, with or without bonus; or
(iii) the accumulation of these advantages.
For a publicly held S.A. (Sociedade Anônima de Capital Aberto), the

corporate legislation provides more protective rules for the minority
shareholders of preferred shares.
3. Management
T he S.A. must be managed by a board of officers composed by at

least two officers (diretores) who must be resident in Brazil. A board
of directors (conselho de administração) is not compulsory, unless the
S.A.:
(i) trades its shares on the stock exchange or in the over-the-counter

markets;
(ii) issues debentures in the market; or
(iii) has authorized capital.

Brazilian residency is not a requirement to assume the position of a

member of the board of directors, provided that an attorney-in-fact
resident in Brazil is appointed and vested with powers to receive
services of process on behalf of the nonresident director. According to
the law, the board of directors must have at least three (3) members.
4. Internal Audit Committee
The bylaws of the S.A. must provide for an Internal Audit Committee
(Conselho Fiscal), which may be installed at a shareholders’ meeting.
The Internal Audit Committee is not mandatory, however if it is
installed, its annual report to the shareholders must be published
together with the financial statements of the S.A., except if the
conditions mentioned in the following item are complied with as well
as in other specific cases.
5. Meetings and publications
At least one shareholders’ meeting must be held annually to decide on

the financial statements of the S.A. Such meeting must be held within
the first four (4) months after the end of the company’s corporate year.
Calls for meetings must be published unless all shareholders attend or
are represented at the meeting. The minutes of the meetings shall also
be published. Extraordinary shareholders meetings (such as those that
are called to amend the bylaws) shall follow the same call procedure.
Balance sheets and financial statements must be published. Closely

held S.A.’s (Sociedade Anônima de Capital Fechado) with less than
twenty (20) shareholders and with a net worth of up to
R$1,000,000.00 (one million Reais) are not required to publish
financial statements, balance sheets, Internal Audit Committee annual
reports, and certain other information, provided that certified copies
thereof are filed with the competent Commercial Registry together
with the minutes of the annual meeting containing the decisions
thereon. This exception, however, does not eliminate the mandatory
publication of the minutes of the annual meeting.

Law No. 11.638 of December 28, 2007 introduced in the Brazilian
Corporation Law, among other issues, the need of preparation and
auditing of the financials of Large Size Companies. A company will
be considered a "Large Size Company" if it (or a group of companies
under common control) had, in the previous fiscal year, assets in an
amount exceeding R$ 240 million, or gross revenues exceeding
R$ 300 million. A S.A. that falls under the category of a Large Size
Company should be audited by an independent auditor registered with
the Brazilian Securities and Exchange Commission (CVM).
Limited Liability Companies
The Brazilian Civil Code grants to minority quotaholders several
rights, including a high quorum requirement to amend the articles of
organization (i.e. ¾ of the corporate capital) and to appoint officers,
with rules stricter than those provided for the S.A.
The basic characteristics of a limitada are as follows:
1. Quotaholders
There must be at least two (2), and no residency or nationality

requirements apply.
The quotaholder that is not a Brazilian resident must appoint an

attorney-in-fact resident in Brazil vested with powers to receive
services of process on its behalf.
2. Capital
No minimum capital is required either upon incorporation or to carry

out the business, except for specific activities. The limitada is not
qualified to carry out certain regulated activities such as banking and
insurance. The capital of a limitada is divided into quotas that are
represented in the articles of organization of the limitada. The capital
may be increased only after the existing one has been totally paid in.

3. Management
The limitada may be managed by one or more individuals resident in

Brazil (“Officers”). The Officers may be quotaholders or not. The
appointment of non quotaholder Officers is subject to the approval of:
(i) all quotaholders, if the quotas are not fully paid-in, or
(ii) quotaholders representing two thirds (2/3) of the corporate capital

if the quotas are fully paid-in.
If the Officer is a quotaholder his/her appointment in a separate

document will require the approval of quotaholders representing more
than half of the company’s capital.
The Officer’s appointment (being quotaholder or not) within the

articles of organization is subject to the approval of quotaholders
representing at least three fourths (3/4) of the company’s capital.
For information regarding the appointment of expatriates for

managing positions, please refer to the immigration chapter.
4. Internal Audit Committee
Internal Audit Committee is not required. The Civil Code, however,

authorizes the installation of an Internal Audit Committee (Conselho
Fiscal) composed of at least three (3) members.
5. Meetings and publications
The Civil Code sets forth that the quotaholders’ decision shall be
taken in a meeting or assembly, as provided in the articles of
organization. The quotaholders’ assembly is required if the company
has more than ten (10) quotaholders, and a quotaholders’ meeting is
required for companies with up to ten (10) quotaholders.

In accordance with the Law No. 11.638 of December 28, 2007, a
limitada that falls into the Large Size Company concept (a) should be
audited by an independent auditor registered with the Brazilian
Securities and Exchange Commission (CVM) and (b) is subject to the
provisions of the Brazilian Corporation Law (applicable to S.A.)
regarding accounting records and preparation of financial statements.
Of note, the Brazilian Supreme Court is still deciding about the need
of publication of the annual financial statements by the limitadas that
fall into the "Large Size Companies" concept.
EIRELI
On January 9, 2012, law 12.441 of 11 July 2011 was enacted. Such
law introduced the possibility of organizing a solely owned limited
liability entity (Empresa Individual de Responsabilidade Limitada),
commonly known as EIRELI
The EIRELI resembles a limitada, with the difference that it is

incorporated by only one person (national or foreigner), who will be
the sole-owner of the totality of the entity’s corporate capital. This
new type of entity was created, among other things, to allow some
professionals to render services through a legal entity.
1. Ownership
It must have one single owner. No residency or nationality

requirements apply.
2. Capital
A minimum fully paid in capital equal to 100 (one hundred) times the
highest minimum wage in force is required upon incorporation. Any
subsequent capital increases must be fully paid in upon approval.
3. Management
It may be managed by one or more individuals resident in Brazil.

ENROLLMENT WITH THE GENERAL TAXPAYERS

REGISTRY
Pursuant to Normative Rulings No. 1,548 of February 13, 2015 and
No. 1,634 of May 6, 2016 issued by the Brazilian Federal Revenue
Department, legal entities and individuals domiciled outside Brazil
must be enrolled with the Ministry of Finance’s General Taxpayers
Registry (“CNPJ”) and Individuals Taxpayers Registry (“CPF”),
respectively. This requirement is applicable to all legal entities and
individuals holding assets and rights subject to public registration in
Brazil, including real estate, vehicles, vessels, aircraft, equity interest
in Brazilian companies, bank accounts, investments in the financial
market, investments in the capital market, loans (“financings”), import
finance transactions, financial lease, operational lease, lease/renting
out of equipment and boat charter, import of assets into Brazil
(without currency exchange coverage) for equity investment in
Brazilian companies, currency loans granted to Brazilian residents,
investments and other activities set forth and governed by the rules
issued by the Federal Revenue Department.
Following an international effort to create an efficient anti-money

laundering / compliance regulation aiming at transparency and
identification of entities' beneficial owners, the Normative Rule 1,634
brought the obligation to certain entities to provide specific
information of their legal representatives and their group structure to
identify the persons or entities representing their ultimate beneficial
owner.
Ultimate beneficial owner is defined as the individual who, ultimately,

holds, controls or "significantly influences" the entity. A significant
influence is presumed by RFB if the individual: (a) holds more than
25% of the entity's capital, directly or indirectly; or (b) has
preponderant authority, directly or indirectly, over the company's
decisions or the election of the majority of the board members.
All companies domiciled in Brazil, as well as foreign entities

domiciled abroad which have rights or investments in the Brazilian

capital markets or own equity interest in Brazilian private companies
are required to enroll with CNPJ and abide by the aforementioned
obligation.
Audit
Historically, the obligation of external audit of the financial statements
by an independent auditing firm was only applicable to Brazilian
publicly-held corporations (sociedade anônimas de capital aberto).
Nonetheless, after 2007, with the enactment of Law No. 11.638/07,
the external audit of the financial statements by an auditor registered
before the CVM (Brazilian Securities Exchange Commission) also
became mandatory for Large Size Companies.
The law does not make any distinction between corporations

(Sociedades Anônimas) and limited liability companies (limitadas)
when it refers to Large Size Companies. Therefore, one must
understand that the term Large Size Companies includes both types of
companies.
[Revised on November, 2017]

Exchange Controls
Since the unification of the free rate and the floating rate exchange
markets in March 2005, the Brazilian Government, through the
Brazilian Monetary Council (“CMN”) and the Central Bank of Brazil
(“BACEN”), introduced new rules aimed at making the currency
exchange market simpler and the controls over such market more
flexible. Such changes included rules related to import and export
transactions, and inflows and outflows of funds of small amounts.
As of 2 February 2014, new Rulings came to force to make the

regulations clearer and more user-friendly, eliminating redundant or
unnecessary provisions and harmonizing the rules applicable to
similar situations.
Foreign Capital in Brazil

Law No. 4,131/1962, as amended, regulates foreign capital in Brazil.
This law requires that foreign investments be registered with BACEN
to enable the remittance of profits and/or interest on equity (juros
sobre capital próprio) to foreign investors, as well as the repatriation
of foreign capital invested in Brazil and the reinvestment of profits
and/or interest on equity. This law also establishes general rules
governing the payment of royalties and technical assistance fees.
Investments
Foreign direct equity investments under Brazilian law include:
1. items imported by entities with headquarters in Brazil as capital

contributions (e.g., machinery, equipment);
2. capitalization of foreign credits which are remittable by Brazilian

companies abroad; and
3. the inflow of foreign funds to Brazil as capital contribution.

As a general rule, a foreign investor may organize a subsidiary in
Brazil to carry out any kind of business permitted by law, except for
some activities in which foreign ownership is limited.
Registration of Foreign Direct Equity Investments

Foreign direct equity investment registration is carried out through
BACEN’s electronic system (“SISBACEN”) by means of the
declaratory electronic registration (Registro Declaratório Eletrônico
de Investimentos Externos Diretos – “RDE-IED”). Foreign
investment registration through SISBACEN must be made by the
Brazilian company representative that receives the investment,
observing the provisions of the CMN’s Resolution 3,844 of 23 March
2010, as amended, and other applicable rules. This registration allows
the remittance of dividends and interest on equity to the foreign
investor and the repatriation of foreign capital invested in Brazil, as
well as additional registration of foreign investment upon the
reinvestment of profits.
Conversion of Credits
Foreign capital registration is also required upon the conversion of
credits held by the foreign stockholder against its Brazilian subsidiary.
Credits remittable abroad, such as those related to principal or interest
of loans, service fees, and royalties, among others, can be converted
into equity of the Brazilian company. For this purpose, a conversion
process will be carried out, involving the implementation of
symbolic/simultaneous foreign exchange operations representing the
payment of the debt and the inflow of the corresponding funds to
Brazil as capital contribution. In case of conversion of amounts
subject to taxation, such as interest accrued on loans, the company
must present the tax payment evidence to the commercial bank
carrying out the symbolic/simultaneous foreign exchange operation.
The symbolic payment of the debt may be subject to Tax on Financial
Transactions (IOF), due to the foreign currency exchange transaction
necessary to implement such symbolic payment. Once the conversion

is finalized, the resulting foreign investment must be registered as

foreign investment with BACEN within thirty (30) days.
Reinvestments
After profits are taxed and if they are not remitted abroad to the
foreign investor, they may be reinvested in the same company that
generated the profits or in any other Brazilian company chosen by the
foreign investor. Also proceeds related to capital reductions, sale of
equity interest to Brazilian residents and liquidation of the invested
company may be reinvested in another Brazilian company. The
reinvestment is also subject to registration with BACEN.
The amount of foreign currency registered as reinvestment is

determined by the exchange rate in force at the date of the relevant
reinvestment, as reflected in the corresponding corporate document.
Remittance of Dividends
Law No. 4,131/1962, as amended, does not constrain a Brazilian
company from remitting dividends abroad to its foreign investors.
Notwithstanding, under Brazilian law, the Brazilian company may
only remit dividends to a nonresident, if (i) the Brazilian company
has after-tax profits from the current year or accumulated profits (note
that only the profits shown in the balance sheets can be remitted
abroad), and (ii) the foreign investment made by the foreign parent
company has been previously and duly registered with BACEN.
According to Law 9,249/1995, the remittance of dividends generated

as of 1 January 1996, is not subject to withholding income tax, even
when distributed to nonresident parent companies. On the other hand,
the amount paid as profit distribution cannot be deducted as an
expense of the Brazilian company for tax purposes. Additionally, the
Tax on Financial Transactions (IOF) levied on the remittance of
profits abroad is currently reduced to a rate of 0%.

The remittance of dividends is no longer subject to registration with
SISBACEN (only the relevant reinvestment or payment directly from
a bank account maintained abroad are subject to registration).
Also, it is worth noting that the Brazilian company may distribute

dividends based on an interim balance sheet during the fiscal year.
However, in such case, the company must register profits in its
accounting at year-end, under penalty of repatriation of the remitted
amount, applied by BACEN, in addition to possible tax consequences.
Interest on Equity (Juros sobre Capital Próprio)
Pursuant to current legislation, a Brazilian legal entity can pay interest
on equity to its nonresident stockholders, provided that (i) it has
retained or current-year earnings and (ii) the foreign investments are
duly registered with BACEN. The amount declared by the Brazilian
company as interest on equity is deductible, but the total amount of
interest that can be paid or credited must not exceed 50% of the
company’s retained or current-year earnings. If this is the case, the
amount in excess will not be considered deductible in the calculation
of corporate income taxes. The withholding income tax at the rate of
15% is levied on the interest on equity declared by such company. If
the beneficiary is located in a low-tax jurisdiction, the withholding
income tax shall apply at a rate of 25%.
With respect to net worth accounts, the tax legislation provides that
the accounts which may be considered for calculation purposes
include reserves (in addition to contributed capital), but excludes fixed
assets revaluation, special monetary correction of fixed assets, and
real estate and intangible revaluation reserves.
The remittance of interest on equity is no longer subject to registration

with SISBACEN (only the relevant reinvestment or payment directly
from a bank account maintained abroad are subject to registration).

Repatriation of Capital
As long as the foreign investment is duly registered with BACEN,
when the foreign investor sells shares or quotas in the Brazilian
venture or when the Brazilian company reduces its capital or is
liquidated, such foreign investment can be repatriated in the relevant
foreign currency. Such repatriation will be free of taxes up to the
amount of the relevant investment cost.
The amount to be repatriated exceeding the investment cost observing

the proportionality rule, represents capital gain and is taxed by the
withholding income tax at the rate of 15%, or 25% if the beneficiary is
located in a low-tax jurisdiction. Nevertheless, the exceeding amount
may be remitted abroad.
Investments in the capital market
Resolution No. 4,373/2014 by the CMN, as amended (“Resolution
4,373”), Instruction No. 560/2015 by the Brazilian Securities and
Exchange Commission (“CVM”), as amended, and related rules
provide for the legal framework applicable to investments in the
financial and capital markets carried by foreign/nonresident investors.
According to the rules, before investing in the Brazilian financial and

capital markets, a foreign investor must appoint one or more
representatives in Brazil, which must be a financial institution or other
institution authorized by BACEN. Such representative(s) will be
responsible for providing information and complying with the
registration requirements of the Brazilian authorities (e.g., BACEN,
CVM and the Federal Revenue Department).
Indeed, the funds brought into Brazil under the terms of Resolution
4,373 are subject to registration with BACEN via an electronic
declaratory form. Furthermore, nonresident investors must, through
their Brazilian representatives, register with the CVM and keep it
updated.

Additionally, the nonresident investor must retain a custodian duly
licensed by CVM, who can also act as its representative for the
aforesaid purposes.
Law No. 8,981/1995, as amended, together with Provisory Measure

No. 2189-49/2001, provides for a Special Tax Regime for nonresident
investors that invest in the Brazilian financial and/or capital markets.
As a general rule, this Special Tax Regime grants to nonresident
investors a beneficial tax regime (when compared with the tax
treatment applicable to Brazilian investors) for investments in the
Brazilian financial and/or capital market, provided that the investment
is made in compliance with the applicable rules (mainly Resolution
4,373) 1.
The IOF rate levied on the exchange transaction necessary to bring the
foreign investments to Brazil is currently zero according to Decree
No. 8,325 of 7 October 2014. The return of the funds abroad resulting
from such investments remains subject to a 0% rate of IOF-Exchange.
Loans
Foreign loans, either in foreign or Brazilian currency, are subject to
registration with BACEN. Registration must be obtained through a
declaratory electronic registration system, the Registration of
Financial Operations (“ROF” - Registro de Operações Financeiras),
which must be carried out in the SISBACEN. The ROF sets forth the
main financial terms and conditions of the loan, and interest charged
on the loan may not be deemed excessive according to BACEN’s
policies in force at the time. Registration in the ROF must be
supported by a loan agreement or a statement of the foreign creditor
attesting to such terms and conditions. Once the ROF is issued, the
foreign lender is authorized to wire the funds to the borrower.
1
It is important to emphasize that the Special Tax Regime does not
apply in case the nonresident investor is domiciled in a low tax jurisdiction.
Currently, the remittance of the principal amount of the loan to Brazil

is subject to the Tax on Financial Transactions (IOF) reduced to zero.
However, if the loan has an average minimum term equal to or shorter
than 180 days or is for any other reason settled within such average
minimum term, the IOF will apply at a 6% rate. The payment of
interest accrued on such loans is subject to withholding income tax at
the standard rate of 15%. In the case of beneficiaries located in a low
tax jurisdiction, the tax rate is 25%. Either the Brazilian borrower or
the creditor domiciled abroad may bear the tax burden. If the
Brazilian company bears the burden of the tax that would otherwise be
due by the foreign beneficiary, the tax basis is increased to 17.65%,
for the 15% taxation, and 33.33% for low tax jurisdictions. A
preferential treatment is generally given to foreign governmental
entities.
Loans in Brazilian Currency
Loans may be denominated in Brazilian currency even if the relevant
funds are remitted in foreign currency. If the funds are to be disbursed
and the relevant payments are to be made in Brazilian currency, these
transactions will be carried out by means of International Transfer of
Reais (“ITR”), through a nonresident bank account in Brazilian
currency held by the foreign creditor with a Brazilian bank. These
loans are also subject to registration with BACEN, though the ROF.
Currently, loans and other obligations denominated in Brazilian

currency may be paid in any foreign currency.
Loans extended by Brazilian entities to foreign entities
Brazilian individuals or legal entities are allowed to extend loans to
foreign individuals/legal entities without requiring BACEN’s prior
approval or registration. To implement this transaction, the lender and
borrower must execute an agreement setting forth the terms and
conditions of the loan, and comply with the applicable tax rules,
including but not limited to potential transfer pricing issues.

Export Financing
As a way to develop and increase Brazilian exports, the Brazilian
Government grants favorable treatment for credit facilities obtained
abroad by Brazilian exporters. Interest, fees and expenses associated
with export credit facilities are subject to a withholding income tax of
0% as opposed to the standard rate of 15% levied on regular loans. To
be eligible for this tax benefit, the principal amount of the credit
facility must be repaid with export revenues.
The registration of export financing (required only when their

repayment term exceeds 360 days) is similar to the registration of
loans in foreign currency described above. It should be noted,
however, that if the funds are not repaid with export revenues, the
withholding income tax levied over the interest, fees and expenses
associated with the export financing will be subject to a 25% rate,
instead of 0%.
Import of products
Currently, import transactions, financial lease, and equipment lease
(rental) with payment terms exceeding three hundred sixty (360) days
must be registered with BACEN through the ROF system.
Exports of products and services

As a general rule, exports must be carried out with exchange coverage
(i.e., with the actual payment to the Brazilian exporter, which can be
made in Brazilian Reais or foreign currency). The applicable
regulations list very few exceptions in which the export may be
carried out without exchange coverage, such as capital contribution
and temporary export regime.
However, the legislation which used to charge exporters with foreign

exchange violations for failure to receive export payments is no longer
in force. Further, Law No. 11,371/2006 introduced an important
flexibility with regard to the exchange coverage requirements,
authorizing Brazilian exporters to maintain abroad foreign funds
received as payments for products and services exported by them.

Such funds may be used by the Brazilian exporter only for
investments, financial investments, or payments of its own obligations
abroad. The exporter is expressly prevented from lending such funds.
Pursuant to BACEN Ruling No. 3,691/13, Brazilian exporters may

maintain abroad all of the revenues related to the payments of their
exports.
The destination of the funds held abroad by Brazilian exporters must

be reported to the Federal Revenue Department (“SRF”) by means of
the statement established by SRF’s Ruling (Instrução Normativa) No.
726/2007. Exporters that fail to comply with such Ruling or with the
applicable legislation, as well as those who fail to inform the SRF
about the existence of such funds abroad, will be subject to a
pecuniary fine applied by the SRF.
Declaration of assets maintained outside of Brazil
CMN’s Resolution 3,854/2010 provides that individuals and legal
entities resident, domiciled or headquartered in Brazil must annually
prepare and submit to BACEN a declaration that lists the assets and
amounts held outside of Brazil, which total amount is equal to or
greater than USD 100,000.00 or its equivalent in other currencies.
This declaration must be submitted electronically to BACEN on an
annual basis. The following assets held abroad must be reported to
BACEN:
1. commercial credits;
2. bank deposits;
3. loans;
4. financing transactions;
5. leasing;

6. direct investments;
7. portfolio investments;
8. financial derivatives investments; and
9. other investments, including real estate and other assets.
Furthermore, if the total sum of the assets mentioned above is equal to

or greater than USD 100,000,000.00 or its equivalent in other
currencies, such individuals and legal entities must also submit the
same declaration on a quarterly basis.
These declarations are mandatory and the individual or legal entity

subject to the above-mentioned regulation must retain the
documentation related to the declared information for a term of
five years from the declaration’s date.
A delay or non-compliance with delivering the declaration, as well as

providing incorrect, incomplete or false information, will be subject to
penalties applied by BACEN.
Census of Foreign Capital in Brazil
Pursuant to BACEN’s Ruling No. 3,795/2016, presenting a

declaration of the Census of Foreign Capital in Brazil is mandatory:
I. Annually for:
I.1. Companies headquartered in Brazil that, on 31 December of the
preceding year had direct investment from nonresidents and had net
equity equal to or exceeding USD 100,000,000.00;
I.2. Companies headquartered in Brazil that were debtors of short term
commercial credits (payable in up to 360 days), which outstanding
balance on 31 December of the preceding year was equal to or greater
than USD 10,000,000.00; and

I.3. Investment funds with participation of foreign investors with net

equity equal to or greater than USD 100,000,000.00.
II. Every five years, with respect to all years ending with zero or five,
for:
II.1. Companies headquartered in Brazil that, on 31 December, of the

reference year, had direct investment from nonresidents, regardless of
the amount of their net equity;
II.2. Investment funds with investment from foreign investors,
regardless of the amount of their net equity or each foreign investors’
interest in such funds. The Census must be declared by the
administrators of funds; and
II.3. Companies headquartered in Brazil that were debtors of short
term commercial credits (payable in up to 360 days), which
outstanding balance on 31 December was equal to or greater than
USD 1,000,000.00.
[Revised as of November 2017]

Taxes
Tax Treaties
Brazil is a party to many treaties aimed at preventing dual taxation in
international transactions. To date Brazil has already entered into
treaties with Argentina, Austria, Belgium, Canada, Chile, China, the
Czech Republic, Slovakia, Denmark, Ecuador, Finland, France,
Hungary, India, Israel, Italy, Japan, Luxembourg, Holland, Mexico,
Norway, Peru, the Philippines, Portugal, Spain, South Africa,
South Korea, Sweden, Trinidad and Tobago, Turkey, Ukraine and
Venezuela.
In April 2005, the Government of Germany terminated the tax treaty

signed with Brazil, which has not been in effect since 1 January 2006,
pursuant to Decree No. 5,654/05.
Additionally, new treaties have been signed with Paraguay and Russia
that are still pending approval. With respect to the treaties with
Paraguay and Russia, the President must issue a presidential decree
introducing the treaties in the Brazilian legal system for the treaties to
become effective in Brazil.
Local Taxation
Historically, Brazilian tax regulations have remained complex.
Although the government is engaged in reducing and simplifying the
Brazilian taxation system, an extensive body of tax regulations still
applies at this time. This section summarizes the most significant
taxes that affect businesses in Brazil, as well as the major aspects of
Brazilian taxation of personal income, which affect nonresidents,
particularly expatriates.
Corporate Income Taxes

Most business entities are required to pay corporate income taxes
(IRPJ). There are basically two main methods that may be chosen by
the taxpayers to calculate corporate income taxes. The first method is
the actual profits method. In such a case, the IRPJ is computed at a
15 percent rate on adjusted net income. Annual net income in excess

of BRL240,000 is also subject to a surtax of 10 percent.
According to Law No. 9,430/96, taxpayers may opt to calculate the

IRPJ under the actual profits method either on a quarterly or annual
basis. If the IRPJ is calculated quarterly, it is also payable on a
quarterly basis. Over the quarterly net income, a 15 percent rate is
applied, plus a 10-percent surtax on net income exceeding BRL60,000
per quarter. If the IRPJ is calculated annually, taxpayers are required
to anticipate monthly payments of IRPJ, calculated over estimated
income. For most companies, the monthly estimated income
corresponds to 8 percent of the total monthly gross revenues plus
capital gains and other revenues and positive results incurred by the
company. Such percentage ranges from 8 percent to 32 percent,
depending on the activity performed by the taxpayer. Over this tax
basis, the 15 percent rate applies, plus the 10 percent surtax on
estimated income exceeding approximately BRL20,000 per month.
When the annual method of calculation is adopted, with payment of
monthly anticipations, the entities at the end of the year must either
pay or request reimbursement for the difference between the amount
paid monthly and that calculated on the annual income.
Under the actual profits method, net operating losses (NOLs)

generated in a given period can offset the taxable income of the
subsequent period, limited to 30 percent of the taxable income (i.e.,
for each BRL1 of income, BRL0.70 must be subject to taxation,
regardless of the existing amount of NOL). Tax losses may be carried
forward, without statute of limitations.
Another method used for calculating income tax is the presumed

method. In this method, income tax is calculated on a quarterly basis,
and the tax basis for most activities corresponds to 8 percent of gross
revenues. There are other applicable rates to calculate presumed
income related to certain specific activities, such as 32 percent for
most service activities. Over the presumed income, income tax rates of
15 percent and 10 percent surtax levied on presumed income
exceeding BRL60,000 per quarter are applied. If the presumed method

of taxation is adopted, the taxpayer is not subject to any adjustment
based on the actual annual income.
Some requirements for eligibility to adopt the presumed method are

the following:
1. Revenues earned in the previous taxable year must not exceed

BRL78 million.
2. Profits, capital gains or other earnings cannot originate abroad.
3. Companies that cannot have tax benefits under Brazilian tax

laws (e.g., tax exemption or income tax reduction)
4. Companies that could not have paid the income tax calculated on
a monthly and estimated basis
5. Companies whose activity comprises securitization of

agribusiness, finance and real estate credits
6. Companies that were incorporated as companies with specific

purposes (SPE) to carry out transactions with legal entities under
the SIMPLES tax regime
Financial institutions or equivalent entities as well as factoring

companies are not eligible to adopt the presumed method of taxation
as provided in Brazilian law.
Profits Distribution - Tax Aspects

Prior to 1996, any dividends and profits distributed to nonresidents
were subject to a 15 percent withholding income tax (IRRF), except
for distribution to residents of Japan, in which a Brazilian tax treaty
provides for a 12.5 percent rate.
According to Law No. 9,249/95, profits realized after 1 January 1996,

are no longer subject to the IRRF when distributed. Profits and
dividends realized prior to 1 January 1996, are still subject to the
IRRF at the rates prevailing within the year the profits are generated.
Please note that, recently, prior to the enactment of

Provisional Measure No. 627/13 and its conversion into
Law No. 12,973/14, there has been an intense debate on whether
Brazilian companies should distribute profits pursuant to the new
accounting standards (corporate profits) or should the profits be
calculated under the rules that were in place for calculation of taxable
profits (which were based on the accounting standards that were in
place on December 31, 2007 - the so called fiscal profits).
Law No. 11,638/07 and, later, Law No. 11,941/09 brought significant
changes to Law No. 6,404/76 (the “Corporations Law”), aiming at
aligning the Brazilian GAAP to IFRS standards. Nevertheless, Law
No. 11.941/09 established a special tax regime called “Transitory Tax
Regime” (RTT) in order to regulate the tax effects arising from the
alignment of the Brazilian GAAP to the IFRS standards.
According to the RTT, the new accounting standards should not have
tax effects in Brazil. Thus, taxpayers should apply the accounting
methods in force on 31 December 2007, to determine the basis for
calculating the IRPJ/CSLL through the reversal of the tax effects
determined due to the differences between the tax and accounting
treatments.
In this context, the Brazilian Federal Revenue (RFB) issued

Treasury Ruling No. 1,397/13 (IN 1397/13), providing that the
distribution of dividends would have to observe and be limited to the
“fiscal profits” of a given company.
According to IN 1397/13 in its original wording, if the distributed

dividends have not been previously taxed at the level of the legal
entity as a result of the RTT adjustments (i.e., if the amount of
distributed profits exceed the fiscal profits of the company), then it
shall be subject to withholding income tax, corporate income tax, or
personal income tax, depending on the beneficiary.
However, the Brazilian Executive Branch enacted the abovementioned

Provisional Measure No. 627/13, converted into Law No. 12,973/14,
which, among other provisions, revoked the RTT and regulated the tax

impacts arising from the accounting adjustments derived from
Law No. 11,638/07. Such new rules are in force as of 1 January 2015,
but they could be applied in calendar year 2014 for the taxpayers who
elected to do so.
The new legislation makes clear that for the future, the profits that
should be used for calculating dividends should be the one calculated
according to Law No. 6,404/76 as amended (the new Corporations
Law). Law No. 12,973/14 has also provided that, for calendar years
2008 to 2013, the distributions of dividends calculated according to
the new Corporations Law in excess to the amounts that would have
been calculated under the accounting rules in force in 2007, will not
be subject to the WHT upon distribution.
Please note, however, that Law No. 12,973/14 is silent with respect to
dividends related to profits earned in 2014. In addition,
Normative Ruling No. 1,492/14 amended Normative Ruling
No. 1,397/13, including a provision expressly foreseeing that
dividends related to profits calculated in 2014, and distributed in
excess to the “fiscal profits” shall be levied WHT according to
progressive rates applicable to individuals. Therefore, the discussion
regarding the taxation of dividends remains unsettled with regard to
dividends related to profits earned in 2014.
Interest on Equity
Law No. 9,249/95 provides that a Brazilian legal entity can pay or
credit its equity holders interest on equity (IOE), provided that the
company has retained or current-year earnings. The IOE is an
alternative mechanism to transfer funds from a company to its equity
holders and, simultaneously, generate a deductible expense at the
company level. The total amount of interest that can be paid or
credited must not exceed 50 percent of the company’s retained or
current-year earnings. The basis for calculating the amount of interest
on equity includes reserves in addition to contributed capital, but
excludes fixed assets revaluation, special monetary correction of fixed
assets and real estate and intangible revaluation reserves. Law
12,973/14 specifically provided the net equity accounts that will be

considered for the purposes of IOE payment and these are as follows:
(i) corporate capital; (ii) capital reserve; (iii) profits reserve; (iv)
treasury shares; and (v) accumulated losses.
The interest is based on the government-monitored long-term interest

rate (Taxa de Juros de Longo Prazo - TJLP), calculated on a pro rata
basis. The expenses with interest on capital are considered operational
deductible expenses for income tax and for social contribution on net
income. A 15 percent withholding income tax is levied on the amount
of interest paid, accrued to the equity holders, or capitalized.
The controversy on the application of the RTT for the distribution of

dividends was also applicable to the calculation of IOE to be
distributed. According to IN 1397/13 in its original wording, the
deductible amount of IOE for corporate income tax purposes should
be calculated based on the criteria in force on 31 December 2007.
Nevertheless, Law No. 12,973/14 has also provided that, for calendar
years 2008 to 2014, the distributions of IOE based on the net equity
calculated according to the new Corporations Law would be
deductible (provided that the other limitations provided in the
legislation are complied with).
Please note that the legislation expressly allowed the payment of IOE
based on the new accounting rules, free of WHT, including the year of
2014, differently from dividends.
Withholding Income Tax on Payments Abroad

In general, payments made to nonresidents are subject to withholding
income tax in Brazil. As a general rule, payments to nonresidents for
services rendered to Brazilian residents and payments to nonresident
individuals for work remuneration are subject to the general
withholding income tax rate of 25 percent.
The 25 percent rate for payment of services does not apply to interest
on loans and other types of payments that are not classified as services

and are subject to specific legal provisions. For these types of
payments, the lower withholding rate of 15 percent is still in place.
After the Contribution for the Intervention in the Economic Domain

(CIDE) was created on 1 January 2002, Law No. 10,332/01 reduced
the income tax rate applicable to technical services, administrative
assistance and other similar services that did not involve transfer of
technology to 15 percent. On the other hand, payments remitted
abroad for these services will be subject to the 10 percent CIDE.
Article 8 of Law No. 9,779/99 has increased the previous withholding

tax to 25 percent for all payments of income made to nonresidents
located in a low-tax jurisdiction, with few exceptions.
As listed by the Brazilian Federal Revenue Department, the following

locations are considered low-tax jurisdictions for Brazilian tax
purposes (Treasure Ruling No. 1,037/10): American Samoa, American
Virgin Islands, Andorra, Anguilla, Antigua and Barbuda, Aruba,
Ascension Island, Bahamas, Bahrain, Barbados, Belize, Bermuda
Islands, British Virgin Islands, Brunei, Campione D’Italia, Cayman
Islands, Channel Islands (Alderney, Guernsey, Jersey and Sark),
Dominica, Cook Islands, Costa Rica, Cyprus, Djibouti, Federation of
Saint Christopher and Neveis, French Polynesia, Saint Kitts & Nevis,
Gibraltar, Grenada, Hong Kong, Isle of Man, Kiribati, Labuan,
Lebanon, Liberia, Liechtenstein, Macao, Madeira Islands, Maldives,
Mauritius Islands, Marshall Islands, Monaco, Monserrat Islands,
Nauru, Netherlands Antilles, Niue Islands, Norfolk Island, Occidental
Samoa, Oman, Panama, Pitcairns Islands, Qeshm Islands, Santa Lucia,
Saint Helena Islands, Saint Pierre et Miquelon Islands,
Saint Vincent & Grenadines, San Marino, Seychelles, Singapore,
Solomon Islands, Swaziland, Tonga, Tristan da Cunha,
Turks & Caicos Islands, United Arab Emirates and Vanuatu. Thus,
interest payable on loans to a low-tax jurisdiction is currently subject
to the 25 percent withholding rate, unless there is legal provision
regulating the withholding tax on the specific type of loan contracted.

Social Contribution Tax

Most entities are required to pay social contribution on net income
(CSLL). This is a true corporate income tax surcharge, at the rate of
9 percent. The reason it is levied separately from the corporate income
tax is that the CSLL has a different tax nature and it is destined to the
social security system.
Law 13,169/15 introduced an increase of the CSLL, which are as

follows:
1. Applicable to financial institutions - Increase to 20 percent on

the period between 1 September 2015, and 31 December 2018,
and 15 percent as from 1 January 2019
2. Applicable to stock exchange entities - Increase to 17 percent on

the period between 1 October 2015, and 31 December 2018, and
15 percent as from 1 January 2019
The tax basis for the CSLL is net income specifically adjusted for
CSLL purposes.
Similar to the IRPJ, there are basically two methods in calculating the
taxable profits for CSLL purposes - the actual profits method and the
presumed profits method. Under the actual profits method, taxpayers
may opt to calculate CSLL on a quarterly or annual basis. In the latter
case, monthly payments must be made on an estimated basis. Law No.
9,316/96 provides that the CSLL is no longer deductible from net
income for purposes of calculating IRPJ.
In the actual profits method, the negative basis of CSLL (tax loss for
CSLL purposes) can be used to offset taxable income from subsequent
periods, although only limited to 30 percent of the taxable income of
the period. Similar to tax losses for IRPJ purposes, the negative basis
of CSLL may be used to offset future taxable income without statute
of limitations.

Together with the maximum rate for IRPJ purposes, the combined
corporate income tax rate (i.e., federal income tax plus social
contribution on net income) for most companies is currently
34 percent.

(“CIDE”)
This is a contribution due from companies that: (i) own licenses for
the use of rights; (ii) acquire technological knowledge or (iii) are
parties to agreements that involve transfer of technology and are
executed between residents and nonresidents. As of 1 January 2002,
CIDE has also been levied on technical services, administrative
assistance and other similar services that do not involve the transfer of
technology. The CIDE is levied on the total amounts paid, credited,
delivered, used or remitted in each month to nonresident beneficiaries
as royalties of any kind and remuneration under the following
agreements:
1. Supply of technology
2. Technical assistance (technical assistance services and

specialized technical services)
3. Trademark license and assignment
4. Patent license and assignment
5. Agreements for the rendering of technical services,

administrative assistance and other similar services that do not
involve the transfer of technology
Specifically with respect to remittances abroad of software fees,

Law No. 11,452/07 provided that CIDE is not levied over remittances
to nonresident beneficiaries of payments of software license fees and
software distribution rights as long as there is no transfer of the source
code (“transfer of technology”). Although Law No. 11,452/07 was

enacted on 8 February 2007, the non-incidence of the CIDE has been

granted with retroactive effect as from 1 January 2006.
The rate is 10 percent of the amount paid, credited, delivered, used or

remitted monthly to nonresident beneficiaries of the items listed in the
preceding paragraph. The contribution is due by the last business day
of the fortnight following the month the royalty or fee is paid,
credited, delivered, used or remitted abroad.

(“CIDE”) on Fuels
This contribution is levied on the importation and commercialization
of certain types of fuel (i.e., oil, diesel, aviation kerosene and other
types of kerosene, fuel oil, liquefied petroleum gas, including those
derived from natural gas and alcohol fuel) at fixed amounts in Reais.
The CIDE shall be paid by the producer, blender or importer of fuels.

The taxpayer is allowed to deduct the CIDE from the PIS and
COFINS contributions levied on the sale of fuels, subject to the limits
of deduction provided for in the applicable legislation. This
contribution shall not be levied on the income derived from the
exportation of the products mentioned above.
Contribution for the Development of the National

Cinematography Industry (“CONDECINE”)
This contribution is levied on the exhibition, production, licensing,
and distribution of motion pictures and video phonographic works
with commercial purposes (per market segments). It is calculated at
fixed amounts based on the length of the work and it is due once every
five years.
Law No. 12,485/11 provided for new triggering events for the
CONDECINE contribution. According to the referred law, further to
the abovementioned, the contribution is levied on: (i) the provision of
services that might distribute, effectively or potentially, conditioned
audiovisual contents and (ii) the placement or distribution of

advertising audiovisual material that is included in international
programming and in which there is direct participation of a national
advertising agency.
The CONDECINE is also levied at an 11 percent rate on amounts

paid, credited, remitted, delivered or used by local agents to foreign
producers as a result of the exploitation of audiovisual works in Brazil
or their importation at a fixed price.
Federal Welfare Taxes

Two types of federal welfare taxes - PIS and COFINS - are due on
monthly gross revenues of any kind, with a few exceptions established
by tax legislation.
Laws No. 10,637/02 and 10,833/03 introduced the non-cumulative

system for calculating the PIS and COFINS, which apply to most
companies in Brazil. The main purpose of this legislation is to avoid
the cascading effect of those contributions through the grant of tax
credits. Therefore, currently, PIS and COFINS are levied on the
company’s gross revenues on a non-cumulative basis at the combined
rate of 9.25 percent with PIS at 1.65 percent and COFINS at
7.6 percent.
According to the non-cumulative system, the taxpayer is entitled to

credits related to these contributions in the following operations:
1. Acquisition of goods for resale, except goods and services

mentioned
2. Goods and services for use as input materials in the rendering of

service and the manufacture of products, including fuel and
lubricants
3. Consumption of electric and thermo power, also in steam form,

by the facilities of companies

4. Payment of leases of buildings, machines and equipment to

companies for the use thereof in the company’s operations
5. Lease expense derived from leasing transactions (“arrendamento

mercantil”), except for companies under the SIMPLES regime
6. Acquisition or manufacture of machines and equipment acquired

or manufactured to be leased to third parties or used in the
manufacture of products intended for sale and of other goods
incorporated to the fixed assets
7. Buildings and betterments in third-party real estate property to

be used in the company’s operations
8. Return of goods
9. Storage of goods and freight in sales, in case it represents a cost

supported by the seller
10. Meal coupons, transportation, uniforms provided to employees

by a company that explores activities of cleaning, conservation
and maintenance services; and
11. goods incorporated to the intangible assets, acquired for the

utilization in the production of goods destined to sale or in the
rendering of services;
These credits can be used by the company to reduce the PIS and
COFINS levied on revenues derived from subsequent transactions.
This non-cumulative system does not apply to: (i) the cooperative
organizations; (ii) immune or exempt companies; (iii) companies
taxed by income tax based on the presumed profit method;
(iv) corporate entities in the SIMPLES tax regime; and (v) revenues
derived from telecommunications, call center, telemarketing and
software related services and other specific activities. Pursuant to Law
No. 10,865/04, the taxpayers that are subject to higher tax rates
pursuant to the single-phase system of the PIS and COFINS, such as

the pharmaceutical and auto industries, are entitled to credits under the
non-cumulative system.
Furthermore, there is an express provision determining that PIS and

COFINS do not apply over: (i) the revenues resulting from the export
of products, the export of services whose payment represents the
inflow of foreign currency, and (ii) the revenues derived from
domestic sales to trading companies (empresas comerciais
exportadoras) with specific export purposes.
Since August 2004, financial revenues accrued by taxpayers subject to

the non-cumulative system of PIS and COFINS were subject to a zero
tax rate of these contributions (except those pursuing from interest on
equity and hedge). However, Decree 8,426/15 increased the tax rate
applicable to these specific revenues to 4.65 percent, with PIS at
0.65 percent and COFINS at 4 percent, as from 1 July 2015.
With respect to the tax basis of the PIS and COFINS under the
cumulative system, paragraph 1 of Article 3 of Law No. 9,718/98,
which enlarged the PIS and COFINS tax basis, was revoked by
Law No. 11,941/09. Such revocation was triggered by the decisions
rendered by the Federal Supreme Court, which determined that the
enlarged tax basis of the PIS and COFINS was unconstitutional when
it required the inclusion of “non-operational” revenues in the
PIS/COFINS tax basis for companies under the cumulative regime.
Finally, it should be noted that Law No. 12,973/14 has changed the
concept of “gross revenues” for the calculation of the PIS and
COFINS under the cumulative system. Accordingly, the “gross
revenues” for such purposes is now defined as: (i) the results of the
sale of goods in the company’s own account; (ii) the price of the
provisions of services in general; (iii) the result derived from
operations on behalf of third parties; and (iv) revenues derived from
the activity or main purposes of the company that are not comprised in
items i to iii. This definition has broadened the previous definition of
gross revenues by including items “iii” and “iv.”

PIS/COFINS - Import
Moreover, Law No. 10,865/04 introduced the taxation of PIS and
COFINS on imported goods and services. This law determines that
PIS and COFINS are due on imports of foreign goods into Brazil and
on the payment, credit, delivery, use or remittance of amounts to
nonresidents as payment for the services supplied.
The taxpayers thereof are all importers and companies or individuals

that contract the services of nonresidents. The general tax rate of the
PIS and COFINS contributions are as follows:
• Importation of goods:
o Tax rate - 2.1 percent and 9.65 percent
o Tax basis - Value for customs purposes adopted as the tax

basis for the import tax
• Importation of services:
o Tax rate - 1.65 percent and 7.6 percent
o Tax basis - Amount paid, credited, delivered, used or

remitted abroad, calculated before the withholding income
tax, plus the municipal services tax (ISS), and the PIS and
COFINS amounts
Import Duty
An import duty (II) is due upon customs clearance of imported
products on an ad valorem basis. The rate varies, depending on the
tariff classification of the product imported. Imports are also subject to
the PIS/COFINS-Import (as described above) and to the IPI and ICMS
(as described below). These taxes, along with II, are calculated as
follows: the II is levied on the CIF value of the imported product, the
IPI is levied on the CIF value plus II, and the ICMS is levied on the
CIF value plus II, IPI and ICMS itself.

Export Tax
An export tax (IE) is due at the time of export. The tax applies on an
ad valorem basis to a limited list of products. The tax rate varies,
depending on the type of product exported.
Excise Tax
The federal excise tax (IPI) is a federal value-added tax levied on
industrialized products as they leave the plant where they are
manufactured. The IPI is also due on imported industrialized products
upon importation and resale by the importer. IPI rates may vary
depending on whether the type of product is regarded as essential or
not.
The IPI is levied at each production stage of manufactured products

and on the import of manufactured products. This tax is paid on the
sale, transfer or importation of raw materials and intermediate
products, parts, components and the like, and can offset the IPI due on
subsequent transactions. The net effect is a tax on the value added at
each stage of production.
State Value-added Tax on Sales and Services (“ICMS”)

Similar to the IPI, the ICMS is another value-added tax on sales and
services, payable upon the importation of a product into Brazil and the
sale or transfer within Brazil, or as to certain communication and
intrastate and interstate transportation services, at the time the service
is rendered.
ICMS rates and tax benefits vary from state to state and depend on the
type of transaction (e.g., intrastate or interstate sale of goods,
communication or transportation services, etc.). Currently, the
ordinary rates in the State of São Paulo are: (i) 12 percent on
transportation services; (ii) 18 percent on products imported, sold or
transferred; and (iii) 25 percent on communication services.
According to Constitutional Amendment No. 33/01, the ICMS shall

be levied on importation carried out by legal entities as well as by
individuals, even if they are not considered taxpayers for ICMS

purposes, at an 18 percent rate.
Other rates may also apply depending on the specific product or

service.
Rates may also vary with respect to interstate transactions, normally

7 percent or 12 percent depending on the state of destiny of goods and
services. Since January 2013, the interstate transactions shall be
subject to the rate of 4 percent for transaction with imported goods
that: (i) have not been subject to further manufacturing or to goods or
(ii) after being subject to further manufacturing, have an Imported
Content (“Conteúdo de Importação”) ratio of over 40 percent.
Similar to the IPI and to the VAT existing in most European

jurisdictions, the ICMS system permits a given taxpayer to offset the
ICMS paid in acquired goods and services against the ICMS due on
subsequent taxable transactions (e.g., sale of goods and services
subject to ICMS tax). The difference is the amount due to the state
government.
Since 1 November 1996, importers/purchasers may take a credit for

the ICMS paid on imports and local purchases of fixed assets (which
were not permitted until 1 November 1996). Nevertheless,
Complementary Law No. 102/00 has introduced a new system for the
appropriation of the ICMS credits upon the acquisition of fixed assets,
so that the taxpayer is allowed to register the mentioned credits at a
monthly rate of 1/48.
For taxpayers with an excess of ICMS credits, some state regulations

provide for alternatives that permit the taxpayer to transfer such
credits. In the State of São Paulo, for example, state regulations
provide some alternatives through which the taxpayer with an excess
of ICMS credits can use the tax already paid (besides offsetting ICMS
debits). A taxpayer can: (i) transfer ICMS credits to any of its
branches or offices located within the State of São Paulo; (ii) transfer
the credits to an interdependent company, as defined in the
regulations; or (iii) use the credits to pay the purchases from a supplier

of raw material and/or certain fixed assets. Another option is to file a
special regime asking for partial or full suspension of the ICMS levied
on imports to mitigate the record of credits in excess. Other state
regulations may provide for other alternatives to use excess ICMS
credits.
Financial Transactions Tax

Decree No. 6,306/07, as amended, provides for the current IOF
regulations.
The IOF applies on several types of transactions such as credit,

exchange and insurance, as well as on transactions involving gold,
financial asset or exchange instruments.
The IOF-Credit applies on credit transactions of any nature. With

regard to credit transactions with determined principal amount of debt
and term, the IOF-Credit applies at a tax rate of 0.0041 percent in case
of credits granted to legal entities and 0.0082 percent) for individuals,
applicable per day.
The rates for credit transactions granted to legal entity shall be subject
to a maximum rate of 1.50 percent, plus an additional rate of
0.38 percent, which results in a maximum rate of 1.88 percent. For
individuals, the maximum rate shall be 2.99 percent, plus the
additional 0.38 percent, which results in a maximum rate of
3.37 percent.
In addition, for credit transactions where the term for repayment of the
credit is not determined, the IOF-Credit applies at a tax rate of
0.0041 percent for entities or 0.0082 percent for individuals
automatically multiplied by 365 days in case of credits granted to
legal entities and individuals, plus an additional rate of 0.38 percent,
which results in the 1.88 percent or 3.37 percent rate.
In case the principal amount of the credit transaction is not

determined, the tax basis of the IOF-Credit is the sum of the daily debt
balance calculated in the last day of each month. In such a case, the

IOF-Credit applies at a tax rate of 0.0041 percent for entities or

0.0082 percent for individuals, plus an additional rate of 0.38 percent,
without any limitation as to a maximum rate according to the
repayment term.
With respect to loans granted by nonresidents to Brazilian companies

since 7 October 2014, when the repayment term is lower 180 days, the
IOF levied on exchange transactions will apply at a 6 percent rate over
the principal amount of the loan.
For exchange operations carried out by Brazilian credit card

administration companies for the purpose of covering expenses of
clients incurred abroad, the IOF rate is currently fixed at 6.38 percent.
For the payment of imports of services, as well as for most of the

exchange transactions, the IOF-Exchange rate is 0.38 percent. One
major exception is the exchange contract for the acquisition of foreign
currency in cash, which is subject to the IOF-Exchange at a
1.10 percent rate. Payments for the import of goods are currently
exempted from IOF-Exchange.
Decree No. 6,306/07, currently in force, establishes that the

liquidation of exchange transactions related to general investments
made by foreign investors in the financial and capital markets are
subject to the IOF-Exchange calculated at a 0 percent rate. The
simultaneous exchange transactions for the purposes of converting a
foreign direct investment in a Brazilian company into investment in
shares traded in stock-exchange markets are also subject to a 0 percent
rate.
Finally, the IOF is also levied on financial operations involving: (i)

insurance, with the majority applicable rate being 7.38 percent;
(ii) securities, with the usually applicable rate of zero percent,
0.5 percent or 1 percent, limited to 1.5 percent; and (iii) transactions
involving gold, financial assets or exchange instruments, subject to a
1 percent rate.

Provisional Tax on Banking Transfer (Contribuição
Provisória sobre Movimentação ou Transmissão de
Valores e de Créditos de Natureza Financeira – “CPMF”)
Law No. 9,311, of 24 October 1996 created the CPMF tax under
temporary application. In 2003, the effects of the CPMF were
extended only until December 2007. Therefore, as of 1 January 2008,
the CPMF has been considered extinguished. The CPMF was applied
at a 0.38 percent rate on all banking transfers and withdrawals of
currency, such as the cashing of checks.
Tax on Transmission of Assets by Donation or Mortis

Causa (“ITCMD”)
The ITCMD is a state tax that is levied on the transmission of
movable or immovable assets as a result of donation or in the event of
the death of the owner. Currently in the State of São Paulo, the
ITCMD is levies at a 4 percent rate on the appraised value of the
movable asset, real estate or transmitted rights.
Municipal Services Tax

Federal regulations list specific services to which a municipal services
tax (ISS) applies. Rates vary from 2 percent to 5 percent, depending
on the type of service and the particular municipality in which the
party rendering the services is located.
Pursuant to the Complementary Law No. 116, the ISS Law, the ISS
shall be levied not only on services rendered in Brazil, but also on
“importation of services,” which refer to services originating overseas
or those initiated abroad. In such cases, each municipality may set
forth in the relevant municipal law that the recipients or agents of the
services in Brazil are responsible for collecting the tax due.
Complementary Law No. 116 also sets forth that the export of services
abroad shall not be subject to ISS, except for services developed in
Brazil and whose results also occur in Brazil, even if the payer is a
foreign resident.

Additionally, Complementary Law No. 116 lists several services that

shall be subject to the ISS taxation, including: (i) the assignment of
trademark use and propaganda signals; (ii) assignment or license of
use of computer programs; (iii) franchising; (iv) improvement,
reconditioning and congeners now extended to objects intended for
industrialization or commercialization; (v) maritime agency; and
(vi) installation and assembly of products, parts and equipment related
to the execution of civil construction works, among other things.
Real Estate Property Tax

The real estate property tax (IPTU) is a municipal tax levied annually
at progressive rates according to the appraised value and use of the
real estate (in the Municipality of São Paulo).
Real Estate Transfer Tax

The real estate transfer tax (ITBI) is a municipal tax on the transfer of
real estate. The rates may vary according to the actual value of the
transaction or the appraised value of the property, whichever is higher.
In the Municipality of São Paulo, however, a fixed rate of 3 percent
applies. There are exceptions to the general rule that must be analyzed
on a case-by-case basis.
Personal Income Taxation

Brazilian tax law distinguishes individual residents from nonresidents.
Generally speaking, a Brazilian national is automatically a resident
while legally domiciled in Brazil or, if not domiciled in Brazil, upon
his or her election to be treated as a resident for tax purposes.
As a general rule, payments for services from a Brazilian source to

nonresident individuals may be subject to a 25 percent withholding tax
rate.
Visas
Beginning 1 January 1999, temporary visa holders have been
considered residents for tax purposes from the moment they enter the

country to work under an employment contract. Accordingly, they
must deliver an annual tax return to include their worldwide income,
and payments are subject to progressive income tax rates 2 of
7.5 percent for income of BRL1,903.99 up to BRL2,826.65 per
month, 15 percent for income of BRL2,826.66 up to BRL3,751.05 per
month, 22.5 percent for income of BRL3,751.06 up to BRL4,664.68,
and 27.5 percent for income exceeding BRL4,664.68. Nevertheless,
under certain conditions and provided the expatriate’s country grants
reciprocity, resident expatriates are allowed to offset their Brazilian
tax liability with federal taxes paid abroad on foreign-sourced income.
The duration of the time period for this visa begins on the day the
foreigner enters Brazil, independent of the calendar year. The days
counted are only those days spent within the country, interrupted upon
the moment of exit from the country and recommenced upon return.
In addition to the above, holders of temporary visas entering the

country for reasons other than those indicated in an employment
contract are considered residents for tax purposes after 183 days of
stay.
Nonresident individuals who render services to a Brazilian party are

subject to Brazilian income tax on income received from Brazilian
sources - that is, from Brazilian residents, whether individuals or legal
entities. Brazilian-sourced income from salaries and wages are subject
to the standard 25 percent withholding income tax, while capital gains
are subject to the 15 percent withholding income tax, provided that the
beneficiary of such capital gain is domiciled in a regular-taxed
jurisdiction. If the beneficiaries of the capital gains are located in low-
tax jurisdictions, the tax rate is increased to 25 percent. This taxation
may be reduced or creditable abroad if a tax treaty is applicable.
Law 13,259/16 establishes that, for sales occurring as of

1 January 2017, capital gains will be subject to progressive rates
applicable to nonresidents and Brazilian individuals. The progressive
rates are the following: (i) 15 percent over gains that do not exceed
2
As of April 2016.
BRL5 million; (ii)17.5 percent over gains that exceed BRL5 million
but do not exceed BRL10 million; (iii) 20 percent over gains that
exceed BRL10 million but do not exceed BRL30 million; and (iv)
22.5 percent over gains that exceed BRL30 million.
In case of disposition in parts of the same asset or right, from the

second operation on, as long as it is performed up to the end of the
subsequent calendar year to the first operation, the capital gain must
be added to the gains earned in the previous transactions for purposes
of calculating the income tax based on the progressive rates described
above. In this scenario, the tax paid with respect to the previous
transactions must be deducted from the amount of the final tax due.
If a foreigner is awaiting the grant of a temporary or permanent visa or

authorization of a work permit, he may enter the country under a
business visa, but he may not be paid locally until the employment
authorization and appropriate visa are issued. Technically, the
foreigner is not working in Brazil, but is in the country on a business
trip. The foreigner must then return to the country of origin to receive
his/her temporary or permanent visa from the Brazilian Consulate
with jurisdiction over the permanent place of residence - that is, where
the foreigner has lived for at least 12 months prior to the application.
Transfer Pricing
Transfer pricing rules have applied in Brazil since 1 January 1997,
when Law No. 9,430/96 came into force. The system adopted is one
that determines the maximum amounts of deductible expenses and the
minimum amount of taxable revenues for Brazilian entities engaged in
transactions with related parties established outside of Brazil or cross-
border transactions that are deemed “controlled” under Brazilian laws.
General Aspects
The Brazilian transfer pricing rules provide for four methods to

determine maximum deductible expenses, costs and charges related to
goods and services or rights imported from a related party. The
methods are the following:

• Comparable Uncontrolled Price - CUP
• Resale Price Less Profits - RPM
• Production Cost Plus Profits - COM
• Exchange Import Price - PCI
Except for commodities that must necessarily be subject to the PCI,

Brazilian taxpayers exporting to a related party are subject to transfer
pricing scrutiny whenever the average sales price is lower than
90 percent of the average sales price carried with unrelated parties in
the Brazilian market during the same period and according to similar
payment conditions. If the average price with related parties is lower
than 90 percent of that used in the Brazilian market, the taxpayer is
subject to one of the five following methods:
• Average Price of Export Sales - CUP
• Wholesale Price in the Destination Country Less Profits - RPM
• Retail Price in the Destination Country Less Profits - RPM
• Acquisition or Production Cost Plus Taxes and Profits - CPM
• Exchange Export Price- PECEX
Related Parties (Treasury Ruling No. 1,312/12, Article 2)
The following parties are deemed as related parties of the taxpayer for
transfer pricing purposes:
• Its parent company, domiciled abroad
• Its branch or agency, domiciled abroad
• The person or legal entity, resident or domiciled abroad, whose

interest in the capital of the Brazilian taxpayer characterizes it as

controlling shareholder or affiliate party, as defined in the

Corporate Law
• The legal entity domiciled abroad that is characterized as a

controlled entity or an affiliate party of the Brazilian taxpayer, as
defined in the Corporate Law
• The legal entity domiciled abroad when such an entity and the
Brazilian taxpayer are under common corporate or
administrative control or when at least 10 percent of the capital
of each entity is owned by the same person or legal entity
• The person or legal entity resident or domiciled abroad that,

together with the Brazilian taxpayer, holds interest in the capital
of a third legal entity, whose sum characterizes them as the
latter’s controlling shareholders or affiliate parties, as defined in
the Corporate Law
• The person or legal entity, resident or domiciled abroad, that is

associated in the form of a consortium or condominium, as
defined by the Brazilian law, in any enterprise
• The person resident in Brazil who is a relative up to the third

family degree (as defined in the Brazilian Civil Code) and the
spouse or companion of the Brazilian company’s management or
direct or indirect controlling shareholder
• The person or legal entity, resident or domiciled abroad, which

has exclusive rights, as agent or distributor, to purchase and sell
the goods, services and rights of the Brazilian entity
• The person or legal entity, resident or domiciled abroad, which

has the Brazilian entity as exclusive agent or distributor to
purchase or sell goods, services or rights

Interposed party (Treasury Ruling No. 1,312/12, Article 2,
paragraph 5)
The transfer pricing rules also apply in case of transactions carried out
by an entity domiciled in Brazil through an interposed party (“third
party”) not considered a related party to the extent that such
interposed party deals with another party abroad who is considered a
related party of the referred Brazilian entity.
Low-tax jurisdictions and/or jurisdictions that prohibit disclosure of

equity ownership (Treasury Ruling No. 1,312/12, Article 52)
The transfer pricing regulations also apply to international transactions

carried out with a person or legal entity, whether related or not,
located in a so-called low-tax jurisdiction. For transfer pricing
purposes, a low-tax jurisdiction is deemed to be a country that taxes
income at a maximum rate below 20 percent. 3 The same list of
countries considered to be low-tax jurisdictions for withholding
income tax purposes is valid for transfer pricing purposes (Treasure
Ruling No. 1,037/10).
Jurisdictions that prohibit disclosure of equity ownership (Treasury

Ruling No. 1,312/12, Article 52)
Article 22 of Law No. 11,727/08 amended the provision related to

low-tax jurisdictions, provided in Law No. 9,430/96. In this context,
§4º was added in Article 24 of Law No. 9,430/96, setting forth that it
is also considered a country or a location with favorable taxation
where the legislation does not allow access to information related to
the corporate structure of the legal entity, its ownership, or the
identification of the actual beneficiary of the income attributed to
nonresidents. This provision is effective as from 1 January 2009.
3
The Ministry of Finance reduced the percentage to 17% for the countries,
dependencies and regimes that are aligned with the international standards of
fiscal transparency, in the terms to be defined by the Brazilian Federal
Revenue Department, notwithstanding the observance of the other conditions
provided by Articles 24 and 24-A of Law No. 9,430/96.
Privileged Tax Regimes
Additionally, Article 23 of Law No. 11,727/08 introduced two new

articles to Law No. 9,430/96. These articles aim to extend, as of
1 January 2009, the application of transfer pricing rules to the
transactions performed under privileged tax regimes. In this context,
Articles 24-A and 24-B were introduced to Law No. 9,430/96. Article
24-A, as amended by Law No. 11,941/09, defined in its sole
paragraph the privileged tax regime as one where one or more of the
following features are met: (i) where income is not taxed, or is taxed
at a maximum rate lower than 20 percent 4; (ii) where tax advantages
are granted to nonresident individuals or legal entities: (a) without
requiring any substantial economic activity carried out in the country
or location and (b) contingent to the absence of substantial economic
activity in the country or dependence; (iii) where the income earned
outside its territory is not taxed, or is taxed at a maximum rate lower
than 20 percent 5; and (iv) where access to information related to the
corporate structure, ownership of the goods/rights or the economic
transactions performed is not allowed.
In connection with the above, the Brazilian Federal Tax Authorities

published Treasury Rulings 1,037/2010 and 1,045/2010, which list the
jurisdictions or regimes that are considered privileged tax regimes for
Brazilian tax purposes. According to Treasury Rulings
No. 1,037/2010 and 1,045/2010 as amended by further regulations
(Declaratory Act nº 22/2010), the regimes that are currently treated as
privileged tax regimes are: (i) Uruguay (“Inversion Financial
Entities”- Safis); (ii) Denmark (holdings that don’t perform
substantive economic activity); (iii) Iceland (International Trading
Companies - ITC); (iv) United States of America (state Limited
Liability Companies – LLC, whose corporate ownership is composed
by nonresidents, not subject to the federal income tax); (v) Malta
(International Trading Companies – ITC and International Holding
Companies – IHC); (vi) the Netherlands (holding companies that do
4
Please refer to footnote 3.
5
Please refer to footnote 3.
not perform substantive economic activity) 6; and (vii) Switzerland
(legal entities in the form of holding company, domiciliary company,
auxiliary company, mixed company and administrative company
subject to a combined corporate income tax rate lower than 20 percent
or any other corporate legal forms which, by means of rulings issued
by the Swiss tax authorities, are subject to a combined corporate
income tax rate lower than 20 percent).
Methods Applicable to Imports of Goods, Services or Rights

Comparable Uncontrolled Price Method (Treasury Ruling No. 1,312/12,
Articles 8, 9, 10 and 11)
This method is defined as the arithmetical average of sales price of the

goods, services or rights, either identical or similar, prevailing in the
Brazilian or foreign markets on transactions of purchases and sales
under similar payment conditions. In other words, the taxpayer shall
compare its costs, expenses and charges of goods, services or rights
acquired from a related party, during a given period of time, with such
arithmetical average.
For identical goods, services and rights, Treasury Ruling No. 1,312/12
permits adjustments related to the following:
• Payment conditions
• Quantities negotiated
• Obligations related to warranty for the goods, services or rights
• Obligations related to the promotion of goods, services or rights

by means of marketing and advertising
6
Executive Declaratory Act No. 10/10, which suspended on 25 June 2010,
the inclusion of the Netherlands in the list of holding companies that do not
perform substantive economic activity, was revoked by Executive
Declaratory Act No. 3/15 on 21 December 2015.
• Obligations for quality control, standard of services and health

conditions
• Agency costs in purchase and sale transactions carried out by

unrelated parties
• Packaging
• Freight and insurance
For similar goods, services or rights, besides the adjustments listed

above, the regulations allow adjustments resulting from physical
differences or differences in content between the goods, services or
rights considered similar. In addition, for purposes of transfer pricing
regulations, two or more goods will be considered in similar
conditions of use when, simultaneously, they: (i) have the same nature
and function: (ii) are mutually replaceable; and (iii) have equivalent
specifications. Still with respect to the arithmetical average, only
transactions carried out between unrelated purchasers and sellers will
be taken into consideration for purposes of calculating the average. In
addition, it is important to note that neither Law No. 9,430/96 nor
Treasury Ruling No. 1,312/12 elects a preferred jurisdiction, whether
local, state or foreign, in which “uncontrolled prices” are adopted in
transactions between unrelated parties. Thus, a taxpayer may take into
account, for purposes of calculating the arithmetical average price of
goods, services or rights, “uncontrolled prices” adopted in either local,
state or foreign markets, or in import/export transactions, as well as in
transactions carried outside the Brazilian territory.
Treasury Ruling No. 1,312/12 established that, as of 1 January 2013,

the transactions used for calculating the CUP method must:
(i) represent at least 5 percent of the value of the imports subject to
transfer pricing control carried out by the Brazilian legal entity during
the calculation period related to the type of good, right or service
imported, in the event that the data used for the calculation is related
to its own transactions and (ii) correspond to uncontrolled prices of
the same calendar year of the respective import transactions subject to
transfer pricing control.
In case the transactions of the calculation period do not represent
5 percent of the value of the imports subject to transfer pricing
control, as mentioned in item “i” above, or in the event there is no
uncontrolled prices related to the same calendar year of the import
transactions, as mentioned in item “ii” above, it is possible to
complement the percentage with the imports performed in the
immediately preceding calendar year or prices related to transaction
carried out during the immediately preceding calendar year. For this
purpose, Treasury Ruling No. 1,312/12 provides for the formula to
calculate the exchange rate adjustment of the period.
Resale Price Less Profit Method (Treasury Ruling No. 1,312/12, Articles 12,
13 and 14)
The resale price less profit method can be utilized in two scenarios:
(i) when the imported goods, rights or services are consumed in
further manufacturing or production process or (ii) when the imported
goods, rights or services are re-sold exactly as imported. The resale
price less profit method (RPM) is defined as the arithmetical average
of resale prices of goods (in Brazil) less the following:
• Unconditional discounts granted
• Taxes and contributions imposed on sales
• Commissions and brokerage fees paid
• A profit margin based on the economic sector of the legal entity

subject to transfer pricing control, calculated over the sale price
after deducting the above three items and determined according
to a proportional calculation - The margins are as follows:
I. 40 percent to the following sectors:
a) Pharmaceutical and pharmaceutical chemical

products
b) Tobacco products

c) Optical, photographic and cinematographic

equipment and instrument
d) Machinery, apparatus and equipment for dental

medical and hospital use
e) Extraction of oil and natural gas
f) Products derived from petroleum
II. 30 percent to the following sectors:
a) Chemical products
b) Glass and glass products
c) Cellulose, paper and paper products
d) Metallurgy
III. 20 percent to other sectors
When establishing this method, Treasury Ruling No. 1,312/12 not

only defines the calculation of “parameter price” (preço parâmetro),
but also determines that this price should be calculated considering the
percentage of the imported goods, services or rights in relation to the
total cost of the manufactured product - the so-called proportional
calculation.
The resale price to be considered for purposes of this method is the

price adopted by the taxpayer in the wholesale or the retail markets
with unrelated purchasers, either individuals or legal entities.
Differences in payment conditions can be adjusted according to the
interest rate adopted by the taxpayer in its regular sales. If no interest
rate applies consistently, the adjustments in payment conditions
should be made according to interest rates provided for in the
regulations.

For purposes of calculating the proportional percentage of the
imported products for calculating the parameter price under the RPM,
the following shall not be included in the weighted average cost of the
imported good, right or service: (i) the value of the freight and
insurance incurred by the importer and paid to non-related parties (or
parties located in regular jurisdiction); (ii) the taxes levied upon
importation; and (iii) the expenses with customs clearance. On the
other hand, such amounts shall be considered for the calculation of the
total weighted average cost of the same product, which may result in a
lower parameter price.
Production Cost Plus Profits Method (Treasury Ruling No. 1,312/12, Article
15)
This method is defined as: (i) the average production cost of goods,
services or rights, either identical or similar, in the country where they
have been originally produced, and (ii) the taxes levied on exports in
such a country and a markup of 20 percent, calculated over the
production cost. The following items can be computed in the
(production) cost for purposes of this specific method:
• Acquisition costs of raw materials, intermediary products and

packaging material used in the production of goods, services or
rights
• The costs of other goods, services or rights used or consumed in

the production of the relevant goods, services or rights
• The cost of the personnel used in the production of goods,

services or rights, including those for production supervision,
maintenance and security of production facilities and
corresponding social charges
• Costs of rents, leases, maintenance and repair, and depreciation

and amortization charges of the goods, services or rights used in
the production of the relevant goods, services or rights

• Reasonable losses in the production process, since admitted by

the tax legislation in the foreign country
Exchange Import Price Method - PCI (Treasury Ruling No. 1,312/12, Articles
16 to 19)
The Exchange Import Price Method may be defined as the prices of

goods or rights subject to quotation in internationally recognized
future and exchange markets, adjusted upwards or downwards of the
average market premium, at the transaction date or at the date of
registration of the import declaration, if this date is not identified.
Besides the premium, the variations in the quality, characteristic and

substance content of the goods sold will also be considered. Moreover,
the commodity value may suffer adjustments related to the differences
of the value supported by the seller and the specifications of the
template agreement established by the exchange market or sectorial
research institutions, taking into account the specific business
conditions, sales conditions (Incoterm), conditions of content and
nature, and adjustments corresponding to the variables that are
considered in the commodity’s specific quotation such as: (i) payment
term; (ii) negotiated quantities; (iii) climatic influences in the
imported good characteristics; (iv) intermediation costs in the
purchase and sale transactions carried out by non-related companies;
(v) packaging; (vi) insurance and freight; and (vii) costs of landing at
the port, of internal transport, of storage and of customs clearance
including the import taxes and duties, all in the destination country of
the commodity.
This method must be applied in the hypothesis of commodities

importation, subject to quotation in internationally recognized future
and exchange markets performed as of 1 January 2013. The following
shall be considered as commodities for purposes of applying the PCI:
• The products listed in Annex I and that, cumulatively, are

subject to quotation in future and exchange markets listed in
Annex II, or that are subject to public prices in internationally

recognized sectorial research institutions listed in Annex III, all
Annexes of Treasury Ruling No. 1,312/12
• The products negotiated in exchange markets listed in Annex II

of Treasury Ruling No. 1,312/12
Methods Applicable to Exports of Goods, Services or Rights
The methods described in this item and in the following items apply
only when the average export price to related parties is lower than
90 percent of the average sales price in the Brazilian market with
unrelated parties. In other words, in case the export price does not
reach the 90 percent of the average sales price in the Brazilian market,
the taxpayer is, in principle, subject to one of the four methods
provided in the transfer pricing rules for export transactions. Note that
commodities are obliged to adopt the PECEX method.
Average Price of Export Sales Method (Treasury Ruling No. 1,312/12, Article
30)
The average price of export sales method is defined as the arithmetical

average of export prices adopted by the Brazilian taxpayer to
unrelated parties or by other domestic exporters of goods, services or
rights, either identical or similar, during the same period of calculation
of the corporate income tax and under similar payment conditions.
If the taxpayer does not export goods, services or rights to unrelated

parties, it is possible to compare the taxpayer’s export prices with
those adopted by local third parties that export identical or similar
goods, services or rights to unrelated parties.
Wholesale Price in the Destination Country Less Profits Method (Treasury
Ruling No. 1,312/12, Article 31)
This is defined as the arithmetical average of sales of goods, either

identical or similar, adopted in the wholesale market in the country of
destination, with similar payment conditions, after deducting the
following:
• The taxes computed on the sales price, charged in such a country

• A profit margin of 15 percent over the wholesale price

Retail Price in the Destination Country Less Profits Method (Treasury Ruling
No. 1,312/12, Article 32)
This is defined as the arithmetical average price of goods, either

identical or similar, adopted in the retail market in the country of
destination, with similar payment conditions, after deducting the
following:
• The taxes computed on the sales price, charged in such a country
• A profit margin of 30 percent over the wholesale price

Production Cost Plus Profits Method (Treasury Ruling No. 1,312/02,
Article 33)
This is defined as the arithmetical average acquisition or production

costs, including freight and insurance, of goods, services or rights
exported, including the taxes levied on exports in Brazil and a profit
margin of 15 percent over the sum of costs and taxes.
Exchange Export Price - PECEX (Treasury Ruling No. 1,312/12, Articles 34,
35 and 36)
The Exchange Export Price Method may be defined as the prices of

goods or rights subject to quotation in internationally recognized
future and exchange markets, adjusted upwards or downwards of the
average market premium, at the transaction date or at the date of the
shipping of the good on the exportation, if this date is not identified.
Besides the premium, it shall consider the variations in the quality,

characteristic and substance content of the goods sold. Moreover, the
commodity value may suffer adjustments related to the differences of
the value supported by the seller and the specifications of the template
agreement established by the exchange market or sectorial research
institutions, taking into account the specific business conditions, sales
conditions (Incoterm), conditions of content and nature, and
adjustments corresponding to the variables that are considered in the
commodity’s specific quotation, which are as follows: (i) payment

term; (ii) negotiated quantities; (iii) climatic influences in the
imported good characteristics; (iv) intermediation costs in the
purchase and sale transactions carried out by non-related companies;
(v) packaging; (vi) insurance and freight; and (vii) costs of landing at
the port, of internal transport, of storage and of customs clearance
including the import taxes and duties, all in the destination country of
the commodity.
This method must be applied in the hypothesis of commodities

importation, subject to quotation in internationally recognized future
and exchange markets performed as of 1 January 2013. It shall
consider as commodities for purposes of applying the PECEX the
following:
• The products listed in Annex I and that, cumulatively, are

subject to quotation in future and exchange markets listed in
Annex II or that are subject to public prices in internationally
recognized sectorial research institutions listed in Annex III, all
Annexes of Treasury Ruling No. 1,312/12
• The products negotiated in exchange markets listed in Annex II

of Treasury Ruling No. 1,312/12
Application to use a different margin (Treasury Ruling No. 1,312/12

and Ordinance No. 222/08)
It is possible to change the statutory profit margin set forth in the

transfer pricing rules applicable to imports and exports. To use a
different margin, the Brazilian taxpayer (or association representing a
sector of the economy) must file an application, together with other
documents, with the Ministry of Finance. After the application is filed,
the Federal Revenue Department together with the Ministry of
Finance will analyze the request, the term within the proposed margin
is intended to apply and the documents presented by the taxpayer.
Ordinance No. 222/08 provides detailed directives for filing a request
to amend the statutory profit margins including, for each method, the
documents and data that must be presented to the competent
authorities.

Market penetration
Before the enactment of Treasury Ruling No. 1,312/12, transfer

pricing rules provided for special treatment when a Brazilian exporter
was starting to sell its products in a new marketplace. In this case, the
regulations permitted an exporter to adopt a sales price lower than
90 percent of the average sales price in the Brazilian market, provided
that certain legal conditions were met, such as the approval of a
“exportation plan” presented to the Ministry of Finance.
However, the provisions mentioned above were excluded from the

transfer pricing rules upon the enactment of Treasury Ruling No.
1,312/12. Therefore, such provisions no longer apply since 1 January
2013.
Intercompany loans and financial transactions (Treasury Ruling No.

1,312/12, Articles 38, 38-A and 39)
For agreements executed until 2012, the previous rules applicable to

the deductibility of interest should continue to apply, provided that the
taxpayer has not elected the application of the new transfer pricing
rules in 2012 (as provided by Article 56 of Treasury Ruling
No. 1,312/12).
In other words, for agreements executed until 2012, the interest paid
or credited to related companies or under the other transactions subject
to the transfer pricing rules should be deductible based on the interest
rates registered before the Brazilian Central Bank. If such agreements
were not registered, the interest should be deductible up to the amount
not exceeding the value calculated based on the London Interbank
Offered Rate (LIBOR) for deposits made in dollars from the
United States of America for a six-month term, plus a 3 percent
annual spread.
For agreements executed as of 2013, interest paid or credited to

related companies or under the other transactions subject to the
transfer pricing rules is only deductible up to the amount not
exceeding the following interest rates, increased by a spread based on
the market average to be defined by the Minister of Finance:
1. In case of transactions performed in US dollars with a prefixed
rate, the sovereign bonds of the Federal Republic of Brazil
issued in the foreign market in dollars from the US
2. In case of transactions performed abroad in Brazilian Reais with

a prefixed rate, the sovereign bonds of the Federal Republic of
Brazil issued in the foreign market in Brazilian Reais
3. For the remaining transactions, the LIBOR during a six-month

term
The spreads over the parameter interest rates have been disclosed by
the Ministry of Finance in Ordinance No. 427/2013. According to its
Article 1, for the loan transactions in which the Brazilian company
pays interests to a foreign-related party, a 3.5 percent spread over the
parameter rates may be considered to determine the maximum amount
of deductible interest expenses as of 1 January 2013.
For loan transactions in which the Brazilian company accrues interest

revenues (and, thus, must determine the minimum amount of taxable
revenue for transfer pricing purposes), Article 2 of Ordinance
No. 427/13 has established that a 2.5 percent spread over the
parameter interest rates should be added as of 2 August 2013. For
operations that occurred between 1 January 2013, and 2 August 2013,
the spread may be 0 percent, as determined by the sole paragraph of
Article 2.
Safe Harbors of Exports (Treasury Ruling No. 1,312/12, Articles 48.

49 and 50)
In addition to the “Safe Harbor” for exports, when the average export
price to related parties is lower than 90 percent of the average sales
price in the Brazilian market with unrelated parties, the legislation
provides for other “Safe Harbors.” However, these other
“Safe Harbors” cannot be characterized as perfect “safe harbors,”
particularly because the tax authorities have the power to not accept
the amount of revenues recognized by the taxpayer in accordance with
those “safe harbors.”

Treasury Ruling No. 1,312/12 provides as follows:
• The taxpayer that, before the provision of income tax and social
contribution on net income, has a minimum 10 percent net profit
on its total export net revenues to related parties can demonstrate
its compliance with the transfer pricing rules only with the
documents of the export transactions with related parties. The
10 percent net profit must be calculated based on the annual
average profit of the current year and the two precedent years.
The referred “safe harbor” only applies when the net revenues of
exports to related parties are higher than 20 percent of the total
export net revenues. In the calculation of the net profit
corresponding to these exports, the costs and expenses common
to all sales shall be shared according to the respective net
revenue. The calculation of this safe harbor cannot encompass
sales transactions of rights, goods or services whose profit
margin has already been changed through a formal request for
ruling with the Ministry of Finance. Note that, before the
enactment of Treasury Ruling No. 1,312/12, the “safe harbor”
percentage was 5 percent and there was no obligation that the
net revenues of exports to related parties be higher than
20 percent of the total export net revenues. Those previous rules
are only applicable until 2012 and, as of 1 January 2013, the new
rules described above must be applied.
• The taxpayer whose export net revenue in the calendar year does
not exceed 5 percent of its total net revenue in the same period
may demonstrate its compliance with the transfer pricing rules
with the export documents only.
As mentioned above, these safe harbors are not perfect as they only
shift the burden of proof to the tax authorities to demonstrate that the
prices are not arm’s-length.
The safe harbors do not apply in case of sales transactions of rights,

goods or services to buyers domiciled in low-tax jurisdiction or in
jurisdiction that prohibits disclosure of equity ownership.

Book Adjustments (Law No. 10,637/02)
In case the acquisition cost exceeds the highest deductible amount

determined according to the methods provided for in
Law No. 9,430/96, Article 45 of Law No. 10,637/02 established
proceedings for the adjustment of the acquisition cost of goods, rights
and services imported from related companies. Accordingly, the
excess shall be debited from the accumulated profits account and
credited to: (i) the asset account where the acquisition of the goods
was registered or (ii) the specific account of cost or expense, in case
the relevant asset has already been written-off.
Supporting Documentation
In Brazil, the taxpayer has the burden of proof to demonstrate

compliance with transfer pricing rules. Otherwise, the tax
administration may start an administrative proceeding. The costs and
average prices to which Law No. 9,430/96 refers must be based on
either: (i) official information and reports from the importing or
exporting country or research conducted by companies or
(ii) institutions with renowned technical expertise.
Informative Return
There is no specific Transfer Pricing Return. Taxpayers need to

inform in their annual tax return (ECF) the existence of any
relationship with related individuals or legal entities domiciled abroad.
Information on transactions with related parties that are resident
abroad should be filed in an appendix to the Annual Tax Return.
Moreover, Law No. 12,546/11, regulated by Treasury Ruling

No. 1,277/12, sets forth the obligation to provide information related
to transactions entered between entities resident or domiciled in Brazil
and those resident or domiciled abroad involving services, intangibles
and other transactions that result in variations in the assets of
individuals, legal entities or entities without legal personality, based
on Brazilian Nomenclature of Services and Intangibles (NBS) created
on 2 April 2012, by Decree No. 7,708. Such information shall be
provided in an electronic system named “Integrated System of Foreign

Trade of Services and Intangibles – SISCOSERV.” Such system is

available in the Taxpayers Assistance Virtual Center (e-CAC) since
1 August 2012.
The referred obligation of providing information on SISCOSERV

applies regardless of the relationship between the Brazilian and
foreign parties and the applicability of the transfer pricing rules.
Place and Date of Filing
Taxpayers must file their annual income tax return and, consequently,
their information related to transfer pricing according to the periods
established every year by the Federal Revenue Services regulations.
For calendar year 2016, filing was up to the last business day of June.
Transfer Pricing Adjustments
For goods, services and rights imported from a related party, the
taxpayer must prove that the corresponding costs, expenses and
charges do not exceed the maximum deductible expenses under
at least one of the three methods set forth by transfer pricing
regulations. Otherwise, the tax authorities may challenge the
exceeding deduction. The exceeding amount shall be added back as
taxable income and will thus be subject to corporate income tax at the
rate of 15 percent plus a surtax of 10 percent. The 9 percent social
contribution on adjusted income (CSLL) also applies on the exceeding
amount.
Penalties
The penalty for incorrect information or omissions in the company’s

tax return is 3 percent of the incorrect or omitted amount, but no less
than BRL100 (approximately USD31), but this may be reduced in
case the taxpayer corrects the omission or incorrect information as per
the tax authorities’ instructions.
In case the taxpayer decides to pay the overdue tax before the
corresponding tax assessment, the penalty is 0.33 percent per day
limited to 20 percent. However, if during a tax investigation the tax

authorities conclude that the taxpayer was supposed to pay additional
tax, the authorities will file a tax assessment and charge a 75 percent
penalty on the unpaid tax, plus interest for the delay.
Reductions
If the taxpayer decides to pay within 30 days as from the tax

assessment, there is a 15 percent discount on the 75 percent penalty. If
the taxpayer decides to pay within 30 days as from the administrative
decision, there is a 30 percent discount on the penalty.
Thin Capitalization Rules

The federal government enacted on 15 December 2009, Provisional
Measure No. 472/09, which, among other changes, established
limitations regarding the deductibility of accrued interest in case of
loans executed with foreign related parties and/or with lenders
domiciled in low-tax jurisdictions or subject to a privileged tax
regime.
This Provisional Measure was converted into Law No. 12,249/10.
The new rules of thin capitalization are divided in two kinds: (i) rules
applicable to transactions with related parties, except for transactions
with parties subject to a privileged tax regime or domiciled in low tax
jurisdictions and (ii) rules applicable to transactions under a privileged
tax regime or carried out with parties domiciled in low-tax
jurisdictions.
Rules applicable to transactions with related parties, except for

transactions with parties subject to a privileged tax regime or
domiciled in low-tax jurisdictions
Debt equity ratio of 2:1
Without prejudice to the rules limiting the deductibility of interest

expenses foreseen in the Brazilian transfer pricing legislation, the
interest paid or credited by a Brazilian source to related legal entities
or individuals, residing or domiciled abroad, will be deductible within

the fiscal year for purposes of calculating the corporate income taxes
if they cumulatively meet the following requirements:
• In case of the debt funding with a related entity abroad with

corporate interest in the Brazilian company, the sum of the debt
funding, verified on the date of the accrual of the interest, must
not exceed two times the amount of equity participation of the
related foreign party in the net equity of the Brazilian company.
• In case of debt funding with a related entity abroad with no

corporate interest in Brazilian company, the sum of the debt
funding, verified on the date of the accrual of the interest, must
not exceed two times the amount of the net equity of the
Brazilian company.
For purposes of the calculation of the total debt funding, every form
and term of financing must be considered by the Brazilian company,
regardless of the registry of the contract with the Brazilian Central
Bank.
This rule also applies to debt funding transactions raised by Brazilian

entities whereby the guarantor, legal representative or any intervening
party is a related party.
In case any excess is verified in what concerns the limits set in items I
and II above, the exceeding interest will be considered an unnecessary
and non-deductible expense in the calculation of the corporate income
taxes.
Additionally, the new requirements for the tax deduction of the

interest expenses do not exclude the existing deductibility requirement
prior to the new rules, according to which the expenses and costs will
only be tax-deductible if they are necessary, usual and normal in the
taxpayer’s activities.
Rules applicable to transactions under a privileged tax regime or

carried out with parties domiciled in low-tax jurisdictions

Debt equity ratio of 0.3:1
Similar to the rules cited above, whenever the interest is credited or

paid by a Brazilian source to any individual or legal entity residing,
domiciled or organized in a low-tax jurisdiction or subject to a
privileged tax regime according to Articles 24 and 24-A of
Law No. 9,430/96, the amount of the debt funding meeting such
specifications will have to observe a limit of 30 percent of the net
equity of the Brazilian party, regardless of any effective equity
participation held by the foreign party in the Brazilian entity.
In case any excess is verified in what concerns the limits of this case,
the exceeding interest will be considered an unnecessary and non-
deductible expense in the calculation of the corporate income taxes.
On 13 May 2011, the Brazilian Federal Revenue issued

Treasury Ruling No. 1,154 (IN 1,154/11) in order to regulate
Articles 24, 25 and 26 of Law No. 12,249/10.
One of the most relevant news introduced by the new regulations was
the clarification of the calculation of total indebtedness, as well as the
calculation of the net equity value for the purposes of application of
the deductibility limits.
Article 7 of IN 1,154/11 determines that the overall indebtedness, for

the purposes of calculating the deductibility limits, shall be verified
based on the monthly weighted average, corresponding to the daily
sum of indebtedness divided by the number of days of the
corresponding month. Such monthly weighted average shall be added
in each tax period (i.e., quarter or annual) and divided by the
corresponding number of months. Also, the regulation establishes as
basis for the application of the limits over net equity the latest balance
sheet of the company or, optionally, the net equity added by the results
obtained until the month preceding the accrual interest.
Furthermore, IN 1,154/11 determines that the monthly amount of

deductible interest shall be verified by the ratio between the maximum
allowed indebtedness limit and the actual indebtedness of the

Brazilian company, multiplied by the total interests cost or expense of

the period. In case the annual income tax is calculated with monthly
anticipations based on interim balance sheets, the calculation of the
deductibility of interests will be made monthly and computed in the
monthly income tax payments, with the final assessment of the overall
non-deductibility being made at yearend.
The Treasury Ruling also clarifies that incurred and unpaid interests
should be computed as total indebtedness in the calculations. It also
clarifies the treatment applicable to mergers, acquisitions, spin-offs,
dissolutions and liquidations.
Another clarification brought by IN 1,154/11 refers to the application

of the 2:1 debt/equity ratio on transactions where the creditor,
individual or legal entity characterized as related party, is resident in a
jurisdiction subject to regular taxation, but the guarantor, attorney-at-
law or intervenient party is domiciled in a low-tax jurisdiction or
subject to a privileged tax regime. In reverse, the Treasury Ruling
establishes the 0.3:1 debt/equity ratio to transactions where the
creditor is domiciled in a low-tax jurisdiction or subject to a privileged
tax regime, but the guarantor, attorney-at-law or intervenient party is
an individual or legal entity characterized as a related party that is
resident in a jurisdiction of regular taxation.
The regulations also exclude the applicability of the thin capitalization

limits in case of indebtedness with creditors that are resident or
domiciled in Brazil, even if the guarantor, attorney-at-law or any
intervenient party is an individual or legal entity, characterized as a
related party that is resident or domiciled abroad, or domiciled in a
low-tax jurisdiction or subject to a privileged tax regime. However, in
case the Brazilian entity defaults payment and the guarantee is
executed, the transaction becomes subject to thin capitalization rules
(i.e., 2:1 or 0.3:1, as applicable) with respect to interests accrued as
from the date in which the guarantor, attorney-at-law or any
intervenient party pays the debt in Brazil.
Another relevant innovation brought by IN 1,154/11 refers to the

express provision regarding the application of the thin capitalization
rules to the following transactions commonly named “back-to-back”:
(i) a nonresident corporate entity providing resources to a related
recipient in Brazil through a financial institution that figures on the
transaction merely as an intermediary party and (ii) a Brazilian legal
entity that figures as the creditor merely acting as an intermediary
party between the nonresident guarantor or attorney-at-law and the
recipient of the resources in Brazil.
Moreover, the new Treasury Ruling detailed the definition of on-

lending transactions, which should be characterized as the granting of
credit linked to funding obtained abroad, in which the transferring
institution transfers to the on-lender, individual or legal entity in
Brazil the foreign exchange risk, when the transaction is fixed in
foreign currency, under the same indexation of the funding obtained
abroad, with no charges other than the intermediation fee. In case
these transactions are carried out by certain types of institutions, the
thin capitalization rules should not apply. It should be noted, however,
that IN 1,154/11 restricted the scope of Law No. 12,249/10 by not
including in the list of institutions subject to the referred exception the
brokerage companies, securities dealers, private insurance and
capitalization companies, independent insurance and credit agents,
and private pension entities.
Finally, IN 1,154/11 has excluded from the application of the

debt/equity ratio transactions that are related to funding obtained
abroad by means of the issuance of securities, held by legal entities
domiciled in Brazil, subject to certain conditions. Similarly, it
excluded transactions made by investors resident or domiciled abroad,
individual or collective, whose investments in Brazil are carried out in
accordance with CMN Resolution No. 2,689/00.
Deductibility of Payments Abroad to Low Tax Jurisdictions

and Privileged Tax Regimes
In addition to the thin capitalization rules, Article 26 of Law No.
12,249/10 states that the amounts paid, credited, delivered, employed
or remitted under any title (except for the interest on equity - IOE),
either directly or indirectly, to individuals or legal entities domiciled
in low-tax jurisdictions and jurisdictions of privileged tax regimes will

not be deductible in the calculation of the corporate income taxes,
unless the following facts are cumulatively evidenced:
1. Identification of the effective beneficiary of the payment

overseas
2. The operational capacity of the nonresident individual or legal

entity performing the transaction
3. The documental proof of payment of the respective price and the

receipt of the goods, services or the utilization of the right
transacted

Immigration
Business Visa
In order to make business contacts, evaluate markets or coordinate
business activities with companies in Brazil, a business visa is
generally the most appropriate type of visa (except when the trip
involves the provision of technical assistance). Under a business visa
the expatriate may have business contacts and meetings in the country,
but may not provide any services to or receive any remuneration from
a Brazilian company.
Under current legislation, foreign business people may apply for a

business visa valid for a term of up to ten years, with a maximum stay
of 90 days (or 180, depending on the foreigner's nationality and if an
extension is duly requested to and granted by the Federal Police) per
each 12-month period, which starts on the first day of entry of the
foreign national in Brazil on the business visa.
Additionally, only the days spent within the country count towards the
90-day period. Thus, the business visa's 90-day period will begin on
the date the foreigner enters Brazil, and the count will stop when
he/she leaves Brazil, to resume upon his/her return.
Temporary Work Visas (main types)
If a longer stay is necessary, a temporary visa and work permit may be
available for foreigners entering Brazil to work for a Brazilian
company, either under an employment agreement or pursuant to a
technical assistance agreement. Unless otherwise noted, the
temporary visa under an employment agreement is valid for up to two
years, with the possibility of converting into a permanent visa. A
temporary visa for the provision of technical assistance is valid for up
to one year, renewable for an equal period, unless specified differently
by agreement or by specific regulations concerning certain types of
temporary visas.

The main characteristics of the “temporary visa under an employment

agreement” and the “temporary visa based on a technical assistance
agreement” are, respectively:
1. The expatriate is included on the Brazilian company’s payroll,

under an employment agreement. In this case, the expatriate’s
worldwide income will immediately become subject to Brazilian
taxation;
2. The Brazilian company and the foreign company sign a technical

assistance agreement (other types of agreements, such as covenant
and cooperation agreements, are also accepted). The expatriate
provides technical assistance services to the Brazilian company,
and remains on the foreign company’s payroll. In this case, the
expatriate’s income is subject to Brazilian taxation after the
expatriate has stayed 183 days in Brazil.
There are different types of temporary visas based on technical

assistance that may be more appropriate if the foreigner does not need
to stay in Brazil for a long period. If the foreigner providing the
technical assistance does not need to stay in Brazil for more than 90
days, a “short-term technical assistance temporary visa” may be
granted without the expatriate having to comply with all requirements
needed for the ordinary Technical Assistance Temporary Visa.
Regulation nº 100/2013 establishes that a technical assistance visa
may be granted for a period of 90 days. This 90-day visa, although a
type of work visa, may be issued directly by a Brazilian Consulate
abroad without consultation with the Ministry of Labor. The 90-day
visa is only issued once every 180 day period.
Another type of technical assistance temporary visa may be granted

when a foreigner needs to enter Brazil urgently in order to render any
kind of technical assistance service, as long as the applicant is able to
provide strong evidence of the urgency/damage, and that the situation
that caused the urgency was unexpected. This urgent visa also does
not require consultation with the Ministry of Labor to be granted as
other types of working visas do. Normative Resolution nº. 61/04

allows for temporary visas to be issued in cases of emergency for
those petitioning under the temporary visa category for the provision
of technical assistance. The visa may be issued by the Brazilian
Consulate in the applicant's residential jurisdiction and is valid for 30
days, no renewals allowed. In addition, the emergency temporary visa
may be granted only once every 90 days to the same person.
Permanent Work Visas
Permanent visas related to work permits are available to foreigners
who are appointed to management positions in Brazil, as evidenced by
the articles of organization of the Brazilian company sponsoring the
visa application. With a permanent visa and work permit, the
expatriate’s worldwide income will immediately become subject to
Brazilian taxation.
The rules that govern applications for permanent working visas also
refer to permanent visas for members of the board of directors of a
Brazilian company.
Under such rules, members of the board of directors are advised to

obtain a permanent work visa (valid for up to five years as long as it is
in accordance with the established deadlines in the Brazilian
company's corporate documents). However, if the board member
obtains another position within the Brazilian company, then he/she
may need to apply for a concomitancy work visa that will allow
him/her to hold that second position in the company.
If an expatriate comes to Brazil under a permanent visa, as an Officer,

Manager, Director or Executive Director of the Brazilian company,
he/she will be required to fulfill one of the following minimum capital
requirements in order to obtain the visa: (i) investment in foreign
currency of an amount equal to or greater than BRL 600,000.00; or
(ii) investment in foreign currency of an amount equal to or greater
than BRL 150,000.00, plus the commitment to create a minimum of
10 new employment positions for Brazilian employees in the
following two years.

It is also possible to apply for a permanent visa as a Foreign Private

Investor, by investing foreign-owned funds from external sources into
new or existing Brazilian companies. To obtain this type of permanent
visa, the foreigner will be required to invest at least BRL 500.000,00
to be allocated to a new or existing Brazilian company.
Restrictions on Brazilian Companies
Brazilian companies are not allowed to hire expatriates who do not
hold proper work visas. A violation of this rule may subject the
Brazilian company to fines and the company’s officers to criminal
sanctions.
Application Process
An application for a work permit is submitted to the Immigration
Coordination of the Labor Ministry. When the work permit is
approved, the Immigration authorities will instruct the Brazilian
Consulate in the applicant’s residential jurisdiction to issue the proper
work visa to the applicant and his or her dependents, when applicable.
The Brazilian Consulate will require additional supporting documents

to issue the visa. These additional documents may vary from consulate
to consulate but will generally include: passports, a non-criminal
background check, and marriage and birth certificates.
If the applicant is already in Brazil, for example, under a tourist visa,

note that conversion from one visa to another inside the country is not
permitted, therefore a trip back to the applicant's home country will be
required in order to collect the proper work visa from the
corresponding Brazilian Consulate.
After arriving in Brazil under the proper work visa, the applicant has
up to 30 days to apply for a Brazilian identity card, the National
Registry of Foreigners, usually referred to as RNE or CIE, taxpayer
registration number, and labor card (when applicable).

Applicants may enter Brazil on a business visa during the application
process, either to make business contacts on behalf of the foreign
company, close business deals, attend meetings, conferences, trade
fairs, seminars, visit potential customers or to make arrangements for
the transfer (e.g., to secure housing and look for schools for their
children), but they may not work for the Brazilian company or be
included on the payroll until the work permit has been duly issued and
the visa obtained.
[Revised as of May 2017]

Competition/Antitrust Laws
Legislation and Scope. On 29 May 2012, Law No. 12,529/11 came
into force (the “Brazilian Competition Act" or "BCA") and brought
significant changes to the antitrust regulations, in particular with
respect to the structure of the relevant agencies and to the rules for
merger notification.
The BCA sets forth that any conduct of which the object is or has the
potential to create one of the following anti-competitive effects is an
antitrust violation: (i) limiting, distorting or in any way hindering
competition, (ii) dominating a relevant market for goods/services, (iii)
arbitrarily increasing profit; and (iv) abusively exercising a dominant
position. These conducts may involve restrictions directed either to
players who are active in the same relevant market of the offender(s)
(horizontal restrictions) or to players active in markets vertically
related to the market in which the offender holds a dominant position
(vertical restrictions).
Pursuant to the BCA, not only are companies liable for wrongdoing,
but managers, officers and other entities within the same group of
companies involved in the violation may also be deemed responsible.
Structure of the antitrust authorities. The Administrative Council

for Economic Defense ("CADE”) is a two-tier structure, as follows: (i)
Superintendence-General headed by a Superintendent-General and
two deputy superintendents, whose responsibilities include
preliminary enforcement functions regarding investigations into
anticompetitive conduct, as well as the review of merger notifications
and clearing directly those notifications that do not raise competition
concerns 7, and; (ii) an Administrative Tribunal, which has a decision-
making role in the system. The Tribunal issues final decisions in
7
For complex cases, the Superintendence-General can recommend imposing
restrictions, which are decided by the CADE Tribunal (composed of seven
commissioners). Clearance decisions by the Superintendence-General can be appealed
to the Tribunal by third parties, or reviewed by the Tribunal upon a request from one
of the Commissioners.

antitrust investigations, and also in merger notifications when the
transaction has been blocked by the Superintendence-General, a third-
party has appealed a clearance decision issued by the
Superintendence-General, or a commissioner indicates the case for
further review.
Violations of Antitrust Laws. The BCA provides a list with

examples of conduct that may be considered an antitrust violation
should their object or potential effects be among those prohibited,
such as:
• fixing prices in collusion with a competitor, allocating markets

among competitors, rigging bids;
• limiting or hindering access of new companies to the market;
• regulating markets by agreement, aimed at controlling

technological research and development of the production of
goods and services;
• unjustifiably refusing to sell goods or render services within

normal payment terms;
• abusively exercising or exploiting an industrial, intellectual or

technological property rights;
• selling goods or rendering services below cost, aimed at

eliminating competition;
• imposing resale prices, discounts, sales conditions, minimum and

maximum quantities and profitability upon distributors and
retailers; and
• discriminating against business relations where the other party

refuses to comply with terms or business conditions that are
unreasonable or anticompetitive.

Merger Filings. The BCA has a restrictive list of transactions subject

to mandatory pre-merger notification, namely: typical merger and
acquisition transactions (acquisition of companies or part of
companies, shares, even acquisition of minority shareholding is
reportable, stock and assets), associative agreements, consortia and
joint ventures, except those formed for purposes of participation in
public bids. The filing thresholds are as follows: (i) one of the parties
to the transaction must have had revenues in Brazil, in the year prior
to the transaction, in excess of BRL 750 million (approximately USD
229.6 million); and (ii) at least another party involved must have had
revenues in Brazil in excess of BRL 75 million (approximately USD
22.9 million). The revenues considered are those of the parties’
economic group (not just revenues of the buyer and the target) and, for
the purposes of defining "economic group," Brazilian regulations state
that one has to consider: (i) all companies that are controlled directly
or indirectly by the same parent company or individual; and (ii) all
companies in which any of the companies identified in item (i) holds a
participation in excess of 20% directly or indirectly in the corporate or
voting capital. Nonetheless, authorities can request the notification of
any transaction that does not meet these thresholds up to one year after
closing, with powers to order divestitures.
Notification to the Authority. The BCA establishes a pre-merger

notification regime, which requires parties to wait for approval by the
Brazilian antitrust authorities before closing a transaction. There is no
filing deadline, but transactions cannot be implemented before
clearance by the Brazilian authorities, subject to heavy fines.
Therefore, the parties must keep the physical structure and the
competitive market conditions unchanged until final approval by the
authorities, and any transfer of assets or any influence of one party
over the other, as well as any exchange of competitive-relevant
information is prohibited, unless strictly necessary for the execution of
the agreements related to the transaction. Failure to report a
transaction prior to its implementation might render it null and subject
the parties to fines ranging from BRL 60 thousand to BRL 60 million
(approximately USD 18.3 thousand to USD 18.3 million).
Notwithstanding the above, the regulations also provide an exception

to this rule, establishing the possibility to request "a preliminary
implementation" of the transaction before clearance, but only if: (i) the
transaction does not impose immediate harm to competition; (ii) the
measures to implement the transaction are entirely reversible; and (iii)
the parties are able to prove that if such measures are not taken, the
acquired company might suffer immediate and irreparable financial
harm. The authorities must analyze the request for preliminary
implementation within 30 days of its submission.
Maximum review period is 330 days (calendar): 240 days for the
"regular analysis" with a possible 60-day extension (at the request of
the parties) or a 90-day extension (by decision from the authorities).
Should the authorities not issue a final decision within the 330-day
period, the transaction is automatically cleared (although this is not
expressly provided in the BCA, it has been the position of the
authorities so far). There is a fast-track procedure in place for
reviewing transactions that have no or very little possibility of causing
competitive harm, such as: (i) classic or cooperative joint ventures; (ii)
substitution of an economic agent; (iii) low market share (less than
20% of the horizontal overlap or less than 30% of the market share in
the vertically integrated markets); and (iv) low market share increase
(provided that the combined market share is not higher than 50%).
The fast-track procedure is applied at the authorities' discretion;
CADE’s internal regulation establishes a 30 calendar day period to
review these cases – any delay must be reported and justified to
CADE’s President.
Enforcement. Corporate fines for antitrust violations range from 0.1

to 20% of the revenues accrued by the company in the industry
segment related to the market affected by the conduct under
investigation, in the fiscal year before the administrative proceeding
was initiated. The CADE Tribunal may, however, adopt a narrower
cut for the base revenue, should using the industry segment revenue
result in a disproportional sanction. The BCA establishes aggravating
and mitigating circumstances that must be taken into account by the
authorities in calculating the fine.

Individuals who take part in antitrust violations may also be

sanctioned. Higher-level officers may be fined from 1%-20% of the
fine imposed on the corporate defendant, while lower-level employees
may be fined a minimum of BRL 50 thousand (approximately USD
15.3 thousand) up to BRL 2 billion (approximately USD 612.4
million).
Foreign companies may be notified through their Brazilian subsidiary,

agency, representative or local office, regardless of a power of
attorney or statutory provisions, even when the local office was not
involved in the violation.
Antitrust violations may also be deemed criminal offenses. Criminal

sanctions for antitrust violations that took place after the BCA came
into force range from 2 to 5 years of imprisonment and a fine.
Therefore, for antitrust criminal offenses that took place from 29 May
2012, it is not possible to apply for the conditional suspension of the
criminal lawsuit (an alternative in the Brazilian criminal system for
less serious criminal infractions).
Apart from fines, CADE may also: (i) publish the conviction decision
in major newspapers, at the wrongdoer’s expense; (ii) debar
wrongdoers from participating in public procurement procedures and
obtaining funds from public financial institutions for up to five years;
(iii) include the wrongdoer’s name in the Brazilian Consumer
Protection List; (iv) recommend that tax authorities block the
wrongdoer from obtaining tax benefits; (v) recommend that the
intellectual property authorities grant compulsory licenses on patents
held by the wrongdoer; and (vi) prohibit individuals from exercising
market activities on his/her behalf or representing companies for five
years. CADE may also order a corporate spin-off, transfer of control,
sale of assets or any measure deemed necessary to cease the harmful
effects associated with the anti-competitive behavior.
Antitrust violations may also give cause to private damages claims

and CADE has been taking measures to foster the private enforcement
of such infringements. In this sense, CADE has recently submitted a

draft regulation for comments, which is expected to be released soon.
Also on this regard, the CADE Tribunal has submitted several
suggestions for changes to the provisions of the BCA governing the
statute of limitations for damages claims in connection with antitrust
violations.
Leniency Program. The BCA governs the Brazilian Antitrust

Leniency Program. Leniency Agreements grant immunity to
companies and/or individuals that disclose to the competition
authorities the existence of a cartel and who effectively and decisively
collaborate with the authorities in the investigation. If the cartel is
already under investigation, an application for the Leniency Program
may still be accepted, provided the authorities do not have enough
evidence to support a conviction of the defendants and that the
applicant willingly cooperates with the investigation – in this case,
however, the Leniency Applicants will be granted partial immunity
from administrative sanctions. A successful leniency application also
shields the individual applicant from criminal prosecution for cartel
and related crimes (e.g, conspiracy and bid rigging), but not from
private enforcement (such as damages claims).
Settlement. Companies and individuals under investigation for taking

part in cartels or other anticompetitive behavior may settle with
CADE. Under the BCA and current regulation, a company willing to
apply for settlement in cartel cases must undertake several obligations,
including paying a settlement amount, admitting to involvement in the
alleged violation, and assisting the authorities throughout the
investigation. In exchange, CADE grants the Settling Party a discount
on the amount that would be levied on the company if convicted by
the Tribunal (i.e., the settlement amount), which varies upon the phase
of the analysis (investigation or decision phase) and upon the moment
on which the settlement is proposed (i.e., whether the company is the
first, second, or third to apply for a settlement). Moreover, the case
will be closed with regards to the Settling Party if CADE attests that
all obligations provided for in the Settlement Agreement have been
fulfilled when the Tribunal issues its final decision on the merits of the
investigation.

Defendants have only one opportunity to settle - either during the

investigation phase with the Superintendence-General or during the
decision phase with the Reporting Commissioner of CADE's Tribunal
- and the settlement must be reached within a certain period of time, as
determined by the negotiating authorities. The settlement only applies
to the administrative liability, thus there is no exemption from
criminal prosecution or private lawsuits seeking damages.
Non-Compete. Ancillary non-compete clauses in merger transactions

are subject to certain conditions, under Brazilian law. Generally, these
clauses must be limited to a certain geographic area and have an
expiration date, observing the particular business involved in the
transaction. For instance, in acquisitions, a non-compete clause is
generally allowed up to 5 years. As for joint ventures, CADE usually
allows non-compete clauses for the duration of the joint venture
provided they are restricted to the relevant market where the company
is active. In specific cases, CADE may approve transactions
conditional on the suppression or modification of a non-compete
clause, in order to ensure that competition will not be harmed.
Compliance programs. CADE has recently issued guidelines on

competition compliance programs, clarifying its view on the key
elements of an effective competition compliance program. The
guidelines also reveal that a company which has sought to implement
a "robust" compliance program is eligible for a penalty reduction in
the event of a competition law violation - adding Brazil to a growing
list of jurisdictions willing to accept genuine attempts at compliance
as a mitigating factor. However, a company's eligibility to receive a
compliance credit depends on whether the program brings material
changes to the company's corporate culture, comprising requirements
such as a demonstrative commitment from the top, appropriate
resources dedicated to operate the program, autonomy and
independence of the compliance leader, individualized analysis of the
risks associated with the company's activities, mechanisms of risk
mitigation in place, and periodic review of the program. The
guidelines also provide a general view of the benefits of having a

robust compliance program in place. First, it should be considered as
evidence of the company's good faith, and may be used as a mitigating
factor in calculating the fine. Second, in the context of settlement
negotiations, it may justify CADE granting the maximum discount
available to the company. Nonetheless, the guidelines clarify that the
company has the burden of proving that its compliance program
qualifies as robust in order to benefit from any potential fine
reduction, although no details are given on how the reduction in
penalty would be calculated.

Sales Representatives and Distributors

Sales Representatives or Agents
The Brazilian legal concept of a sales representative is rather broad; it
includes practically any independent agent – an individual or a legal
entity organized for such purpose – who works as an intermediary in
the sale of products. Given the size of the country, many companies
contract sales representatives so that they may best take advantage of
Brazil’s vast potential market. As a result, in order to minimize
unbalances in the relationship between sales representatives and
principals, a specific law to protect the sales representatives was
enacted, thus creating a protective environment for individuals or
entities performing such services in Brazil.
Legislation: General Requirements

Law No. 4,886 of December 9, 1965, as amended by Law No. 8,420
of May 8, 1992, which are part of the Brazilian’s public policy, and as
supplemented by Articles 710 to 721 of the Brazilian Civil Code,
regulate the activities of independent sales representatives in Brazil.
The law provides that sales representatives are individuals or legal
entities that, without the existence of an employment relationship, are
responsible for promoting products and commercial transactions and
soliciting purchase orders on behalf of one or more principals and
performing (or not) other actions connected with the implementation
of such business transactions.
From a Brazilian labor standpoint, the major difference between a

sales representative and an employee is that the latter is defined as an
individual who renders services to a company or another individual on
a continuous basis, under the direction of such company or individual,
for compensation. Thus, a sales representative working under the
command/subordination of the principal, which pays to it the benefits
typically paid to employees (i.e., Christmas bonus and vacation) may
be characterized as an employee.

Formal Requirements
The law requires that sales representative agreements in Brazil include
the following: (i) general terms and conditions of the representation;
(ii) general or specific identification of the products or goods on
which representation is based; (iii) term (definite or indefinite) of the
agreement; (iv) compensation due; (v) territory; (vi) nature (exclusive
or non-exclusive) of the representation; and (vii) duties and
responsibilities of the sales representative and the principal.
Term of the Agreement

A sales representative agreement may be concluded for a fixed or an
indefinite period of time. A sales representative agreement for a fixed
period of time should automatically terminate upon expiration of the
fixed term. However, if it is renewed, it will then be considered an
indefinite term agreement.
According to Law No. 4,886/65, a sales representative agreement

relationship subject to any of the below will be construed as an
indefinite term relationship:
• A new sales representative agreement is executed by the same

parties within six months after the termination or expiration of a
previous one.
• The parties extend a fixed-term agreement, even if only once.
• The parties to a fixed-term agreement continue to perform their

duties thereunder after the expiration of the specified term, thus
tacitly renewing it.
Unwritten agreements are automatically deemed to be of an indefinite

duration.
Exclusivity of Representation
The sales representative is afforded with exclusive rights within a
certain territory, zone or selected clients, as defined in the agreement,
unless there is an express indication to the contrary. This exclusivity

means that the whole commission arising from the sales within that
territory, zone or selected clients is guaranteed to the sales
representative, even if the company itself carries out the sales.
Furthermore, the sales representative is not prohibited from
representing other companies with the same or similar products in that
territory, zone or selected clients, unless agreed upon otherwise.
Indemnification
The termination for convenience by the principal of a sales
representative agreement, without any of the causes set forth in Law
No. 4,886/65, requires that the principal pays an indemnification to
the sales representative calculated in accordance with the term of the
agreement - that is, either a definite or an indefinite term.
In case of termination of an indefinite term agreement, sales

representative is entitled to a minimum indemnification of one twelfth
of the total amount paid to the sales representative as commissions
during the sales representation term, brought to present value.
In such a case, the indemnification applies for all the period that the
sales representative mediated business to the principal including
precedent agreements.
However, in case of early termination of a definite term agreement,

the indemnification shall be equal to the monthly average of
commissions paid until the date of termination, multiplied by one-half
of the number of the resulting months of agreement’s term.
Apparently, there is a typographical error in Law No. 8,420/92, which
has amended Law No. 4,886/65 considering that the law provides that
the indemnification should be the average of the commission as
mentioned above, multiplied by one-half of the number of the
resulting months of the agreement. The understanding is that when the
law provides “resulting,” it shall be understood as “remaining.”
Furthermore, in the case of an indefinite term agreement, if the

agreement is terminated for convenience, the terminating party must

give a 30-day prior notice of termination to the other party. If such
notice is not provided, then an indemnification equivalent to one-third
of the commissions paid to sales representative on the previous three
months must be paid to the other party. Note that the Brazilian Civil
Code, in a more conservative approach, provides that such previous
notice should observe a 90-day period. Although there is such a
controversy, principals still usually adopt Law 4,886/65 instead of the
Brazilian Civil Code.
Commission
In Brazil, it is quite common that the commissions of the sales
representatives are established as a percentage of the sales price as set
forth under the relevant invoice. Law 4,886/65 provides that the
commissions should be paid upon the total amount of the invoice
(including applicable taxes).
Distributors
Distributors who purchase products and resell them in their own name
and for their own account are not afforded with the specific protection
of Law No. 4,886/65, as amended by Law No. 8,420/92. Instead, they
are solely ruled by the Brazilian Civil Code, with certain exceptions
such as the distribution of vehicles, as explained below. Under
deliberations now before the National Congress is the Bill of Law No.
7,477/2014, which aims to rule the resale relationship and distribution
of manufactured products between suppliers and distributors. This bill
follows some principles similar to the ones that apply to sales
representatives as mentioned above, benefiting resellers and
distributors in a level wider than the current legislation.
Distribution agreements may also be for a definite or an indefinite

term and with different implications in case of its termination.
Due care should be exercised whenever terminating a distribution

agreement with a Brazilian party contracted for an indefinite term.
This is because distributor should be notified in advance regarding the
termination of the agreement in order to enable it to reorganize its

business and mitigate basis for claim of damages. Hence, such

previous notice varies from case to case, depending on a range of
factors such as the contract amount, distribution period and profits
margin that principal’s products represent in distributor’s general
business, among others. Thus, for each case, the principal must
estimate the reasonable term for the previous termination notice and
also apply other mitigating factors if possible.
Whenever the termination for convenience refers to a fixed-term

distribution agreement, the terminating party may run the risk of
indemnifying the non-breaching party for the relevant damages
suffered, considering the business expectations until the expiration
date of the agreement.
One exception to the absence of specific legislation currently covering

distribution agreements is Law No. 6,729 of 1979 (as amended by
Law No. 8,132 of 1990) also known as “Lei Renato Ferrari,” which
regulates the distribution of automotive vehicles in Brazil and, among
other matters, provides for specific indemnification to dealers. This
statute is very specific and is enforceable only with respect to
Brazilian automotive industry distribution agreements. Nevertheless,
there have been cases in which Brazilian courts have applied Law No.
6,729/79 to ordinary distribution agreements (as a matter of analogy).

Banking and Finance
Regulatory Framework
The Brazilian Financial System is generally governed by:
1. Federal Constitution of 1988
2. Law No. 4,131 of 1962
3. Law No. 4,595 of 1964
4. Law No. 6,385 of 1976
5. National Monetary Council (“CMN”) resolutions (Resoluções)
6. Central Bank of Brazil (Banco Central do Brasil or “Central

Bank”) rulings and administrative acts (Circulares and Carta-
Circulares)
7. Brazilian Securities and Exchange Commission (Comissão de

Valores Imobiliários or “CVM”) instructions (Instruções)
Federal Law No. 4,595 considers as financial institutions the private

and public entities that, on a principal or ancillary basis, collect,
intermediate or invest financial resources for their own account or for
third parties, in domestic or foreign currency, as well as act as
custodians of assets belonging to third parties. In light of this broad
definition, certain activities that are somehow related to, but do not
actually constitute, strict banking activities (e.g., capital markets
transactions) have been deemed activities carried out by financial
institutions in Brazil. Thus, the Brazilian Financial System
encompasses banking and non-banking entities under this definition.
Regulatory Bodies
The main banking regulatory bodies in Brazil are the CMN and the
CVM. The Central Bank enforces CMN’s monetary policy and is in
charge of supervising all financial institutions.

CMN is the highest authority in the Brazilian Financial System. It is a

policy-making and regulatory body that is responsible for establishing
the currency and credit policies of the country through its resolutions.
CMN is composed of: (i) the Minister of Finance as president; (ii) the
Minister of State Planning, Budget and Management; and (iii) the
President of the Central Bank.
The Central Bank is responsible for the implementation of currency

and credit policies, as established by CMN, and for the supervision of
the financial market, which comprises:
1. Licensing and authorization (i.e., entry into the market of a

supervised entity)
2. Supervision of the activities of public and private financial

institutions, which involves risk monitoring and risk control
3. Approval of any merger, acquisition or change in the corporate

control of financial institutions, as well as certain other changes
in such institutions
4. Sanctioning or imposition of penalties in case of non-compliance

with the applicable rules, fraud, bad management or other types
of wrongdoing
5. Management of the national payments’ system and

establishment of a monetary policy as well as the interest rate - It
is also responsible for controlling the granting of loans.
6. Crisis management
7. Publishing foreign currency exchange rates
8. Monitoring and registering international capital flows and cross-

border transactions out of/from Brazil

9. Supervising financial transactions together with the Council for
Financial Activities Control (“COAF”) for purposes of anti-
money laundering
As mentioned above, the Central Bank also controls and supervises

foreign currency exchange controls in Brazil, which comprises foreign
investments in Brazil and Brazilian investments abroad, among other
functions.
CVM was created by Federal Law No. 6,385 of 1976, as amended, as

an independent agency with powers to regulate and supervise
activities related to listed companies, as well as those in connection
with the issuance of trade-in securities at the Brazilian stock exchange
and over-the-counter markets, including investment funds.
In other words, CVM has among its objectives: (i) the assurance of the
proper functioning of the securities exchange and over-the-counter
markets; (ii) the protection of all securities holders against fraudulent
issues and illegal actions performed by company managers,
controlling shareholders or mutual fund managers; (iii) the prevention
of any kind of fraud or manipulation that may give rise to artificial
price formation in the securities market; (iv) the assurance of public
access to all relevant information about the securities traded and the
companies that have issued them; (v) the insurance that all market
participants adopt fair trading practices; (vi) the stimulation of the
formation of savings and their investment in securities; and (vii) the
promotion of the expansion and efficiency of the securities market and
the capitalization of Brazilian publicly held companies.
Regulatory Environment
It is possible to identify, within the Brazilian regulatory environment,
a trend to improve regulatory efficiency, based on the growing
sophistication of supervision models and tools, in addition to the
increasing adherence to international standards of compliance such as
the ones established in the Basel Principles.

Indeed, a series of events evidence this evolving trend, where a risk-

based approach, a regulation based on internal controls and prevention
is gaining momentum each day. It is also very clear that the
compliance paradigm of Organisation for Economic Co-operation and
Development (OECD) countries is being adhered to.
Financial Institutions and related entities

The entities described below play key political and financial roles in
the Brazilian Financial System and are considered financial
institutions for regulatory purposes.
1. Commercial Banks (Bancos Comerciais)
Typical commercial banking transactions include the following:
a. Granting loans
b. Holding checking and investment accounts
c. Receiving cash deposits
d. Receiving and processing payments of public utility and

private entity bills
e. Collecting drafts and other credit instruments
Commercial banks may also obtain authorization to deal with foreign

exchange transactions.
2. Investment Banks (Bancos de Investimento)
The main activities carried out by investment banks are the

management of investment funds and the provision of medium- to
long-term debt or equity financing. Investment banks may also obtain
authorization in dealing with foreign exchange transactions if they
comply with certain specific requirements.
3. Savings Banks (Sociedades de Poupança e Empréstimos)

These banks, which are mostly state-owned institutions, play a similar
role to that of commercial banks since they receive savings deposits
from the public.
Caixa Econômica Federal (CEF) is currently the major savings bank

and one of the largest financial institutions in Brazil. Most of the loans
under the Federal Housing Credit Program are extended by CEF. It
also manages the funds of the National Unemployment Compensation
Fund (FGTS) and the Social Integration Program (PIS/PASEP), as
well as domestic lotteries.
1. Credit, Finance and Investment Companies (Financeiras)
The main business of credit, finance and investment companies

consists of the following:
a. Financing consumer purchases of goods and services
b. Trading credit instruments, such as promissory notes, bills

of exchange, etc.
2. Brokerage firms (Corretoras or “CCVM”)
Under Laws No. 4,728/65 and No. 6,385/76, brokerage firms are
authorized to deal at the Brazilian Stock Exchange with listed
securities and other negotiable instruments. These companies may be
established as corporations or limited liability companies, and operate
as intermediary parties in the said transactions. As such, they can,
among other things, perform the following:
a. Organize, manage and participate in consortia for

underwriting and managing securities offerings
b. Manage securities portfolios and act as custodian of

securities
c. Act as a fiduciary agent
d. Purchase and resell securities

e. Manage funds and investment associations
f. Intermediate foreign exchange transaction
g. Distribute and place securities in the capital market
h. CMN Resolution No. 1,655/89, as amended, regulates the

organization and operations of CCVMs. It also specifies all
activities that such companies may perform.
3. Securities Dealers (Distribuidoras de Títulos de Valores

Mobiliários or “DTVM”)
These companies are also subject to Laws no. 4,728/65 and no.
6,385/76. Their main business is the subscription of securities issued
for resale or distribution. Thus, they act as intermediaries in the
placement of public offerings and in the distribution of securities.
Their business is similar to that of brokerage firms, and according to
the Joint Decision of CVM and CMN No. 17/2009, issued on
2 March 2009, the DTVMs are now able to directly deal at the stock
exchange. The organization and operation of such companies are set
forth in CMN Resolution No. 1,120/86, as amended. They may be
organized as corporations or limited liability companies.
4. Currency Exchange Brokerage Companies (Corretoras de

Câmbio)
These institutions, regulated by CMN Resolution No. 1,770/90, as

amended, perform foreign currency exchange transactions, and may
be organized as corporations or limited liability companies. Other
financial institutions may be authorized by the Central Bank to deal
with currency exchange transactions.
5. Brazilian Development Bank (Banco Nacional de

Desenvolvimento Econômico e Social or “BNDES”)
BNDES is a state-owned financial institution that acts as an auxiliary

agency in the implementation of the federal government’s credit and

development policy. It is a relevant player since it stimulates the
expansion of industry and infrastructure in the country. Its main
activity includes support for exports, technological innovation,
sustainable socio-environmental development, the modernization of
public administration and financing industrial, agricultural and
commercial projects.
6. FINEP (Technology and Innovation Financing Agency)
FINEP is a state-owned financing agency under the Ministry of

Science and Technology, created to expand the role of BNDES in the
promotion of economic and social development of Brazil, supporting
science, technology and innovation in companies, universities,
technological institutes and other public or private institutions.
7. Banks with multiple portfolios (Bancos Múltiplos)
Banks with multiple portfolios (Bancos Múltiplos) were created under

the umbrella of the 1988 financial system reforms and are now
regulated by CMN Resolution No. 2,099/94. The main purpose of
multiple banks is to enable a single financial institution to maintain
different types of portfolios (which means allowing the performance
of all activities pertaining to financial institutions described in items 1
to 4 above), which, in turn, significantly increases the administrative
efficiency among banking conglomerates. As a matter of fact, almost
all banks in Brazil are authorized to act as Bancos Múltiplos (in the
past, banks were required to have one license for each type of
activity).
8. Leasing Companies (Sociedades de Arrendamento Mercantil)
Leasing companies are incorporated as corporations and it is

mandatory that the company’s name has the expression “Leasing.”
The main role of leasing companies is to enter into leasing
transactions. Also, such companies may issue debentures and may act
in financing transactions. Leasing companies are regulated by CMN
Resolution No. 2,309 of 1996, as amended.

Incorporation of Financial Institutions

The operation of Brazilian financial institutions is subject to the prior
authorization of the Central Bank, pursuant to CMN Resolution No.
4.122/12. To obtain such authorization, a financial institution must
present documents confirming the following:
1. The financial conditions compatible with the proposed

undertaking
2. The election of its directors and officers
3. The meeting of a certain minimum capital requirement
4. The acceptance of certain protection mechanisms of creditors
5. Evidence of the origin of the funds used in the undertaking
The application procedure for such authorization is the same

regardless whether the financial institution’s controllers are domiciled
in Brazil or abroad. However, the analysis process in case of foreign
investors is different, since, after the Central Bank’s approval, the
application will be submitted by the Central Bank to the CMN and,
finally, to the Brazilian President, who authorizes the incorporation of
the financial institution and the foreign participation by means of a
decree. Additionally, in case of a financial institution domiciled
abroad, the constitution of a subsidiary in Brazil and its admission in
the control group of a Brazilian financial institution, whether direct or
indirect, is subject to the authorization (or no objection) of the
governmental body responsible for such activity abroad.
Corporate Structure
A foreign financial institution may have presence in Brazil by means
of any of the following:
1. A representative office
2. A branch organized in Brazil

3. A subsidiary organized in Brazil, whether as a corporation
(Sociedade por ações) or a limited liability company (Sociedade
Empresária Limitada), as the case may be
Most financial institutions, such as banks and leasing companies, may

not be organized as limited liability companies.
Pursuant to CMN Resolution No. 4.122/12, financial institutions must

obtain prior authorization from the Central Bank to, among other acts,
perform the following:
1. Transfer their control
2. Modify their corporate purpose
3. Create or cancel operational portfolio by multiple bank
4. Perform consolidation, spin-off or merger
5. Undertake corporate transformation
6. Cancel the authorization to operate.
Branch of Foreign Entity

Establishing a branch of a foreign financial institution is a
bureaucratic and cumbersome process, as it requires the Brazilian
President’s authorization by decree, issued on a reciprocal basis, just
like the organization of a subsidiary. In addition, the organization of a
branch is generally not recommended due to tax and immigration
requirements and implications.
Representative Office
The representation within Brazil of a financial institution or similar
entity with headquarters located in a foreign country is regulated by
CMN Resolution No. 2,592/99 and Central Bank’s Ruling (Circular)
No. 2,943/99. Accordingly, such representation depends on the
Central Bank’s previous authorization, which is granted on a

discretionary basis, taking into consideration the national interests and

international treaties. Such representation may only be performed by
individuals or legal entities domiciled in Brazil. Also, representative
offices may only perform marketing and promotional roles, and may
not carry out any actual banking activity.
Foreign-Owned Bank Subsidiaries

All banks in Brazil must be organized as corporations, and at least
50 percent of the stated initial capital (in conformity with the
applicable minimum capital requirements, depending on the type of
institution) shall be paid in at the time of incorporation (as well as of
any further capital increase). The balance must be paid within
one year and before any credit or guarantee operations can commence.
Article 52 of the Transitory Constitutional Provisions Act (Ato das

Disposições Constitucionais Transitórias) of the Brazilian Federal
Constitution of 1988 prohibits foreign financial institutions from
opening new branches in Brazil and from increasing their equity
interest in Brazilian financial institutions, except if authorized by
international treaties providing for reciprocity, or in the event such
transactions are recognized by the Brazilian government to be of
Brazil’s best interest.
The federal government tends to treat most acquisitions of Brazilian

financial institutions by foreign investors as acquisitions made in the
best interest of the country and in view of that, it analyzes the
controlling group. As a result, such institutions interested in receiving
foreign equity interest may present a formal request to the Central
Bank, which shall review and submit it for CMN’s approval, with the
latter forwarding the request to the President of Brazil for final
authorization by decree. Such process is ruled by Central Bank’s
Ruling No. 3,317/2006.
For purposes of such request, the foreign entity must present to the
Central Bank information on the controlling group, as well as attest to
the relevance of the project for the Brazilian economy. The
Central Bank makes a deep analysis of the foreign investor, requesting

its financial statements, corporate documents, as well as any other
information that it may deem appropriate. The formalities and timing
of approval depend on the structure of the transaction, but it is usually
a very time-consuming and bureaucratic procedure. For instance, if
foreign interest is obtained through the issuance of new shares rather
than the purchase of existing ones, the new subscription amount must
be deposited at the Central Bank prior to obtaining final approval for
the change in control. In addition, the Central Bank may require that
the foreign investor purchase certain assets (i.e., loans receivable) of
banks under intervention or liquidation.
Correspondent Banks
Pursuant to CMN’s Resolution No. 3,954/2011, as amended, Brazilian
financial institutions may contract companies or certain kinds of
entrepreneurs, including both members and non-members of the
National Financial System, to render the following services on their
behalf:
1. Acceptance and routing of opening proposals for checking, time

deposit and savings accounts
2. Receipt, payment and electronic transfers for purposes of

implementing transactions related to checking accounts held by
clients
3. Receipt and payments of any nature and other activities resulting

from the service agreements entered into by the contracting
financial institution with third parties
4. Execution of money orders
5. Acceptance and routing of loan and leasing requests, as well as,

other ancillary services for monitoring the transaction
6. Receipt and payment related to bills of exchange
7. Acceptance and routing of proposals for credit card issuance

8. Execution of exchange transactions
9. Other control services, including data processing, of contracted

operations
Correspondents for Foreign Exchange Transactions

CMN’s Resolution No. 3,954/2011, as amended, establishes that
Brazilian financial institutions may also contract companies or certain
kinds of entrepreneurs, whether financial institutions or not, to carry
on certain foreign exchange currency transactions, whose individual
amount must be limited to the equivalent of USD3,000, to render the
following services on their behalf:
1. Carry out transactions for the purchase and sale of foreign

currency in cash, checks or traveler checks, as well as, the
recharge of foreign currency in prepaid cards
2. Carry out unilateral transfers from and to Brazil
3. Receiving and routing of exchange transactions proposal
For such purpose, the financial institution must enter into an

agreement with the correspondent to render the services listed above
and register the information of the correspondent as established by the
Central Bank.
Operational Requirements
The Central Bank imposes certain operational rules on financial
institutions, including on the following aspects:
1. The period during which bank agencies may remain open to the
public
2. Operational limits for certain financial transactions
3. Formalities in the recording of financial transactions

4. Requirements for opening new branches
Moreover, Brazilian financial institutions are subject to the Basel

Convention rules, incorporated into the Brazilian law under various
CMN Resolutions. More recently, the Central Bank has issued the
procedures and timeline for the regulation and compliance with
Basel III, with deadline for compliance in Brazil varying between
2019 and 2022, depending on the rule.
Bank Secrecy
Financial institutions shall maintain the confidentiality of all
information regarding their clients and respective transactions. Client
information may be disclosed only upon judicial order or as required
by law. Various measures have been adopted to lift such secrecy rules
for criminal investigations and law enforcement. The main regulation
on bank secrecy is Complementary Law No. 105 of 2001.
Money Laundering Rules

Federal Law No. 9,613 of 1998 (“AML Act”), as amended by
Law No. 12,683/2012, made the penal prosecution more efficient for
money laundering crimes. This regulation establishes a stricter penal
regime for the crime of money laundering, broadening its scope and
establishing additional sanctions on different parties who participate in
money laundering schemes. The AML Act no longer restricts the
crime of “money laundering,” to the prior occurrence of one of the
crimes previously described in Article 1 of the AML Act. Hence, the
list of predicate offenses has been extinguished and this concept now
encompasses any criminal offense, including misdemeanors, and
notably, tax evasion crimes.
The measures are designed to prevent the misuse of the financial

system for illicit actions described in this law. It also attributes to legal
entities the responsibility concerning the identification of customers
and the maintenance of updated records from any transactions, as well
as the reporting of transactions that seem related to crimes referred to

in such law. In case of omission, entities may be subject to

administrative penalties for non-compliance.
The same law creates the Council for the Control of Financial
Activities (Conselho de Controle Atividades Financeiras- COAF, as
defined above), an agency subordinated to the Ministry of Finance
that is responsible for the regulation and investigation of transactions
suspected of money laundering. The COAF has the power to impose
administrative penalties. Law No. 12,683/2012 broadened the number
of individuals and legal entities that are obliged to inform suspicious
activities to COAF. Some entities such as stock exchanges,
commodities exchanges, derivative exchanges, banks, securities
brokers and dealers, insurance companies and factoring companies
shall pay special attention to suspicious transactions vis-à-vis money
laundering rules and shall inform the COAF of transactions that
violate money laundering laws. Moreover, any transaction conducted
with those entities involving assets that can be converted into currency
exceeding BRL10,000 shall be reported to the COAF. The Central
Bank has published specific rules regarding money laundering
prevention.
On 24 July 2009, the Central Bank of Brazil issued new rulings

(Circulares Nos. 3,461/09, as amended, and 3,462/09) in order to
enhance the Anti-Money Laundering and Terrorist Finance system in
Brazil. These rules were enacted in accordance with the
recommendations of the Financial Action Task Force (FATF), the
inter-governmental body created to promote the development of
international policies to combat money laundering and terrorist
finance. Brazil is a member of FATF since 2000.
In order to clarify certain aspects and grant the Circular No. 3,461/09
more effectiveness, the Central Bank issued on 11 February 2010, the
administrative act (Carta-Circular) No. 3,430/2010.

Domestic Branches
The establishment of branches by Brazilian financial institutions shall
follow the requirements of Circular No. 2,501/1994 and Resolution
No. 4,072/12.
Bankruptcy and Reorganization

Financial institutions are subject to a special insolvency system in
Brazil. The regular insolvency system provided by Law No. 11,101,
enacted on 9 February 2005, is not directly applicable to financial
institutions. Rather, financial institutions are primarily subject to Law
No. 6,024, enacted on 13 March 1974, which provides for a specific
insolvency system encompassing two different administrative
measures by the Central Bank: (i) the extra-judicial intervention
(intervenção extra judicial) and (ii) the extra-judicial liquidation
(liquidação extra judicial). The intervention may occur in case of the
following:
1. Losses arising out of mismanagement
2. A violation of rules resulting in significant losses
3. Facts constituting bankruptcy, as provided under Articles 94 of

Law No. 11,101/05 (corresponding to Articles 1 and 2 of the
revoked Decree-Law 7,661/1945)
During the intervention, a trustee appointed by the Central Bank will

carry out an investigation that will interrupt the institution’s
operations for up to six months. The extra-judicial liquidation
represents an extreme measure, at the Central Bank’s discretion, and it
is taken to prevent the insolvency of financial institutions. It may
occur even without the submission of a prior request for intervention.
The interruption of activities may be avoided under the RAET
(Regime de Administração Especial Temporária), created by Decree-
law 2,321 enacted on 25 February 1987. In addition, the Central Bank
is authorized, as a consequence of the intervention, RAET or

liquidation or as a preventive measure, to, among other things,

undertake the following:
1. Reorganize the financial institution
2. Request the expropriation (eminent domain) of the shareholding

ownership of the financial institution in favor of the federal
government
Law No. 6,024/1974 also provides for the possibility of a subsidiary

application of Law No. 11,101/2005 to the intervention and
liquidation proceedings. In addition, as provided under Article 21,
item “b” of Law No. 6,024/1974, it would be possible to lift the
bankruptcy of a financial institution, provided that the following
conditions are fulfilled:
1. The liquidation survey concludes that the assets are insufficient

to cover at least 50 percent of the liabilities.
2. The complexity of the business or the seriousness of the

financial condition requires that more severe measures be taken.
3. The extra judicial liquidation requested to the Central Bank is

deemed inappropriate.
Payment Service Providers

In November 2013, Law 12,865/2013 was enacted, setting forth the
first Brazilian regulatory framework on payment services.
Furthermore, Law 12,865/2013 granted authority to CMN and to the
Central Bank to regulate the payment entities.
As a consequence, payment arrangements became regulated and are

part of the Brazilian Payments Systems (SPB) and payment entities
that participate in these arrangements are subject to licensing by the
Central Bank.
Although they are part of the SPB and are subject to licensing by the
Central Bank, payment entities are not financial institutions. As a
matter of fact, they are prohibited from engaging in activities reserved
for financial institutions.
Central Bank’s Ruling 3,683 establishes the requirements for

organization, authorization and operation of payment entities –
including, among others, the requirement of prior approval by the
Central Bank for the transfer of shareholding control and a minimum
initial capital requirement (BRL2 million for each payment entity
type). Furthermore, Central Bank’s Ruling 3,681 lists several risk
management requirements.
Until Law 12,865/2013 and relevant ruling came to force, credit cards
services were not subject to the regulation or supervision of any
Brazilian authority. However, credit cards are currently subject to
such regulatory framework.
Furthermore, credit card service providers are also self-regulated by

the Code of Ethics and Self-Regulation of the Brazilian Association of
Credit Cards and Services Companies (“Código de Ética e Auto-
Regulação da Associação de Empresas de Cartões de Crédito e
Serviços – ABECS”), which was created for purposes of establishing
principles and rules that conduct the activities of the companies
involved in the credit card system. This code only applies to
companies that are associated to ABECS. ABECS created a
Certificate of Good Practices (“Selo ABECS de Boas Práticas”),
which is granted only to members that strictly comply with the
principles and rules set forth in the Code of Ethics and Self-
Regulation.
Charge cards are issued under banking accounts and can be used to:
(i) obtain cash at automated teller machines, for exclusive or shared
use, and (ii) make payments upon showing the card at accredited
commercial establishments that have proper equipment for Electronic
Funds Transfer from the Point of Sale (EFTPOS).

Energy
The Power Industry
Unlike other infrastructure industries in Brazil, the power industry
began in the late 1800s as a private investment. It was not until the
early 1950s, due to a postwar nationalization wave, that the sector
became predominantly state-owned. In the mid-1990s, the Brazilian
federal and state governments carried out one of the world’s largest
privatization programs in the power sector, and all restrictions on
foreign investment were lifted. In the early-2000s, after an energy
crisis, the regulatory framework was significantly altered, especially
the rules relating to power procurement and trading (Law 10,848). In
the 2010s, the federal government introduced new rules aimed at
reducing the end tariffs and imposing conditions for the renewal of
expiring concessions (Law 12,783 of 2013). The new rules were not
well received by the market and inhibited private investment. On the
top of that, a rain shortage caused a price hike which washed out the
2013 tariff reductions.
To re-attract private investors, the current Government intends to

reform the regulatory framework by the end of 2017/early 2018,
introducing "pro-market" changes, reducing state intervention, and
mitigating negative impacts of new technologies on current
legislation. Discussion on the subject, among other issues, encourages
the migration of consumers to the Unregulated Contracts Framework -
ACL (as defined below), by reducing the minimum load amount from
the current 3 megawatts (MW) to 0.5 MW to freely choose their
suppliers.
Another important measure announced is the privatization of

Eletrobras, the largest industry player, which is controlled by the
Brazilian government and holds approximately 31% of generating
capacity, 47% of transmission capacity and 7% of distribution
capacity in Brazil. In principle, the privatization of Eletrobras should
be completed in the first half of 2018.

Industry Overview and Trends
Historically, the Brazilian power industry has enjoyed outstanding
growth. In November 2017, Brazil had 4,750 operating power plants,
with an installed capacity of 163,696,032 kW, out of which 60.74%
derives from large hydroelectric plants, 26.61% from thermoelectric
plants, 7.55% from wind farms, 3.19% from small hydroelectric
plants 8, 1.28% from nuclear power plants, and 0.63% from other
sources.
Even though hydroelectric generation prevails in the Brazilian energy

matrix, thermoelectric generation is regarded as an important
supplementary source for use in the isolated (off-grid) systems and/or
in periods when hydroelectric power is scarce. A combination of
water shortages, environmental restrictions on expansion of new
major hydroelectric plants, new sources of gas supply (mostly from
the Santos basin), and the abolition of state monopolies on upstream
prospecting may boost thermal expansion. Shale gas may also become
an important source, even though at this stage discussion on the
environmental impacts for its exploration are taking place.
In the 2000s and 2010s, the government introduced a program to

foster renewable energy, so-called “alternative energy sources”, which
included thermal/biomass, wind farms, and small hydroelectric plants.
Renewable energy generators are entitled to discounts on transmission
tariffs and financing by the state development bank (BNDES) at
favorable interest rates and conditions. Most of such generation has
been sold through public auctions usually not open to other competing
energy sources, which secures renewable energy long-term power
purchase agreements.
In 2012, incentives for solar energy were created by increasing from

50% to 80% the discount on the regular tariffs for use of the
transmission/distribution grid. The discount applies to solar plants
8
A small hydroelectric plant (“PCH”) is a hydro plant with an installed
capacity higher than 5 MW and equal to or lower than 30 MW, with a total
reservoir area of up to 13 km².
with installed capacity equal to or lower than 30 MW and for projects

commencing commercial operations through 31 December 2017, and
for the first 10 years of commercial operation thereafter. Another
incentive was the so-called “micro generation” (capacity up to 75 kW)
and “mini generation” (capacity higher than 75 kW and up to 5 MW)
for self consumption (distributed generation). Micro/mini solar
generators will be allowed to offset quantities generated by their solar
panels against quantities of energy that otherwise they would consume
(and pay) to the distribution company – the so-called “net metering”
(such generators will not be allowed, however, to trade any surplus in
the free market). Further, mini/micro generators are not required to
execute agreements for the use of and connection with the distribution
grid.
In 2014-2015, there was an increase in the tax benefits extended to

alternative sources of energy such as PCHs, solar power plants and
wind farms. Laws 13,203 of 2015 and 13,360 of 2016, created a
discount of at least 50% in the transmission and distribution tariffs
applicable to hydroelectric plants that produce up to 5,000 kW and to
power plants that use "alternative sources" such as wind or solar
energy that produce up to 300,000 kW.
Introduction of new technologies (smart grids, energy storage, hybrid

plants, etc) are gradually reshaping the traditional regulatory
framework and expansion plans of the regulators and companies alike.
One expects that disruptive technologies may interfere with the
traditional forms of doing business in this industry, with the
consumers' having unprecedented prominence in discussions. One
recent sign of such "new normal" way of doing business has been the
massive migration of corporate consumers to the free market.
Regulatory Overview
The Brazilian Constitution grants the federal government power to
legislate on energy matters, as well as ownership rights over
hydropower resources 9. Conversely, the Constitution requires that
9
Article 176 of the Brazilian Constitution.
federal, state and municipal governments render certain services to the
public, including the supply of electricity. The power to explore
energy resources and the responsibility to supply electricity may be
delegated by the government to private entities. Such delegation is
generally granted and regulated by concession / permission contracts
and authorization deeds (see chapter on Concessions).
The key statutes of the Brazilian legal framework are:
1. the Federal Constitution of 1988 as amended by the Sixth

Amendment of 1995, which eliminated certain restrictions to
foreign investment in the industry;
2. the Water Code (Decree 24,643 of 1934);
3. the Antitrust Statute (Law 12,529 of 2011);
4. Law 8631 of 1993, which altered the rate-making rules;
5. the Statute of Concessions (Law 8,987 of 1995);
6. Law 9074 of 1995, which allowed the organization of

independent power producers;
7. Law 9427 of 1996, which created ANEEL (see below),
8. Law 10,438 of 2004;
9. Law 10,848 of 2004, which restructured the institutional

framework and changed the rules on the trade of electric
energy (see paragraphs below);
10. Decree 5,163 of 2004, which provides the rules for energy
trading;
11. Law 12,111 of 2009, which addresses electric energy services

in off-grid (isolated) systems;

12. Law 12,767 of 2012, which provides for the termination of

public concessions and the government's step-in rights in case
of companies under financial distress;
13. Law 12,783 of 2013, which introduced rules for the renewal
of concessions and reduction of end-user tariffs;
14. Law 12,097 of 2015, which changed certain definitions of

small scale hydroelectric plants, and introduced new rules on
conditions for the takeover and temporary administration of
concessionaries by project finance lenders; and
15. Law 13,203 of 2015, which provides for the reallocation of

the hydrological risk among the industry players.
16. Law 13,360 of 2016, which introduced certain changes in the

power sector's laws mentioned above;
17. Decree 9,187 of 2017, which introduced rules for the

extension of thermoelectric power generation concessions;
18. Decree 9,192 of 2017, which introduced rules for public bid
of power distribution and transmission concessions related to
change of control of the concessionaires directly or indirectly
controlled by the Federal Government, States or
Municipalities.
The key entities of the industry are the National Energy Council
(Conselho Nacional de Política Energética), the Ministry of Mines
and Energy, the Energy Research Company (Empresa de Pesquisa
Energética), ANEEL, the Chamber for Trading of Energy (Câmara de
Comercialização de Energia Elétrica or “CCEE”) which manages
both the regulated and unregulated markets, the National Grid
Operator or “ONS”, responsible for dispatching and general grid
operations, and the Electric Industry Monitoring Committee (Comitê
de Monitoramento do Setor Elétrico or "CMSE"), responsible for
(among others) monitoring and ensuring the continuous supply of
electricity.
Along with other duties, ANEEL must implement the federal
government’s electric energy policies and directives, as well as
provide and enforce industry regulations in connection with antitrust
restrictions, tariffs, quality standards and transmission fees. Through
cooperation agreements, it may delegate inspection and enforcement
powers to local (state) agencies.
Trading Energy
Electricity is negotiated under the rules of either the “Regulated
Contracts Framework” (ACR in the Portuguese acronym) or the
“Unregulated Contracts Framework” (ACL in Portuguese).
Under the ACR, one sells electricity that public utility distribution
companies use to supply their end customers. Except for specific
cases as mentioned below, the distribution companies cannot acquire
electric energy outside the ACR. The sale of electric energy under the
ACR is made through public bidding conducted by ANEEL or by
CCEE, if so delegated by the former. The winning bidder will execute
a power purchase agreement with the distribution companies
connected to the Brazilian grid. ACR contracts must be fully
regulated.
Under the ACL, one sells electric energy to “free” customers through
bilateral contracts freely negotiated. Because distribution companies
are not allowed to purchase from the ACL (except as provided below),
the volume of energy to be freely traded is limited.
Power purchase agreements under both the ACR and ACL must be
registered with the CCEE.
Environmental Controls
Any business activity which may cause harm to life and the
environment is subject to environmental controls (see chapter on
Environmental laws). Under existing regulations, the construction of
power plants with a capacity greater than 10 MW requires the
submission and approval of an environmental impact report

(“RIMA”). RIMAs must discuss alternative technologies and

locations; identify and evaluate the environmental impact during
construction and operation; define the affected areas; and evaluate
whether governmental plans within the construction area are
compatible with the project.
In addition, one should note that any activity or project intended for
the use of environmental resources, with a potential or effective
polluting capacity or that may harm the environment, is subject to
prior environmental license 10. The main common licenses in Brazil
are (i) Previous License, (ii) Installation License and (iii) Operation
License.
Distribution
Distribution companies (concessionárias de serviço público de
distribuição) are entities awarded with a concession or permit to
provide electricity to the end-user. The rights and obligations arising
from the concession / permit are set forth in a concession / permission
contract (see chapter on Concessions).
Generally, concession contracts last for a term of up to 35 years for

generation, or for a term of up to 30 years for transmission and
distribution. Extensions are permitted for an additional term. The
rationale for the length of the terms and extensions is that the investor
must be allowed sufficient time to amortize its investment.
Several distribution companies have already been privatized and are

currently run by private foreign and domestic investors. Privatized
distribution companies usually have their prior concession contracts
replaced by new ones that already incorporate current legal
requirements. The concession terms are renewed accordingly.
The major advantage of a distribution company is the right of

exclusivity over a service area (such right does not apply to large
customers), areas supplied by cooperatives, or other exceptional cases
10
Complementary Law No. 140 of 2011.
provided by law. In consideration for such monopoly, the distribution
companies must observe certain obligations, mostly focused on public
interest, such as rendering services on a regular, efficient and safe
basis; expand the company’s business; and observe quality standards.
Distribution companies are also subject to price controls enforced by

the concession authority. The law requires that tariffs must be
reasonably moderate and must not discriminate among customers.
Current tariff formulas allow pass-through of costs subject to certain
caps. Tariffs are adjusted annually for inflation and revised according
to performance targets with periods varying from three to seven years.
Distribution companies may also seek alternative revenue sources,
which complement or supplement the public service being rendered to
the extent permitted by law. The additional revenue resulting
therefrom will be subject to the tariff revisions mentioned above.
In accordance with the current framework, energy distribution

companies must acquire all of their energy requirements through:
1. ACR-regulated contracts;
2. contracts derived from distributed energy, alternative sources;
3. contracts derived from Itaipu Binacional;
4. contracts derived from Angra I and Angra II, after 1 January

2013.
5. generation plants which had their concession extended or

auctioned.
6. energy contracted for the reallocation of hydrological risk

among the industry players provided for in Law 13,203 of
2015.
Distribution companies must inform the Government of their energy

requirements as necessary to supply their forecasted demand, and will
be subject to penalty in case of deviation.

Distribution companies are also prohibited from carrying out activities

not related to their core business. In particular, distribution companies
must not:
1. develop generation or transmission activities,
2. sell energy to “free” customers out of their concession area,

except for the sale of the energy contracted in excess, which
can be traded by the distribution companies under the ACL,
3. hold equity interest in other companies (except for equity

participation related to financing transactions for the benefit
of the distribution company, subject to ANEEL’s
authorization), or
4. develop activities not related to the purpose of their

concession.
Pursuant to Article 16 of Law 10,438/2012, a company holding a

concession/authorization to provide energy related services and any
company of the same group cannot explore state gas distribution
service, except when its controller is a government-controlled
company.
Power purchase agreements executed by the distribution companies up

to 16 March 2004, as well as those to be executed not later than the
actual start-up of the bidding, will be treated under the ACL rules until
their termination. However, contracts that were already registered
with or approved by ANEEL on or before 16 March 2004 cannot
extend their term or their energy amounts, or increase their prices
(except to amend the “initial contracts” or their equivalent
instruments).
Distribution companies that fail to pay regulatory charges or power

purchase agreements will not be entitled to the periodic tariff reset or
annual tariff adjustment.

Generation
Independent Power Producers (IPPs), Self-Generators and
Generating Companies
IPPs and self-generators are not awarded with public service

concessions or permits to render public services. Rather, they are
granted authorizations or specific concessions to explore water
resources that merely allow them to produce, use and/or sell electric
energy. The IPP may sell part or all of its output to customers on its
own account and risk. The self-generator may sell or trade any
exceeding energy it is unable to consume, upon specific authorization
from ANEEL.
IPPs and self-generators are not granted monopoly rights and are not
subject to price controls, with the exception of specific cases. The
IPPs compete with public utilities and among themselves for large
customers, pools of customers of distribution companies or any
customers unattended by a public utility. Project sponsors and lenders
should pay particular attention to the intricacies of current laws when
negotiating or reviewing project documentation. In addition to the
above-mentioned authorization deed, the rights and obligations of
IPPs are stated in the power purchase agreements (PPAs) they execute
with customers. Except for ACR contracts, PPAs do not follow a
specific standard, and the regulatory framework is not as organized
and thorough as it is in other countries with project financing
background. Nevertheless, certain important terms may be secured
through the proper use of our codified contract law and the
construction of existing industry principles.
Generating companies may sell electric energy either in the ACR or

the ACL. The ACR sales are made through reverse public auctions
(lowest price wins). One will promote distinct auction for energy
derived from:
1. existing projects (“existing energy”),
2. new projects (“new energy”), and

3. alternative sources.
Public auctions for "new energy" projects 11 shall supply the projected
additional requirements of the distribution companies. The PPAs shall
have a term of 15-35 years and the delivery of energy must start
within three to seven years. The hydrologic risks may be assumed
either by the generator, in the case of “contracts for energy
quantities”, or by the distribution companies with a pass-through of
costs to end customers in case of “contracts for availability of energy”.
In the event of rationing, the contracts for energy quantities shall have
their amounts adjusted in the same proportion as the applicable
rationing restrictions.
Public auctions for "existing energy" projects shall supply the current
requirements of the distribution companies. The PPAs shall have a
term of 1-15 years and the energy supply shall start in the same year
or until the fifth year following the auction, except for those occurring
in years 2004, 2005 and 2007, which contracts allowed generators to
start delivery of energy within a maximum of five years. These
contracts are defined as “contracts for energy quantities” in which the
hydrologic risks are assumed totally or partially either by the
generation company or by the buyer, being entitled to the transfer the
tariffs to the final consumer.
State-owned generators may sell energy directly to customers, but

under more restrictive conditions. They may sell energy through
tender offers or by Requests for Approval (“RFPs”) conducted by the
end customers.
Self-generators are granted authorization deeds to produce electricity

primarily for their own consumption. They are allowed to sell the
excess production to third parties, similarly to the IPPs. Self-
generators enjoy a discount of at least 50% over the tariffs charged for
the use of the transmission and distribution grids. Companies who
11
Applicable law defines "new energy" projects as the ones that, at the time
of the relevant public auction, do not possess a license or are expanding their
existing capacity.
explore energy sources primarily for their own consumption may
organize themselves in the form of a consortium or a special purpose
company. If they organize a special purpose company, the
shareholders will be entitled to enjoy the discount attributable to self-
generators, in the proportion of the lower of (a) the portion of energy
used by the shareholder for its own consumption and (b) the equity
participation in the special purpose company.
Public utility generators are companies that are awarded, through an

auction promoted by ANEEL, the right to explore energy generation
for the purpose of selling said energy to the distribution companies
within the regulated market.
Transmission
Given the unique features of hydropower, most plants in Brazil are
interconnected with regional transmission systems and are subject to
the control of their respective dispatch by the ONS, which is
responsible for the dispatch, scheduling and planning of the
generation, as well as the coordination and management of the
transmission grid. Such interconnection/ coordination allows power
plants be part of energy pools through which they can trade excess
capacity, and thus, reduce waste. Most of the country’s territory is
connected into a National Interconnected System (SIN), which serves
98.3% of Brazil’s generation capacity.
Some isolated, non-interconnected systems still exist, mostly in the far

North. Some major hydropower plants under construction and/or
operating in the North region will contribute to connect such remote
areas to the SIN.
For the use of, and interconnection with, a transmission grid,

interested parties must execute two agreements:
(i) one for interconnection with the grid (Contrato de Conexão

ao Sistema de Transmissão or CCT) by paying the
corresponding fees, and

(ii) another for the use of the transmission lines of the grid
(Contrato de Uso do Sistema de Transmissão or CUST), also
by paying the usage fees established by ANEEL. Other
connection contracts may also be needed, depending on the
ownership of the transmission facilities.
The exploration of the transmission line system was also opened to the
private sector through the grant of authorization for operation and
maintenance. The purpose of the authorization is two-fold: to expand
the national market’s supply capacity and to allow industry agents free
access to the Brazilian transmission grid.
Consumers
Even though Law 10,848 contains guidelines and general references to
the principle of “reasonable tariffs” (modicidade tarifária), as well as
to the limits of cost pass-through, customers generally bear the costs
of electricity procurement, including regulatory charges and taxes.
Furthermore, the costs associated with the acquisition of back-up
capacity and the contracts for “availability of energy” (through which
generators will be paid regardless of the actual delivery of energy to
the system) will also be borne by the end users. They will also bear
the costs of the CDE charge, which will be included in the distribution
and transmission fees 12, as well as ESS charges 13.
12
CDE charge’s purpose is to subsidize competitiveness of alternative energy
providers, namely wind power, PCHs, biomass, among others; promote
universal access to electricity in the national territory; ensure the
enforceability of the "reasonable tariffs" principle to the poor section of the
population; provide funds to the Fuels Consumption Account; provide
resources and allow the amortization of financial operations in connection
with either the indemnity resultant of the return of the concession after its
term or the "reasonable tariffs" principle; cover the costs of fuels in
thermoelectric power plants in order to foster competitiveness; provide funds
in order to compensate discounts applied to tariffs in accordance to the
current regulation; and provide funds to compensate the effect of the non-
adherence to the extension of the generation concessions.
Article 28 of Law 10,848 contains the principle which ensures “equal
treatment” between regulated and “free” (unregulated) customers as
far as regulatory charges are concerned. This principle may turn out
to be an important tool to protect customers.
Large consumers can elect to become “free” or "unregulated". Free

customers may acquire electric energy from energy trading
companies, generators, and even the local distribution company
(though under regulated conditions). This choice may be exercised
according to the chart below:
Load Amount Supply Voltage Consumer’s

Connection Date
≥ 3 MW Any Voltage After July 1995
≥ 3 MW* ≥ 69 kV Before July 1995
≥ 0.5 MW** Any Voltage Any date

* From 1 January 2019, existing consumers on 7 July 1995 with loads equal to or
greater than 3 MW, served in a voltage lower than 69 kV will be able to become free
consumers.
**If the energy originates from small hydro plants (PCHs) or renewable sources.
In addition to the chart above, the aggregated loads of two or more

consumers which is higher than or equal to 0.5 MW (in case the
energy originates from PCHs or renewable sources) may qualify such
group as "free consumers", provided that such consumers: (i) are
enrolled with the General Taxpayers’ Registry and/or (ii) located in
contiguous areas.
The free customer must report its load requirement to the Government
and must contract all of such load, and may be financially exposed in
case of deviations. It must execute CCT/CCD and CUSD/CUST
13
The ESS charge is paid by the large consumers and are aimed at covering
the costs of dispatch of thermoelectric generators.
connection agreements and pay for connection fees. It must also join
the CCEE.
In cases where current contracts with distribution companies do not

have a specific term, the free customer option must be exercised
within 36 months, counting from the date of notification issued to the
relevant distribution company. Return to the regulated condition must
be requested at least five years in advance.
Consortia
Investors may form a consortia to generate electric energy under the
IPP or self-generator regimes, subject to applicable regulation.
Under Brazilian law, consortia are non-incorporated entities. Each

consortium member must be a party to a relevant concession contract,
and all members must be jointly and severally liable for the
concession / authorization obligations. They are strongly advised to
execute detailed consortium agreements, operation agreements, and
other documents defusing their rights and obligations.
Change of Control - Prior Consent

Transactions involving changes of corporate control of public utilities
(distribution, transmission, an generation companies) are subject to
ANEEL's prior consent.
Transactions involving changes of corporate control of certain IPPs/

self-generators which are not public utilities may require prior
approval of ANEEL 14. Otherwise, a simple notice to ANEEL, served
within 30 days after registration of the transaction with the local
Commercial Board is acceptable.
Prior approval is required if the generation sources are hydro, nuclear

thermal or “any primary energy source that may have a material
impact to the security of the national system”. The concept of
“materiality” has not been defined yet.
14
Pursuant to ANEEL Resolution No. 484, of 24 April 2012.
Prior approval is not required for solar, wind and thermal (other than
nuclear) power sources, as long as that the size of the relevant plant
“will not impact in the security of the national power market”. A 30-
day post-transaction notice is sufficient.
Prior approval is also not required for corporate restructurings within

the same economic group and which do not imply a change of indirect
control, the so-called “Controle Intermediário”. A 30-day post-
restructuring notice is sufficient.
IPP/Self-generators’ Change of Control

Source Prior Approval from/ Post-
Transaction Notice to ANEEL
Hydro Prior approval is required, except
if the change of control takes
place within the same economic
group and does not imply an
indirect change of control, in
which case a 30-day post-
transaction notice to ANEEL is
sufficient
Any primary source with “material Prior approval
impact to the safety of the national
system” (materiality to be defined)
Nuclear Prior approval
Thermal (other than nuclear), wind 30-day post-transaction notice
and solar

Ports
Introduction
In Brazil, the federal government has a constitutional monopoly over
the exploration of sea, river and lake ports (Brazilian Federal
Constitution article 21, XII, “f”). Ports may be operated either directly
by the federal government or by third parties by means of federal
granting or delegation. Such granting or delegation usually takes the
form of “concessions” or “authorizations”. Some port operations have
been delegated to state and municipal governments, while others are
the responsibility of the so-called “dock companies” (Companhias
Docas), which are controlled by the federal government (each being
deemed a “port authority”). Private parties may operate port terminals
and other port facilities under specific government granting, as further
described in this chapter.
Law 12,815/13 ("Ports Act") sets the regulatory framework of the port
industry. Decree 8,033/13 regulates the Ports Act.
Institutional Framework
The institutional framework of the industry is rather complex,
composed of several governmental and non-governmental bodies,
sometimes assuming concurrent roles and not always complying with
a clear hierarchical order. Generally, the industry is ultimately subject
to the federal government either directly or via the relevant regulatory
agency.
The Ports Act concentrates most powers with the federal government.
In past years the powers were exercised by the Special Ports
Department (Secretaria Especial de Portos), created in 2007.
However, as a result of a restructuring of the federal ministries in
2016, the Ministry of Transport, Ports and Civil Aviation ("MTPAC")
was created and the Special Ports Department was replaced by the
National Ports Department (Decree 9,000/17).

The new administrative body now has four subdivisions: the
Department of Port Infrastructure and Environmental Management;
the Department of Port Concessions; the Department of Planning,
Logistics and Real State Management; the Department of Port
Management and Modernization, Safety and Health; and the National
Institute of Waterways Researches.
The main responsibilities of the National Ports Department are i)

advising the Minister of State in the coordination and supervision of
the agencies and entities related to the port and maritime sector and
facilities; ii) implementing and monitoring the national waterways
transport policy, the port sector and maritime, river and lake port
facilities, in coordination with the Secretariat for Policy and
Integration; iii) participating in formulating and implementing the
Ministry's strategic planning for the port and maritime sector and
facilities, and proposing priorities for investment programs; iv)
coordinating and monitoring matters that require the Brazilian
Government's position before international organizations; v) preparing
and proposing approval of concession plans for the exploration of
infrastructure, and providing services to the ports sector.
Furthermore, ports are subject to the regulations of the Waterway

Transportation National Agency (Agência Nacional de Transportes
Aquaviários, or “ANTAQ”), which is responsible for, among others,
carrying out public bids, and selecting, authorizing, and monitoring
private parties operating port facilities.
Moreover, each port has a (1) Port Authority Council (Conselho de

Autoridade Portuária or “CAP”), composed of representatives of
many port constituents (from labor workers to governments to
operators to users, among others), and is in charge of approving the
relevant port’s rules, zoning and development, to ensure market
competition, among others; (2) Port Authority (Administração
Portuária), responsible for the general administration of the port,
enforcing port rules, constructing, maintaining and operating port
facilities, collecting tariffs, among others; and (3) Labor Manager
(Órgão de Gestão de Mão-de-Obra do Trabalho Portuário, or
“OGMO”), which coordinates labor in the port.
Other important bodies include customs, the navy, including the coast
guard, health and sanitation authorities, municipal governments, and
environmental agencies.
Forms of Doing Business

In general terms, a private party may operate port facilities in two
distinct ways: (1) by a concession or a lease, in the case of terminals
located within organized public port areas ("public terminals"), or (2)
by an authorization in the case of terminals located outside public port
areas ("private terminals").
The granting of concessions/leases of public terminals depends on a

prior public bidding process. The criteria to award winners will be,
individual or in combination: higher cargo volume, shortest handling
time and/or lowest tariff. The maximum term for a concession or lease
is 25 years, which may be extended once for the same initial period
(Article 19, Decree No. 8,033/2013). Grants of concessions or
execution of leases are subject to detailed and rigorous public
procurement legal requirements.
The operation of private terminals is granted by means of an

authorization deed, which is formalized by an adhesion contract
executed with ANTAQ. The adhesion contract has a 25-year term,
which may be extended for additional 25-year periods as long as
certain conditions are fulfilled such as: (i) maintenance of port
activities and (ii) improvements in the port facilities by the authorized
party.
The public procurement requirement

Public terminals are deemed to embody the national public interest
and its delegation to private parties is subject to stringent
requirements. Grants of public port facilities (by means of either
federal concession or port authority lease) must necessarily be
preceded by a public bidding selection process, to be organized and
conducted by ANTAQ or delegated by ANTAQ to the port authority
(Article 27, Law No. 10,233/2001). Moreover, the rights and

obligations of the private parties are set forth in the bidding public
notice as well as in the concession or lease agreements, as the case
may be, which in turn are subject to rigorous principles and mandatory
clauses applicable to government procurement contracts, in general.
For further information on public bidding and government
procurement contracts, see the chapter on Public Bids.
Private Use Terminals
Any interested party may request ANTAQ to make a public call

(chamada pública), which is simpler and less formal than a public
tender, for the selection and granting of private terminal
authorizations. The public call aims at identifying other parties that
may be interested in obtaining authorizations in the same geographical
area and for similar purposes. Moreover, ANTAQ may also make a
public call for the granting of authorizations regardless of any
interested party's request (anúncio público), which shall follow the
same requirements of the chamada pública.
Private terminals are subject to less regulations than public terminals.

For instance, private terminals are not required to hire a labor force
from OGMO (Labor Manager), as with public terminals. On the other
hand, private terminals assume all risks related to their business and
are not entitled to or protected by public tariffs.
Tariffs (Public Terminals)

The exploration of public port facilities is remunerated by means of
public tariffs. The port authority has the power to set and collect port
tariffs. The port authority charges tariffs from the user and from the
lessees/authorized parties in connection with administrative services
rendered or made available to port users.
ANTAQ has powers to approve tariff revision/adjustment, after prior

notice is given to the Ministry of Finance. Even though each port is
allowed to charge distinct tariffs, in practice they do not tend to vary
across the country.

Tariffs are usually charged for: (i) use of waterway infrastructure to be

paid by the ship owner or by the user; (ii) use of berth facilities to be
paid by the ship owner or by the user; and (iii) use of terrestrial
infrastructure to be paid by the port operator or by the cargo owner.
Port Labor (Public Terminals)

Port labor is carried out by (i) workers with employment agreements
with the port operator and (ii) dockworkers not bound by employment
agreements (temporary workers). Each port has a Labor Manager for
temporary port work, or "OGMO", which is responsible for
maintaining registration of dockworkers.
Public terminal operators must procure dockworkers solely from the

relevant OGMO. Dockworkers, however, have no employment
relationship with the port operator or with OGMO.
According to the Brazilian Federal Constitution (Article 7 XXXIV),

dockworkers and port operator employees are entitled to the same
labor rights, as for example, Christmas bonus, vacation, severance
fund contributions (FGTS), among others.
Wages and work conditions related to dockworkers will be established

in collective bargaining agreements executed between the unions
representing dockworkers and port operators.
Change of Control
On 5 March 2015, the former Special Ports Department regulated the
procedure for prior authorization to change of control and transfer of
lease or concession agreements (Ordinance No. 50/2015).
Under the current regulations, requests for prior consent must be

submitted to ANTAQ for analysis. In its analysis, ANTAQ will
consider whether the transaction will result in any violation to
competition within the ports' sector and whether the new
controller/concessionaire/lessee is in compliance with all rules set
forth by the port's administration and ANTAQ.

In case of transfer of the lease or concession, ANTAQ will carry out
the analysis, but the ultimate decision will come from the National
Ports Department. On the other hand, in case of change of control of
the relevant concessionaire/lessee, ANTAQ will be solely responsible
for the analysis and decision.

Airports
Legal Framework
Pursuant to the Brazilian Constitution, the federal government has
powers to explore airport infrastructure, directly or by delegation to
third parties, by means of authorization, concession or permission
(Article 21, XII, c).
Under the Brazilian Aeronautics Code (Law No. 7,565/1986), airports

are public aerodromes equipped with facilities to support aircraft
operations, as well as the boarding and deplaning of passengers and
cargo. The Brazilian Aeronautics Code provides that public
aerodromes will be built, maintained and operated:
(i) directly by the federal government;
(ii) by entities owned by the federal government or their

subsidiaries;
(iii) by states or municipalities under a convention executed

with federal government; or
(iv) by private parties under a concession or authorization

instrument.
Most Brazilian airports are operated by Infraero, which is wholly-

owned by the federal government (item “ii” above). There are also
airports operated by states or municipalities (item “iii” above), such as
the airports operated by the São Paulo State Air Department
(DAESP). In the past, private entities operated a relatively small
number of airports. However, after 2012, the federal government
started auctioning concessions for the long-term operation of several
Brazilian airports.
The operations of some Brazilian airports may not be profitable. In

these cases, the government may delegate the operations using a
public private partnership model, more specifically a “sponsored
concession” scheme (concessão patrocinada), through which the
government pays the operator cash compensation in addition to the
fees charged to the service users, as necessary to make up for the
financial shortfall. Such model, however, has not been used in recent
years for the concessions conducted at some of the most important
airports in Brazil.
Some of the main governmental bodies with jurisdiction over the

airports are the Civil Aviation Council (“CONAC”), the National
Civil Aviation Agency (“ANAC”) and the Secretariat of Civil
Aviation, which operates under the Ministry of Transportation, Ports
and Civil Aviation.
According to Decree 3,564/2000 and Decree 3.955/2001, CONAC is

an advisory body responsible for formulating policies on civil aviation
and proposes airport concession plans to the Brazilian president.
CONAC is part of the Ministry of Transport, Ports and Civil Aviation
and is composed of the Minister of Defense, the Minister of External
Relations, the Minister of Finance, the Minister of Development,
Industry and Foreign Trade, the Chief of the Presidential Staff Office
and the Commander of the Brazilian Air Force.
ANAC is a regulatory agency created in 2005 by Law 11,182/05. It is

responsible for the regulation and safety of civil aviation. ANAC has
assumed the staff, structure and functions of the Air Force’s Civil
Aviation Department (DAC), the former civil aviation authority.
ANAC observes and implements the directions, guidelines and

policies established by CONAC, including airport concession plans.
ANAC represents the State when granting concessions or
authorizations for the operation of airports, in whole or in part, and is
responsible for the tariff system for the exploration of airport
infrastructure.
Privatization
Investments in Brazilian airport infrastructure have increased in the
past few years. Passengers and cargo demand growth in Brazilian
airports became a federal government’s concern -- considering, for

instance, Brazil’s hosting of the 2014 FIFA Soccer World Cup and the
2016 Olympic Games. In 2009, the government published the
National Policy for Civil Aviation (PNAC) and set forth the
conditions for implementing a concessions (privatization) plan
(Decree 6,780/16).
After intense discussions regarding the concessions model, in

February 2012 ANAC carried out a public auction for the granting of
Build Operate Transfer concessions for three major Brazilian
international airports: Franco Montoro, in the city of Guarulhos,
Viracopos, in the city of Campinas, and Brasilia, the federal capital.
In November 2013 ANAC carried out auctions for concessions of the
international airports of Rio de Janeiro and Minas Gerais. Therefore,
at this time, concessions for Brazil's top five airports for passenger
traffic were awarded.
Under that model, the Brazilian Airports Infrastructure Company

("INFRAERO") - the state-owned company that manages the airports
that are still under public control - was an obligatory part of the
consortiums with 49% of the stakeholding. That fact led to a series of
challenges to the operators, including the necessity of investments in
the concessions.
In September 2016 the Federal Government launched an investment

program focused on infrastructure, aimed at attracting private
investments to Brazil: Project Growth ("Projeto Crescer"), or
Investments Partnership Program ("PPI"). PPI initially provided
concessions to private companies for four airports - Fortaleza,
Salvador, Florianópolis and Porto Alegre. The public tender process
was successfully completed on 16 March 2017. Those airports were
awarded under more investor-friendly rules, including the non-
participation of INFRAERO in the consortia. The favorable conditions
resulted in the airports being awarded to foreign airport operators that
presented individual offers to the consortiums (while the first
concessions were awareded to a consortium that included INFRAERO
and Brazilian construction companies).

Recently the government announced its intention to launch new public
tenders for the concessions of existing airports in 10 more cities:
Belém, Cuiabá, Curitiba, Foz do Iguaçu (PR), Goiânia, Maceió,
Manaus, Recife, São Luís and Vitória.
The terms of these concession contracts range from 20 to 30 years,

depending on the airport.
Each winning bidder or bidding consortium must incorporate a special

purpose company (“SPC”), whose purpose will be to hold an equity
interest in the concessionaire of the relevant airport
(“Concessionaire”).
Also, on 24 November 2016, the Brazilian Federal Government issued

Provisional Measure 752/2016 ("PM"), with new rules for extending
the terms of some infrastructure concessions, including airports, in
consideration for additional investment. Those rules also apply to the
termination of certain supposedly problematic concessions, which will
be subject to new bids to replace the service provider. Those rules
were issued in the context of Brazil’s recent Investment Partnership
Program.
The PM has already been confirmed by Congress and is currently

waiting for the presidential sanction (note that under Brazilian Law
Provisional Measures have immediate legal effect).
Tariffs and Fees

The fees charged on cargo handling and passenger transportation are
important sources of revenue in airport operations. Other important
income, such as ancillary revenues, originate from the sublease of
areas for shops, service facilities, parking lots, advertisements, among
others.
Each airport may have distinct tariffs, in accordance to its profile.

Naturally, airports that have higher volumes of cargo handling or
passengers generate more ancillary revenue.
On the other hand, under the terms of the Brazilian Aeronautics Code,
airport concessionaires are subject to paying the Civil Aviation Tax
(TFAC), for administrative activities related to review, approval and
record-filing.

Environmental Protection
Environmental protection is reflected in the Federal Constitution and
in federal, state and municipal legislation, international treaties and
provisions of MERCOSUR. 15 The scope of polluters’ liability and the
standards for environmental protection against pollution are, in some
cases, at a level comparable with those of developed nations. Some
states, including Sao Paulo, have established supplemental rules and
standards that provide even greater protection.
Federal and state district attorneys, the Public Defendant’s Office, as

well as Brazilian nongovernmental organizations (NGOs) registered
with public record offices have standing orders to sue polluters for
money-damages and specific performance (e.g., cleanup or recovery
of damaged areas and indemnification for collective damage) in public
civil actions (similar to US class actions) regulated by Federal Laws
No. 7,347/85 and No. 8,078/90. Although individuals are not entitled
to sue under Federal Law No. 7,347/85, they may sue to recover
personal damages under Brazilian nuisance and tort laws.
Environmental protection agencies at the state and federal levels have

concurrent jurisdiction to: (i) control the quality of water for public
consumption; (ii) establish environmental standards and discharge
limitations; (iii) issue environmental installation and operating
licenses for new and existing sources of pollution; (i) monitor
polluting activities; and (v) shut down serious violators, temporarily or
permanently.
In general, administrative penalties against polluters include warnings,

simple and daily fines, denial of public subvention and financing, and
partial or total suspension or interruption of plant operations. These
and other administrative penalties have been established by Federal
Decree No. 6,514/08, which regulates Federal Law No. 9,605/98 (the
“Environmental Crimes Law”). Federal Law No. 9,605/98 establishes
criminal and administrative liability for damage to the environment.
15
Brazil is a member of the Southern common market established in
Asuncion, Paraguay in 1991.
The law imposes severe criminal punishment on individuals and legal

entities that contribute to environmental damage, including officers,
controllers, management boards, managers and employees of legal
entities.
Under this law, environmental licenses are of significant relevance.

The lack of environmental licenses is listed as a crime and may result
in the interdiction of the activities, as well as confinement.
Environmental agencies have been more restrictive in the issuance of
such licenses, since they are also subject to criminal sanctions for the
issuance of licenses to companies that do not comply with
environmental laws. The law also provides for piercing the corporate
veil whenever the existence of a legal entity is deemed as a barrier to
the recovery of damages caused to the environment.
Penalties for such crimes are severe and may include restrictions on
freedom (i.e., imprisonment and confinement) and rights (e.g.,
rendering services to a community, temporary limitation of rights,
temporary loss of authorization or license, interruption of activities,
etc.), and fines (ranging from BRL50 [approximately USD25] to
BRL50 million [approximately USD25 million]). In certain cases,
penalties restricting freedom imposed on individuals may be replaced
by those restrictive to rights. For legal entities, the following sanctions
might be applicable in an isolated, cumulative or alternative manner:
(i) fines; (ii) restrictive penalty of law or (iii) service to the
community.
Scope
Most of the existing federal laws address the following aspects of the
environment:
Water
Businesses operating in Brazil that discharge liquid effluents are

subject to federal and state government environmental control.
National Environmental Council (“CONAMA”) Resolution
No. 357/05, altered by CONAMA Resolution No. 430/11, sets the

standards for effluents, their maximum levels of pollutants and the
discharge regime. Governmental water quality standards differ
according to water suitability of the water body receiving the
discharged effluent. Brazil’s water quality standards cover a broad
range of pollutants and substances, including oil, fecal coliforms,
dissolved oxygen and various toxins. The use of specific segments of
streams and water bodies are ruled by competent governmental
agencies.
Some Brazilian states, including São Paulo, have established

supplemental standards that exceed federal minimum standards. The
state environmental protection agency may impose even stricter
standards to a given company depending upon the characteristics of
the receiving water body and its level of saturation, or as a result of
peculiar characteristics of the company’s processes and wastes. Based
on constitutional provision, in case of conflict, the more restrictive
standards shall apply.
National Policy on Water Resources (Federal Law No. 9,433/97)
The National Policy on Water Resources is based on the idea that

water is a public good and a limited natural resource with economic
value. The use of water resources is thus subject to prior authorization
by environmental authorities (Art. 12). The uses subject to prior
authorization will also imply payment for the use of water. The
government shall use such funds to promote the rational use of water
and finance programs contemplated under the Water Resources Plans.
The law also creates regional river basin committees comprising

public and private parties to manage the water resources and
implement policies and regulations on a regional basis.
The following acts are deemed illegal and subject to administrative

sanctions: (i) the use of water resources without a proper water use
permit; (ii) start-up of activities related to the use of superficial or
underground water resources, which may alter its quantity or quality,
without the prior authorization from the competent authority; (iii) the
use of water resources in breach of the conditions of the water use

permit; (iv) unauthorized drilling of a well to obtain access to

groundwater; and (v) providing false information when reporting the
volume of used water.
The National Policy of Water Resources is enforced by the Federal

Water Agency (“ANA”), which is responsible for controlling and
managing the use of federal waters (Union rivers and lakes). At state
level, governments may create their own water agencies and water
resources policies to grant the right to use water from rivers and water
sources under their jurisdictions. Some states, such as São Paulo, Rio
de Janeiro and Rio Grande do Sul, have their own rules on water
resources, which generally follow the federal policy’s principles and
structures.
Recently, due to the low levels of rain and water reserves that most
regions have been facing, the use of water has become an important
issue for public policies and has impacted all sectors of the economy,
especially agriculture and industry. As a result, the use of a great
amount of water has been requiring the elaboration of detailed
planning and additional investments from companies.
Hazardous and solid wastes
According to Brazilian legislation, the generator is responsible for the

proper final disposal of hazardous and non-hazardous waste. Federal
and some state regulations require that the transportation, treatment
and disposal of wastes (whether solid, hazardous, non-hazardous or
medical) must be subject to the prior approval of a state environmental
protection agency. In some cases, companies may temporarily store
waste in their facilities under state approval and supervision.
There are also specific requirements for hazardous waste

classification, inventory and disposal reporting requirements, and
waste import and export, transport, storage and disposal. The general
rule is that hazardous wastes are those that pose potential risks to the
environment and public health. As a general rule, the environmental
protection agencies adopt the waste classification of ABNT Technical

Standard NBR 10.004, which considers as hazardous the waste that is
toxic, corrosive, flammable and radioactive.
Federal Law No. 12,305/10 created the National Policy on Solid

Waste, which, among other provisions, requires the implementation of
a reverse logistic (take back requirements) by manufacturers,
importers, retailers and distributors of agrochemicals and fertilizers,
batteries, tires, lubricant oil, fluorescent lamps, electronics, among
others.
The federal law also obliges certain manufacturers, retail sellers and
service providers to prepare a solid waste management plan to become
part of the environmental licensing proceeding of the relevant activity.
Please refer to Item 7 for further details on this policy.
At state and municipal level, governments may have their own

policies on solid waste, which may specify particularities of their
jurisdictions related to the implementation of the policies.
Air pollution
Federal laws and some state laws establish air quality and emission
standards, taking into account the concentration of atmospheric
pollutants that may affect public health, safety and the environment.
CONAMA Resolution No. 05/89 sets the National Air Quality
Monitoring Program (“PRONAR”). This program provides for
primary and secondary air quality standards and classifies different
regions of the country in order to prevent deterioration. Class I areas
are those with pristine air quality and which should have no air quality
impact, Class II areas must be limited by secondary air quality
standards, while Class III regions must comply with primary air
quality standards.
CONAMA Resolution No. 03/90, together with CONAMA

Resolution No. 08/90, complemented PRONAR by establishing
primary and secondary standards for total suspended particulates,
smoke, free particulates, sulfur dioxide, carbon monoxide, ozone and
nitrogen dioxide. It also establishes sampling and analysis methods for

mentioned pollutants. The states are responsible for monitoring these

programs. Some states have enacted their own air quality standards,
which cannot be less restrictive than the federal laws.
CONAMA Resolution No. 382/06 (complemented by CONAMA

Resolution No. 436/2011) provides for criteria to monitor air
emissions, as well as emission standards applicable to specific
stationary sources that generate heat. This resolution applies to
stationary emission sources whose corresponding installation licenses
were requested as of 2 January 2007, while CONAMA Resolution No.
436/11 regulates the existing stationary emission sources up to 2
January 2007 or for which the respective installation licenses were
required prior to this date, establishing their standards.
Toxic fertilizers - Biocides
Research, production, packaging, labeling, destination, registration,

transport, storage, commercial advertising, use, control and inspection
of biocides, their components and similar products are ruled by
Federal Law No. 7,802/89.
In addition, Federal Law No. 9,974/00 obliges producers, resellers,

and users of biocides to take back the packages of toxic fertilizers
used as of 31 May 2002, imposing to producers, resellers, as well as
users of toxic fertilizers the responsibility for the final destination and
cleaning of used packages. Criminal liability is also imposed on those
who fail to comply with the legal requirements.
CONAMA Resolution No. 465/14 establishes the rules for

environmental licensing of facilities involved in the receiving and
final disposing of packages of toxic fertilizers, setting forth many
requirements aimed at preventing environmental damages, specific
definitions and grounds of liability. Brazilian normative rulings
regulate the advertising of toxic fertilizers, as well as the use and
labeling of mineral fertilizers.

Soil and groundwater protection
Brazil’s progress in the control of soil and groundwater pollution is

one of the country’s priorities. The discovery of severe cases of soil
and groundwater contamination and the stricter enforcement of the
legislation by government authorities have raised discussions on
whether the country should establish soil and groundwater control and
intervention. Until now, the federal government has issued no
references or legislation. However, the government of the state of São
Paulo issued on 9 July, 2009, State Law No. 13,577, which determines
that the legal representative for a contaminated area in the State of São
Paulo, when detecting evidence or perceiving a suspicion that an area
is contaminated, must immediately communicate this fact to the
competent environmental and health authorities and proceed with the
remediation of the area. Other states are currently following the São
Paulo regulation and working on their own state laws on the subject.
CONAMA Resolution No. 420 established criteria and values that

determine the soil quality in view of the presence of chemical
substances, and guidelines for the management of areas contaminated
by such substances. The resolution establishes that the management of
contaminated sites shall include procedures for reducing risks to
human health and to the environment, enabling the use of the area.
The management measures shall observe the following steps: (i)
identification (investigation of the areas based on a preliminary
assessment); (ii) diagnostic (detailed investigation and risk assessment
of the area); and (iii) intervention (corrective measures to eliminate
the identified risks or to reduce it to acceptable standards considering
the intended use for the site). In the State of São Paulo, the
Environmental Protection Agency (CETESB) has developed
guidelines on standards and parameters for soil contamination.
CETESB’s list of reference values for soil and groundwater was first
issued in 2005, and then updated in February 2014, through its
Management Decision No. 045/2014/E/C/I. This list comprises
85 compounds. Most of the state’s environmental protection agencies
are adopting these values as reference, as well as the Dutch and the
US EPA values on a supplementary basis. For groundwater, agencies
also consider the Brazilian Health Ministry’s Normative Resolution

No. 2,914 as of December 2011, establishing the quality standards for

drinking water.
The CETESB values corroborate the concepts of: (i) Quality

Reference Value (“VRQ”) regarding the values for clean soil and
groundwater; (ii) Prevention Value (“VP”) regarding the values above
which there may be damage to the soil and groundwater; and
(iii) Intervention Value (“VI”) regarding the values above which there
may be direct or indirect potential risks to human health.
In case the referred intervention values for soil and/or groundwater are
exceeded, the company responsible for the site shall engage in
remediation activities.
CONAMA Resolution No. 396, as amended, provides for guidelines

on the environmental standards for the prevention and control of
groundwater pollution. The rule defines water conditions and
standards under concepts of “maximum allowed values” (“VMP”) for
predetermined parameters and “quality reference values” (“VRQ”).
Furthermore, CONAMA Resolution No. 398 regulates the minimum

content of the Individual Emergency Plan (PEI) related to
contamination by oil spills.
Reverse logistic system and take-back requirements
Federal Law No. 12,305/10 provides for the reverse logistic system
designed for several industries of production of certain goods, such as
agrochemicals, batteries, tires, lubricant oils, fluorescent lamps and
electrical and electronic equipment. Pursuant to the reverse logistic
system, manufacturers, importers, retailers and distributors of such
products shall implement the system taking into consideration their
obligation to receive used products by consumers and provide the
environmentally sound final disposal of the wastes. Federal Decree
No. 7,404/10 regulates the abovementioned federal law and details the
obligations regarding the reverse logistic system, among other
provisions.

Among the instruments for implementation of the reverse logistic
system, the law provides for the execution of sectorial agreements
between the federal environmental agency and some segments of the
industry. Some segments of the industry, such as the lubricant oil
package industry and fluorescent lamps, have already signed the
sectorial agreement, while others are under discussion. The sectorial
agreements define policies and measures to be adopted by each of the
actors of the production chain and the consumers toward the
responsibility for the life cycle of the product until its final and
environmentally appropriate destination.
The law did not revoke former rules regarding the take-back
requirements, such as Federal Decree No. 4,074/02, which was
enacted on 4 January 2002. It even regulates: (i) Federal Law No.
7.802/1989, which establishes take-back requirements for packages
containing toxic fertilizers; (ii) CONAMA Resolution No. 401/08
(altered by Resolution No. 424/10), which establishes criteria and
standards for the adequate environmental management of batteries
containing mercury, cadmium and lead commercialized in Brazil; and
(iii) CONAMA Resolution No. 416/09, which requires manufacturers
and importers of tires to collect and properly dispose of tires that are
no longer in use and which establishes that for each new traded tire,
manufacturers and importers must provide final disposal to one,
among others.
BIO-SAFETY
The Cartagena Protocol on Biosafety to the Convention on

Biodiversity Protection was ratified in Brazil by Federal Decree No.
5,705/06. In addition, Federal Law No. 11,105/05 (regulated by
Federal Decree No. 5,591/05) (the Biosafety Law) provides for the
safety and inspection mechanisms for the use of genetic engineering
techniques for the manipulation, harvesting, transportation,
consumption, commerce and disposal of genetically modified
organisms (GMOs). The law aims at protecting public health and the
environment. It prohibits human cloning but allows research with
genetic manipulation of steam human cells.

The Biosafety Law is enforced by CTNBio, the authority responsible

for implementing and updating the National Biosafety Policy and
enacting rules regarding GMOs. The final decision on the commercial
approval of GMOs are taken by the National Biosafety Council
(CNBS), composed of Ministries of State.
The release of GMOs into the environment without observing the

rules established by the CTNBio and the plantation, production,
transportation, commercialization, importation, exportation or storage
of GMOs, or their derived products, without authorization or
observation of legal provisions are considered crimes under the law. It
also provides for administrative sanctions and civil liability applicable
in case of environmental degradation or damages to third parties
caused by GMOs.
Several normative instructions have been issued by CTNBio.

According to Normative Instruction No. 01/96, all national, foreign
and international legal entities developing activities and projects
related to GMOs must secure a Biosafety Quality Certificate issued by
CTNBio. The procedure for releasing such organisms into the
environment, as well as the importation, commercialization, transport,
storage, manipulation, consumption and disposal of products derived
from GMOs are subject to the CTNBio normative instructions.
Additionally, Federal Resolution CONAMA No. 305/02 regulates the

environmental licensing procedure and the Environmental Impact
Assessment for the release of GMOs into the environment, the
Environmental Impact Study (EIA) and the Environmental Impact
Report (RIMA) on activities regarding GMOs and their by-products.
According to the Biosafety Law, however, the environmental agencies
will only have the authority to set requirements to merit the approval
of certain GMOs if CTNBio understands that such products have the
ability to cause significant negative environmental impact. The
provision has been challenged before the Brazilian Supreme Court,
but it has not been addressed yet.
Federal Decree No. 4,680/03 regulates the right to information

guaranteed by Federal Law No. 8,078/90 (Consumer Defense Code)
on genetically modified food or ingredients intended for human or
animal consumption. According to this federal decree, any kind of
food or by-product containing more than 1 percent of a GMO shall
include a warning label on its packages, such as “genetically modified
product,” “contains genetically modified ingredient” or “manufactured
from genetically modified material.”
Federal Ordinance No. 2,658/03 also states that all products

containing more than 1 percent of GMOs must present a specific label
containing a highlighted GMO symbol, together with the warning
described above.
Urban Law and Environment

Zoning
The federal government (Federal Law No. 6,803/80), several state

governments and the most populated cities have enacted zoning laws
for the protection of specific areas. These laws restrict the
establishment of new industrial plants, commercial facilities and the
expansion of existing ones in certain areas. Before investing in land
for industrial and commercial purposes, a buyer must carefully
analyze existing land restrictions.
City’s Ordinance
Federal Law No. 10,257/01 (the City’s Ordinance Law) refers to the
basic policy on the use of urban land. This subject was first regulated
by the Federal Constitution (Articles 182 and 183), which determines
that the policy of urban development, executed by the Local Public
Authority, aims to command the development of the social functions
of the city and guarantee the welfare of inhabitants.
With the enactment of the City Ordinance Law, many legal

possibilities for the regulated use of urban land and real estate were
implemented. Further to defining a policy for the use of urban land
based on its social function, the City Ordinance Law also
implemented: (i) the Tax for Urban Land (IPTU) progressively in
time; (ii) the expropriation with the payment of government debt

instrument; (iii) the special adverse possession in urban real estate;

(iv) the surface right; (v) the preemption right; (vi) onerous grant of
the right to build; (vii) transfer of the right to build; and
(viii) neighborhood impact study, among others.
Environmental Audits
The practice of environmental auditing in Brazil is relatively new.

Given the growth of potential liability for polluting activities and the
impact of the activities of subsidiaries on their parent companies,
environmental audits are becoming increasingly important in
determining compliance with environmental laws.
Parallel to voluntary initiatives, legislation (including provisions in

some state constitutions) has been developed by some states and the
federal government to mandate environmental auditing of some
industry sectors. Thus, Federal Law No. 11,284/06, which established
proceedings for the management of public forests by private
companies, also elected forest audits as an important instrument to
guarantee the sustainable use of concession areas. According to the
law, all concessions must be subject to independent forest audits,
which will be carried out at least every three years and supported by
the assignee.
At state level, Rio de Janeiro initiated these legislative approaches in

1991, followed by Minas Gerais, Espírito Santo, São Paulo and
Paraná. The Rio de Janeiro and the São Paulo laws require periodic
environmental auditing of pollution control systems and of activities
that may cause potential harm to the environment. Other states have
also adopted similar legislation. Major cities have also included
environmental auditing mandates as part of the local environmental
requirements (e.g., Santos-SP and Vitória-ES).
Federal Resolution CONAMA No. 306/02 (altered by Resolution No.

381/06) establishes minimum requirements for environmental audits.

Climate Change
As a non-Annex I country, Brazil’s participation in the United Nations
Framework Convention on Climate Change (UNFCCC) and the
Kyoto Protocol is focused on the Clean Development Mechanism
(CDM), which foresees, among other opportunities, that developing
countries may obtain foreign investments to implement clean energy,
emission reductions and carbon sink projects in exchange for emission
credits granted to the developed countries responsible for the
investments. Moreover, there is also an opportunity for developing
countries to implement “unilateral CDM projects” without the
participation of developed nations.
The governmental actions are coordinated by the Brazilian DNA,

which is linked to the Ministry of Science and Technology and was
created by a President’s Decree enacted on 7 July 1999, and amended
on 10 January 2006. In November 2003, the DNA enacted Ordinance
No. 1/03, which established the procedure for government approval of
CDM projects, and internalized the Marraquesh Accords. The DNA
also enacted on 10 August 2005, Ordinance No. 2/05 that provides for
the establishment of CDM forest projects. The DNA has already
enacted several resolutions to internalize decisions enacted by the
CDM Executive Board or to regulate specific CDM matters in Brazil.
Concerning the legal nature of CERs, according to the understanding

of the Securities and Exchange Commission of Brazil (Comissão de
Valores Mobiliários – CVM), published on 21 July 2009, at the CVM
website, 16 the Certified Emission Reductions (CERs) under the Kyoto
Protocol regime, also referred to as Carbon Credits, are not securities.
Consequently, they are not subject to Federal Law No. 6,385/76.
Other instruments eventually connected to CERs, such as certificates,
condensed or derivative instruments, may be considered securities,
depending on its nature that applied for such cases and the regime
established by the regulation in force. Investment funds are authorized
16
Available at http://www.cvm.gov.br/. Administrative Proceeding CVM No.
RJ 2009/6346, Decision of CVM’s Director, Mr. Otavio Yazbek.
to acquire CERs, according to CVM Normative ruling No. 409/04,

article 2, VIII and paragraphs 5 and 8. 17
In the energy sector, the country has launched the Brazilian

Renewable Energy Incentive Program (PROINFA 18), which sets forth
financial incentives for the production of renewable energy by wind,
biomass and small hydroelectric plants, and intends to reduce CO2
emissions to about 2.5 million tons per year.
It is important to mention that the Public Forest Concession Law

(Federal Law No. 11,284/06) has allowed government authorities to
grant the concession of sustainable use management of public forests
to private organizations upon a bidding process. Article 16 of this law
establishes that the concession may include the right to commercialize
CERs from CDM reforestation and activities concerning land-use
change projects in public forests.
In addition, the Brazilian Forest Code (Federal Law No. 12,651/12)

also provides for payment of environmental services, which includes
carbon sequestration, conservation, maintenance, increase of
inventory and decrease of flow, aiming to generate carbon credits (as
tradable objects).
In order to illustrate the scenario, by March 2013, Brazil was

responsible for 6.4 percent of all CERs issued, which makes Brazil the
fourth country in terms of the number of issued CERs. Aside from the
activities related to the Kyoto Protocol, the Brazilian government has
adopted several measures to avoid or mitigate the effects of climate
change, such as the increased legal protection to environmentally
17
CVM Normative Ruling No. 409/04 will be replaced by CVM Normative
Ruling No. 555/14, which will come into force on 1 July 2015, and provides
for the same dispositions.
18
The PROINFA was launched in Brazil by Federal Law 10,438 of
April 2002, as amended by Federal Law 10,762 of November 2003. It was
organized by the Ministry of Energy and Mines and foresees the purchase of
3,000 MW of renewable energy.
relevant areas and the development of an updated energy policy,
among other policies.
In addition, an important step was the creation of the Brazilian

Mercantile Exchange (BM&F) Carbon Facility, which resulted from
an agreement executed with the Brazilian Ministry of Development,
Industry and Foreign Trade. This BM&F Carbon Facility aims to
generate public awareness of CDM project activities and implement
the same to meet the worldwide CDM demand and supply, and thus,
foster a favorable business environment, as well as cut transaction
costs. BM&F also develops the auction of CERs with the Brazilian
and international communities.
In 2008, the federal government launched the National Policy on

Climate Change (“Política Nacional sobre Mudança do Clima” -
PNMC) and its voluntary commitment to reduce GHGs emissions.
The plan defines actions and measures to mitigate and adapt to climate
change. Its specific objectives are to: (i) stimulate energy efficiency
increase in a constant search for better practices in the economic
sectors; (ii) keep the high share of renewable energy in the electricity
matrix; (iii) encourage the sustainable increase in the share of biofuels
in the national transport matrix and also work toward the structuring
of an international market of sustainable biofuels; (iv) seek for
sustained reduction of deforestation rates in all Brazilian biomes, 19 in
order to reach a zero illegal deforestation; and (v) encourage
reforesting and forestation activities under the Clean Development
Mechanism (CDM).
Furthermore, the federal government issued Federal Decree No. 7,390,

of December 9, 2010, which regulates Articles 6, 11 and 12 of the
National Policy on Climate Change – PNMC, which was published in
the Federal Official Gazette on 10 December 2010. According to the
decree, public policies and governmental programs must always
ensure that applicable policies are compatible with the PNMC. In
order to achieve the target set for 2020, as regards reducing
19
Besides the Amazon biome, the Brazilian territory has the Caatinga,
Cerrado, Mata Atlântica, Pampa and Pantanal biomes.
greenhouse gases emissions, the decree considers, among other

projects, the expansion of hydroelectric and other renewable energy
supply, as well as the reduction in the annual rating of deforestation in
the Amazon biome by 80 percent and in the Cerrado biome by
35 percent.
In addition, in monetary terms, it is notable that in 2014, the National

Climate Change Fund invested BRL380 million (approximately
USD160 million) in projects linked to the reduction or avoidance of
greenhouse gases and to promote the adaptation of populations
vulnerable to climate change.
Due to constitutional provisions that empower federal, state and

municipal jurisdiction on environmental matter, Brazilian states and
municipalities are also following the steps of federal government,
enacting regulations related to climate change. Several states have
enacted laws defining mechanisms to mitigate greenhouse gases and
to adapt to their negative effects. These states laws provide for the
same principles of the National Policy on Climate Change, such as
sustainable development, precaution and common responsibilities.
States have also exerted certain efforts to implement forums focused
on climate change discussions. Some of them, such as Paraíba, São
Paulo and Rio de Janeiro, came to adopt voluntary targets to mitigate
greenhouse gases.
As a pioneering initiative of retribution, the State of Acre has been

paying those that preserve ecosystem services. This seems to be a
trend to be followed, once it was accompanied by the States of
Amazonas, Paraná, Santa Catarina and Minas Gerais, among others.
Brazil is also turning its attention to the voluntary carbon market,

despite the implementation of a national REDD+ strategy yet being
discussed. Accordingly, there are some initiatives under discussion at
the Brazilian House of Representatives and Senate.
Due to its continental area and untouched forests, Brazil stands as the
main player in the REDD+ market. Several initiatives are already in
place in the private and public sector. As an example, the government

of California signed a memorandum of understanding with the State of
Acre (located in the Amazon region) to develop sectorial REDD
crediting. The State of Amazonas also created a REDD+ program in
some of its state forest reserves. More recently, a private standards
specifically related to forestry projects was developed in Brazil (Brasil
Mata Viva - BMV). The Brazilian Association for Technical
Standards (ABNT) also developed a standard dealing specifically with
principles, requirements and guidelines to commercialize verified
emission reductions in the country.

Consumer Protection
Consumer protection in Brazil has its basis in the Federal Constitution
and in federal, state and municipal legislation. The main rule
applicable to consumer protection matters is the Consumer Protection
Code (CDC - Federal Law No. 8.078 of 1990) and its regulations.
The CDC is a protective law with principles and duties intended to

look after the “vulnerable party” of the relationship (i.e., the
consumer). It establishes: (i) basic rights of consumers and (ii) rules
regarding quality of products and services, taking into consideration
the health and safety of consumers. It also determines suppliers’
liability for defects of products and services and (ii) rules on
commercial practices, encompassing advertisement and abusive
practices, and contractual protection. The CDC likewise sets forth
criminal infractions, administrative penalties, as well as rules for
individual and collective lawsuits on consumer matters.
As a rule, the CDC is applicable whenever there is a consumer

relation between the parties involved, characterized by the existence
of a product or service offered to consumers by a supplier.
The CDC defines supplier as any private or public individual or legal

entity, Brazilian or foreign, that manufactures, assembles, creates,
builds, transforms, imports, distributes or markets products or renders
services to consumers. On the other hand, the CDC, as a general rule,
defines consumer as individuals or legal entities that acquire or use
products or services as end-users. Current trends of Brazilian courts
show that large companies may be considered as consumers, if they
present, for instance, any sort of technical, legal, informational or
economic vulnerability.
The scope of liability for suppliers and the standards for consumer
protection in Brazil are, in some cases, more severe than the consumer
rules applicable in developed nations.
The Brazilian CDC establishes a strict liability regime, which means

that under the CDC, the consumer will not have to prove the agent’s

fault, but only the connection between the damage and the action of
the agent. As a general rule, if the offense was caused by more than
one responsible party, all the suppliers may be held jointly liable.
Violation to legal provisions of the consumer protection legislation

may subject the supplier to administrative and criminal penalties, in
addition to the need to indemnify damages or harm caused to
consumer (civil liability).
Federal and state district attorneys as well as Brazilian non-

governmental organizations (NGOs) registered with public record
offices have standing orders to sue suppliers for damages caused to
consumers individually and/or collectively, in view of non-compliance
with the consumer protection legislation, in public civil actions
regulated by Federal Laws No. 7,347/85 and No. 8,078/90.
Consumer protection agencies at the state and federal levels have

concurrent jurisdiction to implement the consumer protection policy,
as well as to sanction companies, in the administrative sphere, in case
of non-compliance with consumer protection rules.
Generally, administrative penalties against suppliers include fines,

product seizure, destruction of the product, cancellation of product
registration with the competent authorities, prohibition to manufacture
the product, suspension of product or service supply, temporary
suspension of the activity, revocation of concession or permission to
use, cancellation of license for the establishment or activity, total or
partial closing down of the establishment, work or activity;
administrative intervention and imposition of counter-advertising.
Please note that such penalties may be applied cumulatively.
The penalty most commonly applied are fines. Such penalty is

graduated according to the seriousness of the infraction and the
advantage obtained, and ranges from BRL466.89 to approximately
BRL7 million. Please note that this amount is updated on a quarterly
basis.

Concerning e-commerce, consumer protection authorities tend to

impose alternative sanctions, such as the suspension of websites in
case of websites that do not comply with consumer protection rules.
Recently, two federal decrees that innovate in consumer protection

rules were published. The first, Decree No. 7,692/13, determines rules
on e-commerce, whereas the second, Decree No. 7,963/13, establishes
the National Plan of Consumption and Citizenship.
The e-commerce decree provides rules on collective purchasing, right

of retraction, data protection, imposing specific duties and behaviors
on suppliers who offer products and services online.
With regard to the National Plan of Consumption and Citizenship, the

decree creates the National Chamber of Consumer Relations, which
contains the following instances for its management: (i) Council of
Ministers, responsible for guiding the formulation, implementation,
monitoring and evaluation of the National Plan of Consumption and
Citizenship, and (ii) the National Observatory of Consumer Relations,
which has the task to promote studies, prepare proposals for the
achievement of the plan’s objectives and monitor the execution of
policies, programs and actions of the National Plan of Consumption
and Citizenship.
Currently, there are some bills of law in progress in the Brazilian

Senate that aim at updating the CDC with regard to e-commerce,
collective lawsuits and overindebtedness.
Scope
The CDC addresses the following aspects of consumer relations:
1. Principles
The CDC has as its main principle the recognition of the vulnerability
of consumers, which means that consumer protection rules were
created in order to balance the relationship established between the
supplier and the vulnerable party - the consumer. With this approach,

consumer protection authorities, as well as Brazilian judges, tend to
adopt, in most cases, a pro-consumer attitude.
Other consumer principles brought by the CDC are: (i) education and
information of consumers and suppliers; (ii) repression of abusive
practices in the consumer market; and (iii) support for the creation, by
suppliers, of alternative means of dispute resolution.
2. Basic Rights of Consumers
As consumers basic rights, the CDC established: (i) the protection of

consumers’ health and safety in case of harmful products or services;
(ii) clear and adequate information on the main characteristics of
products and services; (iii) protection against abusive and misleading
advertisement; (iv) modification of the contractual clauses that
establish disproportional duties to consumers; (v) the effective
indemnification for damages to property as well as moral, individual,
collective and natural damages (full reparation right); (vi) access to
judiciary and administrative courts for the full prevention and
reparation of damages; and (vii) the adequate rendering of public
services.
The basic rights listed above are applied by judges and administrative
authorities in order to grant consumers rights and/or apply penalties
against companies in case of non-compliance with the CDC.
3. Quality of Products and Services
3.1 Liability against vices
Products and services offered in the Brazilian market must guarantee

to consumers the quality that consumers expect from them,
particularly their being proper and adequate for consumption. This, for
instance, would require that products and services have their quantity
indicated in the package and that they have no imperfections.
In case of commercialization of products or services with defects,

consumers have the right to claim its reparation and/or substitution to

suppliers, in addition to the rights to claim for reparation of damage

caused in view of the imperfections.
The CDC grants to consumers the legal warranty (also known as

“statutory warranty”), which is mandatory and cannot be waived, nor
modified and limited, by the parties. Statutory warranty also provides
consumers a 90-day term to claim for evident defects of the product,
whose period is counted as of the delivery of the product to
consumers. With regard to hidden or concealed defects, consumers
have a 90-day term to claim for it, whose period will count as of the
date the defect is noticed by the consumer, also considering the
reasonable lifespan of the product/service. Suppliers also have the
option to offer to consumers contractual warranty with specific terms,
which will be used by consumers in addition to the provisions of the
legal warranty.
3.2 Liability against defects
Consumers also have their health and safety protected and, in view of
this, suppliers are considered liable for any damage caused to
consumers brought about by defects of products or services. In this
case, consumers have a five-year term to file lawsuits against
suppliers in view of damages caused to them.
Suppliers are also obliged to inform consumers on potential risks that

products and services might pose to health and safety. The
information on the risks of harmful products and services must be
provided in an ostensive manner to consumers.
If suppliers identify that products or services pose risks to consumers’

health and safety after placing these goods in the consumer market,
then suppliers must immediately inform authorities and implement a
recall campaign. Ordinance No. 487 of 2012 issued by the Ministry of
Justice sets forth this recall procedure.
The Brazilian National Health Surveillance Agency - ANVISA is

currently studying the issuance of a regulation that will provide
specific rules to the recall campaigns of foods. One of the following

aspects that can be anticipated is that companies will have to observe
both the recall regulations issued by consumer protection authorities
and by ANVISA.
4. Commercial practices
4.1 Advertisement
In terms of advertising, the CDC provides that advertisements must be

construed in such a way that consumers will be able to easily and
immediately identify them as advertisements of products and services
(“Identification Principle”).
In accordance with Article 30 of the CDC, every sufficiently accurate

information or advertising, announced by any vehicle or
communication means, concerning products and services offered or
presented are a binding offer of the supplier that announces it or is
making use of it, and must be included in the contract to be executed
by and between the supplier and the consumer.
The CDC expressly forbids abusive and misleading advertisements.

The CDC understands abusive advertisement as discriminatory
advertising that incites violence, exploits fear or superstition, profits
from the immaturity in judging and inexperience of children,
disregards environmental values or that can lead consumers to behave
harmfully or hazardously with respect to their health or safety. On the
other hand, the CDC understands misleading advertisements as any
information or communication bearing advertising characteristics,
which is totally or partially false, or that for any other reason, even by
omission, might lead consumers to err with respect to the nature,
characteristics, quality, quantity, attributes, origin, price and any other
data about the products and services.
The advertising industry is self-regulated by CONAR - a non-

governmental organization (founded and maintained by advertising
agencies, advertising companies and by the media) - whose main
purpose is to prevent misleading or abusive advertisements from
causing harm to consumers or companies, by recommending the

alteration or suspension of advertisement. The Brazilian Code of Self-

Regulation of Advertisement is the document that establishes ethical
values and standards to be observed by the advertising industry
(please note that this is not a law but a conduct code of the industry,
which is widely accepted).
The advertisement targeted to children and teenagers is a matter that

has been under significant discussion in Brazil, and some non-
profitable organization have focused their attention at developing
activities on behalf of children and teenagers affected by consumption,
aiming to minimize and prevent damage caused by advertisement
(such as the offering of food with low nutritional value and high
caloric value or “tying practices”).
4.2 Abusive practices
Abusive practices are those understood as behaviors of suppliers taken

prior, during and after the offer of products or services that place
consumers at a disadvantage and that, in view of this, are prohibited
by the legislation in force.
The CDC presents examples of abusive practices, such as “tying” (to

condition the purchase of a product/service to the purchase of another
product/service that are normally offered separately) and placing in
the consumer market product that does not respect technical rules,
among others.
5. Contracts
Mass consumption triggered the elaboration, by suppliers, of adhesion

contracts, which are agreements with pre-elaborated clauses that
suppliers use whenever they sell a product or service to consumers.
This type of relationship is also regulated by the CDC, which
determines that consumers will only be bound to the terms of the
contract if they had the opportunity to previously acknowledge the
terms of the agreement.

With regard to the contractual clauses, the law specifies that they shall
always be interpreted to the benefit of consumers, prohibiting abusive
clauses that place consumers at a disadvantage. Abusive clauses can
be declared null by judges and/or authorities even if consumers do not
expressly require it. Also, the list of abusive clauses mentioned in the
CDC is considered as non-exhaustive, which means that authorities
and/or courts may give their own interpretation in rendering a clause
as abusive or not.
Some examples of abusive clauses as given by law are: (i) those that
prevent, exempt or reduce suppliers’ liability for defects of any nature
in their products and services; (ii) those that transfer responsibility to
third parties; (iii) those that determine the compulsory use of
arbitration; and (iv) those that make it possible for the supplier to
directly or indirectly change the price unilaterally, among others.
6. Criminal infractions
The CDC considers certain practices as crime against consumer

relations, providing penalties such as imprisonment from three months
to two years and/or payment of fines. Misleading and abusive
advertisements are considered crimes against consumer relations. In
the same way, not performing a recall campaign is understood by the
CDC as a crime.
Federal Law No. 8,137/90, which defines crimes against the tax and
economic systems, also provides for crimes against consumer
relations, establishing penalties such as imprisonment from two to five
years and/or fines. Some examples given by this law are: (i) selling or
exposing for sale goods that are not in compliance with legal
requirements or that do not fit their official classification and (ii)
selling or storing product with improper conditions for consumption.
7. Individual and Collective lawsuits
With regard to collective lawsuits, Public Civil Actions were created

in our legal system, by means of Federal Law No. 7,347/85, in order
to protect the environment, consumers, goods and rights related to

artistic, historic, touristic values and any other collective or diffuse

interest. In addition to this, the CDC also establishes rules for
collective lawsuits in general, in order to protect collective, diffuse
and homogenous individual rights.
Such laws list the authorities that share common jurisdiction to file
collective lawsuits on behalf of the society. These authorities are the
district attorney offices, public defenders, the federal state, states and
municipalities and entities of public administration created to protect
diffuse rights, in general. Associations that protect diffuse rights also
share such jurisdiction.
Most of the public civil actions filed in Brazil were and are initiated
by federal or state district attorneys’ offices. In these cases, district
attorneys initiate civil inquiries prior to filing public civil actions, in
order to evaluate whether the supplier has caused damage to
consumers or not. In the civil inquiry procedure, companies usually
have the opportunity to present the appropriate information regarding
the investigation.
It is also possible to reach an agreement during the civil inquiry

procedure. Such agreement, known as “Consent Decrees” normally
establishes corrective practices to be adopted by the suppliers, which,
in case of non-compliance will be subject to fines. Consent Decrees
also usually have a clause that provides for the payment of an
indemnification for the damage caused to the consumers, collectively.
As to individual civil liability lawsuits against suppliers, the CDC

provides procedural tools to be used for the protection of consumers.
In this scenario, the lawsuit may be filed in the consumers’ residence
jurisdiction, once it facilitates the access to the judiciary.
Also, according to the CDC, consumers have as one of their basic

right the facilitation for the defense of their rights, including the
inversion of the burden of proof in their favor.

Social Responsibility
Social Responsibility is a management system that aims to attain
sustainable development through the implementation of good
relationships with the company’s stakeholders and achieve a balance
among social, environmental and economic impacts/aspects. It is a set
of policies and practices that meet high ethical criteria, contributing to
reach sustainable economic success in the long term.
Therefore, a company that incorporates the concept of social

responsibility into its activities maintains an ethical position toward its
stakeholders 20 and is co-responsible for sustainable development.
Several initiatives in Brazil regarding social responsibility are derived

not only from the third sector but also from industrial sectors,
including commercial and industrial associations and interested
groups, such as associations involved in the study and development of
social responsibility values and policies, as well as organizations that
disseminate the corporative governance initiative, among others.
The diversity of sectors involved in the development and

dissemination of the social responsibility concept confirms the
increasing importance of those initiatives in economic activities.
Social Responsibility and the Law

Compliance with the law is also a part of corporate responsibility.
When organizations incorporate the concept of social responsibility
into their activities, they intend to include in their business practices
and goals the principles that lead to an ethical and sustainable conduct,
particularly transparency, respect, honesty and legality. In this sense,
compliance with the relevant law is a basic social responsibility
requirement.
20
Interested parties include entrepreneurs, employees, suppliers, consumers,
the community and the government.
Thus, it is important that companies aiming at excellence in social

responsibility adopt a strategy to improve compliance with the law
and with their internal values and policies. It is recommended that
companies develop Legal Management Systems, including
mechanisms to identify the applicable legislation to their activities so
as to incorporate the relevant legal requirements into their daily
activities and to make possible the legal self-evaluation of the system
(“controlling” component).
Social Responsibility Legal Self-Evaluation Program

As provided above, the implementation of a Social Responsibility
Legal Management System provides for the existence of some type of
internal control of the system. An alternative is to implement a Social
Responsibility Legal Self-Evaluation Program.
The Social Responsibility Legal Self-Evaluation Program intends to

verify, on a systematic and objective basis, compliance with the law in
relation to the social responsibility issues chosen by the company for
its performance evaluation. If non-compliance is verified upon self-
evaluation, the company will have to comply with the relevant laws.
Finally, technical and legal self-evaluations on a regular basis are
required and are intended to periodically monitor the company’s legal
performance.
Thus, according to the most important social responsibility guidelines,

such as those of the Ethos Institute, 21 Global Reporting Guidelines,
Brazilian Social and Economic Analysis Institute’s - IBASE
Reporting and SA 8000, the company must identify the applicable
legal aspects related to its activity, in compliance with the specific
laws of its sector and location. Such legal aspects will be incorporated
into self-evaluation tools in order to support a systematic and
objective evaluation. Referred guidelines encompasses the following
company’s aspects: (i) values of transparency and governance; (ii)
21
Ethos Institute launched a new version of its social responsibility indicators
in 2012, and had intended to reformulate it and launch the third generation of
indicators by 2013.
internal public; (iii) environment; (iv) suppliers; (v) consumers and
clients; (vi) community; and (vii) government and society.
The International Organization for Standardization (“ISO”) issued in

2010, a Standard on Social Responsibility called ISO-26000. This
standard has as its goal the orientation of all kinds of organizations on
the implementation of social responsibility programs.
There are other initiatives that are directly related to the promotion of
Social Responsibility goals, such as: (i) Millennium Development
Goals (MDGs) created by the United Nations - UN and (ii) the United
Nations Global Compact, which is a strategic policy initiative for
businesses that are committed to aligning their operations and
strategies with 10 universally accepted principles in the areas of
human rights, labor, environment and anti-corruption.

Telecommunications
Introduction and Current Topics
Privatization of the Brazilian telecommunications sector began in
1995, following liberalization movements in several countries. This
took place also because of the understanding that the federal
government would not be able to make investments to keep up with
the emerging technology. Privatization was made possible due to an
amendment in the Brazilian Constitution (Amendment No. 8 dated 15
August 1995), which allowed private entities to invest in and provide
telecommunications services under licenses granted by the federal
government. Amendment No. 8 also called for a new law to set the
telecommunications’ industry’s general rules, including the creation of
a sector-specific regulatory agency (the National Telecommunications
Agency – ANATEL, created by Law No. 9,472, of 16 July 1997 – the
“General Telecommunications Law”).
After this liberalization, the number of accesses, fixed and mobile,

experienced a large increase in Brazil, reaching 44.7 million active
accesses for fixed telephony and over 271.1 million mobile phones in
2013. 22 In addition, competition has been successfully introduced in
several segments of the market, particularly in mobile and corporate
services.
One sector receiving particular attention in Brazil are M2M (machine-

to-machine) services. The Ministry of Communications expects that in
2020, there will be 2 billion connected machines in Brazil (an average
of seven machines per person). Recently, the federal government
implemented measures to accelerate the sector growth, such as
reducing applicable fees. As a result, Brazilian operators have
22
Source: http://www.anatel.gov.br/Portal/exibirPortalInternet.do# (visited
on 23 March 2015).
indicated that investments of nearly BRL19 billion could be made by
2016, for the relevant infrastructure. 23
Basic Legal Structure

The following is an outline of the major steps in the
telecommunications reform in Brazil:
• January 1995 Cable TV Law
• August 1995 Constitutional Amendment
• July 1997 General Telecommunications Law
• November 1997 Establishment of the Regulatory Entity -

ANATEL
• April 1998 General Plan of Grants (“PGO”) - Decree No.

2,534
• July 1998 Privatization of Telebrás
• June 2003 Discussion of the renewal of fixed telephony

concession contracts
• December 2005 Fixed telephone operators sign new long-term

concession contracts
• June 2006 Digital TV decree enacted
• March 2007 Regulation on Number Portability enacted
23
Source: http://www.mc.gov.br/telecomunicacoes-noticias/30908-
crescimento-do-setor-exige-investimentos-em-redes-aponta-ministro (visited
on 23 March 2014).
• March 2007 Regulation on Personal Mobile Service

(“SMP”) enacted
• November 2008 New PGO - Decree- No. 6,654
• November 2010 Regulation for Mobile Virtual Network

Operators (“MVNO”)
• September 2011 New pay TV law
• March 2012 Regulation on Pay TV enacted
• May 2013 Regulation on Multimedia Communication

Services (“SCM”) enacted
Ownership by Foreign Investors

The General Telecommunications Law establishes that as a condition
precedent for the exploitation of telecommunications services, the
company should be located and managed in Brazil and organized
under Brazilian laws. Indirect foreign investment is allowed via a
holding company established in the country.
Notwithstanding the above, restrictions may vary for specific

telecommunication services.
State Control and Regulation

ANATEL, the regulatory authority for telecommunications, is an
independent federal entity with administrative and financial autonomy
granted by law. It is composed of a council of five directors appointed
by the Brazilian President and endorsed by the Senate. The directors
are assisted by eight executive offices, namely: (i) superintendencies
of planning and regulation; (ii) grants and resources; (iii) inspection;
(iv) obligation control; (v) competition; (vi) consumer relationship;
(vii) internal information management; and (viii) administration and
finance.

Among its other duties, ANATEL is responsible for granting licenses,
signing contracts, inspecting the adequacy of the services, managing
the spectrum, mediating conflicts among the players in the sector and,
imposing sanctions against operators violating regulations, as
provided in the General Telecommunications Law and Decree No.
2,338/97.
The Brazilian Congress has some power over the agency, derived
mainly from its capacity to change legislation and mobilize public
opinion. The Congress’ interest in the regulatory agency’s work is
increasing, and thus, the creation of further monitoring instruments is
expected.
The judiciary is still unfamiliar with most issues related to

telecommunications regulations due to the specificity of the matter.
However, this is changing gradually, since the number of players
seeking judicial measures to protect their interests is growing.
In a nutshell, even in view of the legal and cultural difficulties of

implementing an efficient regulatory scheme in Brazil, particularly in
the telecommunications sector, progress has been fast, especially in
the past 10 – 15 years (i.e., after the issuance of the General
Telecommunications Law).
Licenses
Operators need licenses to engage in any form of telecommunications
services, which are defined as the set of activities enabling the
offering of transmission, emission or reception of symbols, characters,
signals, writings, images, sounds or information of any nature by wire,
radioelectricity, optical means or any other electromagnetic process.
Such licenses are non-exclusive and are granted by the federal
government, through ANATEL, and may be classified as a
concession, an authorization or a permission.
Concessions
Concessions are generally used for services considered to be of public

interest (services ensured by the state and in which the obligations of
universal service and continuity are present). For concessionaires,

prices are controlled and the license is granted for a specific period.
The incumbent fixed telephony operators, which are the privatized
companies of the former “Telebrás system,” are the most relevant
example of concessionaries in the telecom sector.
Authorizations
Authorizations are granted for services where the public interest is not
of critical importance and, accordingly, no universal service and
continuity obligations are present. In the case of authorizations, prices
are usually not controlled. Most telecommunications services today
are rendered under this type of license, including the SMP, satellite
services, corporate networks, as well as the competitive segment of
fixed telephony.
Authorization terms are generally undetermined, but may be

established in the Term of Authorization granted by ANATEL,
particularly when the use of the spectrum is required. Whereas a
public bidding is, in theory, required for granting a concession, for
authorizations, a public bidding is necessary only when the demand
for licenses exceeds availability, or when the use of spectrum is
required.
Permissions
Permissions are used only in exceptional circumstances and on a

provisional basis. ANATEL should grant permissions to fill in a
temporary absence of provision of service.
Licenses Transfer
Transfer of the license or of ownership control of the operator usually

requires approval of the regulatory authorities. In the case of
concessions, this approval must be obtained prior to closing the
transaction. In the case of authorizations, depending on the service at
stake, the approval may be prior or after the transaction. Approval by
the antitrust authorities may also be required if the transaction meets

notification thresholds set forth in the antitrust law (Law No.
12,529/11).
Access and Connection Rules

Access Rules
Obligations regarding access and non-discrimination is applicable to

every kind of service and protects both users and operators from
abusive practices.
Users cannot be discriminated by operators in relation to tariffs,

quality and access to the service or additional utilities. Operators
cannot discriminate other players in relation to interconnection tariffs
and network use.
Since the general law establishes that telecommunication services

must be available to the entire population at reasonable prices,
ANATEL monitors the tariffs applied by the service operators to each
service in order to prevent abuse and maintain the balance between the
earnings obtained and the provision of services.
The country is divided into regions and different tariffs are established
for each region in view of the socioeconomic conditions/disparities in
the country. The agency is responsible for supervising the tariffs
charged by the operators of services offered under the private regime.
Tariffs for fixed-line service provided under the public regime are
previously established in the concession contract and so is the
calculation method for adjustments/updates of the tariff amount.
Connection Network
The network is a necessary part of the infrastructure for the provision

of telecommunication services. Ownership thereof and the tariffs paid
to the owner are one of the most relevant issues in the Brazilian
regulatory environment.
Brazilian laws establish an interconnection obligation, by which

network owners must allow other operators to use their network upon

payment of the relevant tariff (such tariff is negotiated between the

parties involved, based on ANATEL’s policies).
Interconnection Service
The interconnection between networks used for the provision of

services of collective interest is mandatory whenever requested by a
service provider under the private regime.
The interconnection between networks used for the provision of other

services must also be assured at proper technical conditions and
reasonable and fair prices.
The conditions for interconnection can be freely negotiated by the

interested parties, but the agreement terms will be subject to
ANATEL’s approval.
If the parties are not able to agree on the provision of interconnection,

ANATEL will arbitrate the conditions to be applied.
Regulation on Free Competition

The general rules of economic protection apply to the provision of
telecommunication services. The General Telecommunications Law
establishes that telecommunication services shall be organized under
the principles of free and fair competition among all operators,
making the government responsible for correcting the effects of unfair
competition and repressing violations of the economic order.
Satellite Communication
The license to operate satellites is granted by means of an
authorization. Use of foreign satellites in Brazil is only permitted if
such use is negotiated by a representative of the foreign operator
established under Brazilian laws, with headquarters and administration
in the country. The authorization is usually granted for a term of 15
years, renewable for an equal period.

Technical and Equipment Regulation
There are many specific regulations concerning the technical
conditions and equipment necessary to provide telecommunications
services. For each service, ANATEL has a different resolution.
Electronic Numbering and Address

Licensees must follow the Numbering Plan set by ANATEL. The
Numbering Plan determines the ranges of telephone numbers for
different telecommunication services and also assigns ranges of
numbers to different licensees.
Numbering Plans must include the necessary resources for the

provision of telecommunication services, access to public utility
services, including emergency calls, and access to value-added
services.
Number Portability
Users of telecommunication services are free to keep their access
codes for any service when moving to a different service provider.
Because of that, operators must make available the technological
resources to allow users to keep their access codes, if they so wish,
when changing to a different operator.
Specific Regulation of Services

Telephone Services
Local and Long Distance Telephone Service
The Switched Fixed Telephony Service (“STFC”) can be rendered

either as a public service (as in the case of the former state-owned
companies), through a concession, or as a private service (as in the
case of the competitive operators), through an authorization. The PGO
sets forth the general rules governing the introduction of competition
among STFC operators.

The original 1998 PGO established the division of the Brazilian

territory into four concession areas (“Regions”), three of which were
for local and regional long-distance services, as follows: Region 1,
North and Northeast; Region 2, South and West; Region 3, the State
of São Paulo. Region 4 was reserved for domestic long distance and
international services. One concession per Region was granted to the
incumbent fixed telephony operators. In the second stage,
authorizations were granted to one competitive operator for each
region (the so-called “mirror companies”).
The result was a “duopoly,” with two competitors operating per

region. This result remained until January 2002, when most of the
market for local fixed telephony was open to competition.
As a result of the liberalization, the Brazilian market for fixed

telephony now accounts for over 44.7 million active accesses. This
number is constantly increasing, although recent independent
researches show that nearly 20 percent of fixed telephony users in
Brazil intend to cancel the service. Besides the incumbent operators
and the mirror companies, there are dozens of other companies
authorized to render STFC. The incumbent operators bear universal
service obligations, as established in their concession contracts, while
competitive operators are bound mainly to coverage obligations and
quality of service requirements. Nowadays, entry in the market to
render STFC is open, provided that minimum legal, financial and
technical requirements are met.
In November 2008, a new PGO was enacted. The main change was
that the same group of companies would be allowed to control
concession-holders in up to two Regions of the PGO. This opened the
way for a government-backed merger of two fixed-line incumbents
(i.e., Oi and Brasil Telecom) that are active in different Regions,
which would not have been allowed under the previous PGO.
Mobile and Cellular Phone Service
To implement competition in the mobile telephony market, the

country has been divided into 10 areas. Initially, there were two

companies operating in each area in two different frequency bands -
Mobile Cellular Service (“SMC”) Band A licenses were granted to
former state-owned companies, and band B licenses were granted to
new competitors. In 2002, ANATEL created the Personal Mobile
Service (SMP, similar to the American PCS), a more flexible service
intended to progressively replace the SMC. The first operator started
activities in July 2002, using GSM technology. In October 2002, the
rules to be observed by SMC operators willing to migrate to the SMP
regime were enacted. Currently, all of the SMC operators have already
migrated to the SMP regime, and SMC has been extinguished.
The Brazilian cellular market has always been very competitive.

According to the Brazilian Telecommunications Association
(Telebrasil), in the first 3 quarters of 2013, Brazil reached 268 million
mobile phone lines - this amounts to 135.3 mobile phone lines for
each group of 100 inhabitants.
Mobile Virtual Network
Entry into the market is relatively open, the acquisition of frequency

being the main barrier. However, the regulation for Mobile Virtual
Network Operators (MVNO) published in November 2010, by
ANATEL allows new competitors to enter the market using third
parties’ networks and, especially, frequencies.
Interested companies are now able to resell mobile telephone service

without having their own licensed frequency allocation of radio
spectrum, nor the infrastructure required to provide the service. The
requirements for Mobile Virtual Network Operators are basically the
same applied to Mobile Network Operators with regard to legal,
technical and economic capacity, as well as to fiscal compliance. The
Mobile Virtual Network Operators, however, are not subject to license
obligations, which means that ANATEL will not require a specific
license for the operation of a virtual network, but only the
homologation of the agreement between the original service provider
and the new operator. The agreement must be submitted for
ANATEL’s approval within 30 days following its execution and will
only be valid after ANATEL’s homologation.

New Generation Telephony and VoIP
Voice over the Internet (“VoIP”)
There is no specific regulation in Brazil for VoIP. The matter,

however, has raised many discussions.
Voice over IP is a technology that uses the Internet (or private Internet
Protocol networks) to allow voice communication – and so it is not
exactly a telecommunications service. Considering that ANATEL
does not regulate technologies, but only the telecommunications
service itself, ANATEL would generally not regulate VoIP.
Nevertheless, given the debates as to the nature of VoIP, ANATEL
classifies VoIP into two different groups, which are as follows:
1. Voice traffic between two PCs or similar equipment using a

specific software and the equipment’s own audio resources, the
access to which is restricted to users who also have that specific
software - In this scenario, VoIP is not considered a
telecommunications service, but a value-added service using the
Internet as means to enable communication. In this scenario,
VoIP will be supported by a data traffic network operated by a
licensed carrier. Therefore, no prior license from ANATEL
would be required.
2. Unrestricted voice traffic, access to which is offered to users of

other telecommunications services and with specific
numbering - This type of service is considered a
telecommunications service and, as such, requires prior license
from ANATEL and is subject to ANATEL’s surveillance.
Broadcasting Services
Broadcasting services are defined at law as those which are freely and
directly delivered to the public as a whole. It includes radio and
television broadcasting. Currently, radio and TV networks are mostly
under private ownership, but some public entities also control a few
networks. Broadcasting is not under the jurisdiction of ANATEL. It is

directly supervised by the Ministry of Communications. ANATEL is
responsible only for surveillance of the spectrum in this regard.
In December 2002, Federal Law No. 10,610 was enacted to regulate

the opening of the Brazilian media market (i.e., newspapers, radio and
TV) to foreign capital. Since then, foreigners and Brazilian citizens
naturalized for less than 10 years may hold up to 30 percent of the
total and voting capital of Brazilian media companies. Such equity
participation must be indirect, through a legal entity organized in
Brazil. The percentage also applies to foreign entities that hold equity
in any company with indirect interest in any Brazilian media
company. Furthermore, editorial and programming managers and
directors of such companies must be Brazilian or naturalized citizens
for more than 10 years. Government authorities may require
companies to provide information and documents that evidence
compliance with these rules. Information as to changes in the equity
control of the referred companies must be relayed to competent
authorities.
Conditioned Access Services
Before the new pay TV law (Law No. 12,485/11) was enacted,
pay TV was generally identified as “mass communications services,”
and there were different regulations according to the technology used
to provide such services (e.g., DTH, MMDS, cable). Upon the
enactment of the new pay TV law, one single regulation for pay TV
was created, and all mass communications services must gradually
migrate to the “conditioned access service” and comply with the
applicable regulation, as pay TV has now been identified at law.
The new pay TV law has imposed certain local content quotas (both
on programmers and on operators) and has opened the pay TV market
subject to certain cross-ownership restrictions between the producers
of content (i.e., broadcasting companies, producers and programmers)
and telecommunications companies.

Access to the Internet

Limitations on the use of the Internet
The provision of Internet access is not considered a

telecommunications service but rather a value-added service. This
means that it is an activity that adds value to a telecommunications
service. Therefore, Internet Service Operators (“ISPs”) are not subject
to licensing before ANATEL.
However, ANATEL is reportedly planning to deploy measures aimed

at improving security and the quality of Internet services. Operators
and ISPs would be monitored. For example, the agency is reportedly
planning to monitor the networks of service operators so as to be able
to identify potential problems and responsibilities.
Broadband Internet falls within the Multimedia Communications

Service category (described below). Therefore, even though the ISP
does not need any kind of license, the company that operates data
transmission lines does need an authorization from ANATEL.
Multimedia Communication Service
SCM is a fixed telecommunications service characterized by the

transmission, emission and reception of multimedia information (i.e.,
sound, data, image, etc.) through any technical means. The applicable
regulations establish that SCM shall be differentiated from STFC and
pay TV. In fact, SCM is an “all purpose” service with a wide range of
applications, with the exception of applications similar to fixed
telephony or pay TV. In order to provide SCM, a license granted by
ANATEL is required. There are several operators of such service,
mainly acting as carriers for other operators, or as operators of private
network services for corporations.
Market Description
The Industry Generally
The telecommunications industry has developed since the beginning

of the 1990s, when the privatization of the public telephone services

took place. Currently, the market is very dynamic and there are
several companies (the incumbents as well as new competitors)
providing different type of telecommunications services. The
development of new technologies allows companies to offer new
services.
Industry Associations
There are several industry associations, including the Brazilian

Telecommunications Association (Associação brasileira de
telecomunicações – Telebrasil), the Brazilian Association of
Telecommunications and Information Technology Solutions
Companies (Associação Brasileira de Empresas de Soluções de
Telecomunicações e Informática – Abeprest) and the Brazilian
Association of Telecommunications Resources (Associação Brasileira
de Recursos em Telecomunicações – ABR Telecom).
Fees and Taxation

All telecommunications services are subject to fees collected by
ANATEL. These fees are required for licensing and inspection, and
are based on a number of factors, such as the specific type of service,
the number of stations and the range used in the spectrum, among
others.
The main tax for telecommunications services is the sales tax

(“ICMS”), collected at the state level and due at a rate varying from
25 percent up to 30 percent of the total price charged for the service,
depending on the state. The taxable event is broadly defined to include
the generation, transmission, retransmission, repetition, amplification
or reception of communications of any nature.
Furthermore, there are also specific taxes applicable to

telecommunications services operators. FUST is a fund for universal
service and is charged based on 1 percent of the provider’s monthly
gross income. FUNTTEL is a fund for technology development in
telecommunications and is levied based on 0.5 percent of the
provider’s gross income. FISTEL is a surveillance fee levied

according to the size and complexity of the network. FISTEL is

composed of two taxes: (i) Installation Surveillance Fee (TFI) – due as
of the issuing of the licensing certificate for operation of the stations –
and (ii) Operation Surveillance Fee (TFF) – an annual fee that
corresponds to 50 percent of the TFI.
The pay TV law created a new tax applicable specifically to pay TV

operators: the CONDECINE. 24 The CONDECINE rate is calculated
according to the coverage area of the operator, the technology used
and the type of service provided.
24
For the sake of completeness, the CONDECINE existed prior to the
pay TV law and was levied on the exploitation of audiovisual works. Upon
the enactment of the pay TV law, a CONDECINE was created for pay TV
operators.
Public Tender, Concession of Public Services in
Brazil and Public-Private Partnerships (PPPs)
This chapter provides an overview of the regulations that apply to
public tender procedures in Brazil; the main rules on concession of
public utility services for a number of industries, such as oil and gas,
power, roads, mining, water sewage, waste treatment, and
telecommunications, among other industries; and those related to
Public and Private Partnerships.
Public Tender and Administrative Contracts

In Brazil, the Government must acquire goods or services (including
public works and concessions) by public tender. According to Article
37, XXI of the 1988 Federal Constitution, “except for cases specified
in law, public works, services, purchases and sales shall be contracted
by a public tender process, that ensures equal conditions to all bidders,
with clauses that establish payment obligations, maintain effective
proposal conditions, according to law, which will only allow required
technical and economic qualifications essential to secure performance
of the obligations.”
In compliance with the constitution, Law 8.666/1993 (“Public

Procurement Law”) sets out the general rules on public tenders and
administrative contracts for works, services (including advertising),
purchases, sales and leases within the jurisdiction of the Federal
Government, States, the Federal District and Municipalities, including
their direct administrative bodies, autonomous governmental entities,
public foundations and other entities (“Public Administration”). As for
state-owned and state-controlled companies, Law 13,303/2016 ("State
Controlled Companies Statute") sets out the specific rules applicable
to public tender and administrative contracts.
In general the abovementioned legislation does not apply to private

entities. However, please note that public procurement principles
should be observed by third sector entities, such as non-governmental
and nonprofit organizations, when managing public resources. Also,

private companies when entering into agreements with the public

administration (also managing public funds) must observe those
principles.
Public Tender
The Public Procurement Law and State Controlled Companies Statute
do not define “public tender.” Nevertheless, case law is unanimous in
understanding that public tender is a procedure by which the Public
Administration is bound to evaluate, pursuant to the objectives and
previously established guidelines and criteria, the largest number of
alternatives possible for any given contract to be entered into with a
private company or individual.
General Rules of Public Tender under the Public

Procurement Law
In most cases, entering into a lawful contract with the government
(including concession and permission contracts) is subject to prior
public tender procedures. Pursuant to the Public Procurement Law, the
general rules are:
1. The public tender procedure is classified into different categories,

i.e., competitive tender (concorrência), “price request” (tomada
de preço), invitation to tender (convite), contest (concurso), and
auction (leilão), and is adopted depending on the estimated value
of the contract. For concession contracts, competitive tender is the
suitable category as set forth by Law 8.987/95.
In 2000, the Federal Government created a new category of public

tender for the acquisition of common goods and services. This is
the “reverse auction” (“Pregão”), which is currently regulated by
Law No. 10.520 of 17 July 2002. This category provides a more
simplified procedure than the standard public tender procedure,
with the presentation of the proposal before the eligibility stage,
and without the need to present a guarantee of the proposal (bid
bond), etc. Decree No. 3555/00 which regulates such Law, lists
the products and services that may be acquired using the reverse

auction. It includes, among others, services of equipment
maintenance, general consumables (except computer goods), and
office supplies, among others. Decree 3555/2005 determines that
all procedures for the acquisition of such "common goods and
services" must follow this category. Later, the Federal
Government enacted Decree 5.450/2005, which rules the Pregão
in its electronic form (via internet), establishes that this form shall
be preferable in relation to the regular Pregão. Note, however, that
the electronic form is not applicable for engineering works or real
estate rental or sale.
2. The public tender procedure may be waived in a number of

specific situations (which are described in Article 24). The
procedure may also be deemed inapplicable if competition is not
feasible, allowing the direct hiring of a provider of goods or
services, for example:
a. in the event only one provider is able to supply the goods or

render the services; or
b. in case of hiring technical services from professionals or

companies of known expertise (Article 25).
3. Any interested party meeting the minimum legal, technical and

economic/financial qualification requirements (Articles 27 to 33),
as well as tax or fiscal good standing, may take part in a
competitive tender (see Eligibility to Tender).
4. The Request for Proposal ("RFP") is the instrument by which the

conditions of the transaction to be entered into with the Public
Administration are made public. Pursuant to Article 40 of the
Public Procurement Law (as confirmed in the wording of Article
18 of Law 8,987/1995 ("Concession Law")), the RFP must,
among other details, indicate:
a. the object of the tender;

b. deadlines and conditions for executing and performing the

contract, as well as delivering the contracted object;
c. possible penalties in case of non-compliance;
d. the executive project, if any;
e. conditions for taking part in the tender and form for

presenting proposals;
f. criteria for assessing proposals;
g. assessment procedures;
h. contractual principles, rules on contract execution,

amendment, performance, non-performance and termination;
i. administrative sanctions;
j. definition of crimes and relevant penalties; and
procedures for administrative appeals.
General Rules of Public Tender in the State Controlled

Companies Statute
Law 13,303/16 determines that state-owned and state-controlled
companies must perform public tenders in order to purchase goods
and contract services (including advertising and engineering), and
proceed with sales and leases, among others. Pursuant to the State
Controlled Companies Statute, the general rules on the matter are:
1. In relation to public procurement procedures, this law

reproduces some of the Alternative Contract Regime rules
(please see below), providing for use of the integrated
contracting category for engineering services and works;
2. When contracting civil engineering and related services, the
preferred public procurement category is the semi-integrated,
under which the private party will be responsible for the
executive design and performance of the engineering works and
services;
3. It is possible to waive public tender procedures for civil

engineering and related services for values up to BRL 100,000
and other services and acquisitions up to BRL 50,000 (under the
Public Procurement Law, the limits were respectively BRL
15,000 and 8,000). Also, such limits may be changed due to
deliberation of the administrative council of the state-owned or
state-controlled company, in order to reflect the variation of
costs of such services and goods in the market.
4. The State Controlled Companies Statute also added new

conditions for direct engagements - compared with the Public
Procurement Law - such as (i) waivers in cases when the choice
of a partner is linked to a specific business opportunity, after
proper justification of unfeasibility of a public procurement
proceeding, as well as (ii) waivers for the purchase and sale of
shares, credit and debt securities, and goods those companies
produce or sell (meaning they do not need to conduct a public
tender procedure in order to sell products or render services to
the market, only to acquire).
5. The Public Administration, when contracting with a private

party, generally has certain powers, such as modifying the
contract unilaterally, which does not apply to these contracts.
6. There is an express provision for the Expression of Interest

Procedure (“PMI”), so state-owned and state-controlled
companies can collect, from individuals or companies, studies,
solutions, researches and surveys for structuring future projects.
Those involved in structuring the basic design that will be

subject to a public tender procedure may not be allowed to

participate in the procedure aiming to execute such project.
7. Note that these companies have up to 24 months, starting 30

June 2016, to adapt to the rules of the State Controlled
Companies Statute.
Public Tender under the Alternative Contract Regime

Law No. 12.462 enacted on 5 August 2011 instituted an alternative
regime for public acquisitions, the “RDC”. This regime initially
applied exclusively to acquisitions related to the 2013 FIFA
Confederations Cup, the 2014 FIFA World Cup and the 2016 Olympic
Games. When acquiring goods and services related to these events,
public entities were allowed to rely on procedures that were not
allowed under the general public tender regime.
Later, the use of RDCs was expanded to tender procedures in areas

considered strategic for national growth. In this sense, the RDC
currently applies to contracts related to (i) actions related to the Plan
for Growth Acceleration ("PAC") (Federal Law No. 12,688/2012), (ii)
works and engineering services within the Unified Health System
("SUS") (Federal Law No. 12,745/2012); (iii) works and engineering
services to build, enlarge and reform criminal establishments and
social education unities (Federal Law No. 13,190/2015); (iv) public
safety actions (Federal Law No. 13.190/2015); (v) works and
engineering services related to urban mobility and expansion of
logistics infrastructures (Federal Law No. 13.190/2015); (vi) specific
lease agreements by the Public Administration (Federal Law
13.190/2015); and (vii) actions related to science, technology and
innovation (Federal Law No. 13.243/2016).
The RDC allows, for example, payments to private entities on a

variable basis according to the company’s performance. Another
possibility is to negotiate better prices with the awarded company.
The main innovation brought by the RDC is “integrated contracting”.

Such procedure allows the procurement of a single company to
prepare the Basic Design and to perform the whole contract, which is
not permitted in the general regime provided in Law No. 8.666/93.
Under the general regime, the company that prepares the Basic Design
cannot participate in the related tender procedure. Note, however, that
integrated contracting can only be used when the contract involves
technological or technical innovation, when the contract can be
performed using different technologies, or when the performance of
the contract implies the use of technology that is restricted on the
market.
Qualification of Companies - Fundamental Principles
In principle, any entity able to meet the preliminary qualification
requirements may submit a proposal. Article 3 of the Public
Procurement Law provides that “the tender is designed to guarantee
that the constitutional principle of equality is observed, as well as to
select the proposal that is most advantageous for the Administration.
The tender shall be processed and analyzed strictly in accordance with
the basic principles of legality, impartiality, morality, equality,
publicity, administrative probity, compliance with the public
invitation notice, objective judgment, and other related principles.”
Public Procurement Legislation expressly forbids public agents from

allowing the RFP to contain any conditions that may restrict or hinder
in any way the competitive nature of the tender. In this sense,
preferences or distinctions between bidders based on nationality,
domicile, or other conditions irrelevant to the object of the tender are
forbidden.
Federal Law 12,349/2010 reintroduced differentiated treatment

between domestic and foreign companies. The legislation establishes
beneficial treatment in favor of products manufactured in Brazil or
services provided by Brazilian companies in public tenders. Pursuant
to this rule “nationally manufactured products” are ones produced in
the Brazilian territory complying with “basic production processes” or
other regulations regarding a product’s origin as defined by the
Federal Administration. On the other hand, “national services” refer to

any service performed in the country under conditions determined by

the Federal Administration.
Furthermore, the preference for national services or products may be

up to 25% of the price offered by a foreign competitor. The exact
percentage must be defined in the RFPs.
In RFPs Government entities may also include an obligation for the

awarded company to promote measures to commercially, industrially
or technologically compensate the Public Administration or whoever
it nominates. Therefore, public procurements may now include offset
measures, as has already been practiced in deals involving the
Ministry of Defense.
Regarding the implementation of information and communication

technology deemed strategically important to the Country, a public
tender may be restricted to products and services using technology
developed in Brazil.
The Concession Law also maintains these guidelines by reiterating

that concessions need to be preceded by a public tender procedure in
accordance with the terms of the applicable legislation. The previously
mentioned principles of legality, morality, publicity, and judgment, in
accordance with objective criteria, and compliance with the invitation
notice are also to be observed in the case of concessions (Article 14).
The Public Procurement Law and the Concession Law convey one of
the most important principles in Brazilian Public Law, which is
“equality among bidders.” Nevertheless, this does not prevent the
Public Administration from establishing minimum participation
requirements, provided they are necessary to guarantee performance
of the contract, security and perfection of the work or service,
regularity of supply, or any other criteria of public interest, in
accordance with the provisions of the Public Procurement Law.

Administrative Contracts
According to the Public Procurement Law, administrative contracts
are “any and all contracts between the Public Administration and
private entities in which there is a binding agreement - stipulating
reciprocal obligations - regardless of the name given thereto” (Article
2, Sole Paragraph). These contracts are governed by the Public
Procurement Law, the principles of public and administrative law,
and, as a supplement, by the general theory of contracts and private
law. However, due to the legality of such contracts, the Public
Administration has certain obligations towards the private party on
which we shall elaborate later.
Contracts entered into by state-owned companies and state-controlled

companies, are governed by the State Controlled Companies Statute,
principles of public and administrative law, and, as a supplement, by
the general theory of contracts and private law.
Administrative Contracts under Public Procurement Law

In any contract entered into with the Public Administration, one of the
major concerns of the contracting party is contract stability. This is
also the case with concession contracts, which require a considerable
investment. In this respect, it is advisable to review these issues.
A contract is a typical Private Law arrangement, based on the parties’

free will to contract. Nevertheless, when used by the Public
Administration, the contract becomes public in nature, in view of the
extraordinary powers of the Public Administration. This is why
administrative contracts are governed by Public Law principles,
partially complimented by Private Law rules (on a supplementary
basis).
A number of characteristics can determine whether a contract is

administrative in nature. However, an essential feature of an
administrative contract is the presence of the Public Administration as
one of the parties with authority over the private contracting party.

Another crucial element of administrative contracts is the underlying

public interest, on which we shall comment further.
Due to the legal status of this type of contract, the Public

Administration has the authority to:
1. modify the contract unilaterally to adjust it in accordance with

public interest;
2. terminate the contract unilaterally, should public interest make it

inconvenient, as well as in those material cases established by the
law;
3. monitor performance under the contract;
4. apply penalties for total or partial non-performance; and
5. as a precaution, in case of essential services, take temporary

possession of personal property, real estate and services covered
by the object of the contract.
The private contracting party’s rights are also clearly assured by the
Public Procurement Law. In case of termination for cause attributable
to the Public Administration (as listed in items XII to XVII of Article
78 of the Public Procurement Law), to which the contracted party has
not contributed, the latter will be reimbursed for the losses actually
incurred, without prejudice to the devolution of guaranties, payment
for works executed up to the termination date, and payment of
stoppage costs (Article 79, Paragraph 2 of the Public Procurement
Law).
Stability and Preservation of Financial & Economic

Equilibrium in Administrative Contracts
Under a contract entered into with the Public Administration, the
private party is also assured under the Brazilian Federal Constitution
and under the Tender and Concession Laws of the right to revise the

prices or tariffs contracted whenever necessary to restore or preserve
the original conditions of its proposal or the so-called “financial and
economic equilibrium” between the obligations and the respective
compensation.
In this sense, protecting the private economic rights set forth by the
economic and financial equilibrium of the contract may occur in the
following situations: (i) economic burdens generated due to the use by
the Public Administration if its power to unilaterally modify the
Contract (i.e. extension of the contract); (ii) economic burdens caused
by the Public Administration resulting from actions performed by
other governmental agencies and authorities (i.e. elevation of taxes by
the Public Administration); and, (iii) economic burdens resulting from
unforeseeable facts produced by other forces than the contractual
parties (i.e. an extraordinary increase in the price of materials used in
a construction project).
The contract's economic and financial equilibrium is grounded on the

belief that the above mentioned events profoundly change the original
obligation, breaching the initial arrangement and thus, obligating the
Public Administration to review the values owed to the private party
in order to reestablish the terms of the conditions originally agreed.
Administrative Contracts for the Concession/Permission of

Public Services
Ordinary administrative contracts are not the only contracts subject to
public procurement procedures. Contracts for Concession and
Permission of Public Services, “which involve both the Public
Administration and third parties, shall necessarily be preceded by
tender,” pursuant to Article 2 thereof. Article 124 of the Public
Procurement Law further establishes that provisions that do not
conflict with specific legislation on the matter will also apply to
contracts for the permission or concession of public services.
The Public Procurement Law is, therefore, in line with the provisions
of Article 175 of the 1988 Federal Constitution, which state that the

Public Administration is responsible for providing public utility

services, either directly or through concession or authorization, which
will always be preceded by public tender. The Constitution further
establishes that the law will provide for:
1. the regime for public utility service concessionaires and

permission holders, the special nature of their contract and of
extensions thereof, as well as conditions of forfeiture, control and
termination of the concession or permission;
2. the rights of users;
3. tariff policy; and
4. the obligation of maintaining adequate services.
On this topic, Law 8,987/1995 establishes the following definitions

(Article 2):
1. Public Service Concession. The render of services will be

delegated by the granting authority (the Federal Government, the
States, the Federal District or the Municipality in which the
service is located), by means of a competitive tender process, to
the legal entity or consortium of companies that demonstrates
capacity for performance thereunder, on its own account, and for a
defined period;
2. Public Service Concession Preceded by Execution of Public

Work. The total or partial construction, maintenance, remodeling,
extension or improvement of any works of public interest,
delegated by the granting authority, by means of a competitive
tender process, to the legal entity or consortium of companies that
demonstrates the capacity for execution thereof, on its own
account, in such a way that the concessionaire's investment is
remunerated and amortized by means of the exploration of the
service or work for a defined period;

3. Public Service Permission. The delegation (on a temporary and
revocable basis), by means of a competitive tender process, of the
rendering of public services, made by the granting authority to the
individual or legal entity that demonstrates the capacity for
performance thereof on its own account.
The Concessionaire’s Rights and Duties
In addition to the rights and obligations described in the previous
topics, the Concession Law dedicates Article 31 to the description of
the concessionaire’s duties as follows:
1. to render adequate services;
2. to keep up-to-date inventory and registration of the concession

assets;
3. to keep the Public Administration and users informed of the

management of services;
4. to allow free access to inspection;
5. to carry out expropriations and establish rights-of-way, pursuant

to the contract and relevant tender invitation;
6. to take care of and insure the concession assets; and
7. to collect, invest and manage the financial resources necessary for

the rendering of the services.
For purposes of the Concession Law, adequate services are those

which meet conditions of regularity, continuity, efficiency, security,
modernity (in technology, equipment, premises and relevant
maintenance, as well as enhancement and enlargement of the service),
generality, courtesy in providing, and at a moderate rate of tariff
(Article 6).

With regard to the concessionaire’s rights, however, the Concession

Law does not show the same level of systematization. Nevertheless,
we list below some of the most important rights of a public service
concessionaire in Brazil:
1. Article 9: to maintain the service tariff in accordance with the

criteria established in the Concession Law, the contract and the
relevant tender invitation;
2. Article 13: to establish different tariff levels, given the technical

characteristics and specific costs of each segment of users;
3. Article 14: compliance on the part of the granting power by the

previously mentioned principles of the tender (which precedes the
granting of the concession);
4. Article 25, Paragraph 1: to outsource activities that are

complementary, supplementary or inherent to the concession
(keeping, however, its original liability for losses and damages
caused to the Public Administration or to any third parties);
5. Article 26: to grant sub-concessions within the limits of the

contract, and if authorized by the Public Administration;
6. Article 28: to offer the rights emerging from the concession as a

guarantee for financing agreements (provided that the operation
and continuity of the service is not hindered);
7. Article 39: to terminate the contract, by means of a lawsuit, in

case of breach by the Public Administration;
Termination of Concession Contracts
The termination of a concession is regulated by Articles 35 to 39 of
the Concession Law. To this effect, the concession will be terminated
if one of the following occurs:
1. expiration of the contractual term;

2. expropriation;
3. forfeiture by the Public Administration, by means of

administrative process, due to contractual breach by the
concessionaire;
4. rescission by the concessionaire, by means of a lawsuit, due to

contractual breach by the Public Administration;
5. annulment for any illegality in the tender which precedes the

concession; and
6. bankruptcy or termination of the concessionaire (note that Law

13,097/15 of the Concession Law includes the possibility for the
lenders to gain control or temporary administration of the
Concessionaire in order to solve financial issues and guarantee the
continuation of the activities).
Termination of the concession entails reversion to the granting power

of all “revertible assets, rights and privileges,” as established in the
contract and in the original public invitation notice (RFP). In this
event, the Public Administration is also entitled to take over the
service and relevant premises in order to allow its continuity (Article
35, Paragraphs 1 to 3).
Pursuant to Article 35, Paragraph 4, however, termination for

completion of the contractual term or expropriation obliges the
granting power to proceed with prior surveys and appraisals in order
to determine the indemnification due to the concessionaire for the
investments made.
Upon completion of the contractual term, ownership of the concession

assets must be reverted to the Government, along with reimbursement
by the Public Administration of the non-amortized or non-depreciated
amount of the investment made in assets, subject to reversion.
(Article 36)

The concessionaire is also entitled to indemnification in case of

expropriation. For purposes of the Concession Law (Article 37),
expropriation is considered to be the takeover during the term of the
concession, for public interest reasons, upon enactment of an
authorizing law to that effect. Indemnification due to the
concessionaire in this case will also be calculated in accordance with
the criteria mentioned in Article 36 of the Concession Law.
In case of forfeiture, the concessionaire is also entitled to

indemnification, from which any penalties or contractual damages due
to the Public Administration are to be deducted. In this event,
however, termination is only effective after the applicable
administrative procedure, in which full defense is allowed. Pursuant
to the Concession Law, forfeiture of the concession may be declared
by the granting power in the following events:
1. services rendered in an inadequate or deficient manner;
2. failure by the concessionaire to comply with contractual, legal or

regulatory rules regarding the concession;
3. if the concessionaire halts or contributes in the halting of the

services, except for acts of God or force majeure;
4. loss of the concessionaire’s economic, technical or operation

conditions to maintain the concession;
5. failure by the concessionaire to comply with penalties imposed by

the granting power, or with notice to rectify the rendering of
services; or
6. if the concessionaire does not respond within 180 days the

summon of the granting power to present documents related to the
company's tax regularity. (Article 38)

Public and Private Partnership Contracts
Public and Private Partnerships (“PPP”) are governed by Law

11.079/2004. This regime is applicable to and may be used by all
entities of the direct public administration, as well as by the special
funds, governmental agencies, foundations, public companies, and
other entities controlled by the Federal Government, States and
Municipalities.
In addition to the common concession of public services, as provided

in the previous chapter, two other types of public service concessions
were created by this law. These are the sponsored concession
(Concessão Patrocinada) and the administrative concession
(Concessão Administrativa).
Sponsored concession is the delegation of public services or works in

which the private party's remuneration is made up of the tariff charged
from users and the public partner's complementary remuneration.
Administrative concession is a service agreement in which the Public
Administration is the direct or indirect user (e.g., building, operation
and management of public buildings), even if it involves the execution
of works or the supply and installation of goods.
Law 11,079/2004 also allows (i) variable private party remuneration,

based on the performance indexes and (ii) the private partner's
payment during the construction period, thus anticipating the private
partner's compensation for the works.
The difference between the new types of concessions and the common
concession, which continues to exist according to the rules mentioned
above, is in the payment and remuneration by the Public
Administration to the private entity. Therefore, when the concession
does not involve any remuneration from the Public Administration, it
will not be a PPP contract, but a common concession.
The law also establishes limits for contracting Public and Private
Partnerships, setting forth that it is not allowed to execute contracts:

1. involving less than BRL 20 million;
2. with a final term of less than five years; or
3. whose purpose is solely the supply of workers, the supply and

installation of equipment, or the execution of public works or
construction.
Administrative contracts regulated by the PPP Law must have terms

compatible to the amortization of the investments effectuated by the
private partner – never less than five and more than 35 years,
including a possible extension. To execute these contracts, a Specific
Purpose Company will need to be created for the exclusive scope of
implementing and managing the PPP projects.
One of the main innovations brought by PPP Law was the creation of
a USD 3 billion Guarantor Fund (composed of shares of public and
private companies, real estate, money, etc.). Such fund guarantees
that the public sector will duly pay its assumed obligations, by hiring
the private sector. Its assets will serve to guarantee possible collection
actions filed against the contracting Public Partner.
Also PPP Law provides for the possibility of arbitration in case of

dispute resolution that may arise in a PPP contract.
In addition to Federal Legislation, Brazilian States have also enacted

state laws regulating the subject. These laws create new forms of
guaranties, such as the creation of public companies with assets that
offer warranties. These are also responsible for signing and managing
the contracts. The main States that have already published their own
laws are São Paulo, Rio de Janeiro, Minas Gerais, Santa Catarina,
Amazonas, Federal District, Mato Grosso, Bahia, Ceará and Rio
Grande do Sul, and currently, almost all Brazilian States have their
own PPP regulation.


Insurance
The insurance business in Brazil is regulated mainly by the Civil Code
enacted in 2002 and laws some of which passed in 1966-1967, which
delegated regulatory authority to:
(i) the National Council of Private Insurance (Conselho Nacional de

Seguros Privados), known as “CNSP”, a body composed of
governmental authorities, responsible for establishing the main
rules for the organization and operation of insurance companies in
Brazil; and
(ii) the Superintendence of the Private Insurance (Superintendência de

Seguros Privados), known as “SUSEP”, which is CNSP’s
regulatory and implementing agency, is subordinated to the
Ministry of Finance, responsible for regulating, monitoring
compliance of, and imposing penalties involving insurance,
pension (open plans), capitalization, reinsurance and brokerage
companies and brokers of products related therein, in Brazil.
Insurance rules and regulations are basically divided into two

categories - life insurance and non-life insurance. Health insurance is
regulated separately.
As of 1992, the insurance has became an opened marked, but it is still

strictly regulated, especially in relation to financial solvency. There is
no pre-approval requirements for the adoption of new insurance
products and SUSEP generally adopts the “file and use” system. The
mechanisms for verifying the solvency and reserves of insurance
companies are currently strong.
Incorporating an Insurance Company in Brazil
An insurance company in Brazil must be organized in the form of a
stock corporation (sociedade anônima) and may not conduct any
business other than insurance. Pursuant to the insurance licensing
rules contained in CNSP Resolution 330/2015, insurance companies
should be managed by individuals with proven technical capacity in

his/her respective practice area, with legal domicile in Brazil, except
for members of the board of directors and those who have never been
charged with a criminal offense. Finally, except if an insurance
company becomes insolvent and its assets are insufficient to pay fifty
percent (50%) of its creditors, or if the company or its administrators
commit a bankruptcy crime, an insurance company shall not be
subject to the Brazilian general bankruptcy and reorganization
legislation.
Licensing Requirements
There are no restrictions on foreign equity and voting interests in
Brazilian insurance companies. To obtain a license authorization for
operation, the shareholders must first send a pre-filing consultation
addressed to SUSEP’s Superintendent outlining the capital structure
and other information. After SUSEP’s pre-approval, the petitioners
must submit to SUSEP a licensing application with the information
and documents required by CNSP Resolution No. 330/2015. The
documents shall include statement of intent indicating the types of
insurance and the locations where the company intends to operate,
which must be published in newspapers of broad circulation; business
plan; capital structure chart; evidence of economic and financial
capacity compatible with the business to be carried out; authorization
for SUSEP and federal tax authorities to share information.
Required equity capital and risk-based capital
Upon incorporation and prior to filing the licensing application, the
founding shareholders must pay in cash or in cash equivalent
(Brazilian federal bonds) at least fifty percent (50%) of the company’s
stock capital. The cash portion must be deposited in a special bank
account, pledged to SUSEP until the granting of the license. The
remaining fifty percent (50%) of the stock capital must be paid in
within one year from the issuance of the operating license and its
publication in the official newspaper.
CNSP Resolution 321/2015 provides for the required capital for

insurance companies and underwriting risk-based capital, and the
remedial and contingency rules applicable to capital shortfall events.
The "required minimum capital" under CNSP Resolution No.

321/2015, equals to the higher value between the base capital and the
risk capital.
The “base capital” is formed by a fixed portion (of R$ 1.2 million) and
a variable portion based on the operating region. The variable portion
changes according to the region/states where the company has been
authorized to operate. The base capital that an insurer must have to
operate in all Brazilian regions is R$ 15 million.
The risk capital is based on the risks inherent in the insurance

company’s operations, such as credit, market, legal, underwriting and
operating risks. CNSP Resolution 321/2015 sets forth the provisions
for establishment of capital for underwriting risks of the insurance and
pension plans operated by insurance companies and pension funds.
The method of ascertaining the risk capital for underwrite insurance
operations depends on whether the line has an internal model.
The rulings also regulate cases of capital insufficiency according to

the level of insufficiency of the adjusted net worth in relation to the
minimum capital required:
a) Up to 50%: In case the insufficiency of the adjusted net worth in

relation to the minimum capital required is up to 50% or in case
the insufficiency of liquidity in relation to the minimum capital
required, the insurance company shall file a solvency
regularization plan to solve the problems. The solvency
regularization plan will only be required in case the insufficiency
has been verified for three consecutive months, or specifically on
June and December
b) 50%-70%: In case the insufficiency of the adjusted net worth in

relation to the minimum capital required is 50%, the insurance
company will be subject to an inception of a special inspection
regime (intervention).

c) More than 70%: In case the insufficiency of the adjusted net worth
in relation to the minimum capital required is more than 70%, the
insurance company will be submitted to an extrajudicial
liquidation.
Pre-filing for Corporate Acts
According to CNSP Resolution No. 330/2015, SUSEP must pre-
approve any transactions of incorporation, acquisition, merger, spin-
off, sale or any other form of corporate restructuring of insurance
companies, capitalization companies and open pension entities, as
well as the transfer of direct or indirect corporate control, or any other
act which may imply in the change of the decision-making control of
insurance companies, capitalization companies and open pension
entities deriving from: (i) legal transactions entered into by the
controlling shareholders; (ii) shareholders agreement; or (iii) acts of
any individual or business entity, or group of persons representing a
common interest.
Operating Requirements
The insurance companies shall monthly submit to SUSEP within the
closing of the monthly balance sheets, the adjusted net worth equal to
or greater than the required minimum capital and liquidity in relation
to the required minimum capital.
The liquidity in relation to the minimum capital required is verified

when the insurance company presents the amount of "net assets"
(ativos líquidos), in excess to the amount needed to cover the
provisions, higher than 20% of the minimum capital required.
The net assets in excess to the amount needed of coverage shall be

registered with an account bounded to SUSEP.
Brokers
Insurance brokerage provisions of Law 4,595/194 and Decree-law
73/1966 define “insurance broker” as the intermediary legally

authorized to solicit and market insurance contracts, putting together

insurance companies and prospective customers.
Normative rules of the CNSP and SUSEP set forth that, save for
authorized agents and direct marketing sales, the attraction of potential
customers for new insurance coverage may be performed only by
brokers licensed and registered with SUSEP, or by a preposto
(delegate) of the broker duly empowered by him and also registered
with SUSEP.
Only licensed and registered brokers may receive insurance

applications, certify the corresponding policy and collect commissions
through physical receipt of cash or bank account deposits. A broker
may pay his preposto a portion of the commission received.
Resolution 295/2013 and its amendments, regulates the preposto

activities as well as the requirements for their appointment and
registration. The CNSP Resolution 295/2013 is in force since October
28, 2013 and according to its terms each insurance broker may register
up to 10 (ten) prepostos.
The application for registration must be filled in by the insurance

broker, through a form containing the preposto's registration data and
shall be forwarded to the website of the SUSEP. The insurance broker
may appoint representatives at its free choice, including replacements.
Reinsurance
From 1939 until 2007, reinsurance was a monopoly of the Brazilian
government, by means of the government-controlled entity IRB
(Instituto de Resseguros do Brasil), currently named IRB - Brasil
Resseguros S.A. and known as “IRB-Brasil Re”. The 13th
Amendment to the Brazilian Constitution of August 21, 1996 followed
Brazil’s international commitments to open the reinsurance market
and, as a kick-off to the demonopolization, it has stricken out from the
Constitution’s Article 192, item II, the expression “official reinsurance
entity”.

The government further promulgated Law No. 9.932/1999, which
transferred IRB-Brasil Re’s reinsurance regulatory and enforcement
powers and duties to SUSEP and delegated substantial normative
authority to CNSP, but an injunction granted by the Brazilian
Supreme Court suspended the effects of said statute. An intense legal
debate evolved until January 2007, when the government finally
enacted Lei Complementar 126 (“Supplementary Law No.
126/2007”).
Pursuant to Supplementary Law No. 126/2007, CNSP, as the

insurance normative authority, shall be responsible for the regulation
of coinsurance and reinsurance transactions, and SUSEP, as the
insurance supervision agency, shall be responsible for the supervision
of coinsurance and reinsurance transactions and for their brokerage.
The Supplementary Law No. 126/2007 provides for three types of

reinsurance companies that are authorized to operate and do business
in Brazil:
(i) the local reinsurer: defined as the reinsurer headquartered in

Brazil and incorporated as a Brazilian corporation with the
purpose of conducting reinsurance and retrocession transactions;
(ii) the admitted reinsurer: defined as the reinsurer headquartered

abroad, with a representative office in Brazil and registered as
such with SUSEP, in compliance with the requirements of the
Supplementary Law and the applicable rules; and
(iii) the occasional reinsurer: defined as the reinsurer headquartered

abroad, without a representative office in Brazil, but registered
with SUSEP as such, in compliance with the requirements of the
Supplementary Law and the applicable rules.
As per CNSP Resolution No. 330/2015 and SUSEP Circular

527/2016, to obtain a license, admitted reinsurers shall comply with,
among others, the following requirements: (i) be in good standing
with its competent supervision authority and evidence that it has been

performing its activities in its country of origin for at least five years;
(ii) have net equity not lower than one hundred million United States
Dollars; (iii) have a solvency evaluation granted by a rating agency
acceptable to SUSEP in the minimum levels mentioned in Article 13,
III of Resolution 330/2015; (iv) have a power-of-attorney granted to
an individual residing in Brazil, for purposes of receiving service of
process and notices, the delegation of such powers being expressly
forbidden; (v) have evidence that the laws in force in its country allow
the movement of freely convertible currencies, for purposes of
complying with reinsurance commitments abroad; (vi) have a foreign
currency bank account in Brazil with a bank authorized to perform
exchange transactions, as security for its transactions with SUSEP,
with at least: (a) US$5,000,000 (five million US dollars) to do
business is all lines of reinsurance and (b) U$1,000,000 (one million
US dollars) for life reinsurance; and (vii) provide SUSEP with its
financial accounts.
According to SUSEP Circular No. 527/2016, the applicant must also

file a formal request with SUSEP for (i) opening a branch or (ii)
incorporating a Brazilian subsidiary, provided that the foreign
reinsurer’s holds a minimum equity interest corresponding to 4/5 of
the corporate capital.
The occasional reinsurer may only be registered in Brazil if it meets

the following requirements: (i) be in good standing with its competent
supervision authority; (ii) have net equity not lower than one hundred
and fifty million United States Dollars; (iii) have a solvency
evaluation granted by a rating agency acceptable to SUSEP, at least,
in the minimum levels mentioned in Article 18, III of Resolution
330/2015; (iv) have a power-of-attorney granted to an individual
residing in Brazil, for purposes of receiving services of process and
notices; (v) be headquartered in a country not classified as a tax
heaven; (vi) have evidence that the laws in force in its country allow
the movement of freely convertible currencies, for purposes of
complying with reinsurance commitments abroad; and (vii) provide
SUSEP with its financial accounts.

Those registered as occasional reinsurers cannot apply for an
authorization to operate as admitted reinsurers, but may amend their
existing authorization to become admitted reinsurers, provided that all
previous requirements are met.
According to Decree No. 6499, of July 1, 2008, insurance companies

may assign to the occasional reinsurer up to ten percent (10%) of the
total amount of the premiums assigned in reinsurance, considering the
totality of its transactions in each calendar year.
Besides, the risks to be ceded from local reinsurer to occasional

reinsurer (retrocession) are limited up to fifty percent (50%) of the
total amount of the premiums related to the risks which was
subscribed by the local reinsurer, considering the totality of its
transactions in each calendar year.
CNSP Resolution 321/2015 provides for the minimum capital

necessary for the authorization and operation of local reinsurers.
According to such rule, the minimum capital that a local reinsurer
shall maintain at all times in order to operate is equivalent to the
higher value between the base capital and the risk capital.
The base capital is a fixed amount of R$ 60 million, which a local

reinsurer shall maintain at all times. The risk capital is the floating
capital amount used to guarantee risks inherent to the reinsurer’s
transactions.
Moreover, the purchase of reinsurance and retrocession in Brazil or

abroad may be performed either by means of direct negotiation
between the ceding party and the reinsurer or by means of the
reinsurance broker.
Foreign reinsurers headquartered in “tax havens” (countries which do

not tax income or tax at a rate lower than 20% or whose laws shelter
the anonymity of corporate shareholding or assets ownership) cannot
register as occasional reinsurers. Such list is set out in SRF’s

Normative Ruling (Instrução Normativa) No. 1037/2010 of the Tax

Revenue Service, as amended.
Supplementary Law No. 126/2007 provides for the exclusivity of local

reinsurers over survival insurance and pensions.
Resolution CNSP 168/2007, as amended establishes that local insurers

or reinsurer are allowed to cede:
(i) until December 31, 2016, 20% of insurance premium per

contracted coverage to an affiliated company or company pertaining
to the same economic group;
(ii) 30% as of January 1, 2017;
(iii) 45% as of January 1, 2018;
(iv) 60% as of January 1, 2019; and
(v) 75% as of January 1, 2020.
Further, Article 15 of Resolution CNSP 168, of December 17, 2007,

as amended, determines that insurance companies must contract with
local reinsurers at least the percentages mentioned below of each
cession of reinsurance in automatic or optional contracts:
(i) 40% until December 31, 2016;

(ii) 30% as of January 1, 2017;
(iii) 25% as of January 1, 2018;
(iv) 20% as of January 1, 2019; and
(v) 15% as of January 1, 2020.
However, CNSP Resolution 241 of December 1, 2011, authorizes

insurance companies to contract with local reinsurer a percentage
lower than the one mentioned above, exclusively when local
reinsurers’ capacity is proven to be insufficient, regardless of prices
and conditions offered by them.
Supplementary Law No. 126/2007 further requires ceding companies

to send a copy of their reinsurance agreements to SUSEP. Reinsurance
contracts not disclosed to SUSEP will not have the effect of freeing-

up the Brazilian ceding company’s retention and operational limit for
all regulatory purposes such as computation of reserves.
Reinsurance contracts may have an insolvency clause providing for

the cut through payment of claims to the insured upon the insolvency
of the insurance ceding company but in case of facultative contracts,
the insolvency cut through will be implied. In any event,
Supplementary Law No. 126/2007 requires an insolvency clause
making reinsurers responsible before the insured parties upon the
insurer’s liquidation or bankruptcy.
The reinsurance law makes independent auditors accountable and

subject to penalties for any breach or misconduct in connection with
their responsibilities under insurance and reinsurance laws and
regulations.
Art. 23 of Supplementary Law No. 126/2007 further authorizes the

Federal Government to allow IRB-Brasil Re’s preferred shareholders
(Brazilian insurance companies) an option to withdraw their equity
capital in IRB-Brasil Re. for purposes of incorporating a reinsurance
company in Brazil as Local Reinsurer.
Operations in Foreign Currency
Only the insurance, reinsurance and retrocession for coverage related
to certain types of risk specified in Circular SUSEP No. 392/2009 may
be performed in Brazil in foreign currency, subject to the legislation
applicable to operations of this nature, the rules set forth by the
Brazilian Monetary Council (“CMN”) and the rules set forth by the
insurance regulatory authority.
CMN and Central Bank regulate the opening and maintenance in

Brazil of accounts in foreign currency, held by insurance companies,
local reinsurance companies, admitted reinsurance companies and
reinsurance brokers.

Insurance in Brazil and Abroad

According to Supplementary Law No. 126/2007 and Resolution
CNSP No. 197/2008, the following insurances shall be exclusively
contracted in Brazil:
I – mandatory insurances; and
II – not mandatory insurances hired by individuals residing in

Brazil or by legal entities headquartered in Brazil, regardless of
the legal form, for the guarantee of risks in Brazil.
The hiring of insurance abroad by individuals residing in Brazil or by

legal entities headquartered in Brazil is restricted to the following
cases:
I – coverage of risks for which there is no offer of insurance in

Brazil, as long as the hiring of such insurance does not represent a
violation to the legislation in force;
II – coverage of risks abroad in case the insured party is an

individual residing in Brazil and the term of the insurance hired by
such individual is exclusively restricted to a period in which the
insured party will be located abroad;
III – insurances which are object of international agreements

countersigned by the Brazilian Congress; and
IV – insurances that, according to the legislation in force, on the

date of publication of Supplementary Law No. 126/2007, had
already been hired abroad, provided, however, that the renewal
will be subject to Supplementary Law No. 126/2007.
Legal entities may hire insurance abroad for the coverage of risks
located abroad, upon the communication to the Brazilian insurance
inspection authority within 60 (sixty) days as of the beginning of
effectiveness of the risk.


Employment Relations
The basic rules governing legal relationships between employers and
employees in Brazil are set forth in the Federal Constitution and the
Brazilian Labor Code (Consolidação das Leis do Trabalho).
The Brazilian Labor Code generally regulates all aspects of the labor
relationship. It is supplemented by labor and social security laws, and
collective bargaining agreements.
In Brazil, after the Labor Reform Law came into effect (Law No.
13,467/2017), claims involving labor matters are decided in labor
courts and/or by arbitration (applicable exclusively to employees with
compensation exceeding twice the social security contribution cap;
and who executed at his/her own initiative or express consent an
arbitration clause observing Arbitration Law requirements).
Employment Relationships
The Brazilian Labor Code defines “employee” as an individual
rendering services to a company or individual on a regular basis,
under the direction of such company or individual, for compensation.
Brazilian courts consistently recognize the existence of an
employment relationship whenever those elements are evidenced,
whether or not a written employment agreement exists.
Note that in Brazil, the hiring of an employee requires filling out

certain blank spaces in an employee’s Employment Booklet (Carteira
de Trabalho, which is similar to a passport held by the employee) to
identify the employer, date of admission, salary (generally per month),
and functions to be performed by the employee. Similar annotations
should be made in the company’s books (ficha de registro). Under
Brazilian law, it is not necessary to execute a separate written
employment agreement and is rather used as a matter of convenience
to deal with certain matters.
If an employee is not under an employer's direction (for example, an

independent sales representative), the relationship between such
person and the company would be subject to general Brazilian civil
and commercial contract rules, not labor regulations. Nevertheless,
Brazilian labor courts are generally sympathetic toward individuals
who claim an employment misclassification, essentially shifting the
burden of proof to the presumed employer.
Economic Group Concept

According to Article 2 of the Brazilian Labor Code, when one or more
companies are under the same direction or control of another
company, they are held jointly liable for labor code violations.
Therefore, if an employee is registered with only one company and the

fact that the employee renders services only to such company does not
exclude the joint liability of the company’s economic group.
Having said that, if one of the companies of the economic group fails
to comply with its labor obligations, the labor courts may require
another company of the group with enough assets to pay the labor
debts, based on the principle that all companies of the same economic
group are a “single employer”.
Note that after the Labor Reform Law came into effect, the existence
of a common shareholder is not enough to trigger the recognition of an
economic group, and it is now required to evidence an integrated
business interest, actual common interest and joint actions of the
companies.
Brazilian Labor Rights

Under Brazilian law, an employee is entitled to the following labor
rights (in addition to what may have been agreed upon in a written
employment agreement):
• Minimum Wage. The worker is assured of the right to be

compensated with the national minimum wage, which includes
urban and rural workers. However, there may be a minimum
wage provided by the state legislation superior to the value of

the federal minimum, which shall be observed. Moreover, there

may exist a minimum wage established by a collective
agreement. The national minimum wage for 2018 is expected to
BRL 969.00 per month (around USD 296.00).
• Annual mandatory salary increase, at the percentage set forth in

either the Collective Bargaining Agreement executed by and
between the respective Employees’ and the Employers’ unions;
• Annual Christmas bonus (frequently called “13th month salary”)

in an amount equivalent to one monthly compensation;
• Annual vacation of thirty (30) calendar days, increased by a

vacation bonus equal to one third (1/3) of the employee’s
monthly compensation, in addition to the officially declared
holidays during the year;
• Severance Fund (Fundo de Garantia Por Tempo de Serviço or

“FGTS”) to be funded by the employer by depositing 8% of the
employee’s monthly compensation in a special bank account of
the employee at the Federal Savings Bank (Caixa Econômica
Federal). The amount deposited in such fund may be withdrawn
by the employee upon the employee’s retirement, as well as in
very special cases such as the acquisition of a house and, in
particular, termination of employment by the employer, without
cause; and
• Other payments as set forth in the Collective Bargaining

Agreement.

Contract Modification Practices
According to Article 468 of the Brazilian Labor Code, any change in
employment conditions (i) must require the employee's express
consent in writing and (ii) must not be detrimental (financial or
otherwise) to the employee. Please note that this Article represents a
true principle of Brazil's labor laws and demonstrates its protective
nature.
Due to provisions contained in Article 468 of the Brazilian Labor

Code, it is not possible to cancel a benefit extended to an employee or
reduce his/her salary – except if such reduction is approved by the
labor union - without incurring labor liabilities. Other modifications
that do not adversely affect the employee (such as modifying the work
schedule or position, provided that the new position has an equal or
higher salary) are permitted.
In any event, all modifications to an employee’s employment

conditions must be formalized in his/her Employment Booklet and in
any other documents executed with him/her.
Health, Safety and Environment Issues
According to Brazilian Labor Law, employers must comply with
several specific rules related to health and safety issues, such as:
PCMSO, PPRA, CIPA, SESMT, additional payments related to work
conditions and so on.
The direct employer is responsible for drafting, keeping and

monitoring compliance with such programs.
The work hours must not exceed eight hours daily and 44 hours
weekly (although collective bargaining agreements and the company's
policies/practices may provide a more generous condition). Between
two work days there must be a minimum interval of at least 11
consecutive hours for the worker to rest.

Profit Sharing
The 1988 Federal Constitution provides that Brazilian employees are
entitled to participate in the profits of their employers. Law No.10.101
of 19 December 2000 regulates the procedures and requirements that
must be met by Brazilian companies to implement a plan for the
employees’ share in the profits or results of the company. Note that
some believe that this law is not mandatory, since it does not provide
penalties in case of non-compliance. On the other hand, if a company
intends to create a plan, it must comply with Law No. 10.101, under
the penalty of the payments made under the plan being considered as
part of the employees’ compensation, and, thus, subject to labor and
social security charges.
Law No. 10,101 does not set forth strict rules for calculating the
amounts payable to employees or even a minimum pre-established
amount payable to employees.
All that is required is that the employer and the employees

(represented by the employees’ committee or employees’ union) enter
into an agreement setting forth: (i) clear rules in connection with the
employees' right to receive a share of the company’s profits or a
certain payment upon achieving certain results; (ii) objective
conditions for employees to achieve such entitlement, exceptions
made to goals related to health and safety matters; (iii) the dates of
payment - the maximum to be paid in two installments and with an
interval of at least three months; and (iv) the term of the agreement
and the dates for revision thereof.
The labor union or one of its representatives is required to participate

to deem the plan valid.
Probation Period
Under Brazilian labor law, an employer may hire an employee for a
probationary period in order to observe whether this employee has the
appropriate skills. The maximum probationary period is 90 days, or

the period set forth in the respective Collective Bargaining
Agreement, provided that such term is agreed upon in writing.
Term of Employment
Employment agreements are generally in force for an indefinite term.
As an exception, an employee can be hired for a probationary period
of up to 90 days, provided that such term is agreed upon in writing (as
indicated above). The employee may also be hired under a fixed-term
agreement to perform services or activities of a temporary nature, in
which case the employment is valid for only two years.
Part-time Employment
Part-time work can be contracted up to a maximum of 25 hours per
week. Compensation for part-time employees must be proportional to
that of other employees working full time (i.e., 44 hours per week) in
the same function.
Termination and Severance

The concept of at-will employment is not recognized in Brazil. That
said, both the employee and the company may terminate the
employment relationship at any time for any reason (subject to few
exceptions of job protection).
Please note that termination with cause is only possible if the fault
committed by the employee is listed in the Labor Code, which sets
forth a very strict list of possibilities.
Termination of an employment relationship in Brazil is a rather formal

matter, as Brazilian law requires the filing of a Termination Form and
submitting the employee to a medical termination examination, even if
the employee resigns. All documents related to the termination (e.g.
Termination Forms, Severance Forms, Communication of entitlement
to extend the health insurance coverage - when applicable), in addition
to the evidence of the severance payment, must be delivered to the
employee within 10 days of terminating the agreement.

Brazilian employees are always entitled to severance pay if

terminated. The amount of severance and labor rights will depend on
whether the employee has been terminated for cause, without cause,
and whether the termination was effected by the employer or the
employee or by mutual agreement.
The basic and routine severance payments in case of termination

without cause are the following:
• Compensation due until the day of termination;
• Accrued vacation leave credits based on one month’s

compensation per year of employment. When termination
occurs before a full year is completed, vacation shall be
calculated on a pro rata basis;
• Vacation bonus, equal to one-third of one month’s

compensation. In case of pro rata vacation, the bonus shall be
calculated based on the actual amount owed to the employee for
vacation;
• Pro rata Christmas bonus (also called “13th month salary”) equal
to one-twelfth of the employee’s monthly compensation per
month of employment, or a fraction thereof at least equal to 15
days, starting 1 January to the day of termination;
• 50% of the balance of the employee’s Severance Fund bank

account (FGTS).
• The severance notice indemnity Law No. 12.506, ratified on 11

October 2011, requires that prior notice be proportional to the
length of the employee's service, limited to 90 days. Under such
Law, nothing changes for employees who have worked up to
one year at the same company, since they will continue to be
entitled to 30 days prior notice. However, for those employees
with more than one year of employment in the same company,

they will be entitled to additional prior notice of three days for
each year worked, up to a maximum of 60 additional days.
• Any termination benefits/advantages provided by a collective

bargaining agreement and/or company's policies.
• If an employer decides to grant an employee discretionary

termination benefits (e.g. termination bonus, transfer of vehicle
in the name of employee, outplacement service and additional
extension of health insurance), it is advisable to discuss these
payments as they might have social security and labor
implications.
Labor Claims and Release Agreements in Brazil

In Brazil, once the employment agreement is terminated, the former
employee has a two-year limitation period to file a lawsuit.
Once the former employee files the lawsuit within the two-year term,
he/she may claim labor rights for the last five years.
Note that in Brazil releases will be enforceable if the parties - each of

them represented by different counsels - file jointly a single petition
before the Labor Court asking for the judge to ratify the off-court
agreement reached between the parties. Once it is filed, within a 15-
day term, the judge must analyze the request and may either ratify the
off-court agreement directly or schedule a hearing for such purpose.
Note that once a settlement is ratified before a Judge (in case of the
request above mentioned or if a lawsuit has been filed), in principle,
individuals cannot go back and claim the difference between the
settlement payment and any unpaid labor right.
We emphasize that an amicable settlement between the parties,

outside of the Labor Court, does not eliminate the risk of future labor
claims.

Social Security
According to Social Security Legislation, all employees working in
Brazil must be covered by the “INSS” - social security system.
Both employers and employees must pay social security

contributions. Self-employed workers are also subject to social
security obligations.
Employees may also choose to contribute to a private pension plan,

to increase their INSS compensation.
To be able to retire from employment in Brazil, an employee must

fulfill certain requirements. First, an employee may retire based on
their length of contribution to the Social Security System: 30 years
for women; 35 years for men. Second, it is possible to retire based
on age: women must be 60 years old; men 65 years old. Finally, it is
important to mention that age-based retirement is only possible after
15 years of contributions.
Contribution to the social security system must observe the

following charts:
Employees’ social security contributions paid over compensation:
1. Up to BRL 1,659.38 8% of salary
2. From BRL 1,659.39 to R$ 9% of salary

2,765.66
3. From BRL 2,765.67 to 5,531.31 11% salary
4. More than BRL 5,531.31 Fixed value of BRL

608.45
Employer’s social security contributions paid over payroll:

1. Social Security Contribution – 20.00%
INSS
2. Labor Accident Contribution –SAT from 1.00 to 3.00% (*)
3. Third parties contribution, for from 2.70 to 5.80%

instance:
Education Contribution 2.50%
INCRA Contribution 0.20%
SENAI Contribution 1.00%
SESI Contribution 1.50%
SEBRAE Contribution 0.60%
(*) Note that the SAT rate shall be multiplied by the so-called
Accident Prevention Factor (“FAP”), which varies from 0.5 a 2.00
depending on the risk involved on the company activities.
The main charge to be collected by the company to the social security

institute is the basic social security contribution at a rate of 20%, upon
the total remuneration paid to employees and self employed workers.
In addition, employers must also pay, upon the remuneration paid

solely to employees, the Labor Accident Contribution (“SAT”) and
other social contributions to specific entities (“third parties”) provided
for by law (such as SESI, SENAI, SESC, SENAC SEBRAE and
INCRA contributions).
The rate of the other social contributions mentioned above will depend
on the company’s main activity.

The employees’ contribution will be levied according to the

compensation amount, based on specific brackets and varying from
8% to 11% (up to the maximum limit of BRL 608.45) Employers
must withhold the employees’ contribution and pay it to the social
security authorities along with their contribution as employers.
In addition, for some specific industry sectors, social security

contributions are calculated on the gross revenues of services and/or
products, instead of on the remuneration paid to its employees and
self-employed workers.
Outsourcing
Outsourcing or independent contracting by the company of a service
or activity to a third party must be carefully carved out of the typical
employment relationship. Two recent pieces of legislation (Law no
13,429/2017 - the Outsourcing Law and the Labor Reform Law) are in
place and will most likely overrule current labor precedents that
authorized only the outsourcing of non-core activities. In this sense,
Labor Reform proposed additional amendments to the Outsourcing
Law including the express possibility of outsourcing any activities,
including primary ones.
Nnote that the Outsourcing Law provides defined requirements that a

service provider must meet to enable its operations, i.e. having a
Corporate Tax ID (CNPJ), registration with the Commercial Board
and having capital stock compatible with its workforce numbers.
In addition, the Labor Reform Law provides that if an employee was

previously terminated by the company, there is an 18-month waiting
period during which he/she cannot be engaged by a third party to
provide services back to the company. Company is defined broadly to
include companies in the group. While it is still unclear what sanctions
and/or liabilities will apply to entities that violate the “quarantine”,
there is the risk of employment continuance claims.
It is also worth noting that the Outsourcing Law explicitly imposes a

secondary liability on customers for unpaid labor rights by service
providers in relation to outsourced workers rendering services to
service takers. Service takers should ask service providers to regularly
them with the payment forms of social security contributions and
FGTS for outsourced workers so they will be able to present such
forms to the court as evidence of payments in case an outsourced
worker brings a claim against a service taker enforcing the secondary
liability.
Unions
The Federal Constitution deals with the creation of unions between
employers and employees. In Brazil, certain unions represent the
employees and some unions represent the employers. Employers and
employees are represented by their respective unions in matters
involving collective employment relations. The employees, regardless
of their position and/or affiliation with the union, are entitled to the
labor benefits granted in the Collective Bargaining Agreement
negotiated between the employers and the employees’ union for that
specific economic category.
Unions are organized according to their business activity, for example,

commercial transactions, metallurgy, chemical production and the
like. The union representing a given company will be that of the
company's main activity and its place of business.
The employers and employees’ unions representing a given business

activity negotiate the terms of a collective agreement dealing with
salary increases and several other issues to be in force for one year. If
no agreement is possible, the parties can avail themselves to the
mediation services of the Labor Department or the Labor Courts.
[Revised as of November, 2017]

Real Estate
In Brazil, Law No. 10,406, dated 10 January 2002 (the “Brazilian
Civil Code”), generally governs the rights associated with immovable
properties.
The Brazilian Civil Code divides assets into two different categories:
(i) movables (i.e., personal property) and (ii) immovable assets. The
immovable assets category encompasses land, together with its
surface and all accessions, construction and improvements, attached to
or forming part of the land, the air space above the land and the
subsoil. Waterfalls, mines and products from the subsoil are
considered separate assets from the land. The exploitation of mineral
resources and hydroelectric power are subject to authorization from
the federal government, according to the Brazilian Federal
Constitution.
In addition, although certain assets are physically movable (i.e.,

machinery and equipment used at industrial plants and ships), they are
construed under the Brazilian Civil Code as immovable assets, by
means of legal fiction.
The rights related to immovable assets (including real estate

properties) are divided into the right of possession and the right of
ownership.
The right of possession is the personal right arising from the

ownership or dominion over the property.
The right of ownership is the right of an individual or entity to use,

enjoy and dispose of the property as a whole or solely its superficial
part particularly for plantation or construction. The concept of
disposing of the superficial part of the land, or land surface law
(direito de superfície), was recently brought into Brazilian regulation
by means of the Brazilian Civil Code (Articles 1369 to 1377).
Basically, it requires a definite term and a public deed duly registered
in the relevant Real Estate Registry Office. Works at the underground
level are not allowed, except if the work is in accordance with the

nature of the concession. It could be remunerated or free of charge.
The land recipient is entitled to the right of first refusal in case of the
sale of the property and once terminated, the owner obtains full title of
the land, construction or plantation, regardless of indemnification, in
case the parties have not agreed thereto otherwise.
Some restrictions may apply to the right of ownership, as in the case

of the creation of easements, expropriation of the property by
government authorities or the creditor’s composition, insolvency or
bankruptcy. Restrictions may also apply in cases involving national
interests, as in the case of sale or lease to foreign entities, as expanded
below. In addition, the use of the property may be subject to zoning
and construction limitations, as provided under the relevant laws.
Several individuals or entities may be jointly entitled to the right of

ownership in relation to the same property. In this case, a co-
ownership (or condominium) will be deemed construed among the
different owners and each of them will be entitled to all rights
associated with a specific ideal portion (fração ideal) of the property.
The costs associated with the maintenance of the property
(i.e., housekeeping and security) are shared among the members of the
condominium.
In case of a condominium, any of its members may exercise all rights

of ownership, except those that are not consistent with the
indivisibility of the property. Therefore, the entire property cannot be
transferred without the concurrence of all the condominium members.
Brazilian Law 4,591, dated 16 December 1964, generally governs the
rights and obligations attributed to the condominium members in
edifices.
Acquisition of properties
In Brazil, the transfer of title to a property occurs only upon
registration of the act that transferred the same or the rights thereto
with the relevant Real Estate Registry Office. For registration
purposes, every property must be registered at the specific Real Estate
Registry Office having jurisdiction over the area in which the property

is located. Such registration is made under a specific enrollment

(matricula), which lists all data in respect of the property, including
details of its current and former ownership and the existence of liens,
mortgages and easements.
Typically, a property is transferred upon the registration of the

purchase and sale agreement executed by the buyer and seller at the
matrícula of the property at the Real Estate Registry Office. As a
general rule, for purposes of transferring the title, the purchase and
sale agreement must be executed in a public format by means of a
public deed executed before a public notary.
A property may also be acquired by inheritance, usucapio or accession

(the enlargement of the land arising from the conveyance of parcel of
the soil through natural causes). In these cases, the court order
granting the rights over the property is the instrument to be registered
at the Real Estate Registry Office.
Provided that the matrícula of the property is the relevant document

that details the relevant data of the property, any document, act or
instrument which may modify, extinguish, transmit or create rights
related to the property must also be registered. Hence, to be perfected
and valid before third parties, a mortgage or a lien over a property
must be registered.
The transfer of a property is subject to the payment of Real Estate

Transfer Tax (“ITBI”). ITBI rates vary in accordance with the city in
which the property is located and is calculated upon the actual value
of the transaction or the appraised value of the property, whichever is
higher. According to the Brazilian Federal Constitution, the ITBI does
not apply to real estate transfers pursuant to corporate mergers or
contributions to paid-in capital.
Securities
The most common form of securities used by lenders in Brazilian real
estate transactions are mortgages and bank guarantees.

Mortgages are formalized through a public deed prepared by a public
notary and registered with the relevant Real Estate Registrar to ensure
validity of title and enforceability against third parties. There is no
transmission of asset possession to the creditor under a mortgage.
However, in the event of default by a borrower, the lender has the
right to require judicial sale of the real property to recover the debt.
Other security options for financing real property transactions are

recognized under Law No. 9,514/97 including the following “right in
rem” guarantees:
• Fiduciary assignment of credit rights deriving from real property

sale and purchase agreements – The title to credits is transferred
to a fiduciary assignee to secure a debt until full payment is
made.
• Fiduciary transfer of title to real property (“Alienação

Fiduciária”) – A borrower transfers title of its real property to a
lender to secure payment of a loan (but the borrower retains
actual possession), and upon payment of the loan, the borrower
is entitled to receive the title in return. Such fiduciary
agreements must be recorded with the Real Estate Registrar.
Real estate lease and built to suit agreements

Law 8,245, dated 18 October 1991, and its supplement, the Brazilian
Civil Code, govern urban real estate lease agreements for both
residential and commercial purposes (including the lease of premises
located in shopping centers).
Under the law, upon execution of a lease agreement, the landlord,

among other obligations, must deliver the leased property to the tenant
in a condition of use for the purposes set forth under the agreement.
Moreover, the landlord is liable for any damages or defects in the

leased property prior to the lease, and also for the payment of the
extraordinary condominium fees charged during the lease term (in

other words, for the expenses necessary to maintain the structure and
safety of the real estate).
The tenant shall be responsible, among other obligations, for the

following:
1. The correct and timely payment of the rent, charges, duties and
ordinary condominium fees, whenever applicable
2. The use of the real estate according to the purpose set forth in
the agreement
3. The return of the real estate at the term of the lease in the same
condition the tenant received it, with the exception of regular
wear and tear
Furthermore, the tenant shall give the landlord notice of any damage
or defect, which falls under the landlord’s obligation to repair.
The parties are free to negotiate contractual conditions with respect to

the term of the lease, rent amounts and improvements.
Notwithstanding, it is customary in Brazil to provide that the tenant
shall be responsible for the payment of the property tax levied on the
leased property during the term of the agreement.
According to price adjustment rules currently in force, the rent may be

monetarily adjusted for inflation every 12 months from its effective
date. Rent should be adjusted in accordance with one of the various
Brazilian inflation indexes, such as the General Prices Index (IGP)
published by the Fundação Getúlio Vargas. Regardless of the annual
adjustment for inflation, according to Article 19 of Law 8,245/91,
after three years of the lease term, any of the parties may request in
court a revision of the rent, in order to adjust it to the prevailing
market price.
When a commercial lease exceeds five years, the tenant: (i) has the
right to apply for an automatic renewal of the lease (if some
conditions are met, such as maintaining the intended use of the leased

premise) and (ii) cannot be removed from the leased property except
for specific defaults. The rent for the lease extension is negotiable, and
if the parties cannot agree on the amount, the rental amount will be
determined in court.
In case of the sale of real estate, the tenant has the legal right of first
refusal, as provided by law. If the tenant does not exercise such right
of first refusal, the new owner of the real estate property shall only
observe the effectiveness of the agreement under the following
conditions:
1. If the agreement establishes that it shall continue in force in case

of its sale to third parties
2. If the agreement was entered into for a fixed term
3. If it is registered before the relevant Real Estate Registry, in

which case, the new owner of the real estate must comply with
the agreement
The law also provides for different types of collateral that the landlord
may request as a security for the tenant’s compliance with the
agreement (unless the rent is paid in advance). Following are the most
commonly requested securities:
1. A deposit equivalent to the maximum of three rents to be

deposited to a savings account during the term of the lease
2. A personal guarantee extended by an individual or an entity (it

may be replaced by a bank guarantee)
3. An insurance policy or a bank guarantee covering compliance

with the tenant’s obligations
The law does not permit more than one type of collateral for the same
lease agreement. Non-compliance to such rule is subject to the penalty
of nullity.

During the term of the lease, the landlord may not demand
repossession of the property except in the following instances:
1. Upon mutual agreement with the tenant
2. The tenant breaches any contractual or legal obligation
3. The tenant does not pay the rent and other duties
4. Urgent repairs in the leased property have been ordered by a

public agent
The tenant, however, has the right to terminate the lease before its
term, subject to the payment of the contractual penalty established by
the parties on a pro rata basis, taking into account the elapsed term of
the agreement. In the event of an expropriation of the property by
public authorities, the landlord and the tenant may both seek
indemnification from the expropriating authority, unless otherwise
provided under the lease agreement.
Moreover, Law 8,245/91 has been amended to govern built-to-suit

agreements.
According to the new rules, the landlord and the tenant may freely
agree to waive their rights to review the rent amount after three years
of the lease term among other business conditions that shall be valid
and enforceable between the parties in view of the high investments
involved in built-to-suit agreements.
However, to be construed as a built to suit for the purposes of the law,

the agreement shall meet certain legal requirements such as: (i) the
agreement must be executed for a definite term and (ii) the property to
be purchased, built or retrofitted by landlord must be urban.
Lease in shopping centers

In Brazil, shopping centers are incorporated under a condominium
arrangement ruling the following:

1. The use of private areas (or the leased premises)
2. The access of every shopkeeper or tenant to its common areas
Thus, subject to the comments above with respect to the obligations

regarding ordinary and extraordinary condominium fees, both the
landlord and the tenant shall bear the costs for the maintenance of the
common areas of the center. Public restrooms, parking areas,
entrances, exits, sidewalks, ways, alleys and trash bins should always
be kept in good and safe condition.
Furthermore, there are four typical documents associated with the

landlord-tenant relationship with regard to the ruling on the use of
private and common areas in a shopping center. These are as follows:
1. The Declaratory Deed of General Norms Regulating the

Function, Utilization and Lease of the Shopping Center
2. The Internal Rules of a Shopping Center
3. The Shopkeepers’ Association rules
4. The specific lease between the landlord and the individual tenant
The Declaratory Deed sets forth the development, construction and

basic operating rules for the center. It is a registered document with
the incumbent Real Estate Registry Office. Provided that the
Declaratory Deed is registered, it has priority over all subsequent
documents, such as individual leases, whether such leases are
registered or not. If there is a conflicting clause between the
Declaratory Deed and the individual lease, the clause in the
Declaratory Deed shall prevail, unless the lease specifically references
the conflicting clause and specifies the difference. It is not sufficient
to state in the lease a general clause that in case of conflict between
the two documents, the lease clause applies. Each conflicting clause
must be specifically enumerated and referenced in the lease for the
clause to apply.

Acquisition and Leasing by Foreigners

From a general standpoint, there are no restrictions on the acquisition
of urban properties by foreign individuals residing in Brazil or by
foreign-controlled Brazilian entities or foreign entities authorized to
operate in Brazil.
However, certain restrictions apply to the acquisition and leasing of

rural real property by foreigners under Laws No. 5,709/1971, 8,629/93
and Decree No. 74,965/74, and under the interpretation of such laws
by the Attorney General’s Office, which have been in force since
August 2010.
In summary, these restrictions are as follows:
1. Individuals residing and companies headquartered abroad are

generally prohibited from acquiring rural property (except for
succession acquisition by individuals and also for the first
acquisition by individuals, depending on the size).
2. The Ministry of Agriculture and INCRA (Governmental Agency

in Charge of Redistribution of Rural Land in Brazil) must
approve the proposed acquisition/lease of rural properties by
foreigners residing in Brazil and by local subsidiaries with more
than 51 percent of its stake held by foreigners or controlled by
foreigners.
3. The prospective foreign acquirer has to prove to the competent

ministry and INCRA that the land will be used to implement
agricultural, livestock, industrial or colonization projects.
4. The prospective foreign acquirer may purchase limited

extensions of rural property, according to a certain percentage of
the national territory, which varies in each municipality.
5. Congress approval is required for the acquisition of a rural land

with an area larger than 100 modules of land. The length of the

modules is defined by INCRA and varies according to the
location of the land and the activity to be developed on it.
6. Approval from the National Security Council is required if the

land is located in areas considered to threaten national security
(usually within 150 km of the country’s borders, including the
territorial sea).
7. In cases where this acquisition is important for the development

of projects of national interest, the President may authorize the
acquisition by means of a presidential decree.
The acquisition of rural land must be made by execution of public

deed, duly registered with the relevant Real Estate Registry Office.
Restriction on foreigners is not applicable in case of collateral of rural

properties, but some real estate registrars have denied the registration,
even when the deed provides that actual title to the property is not
transferred and only a security interest is created for the benefit of the
foreign creditor.

Oil & Gas

Introduction
According to Article 1 of the 1988 Federal Constitution (“CR/88”),

the Federative Republic of Brazil is formed by the indissoluble union
of states, municipalities and the Federal District.25 The jurisdiction of
each member of the Brazilian Republic is either defined by CR/88,
member states’ constitutions or by municipalities’ organic laws. As a
result, Brazil has three different spheres of legislative power: federal,
state and municipal.
In addition, Article 20 of CR/88 vests ownership of all minerals,

including the natural resources found on the continental shelf, in the
federal government. Consequently, legislative power over most
matters relating to energy and mineral resources is granted to the
federal legislator. In some cases, however, other areas like
environmental protection and taxation may be subject to state or
municipal jurisdictions.
From the promulgation of CR/88 up until 1995, the Brazilian

petroleum sector was under a strict state monopoly. This scenario
changed radically with the approval of Constitutional Amendment No.
9/1995, which made profound changes to CR/88. It was only after this
amendment that private investment in hydrocarbon activities was
allowed in Brazil, creating for the first time in the country’s history
competition to Petróleo Brasileiro S.A. – Petrobras (the state-owned
company established in 1953 to run the aforementioned monopoly).
The Brazilian legal framework had to adapt to this new “open market”
reality. In 1997, a series of institutional bodies were put in place to
oversee all oil-related activities and enforce national regulations. More
importantly, the government chose a concession regime as a vehicle to
involve its new industry partners. All these innovations were
introduced by the enactment of Law No. 9.478/1997, which is now
widely known as the Petroleum Law.
25
The city of Brasília is the Federal District and also the capital of Brazil.
The concessionary regime was beneficial from an industry
perspective. The country’s indigenous production jumped from
1,268,000 barrels daily in 2000 to 2,400,000 bbl/d in 2015. Moreover,
ANP’s Statistical Yearbook 2016 states that, at the end of 2015, 790
areas were granted to national and international oil companies. These
areas are currently divided as: 348 blocks under exploration; 71 fields
under development; and 371 fields already in production.
As expected, opening the market resulted in an increased flow of

public and private funds to the sector and several breakthroughs have
been made since then. The most important was the discovery of the
so-called pre-salt reserves in 2007. The allegedly low exploratory
risks and huge profitability potential of these “pre-salt” areas led the
government to suspend all concession rounds until the new findings
were better studied.
Enactment of Law No. 12.351/2010 was based on the premise that the
government should have more control over the wealth generated by
the “pre-salt” exploitation. It accordingly amended the Petroleum Law
to create a production sharing regime, in parallel with the concession
structure. All previous contracts were respected and Brazil now has a
mixed system whereby production sharing agreements will regulate
E&P activities in “pre-salt” and other strategic areas, and the
remaining territory will still be managed through the granting of
concession rights.
Production Sharing Agreements

PSAs In Brazil: PSAs will only apply to “pre-salt” and other strategic
areas. The 1st Bidding Round under a PSA regime occurred in
October 2013, when the Libra field, in the Santos basin, was awarded
to a consortium between: (i) Petróleo Brasileiro S.A.; (ii) Shell Brasil
Petróleo Ltda.; (iii) Total S.A.; (iv) CNPC International Ltd; and (v)
CNOOC International Limited, having Petrobras as operator. The 2nd
and 3rd Bidding Rounds are scheduled for November 2017.
Most of the “pre-salt” province is already defined by the Annex to

Law No. 12.351/2010 but new sites may be included in these
categories by federal government order. The intended control

improvement was achieved through various provisions that, amongst
other things, i) designate Petrobras as the mandatory operator, with at
least 30% participation, of all “pre-salt’ and strategic areas, which has
recently been changed, as per below; ii) allow the government to
award PSAs directly to Petrobras, without a formal bidding process;
and iii) reserve to the new national oil company (Pré-Sal Petróleo S.A.
– PPSA), created to represent the federal government, the right to
nominate at least 50% of the seats, including the chairman, of the
operating committee of all joint ventures under a PSA. In relation to
the operating committee, note that it will have powers to define
exploration and production plans, determine annual work programs
for submission to ANP and generally supervise all joint operations.
The operating committee’s chairman, appointed by PPSA, will have
special veto and voting rights. In addition to the members appointed
by PPSA, the other half of the committee will be appointed by
Petrobras and the other contractors, in accordance with their
respective shares.
Aside from PSAs awarded directly to Petrobras, all others must be

preceded by a public bidding process. The winning bidder will be the
one that offers the biggest share of profit-oil to the federal
government. In addition to profit oil, the successful candidate must
also pay a signature bonus and royalties over its hydrocarbon
production. The customs and tax incentives that already apply to the
Brazilian oil industry will also apply to activities under the PSA
regime.
Due to Petrobras’s financial difficulties, on 29 November 2016

President Michel Temer sanctioned bill of law No. 4567/2016
cancelling the requirement that Petrobras be the sole operator and hold
at least a 30 % participation interest in all pre-salt fields.
The law approved by Brazilian Congress provides that, at the time of

the bidding round, Petrobras shall have a preferential right, and must
determine whether or not it wishes to be the operator of the relevant
area.

Concession Regime. The Brazilian concession regime has evolved
since it began in 1997. All companies interested in acquiring rights to
explore, develop and produce hydrocarbons in areas outside the “pre-
salt” and strategic categories must participate in a transparent public
bidding process. The rules of this process are defined either by the
Petroleum Law, by the applicable bid invitation or by other associated
regulations.
Once enrolled to participate in the bidding round, a company may

elect to offer bids individually or jointly with other qualified
companies. In joint bids, the group of companies awarded with a
concession must organize a consortium (i.e., a non-incorporated joint
venture). Foreign companies may also qualify to participate in the
bidding process. However, if a concession is granted to a foreign
company, it must establish a Brazilian subsidiary or branch, with a
head office and administration in Brazil.
The companies which win the bids must submit to ANP all
qualification documents set forth under the Bid Invitation, which aims
at qualifying companies from a technical, legal and financial
standpoint. Each member of a consortium must qualify individually,
but specific requirements apply to operators and non-operators.
The last bid invitation used the following criteria to award marks to
the candidates: i) signature bonus, equivalent to 40%; ii) local content,
equivalent to 20%, of which 5% is reserved to the exploratory phase
and 15% to development phase; and iii) minimum work program,
equivalent to 40%. Thereafter, the marks awarded to the successful
applicants are published, as are short particulars of the concession
agreements signed with the winning candidates.
For the upcoming bid rounds under the concession regime, the
Government is expected to implement several improvements to the
draft bid invitation and concession agreements to boost attractiveness
for investors, such as removing the local content as an awarding
criteria, reducing the minimum net worth requirement for non-
operators and differentiating royalty rates for mature areas.

Government Takes. The Petroleum Law created four different

instruments for each government to receive its revenues from
petroleum activities. There are four different charges in the form of
signature bonus, royalties, special participation and payment for
occupation and retention of areas. All these fund collection
mechanisms are regulated by Decree No. 2.705/1998. This structure
was envisaged for the concession system and, under the PSA regime,
an oil company is released from the special participation and the
payment for occupation and retention of areas.
Signature Bonus. The signature bonus is the amount offered by

bidders during ANP's public bidding process, and its minimum value
is established in the bid invitation. This government take must be paid
by the execution date of the concession contract or the PSA. Under the
PSA, the successful candidate is not allowed to include the expense
incurred by the signature bonus in the oil cost and in the 1st Bidding
Round under the PSA regime the signature bonus was fixed at BRL 15
billion. For the 2nd and 3rd Bidding Rounds under the Production
Sharing Regime specific signature bonuses were set for each area.
Royalties. Royalties must be paid monthly and in domestic currency

by the oil company, from the starting date of the production of crude
oil and natural gas in a given field. Pursuant to the Petroleum Law,
such amount is fixed at 10% of the oil and natural gas produced in
concessions. However, considering the geological risks, ANP may
reduce it to 5%. In the PSAs, the royalties’ rate is 15% of the
production. As with the signature bonus, under a PSA the royalties
amount paid by the oil company may not be deducted from the oil
cost.
Special participation. Special participation is an extraordinary

financial compensation due only by concession holders in cases where
large volumes of production or high profitability occur. It is payable
on a quarterly basis, in connection with each field of a given
concession area. The concepts of “large volume” and “high
profitability” are regulated by Decree No. 2.705/1998 and vary
pursuant to the number of years of production, the location of the

production area and the quarterly production volume. There is no such
charge under the PSA scheme.
Payment for occupation or retention of area. The bid invitation and

the concession contract specify the amounts payable for the
occupation or retention of an area, to be assessed every calendar year,
on a square kilometer basis. Pursuant to ANP’s criteria, if the relevant
block is onshore, the concessionaire must also make a monthly
payment to the surface owner of the property, which may vary from
0.5% to 1% of the oil or natural gas production.
Local Content. The Brazilian Government is currently reviewing the

local content policy applicable to upstream activities. The former
policy was extremely complex and generated several fines in past
years, due to companies' inability to meet the high percentages
committed.
Based on the new policy outlined in National Council of Energy

Policy's recent resolutions, local content will cease to be a criteria for
awarding concession agreements in the upcoming bidding rounds.
Also, a global local content percentage has been set for each contract
phase, as opposed to the previous regime which provided for both
global and per item requirements. The new percentages of local
content applicable to the 14th Bidding Round are as follows:
Onshore: (i) exploration phase: 50%; (ii) production: 50%
Offshore: (i) exploration phase: 18%; (ii) construction of wells: 25%;

(iii) collection and drainage systems: 40%; and (iv) Stationary
Production Units (UEPs): 25%
Also, based on the new rules, the penalties for non-compliance with
Local Content obligations contemplated by the relevant agreements
were reduced from up to 100% to 75% of the value of the difference
between the commitment made by the oil company and the actual
local content percentage achieved. However, based on the new policy
companies will no longer be authorized to request the ANP for

waivers of local content requirements in specific situations, which was

possible under the previous regulation.
Currently, the following ANP Resolutions apply to local content: ANP

Resolution No. 19/2013 formalizes the adoption of the Local Content
Booklet and provides rules regarding compliance with Local Content
commitments undertaken by the concessionaires on each bidding
round. ANP Resolution No. 25/2016 introduces provisions for the
qualification of companies to act as certifying entities. Under the new
regulation, oil companies are obliged to obtain Local Content
Certificates issued by these accredited certifying entities in order to
evidence the compliance with their Local Content undertakings. The
resolution also defines ANP’s auditing procedures of the certifying
entities. Finally, ANP Resolution No. 27/2016 provides the format on
which the oil companies must submit annually reports regarding their
investment on the acquisition of goods and services in Brazil.
In view of the recent changes to the local content policy it is possible

that ANP will revise its current regulation, for the contracts to be
awarded in the 14th Bidding Round onwards.
Unconventional resources. To date, Brazil’s shale potential has not

been analyzed in detail, but according to ANP's initial studies, shale
gas deposits could even exceed the pre-salt gas reserves.
In November 2013, ANP promoted the 12th Bidding Round, when

240 blocks were offered, including shale prone areas.
In April 2014, ANP enacted Resolution No. 21/2014 which sets forth
the technical and environmental requirements for concessionaires
authorized to explore and produce unconventional Natural Gas
resources using the horizontal fracking technique.
Even though Brazil’s potential for unconventional resources seems

promising, there are significant environmental, infrastructure and legal
challenges to overcome, such as the four (4) Civil Public Actions that
intend to declare null the effects of the 12th Bidding Round, in which
shale-prone areas in Parana, São Paulo, Bahia and Piauí were awarded

to concessionaires. Currently, all courts have accepted the injunctions
requesting suspension of exploration activities.
Calendar for Bidding Rounds. The National Council of Energy

Policy announced in April 2017 a calendar that foresees, until 2019,
ten (10) Bidding Rounds of exploratory blocks in onshore and
offshore basins, both under concession and production sharing
regimes. Thus, in addition to the bidding rounds previously announced
for 2017 (4th Bidding Round of Areas with Marginal Accumulation,
3nd and 2nd Pre-Salt Bidding Rounds, involving unitizations, and
14th Bidding Round), the following rounds were approved:
• 4th Pre-Salt Bidding Round, scheduled for May 2018

(prospects of Saturno, Três Marias and Uirapuru, in the
Santos Basin, and blocks C-M-537, C-M-655, C-M-657 and
C-M-709, in the Campos Basin);
• 5th Pre-Salt Bidding Round, scheduled for the second

semester of 2019 (prospects of Aram, Lula Southeast, Júpiter
South and Southwest and Bumerangue, in the Santos Basin);
• 15th Bidding Round of Concessions, scheduled for May 2018

(offshore blocks in Foz do Amazonas - sectors SFZA-AP1,
AP2, AR1 and AR2 - Ceará - sectors SCE-AP2 and AP3 - and
Potiguar - sectors SPOT-AP1, AP2 and AR2; ultradeep waters
outside the Pre-Salt of Campos Basin - sector SC-AP4 - and
Santos Basin - sector SS-AUP1; onshore basins in Paraná -
sectors SPAR-N and CN - and Parnaíba - sectors SPN-SE and
N, as well as other onshore sectors from the Sergipe-Alagoas,
Recôncavo, Potiguar and Espírito Santo Basins);
• 16th Bidding Round of Concessions, scheduled for the second

semester of 2019 (offshore blocks in Camamu-Almada -
sectors SCAL-AP1 and AP2 - and Jacuípe - sector SJA-AP -
ultradeep waters outside the Pre-Salt of Campos Basin - sector
SC-AP5 - and Santos Basin - sector SS-AUP5; onshore basins
in Solimões - sector SSOL-C - and Parecis - sectors SPRC-L

and O), as well as other onshore sectors from the Sergipe-

Alagoas, Recôncavo, Potiguar and Espírito Santo Basins);
• 5th Bidding Round of Areas with Marginal Accumulation,

scheduled for May 2018 (areas to be defined); and
• 6th Bidding Round of Areas with Marginal Accumulation,

scheduled for the second semester of 2019 (areas to be
defined).
Midstream
Gas field exploration and production is also regulated by ANP and
must follow the same regime applied to oil corresponding activities.
The federal government enacted Decree No. 7.382/2010, which
regulates Law No. 11.909/2009 (“Gas Law”). Since enactment,
natural gas transportation activities are to be generally performed
under a concession regime, always preceded by a public bidding
process.
In some exceptional cases, the Decree allows for a more simple

authorization regime. These cases are: i) transportation gas pipelines
involving international treaties, as defined by MME; ii) pipelines
existing as of 5 March 2009; iii) pipelines whose construction has
been authorized by ANP on or prior to 5 March 2009 but has not yet
been initiated; and iv) extensions of the abovementioned pipelines.
The Decree also states that MME is responsible for identifying the
transport gas pipelines that must be built or expanded. In order to
fulfill this responsibility, the minister must prepare, with the support
of the Energy Research Company (EPE) and ANP, Brazil’s Decennial
Plan for Expansion of the Transport Gas Pipelines.
Regarding exclusivity, the decree secures initial carriers a 10-year

exclusivity period for new pipelines. After this period, carriers must
open their infrastructure to third-party transportation, pursuant to
future regulations yet to be enacted by ANP. The exclusivity period
may end before the due term when operations reach maximum

capacity or if there is evidence of abusive practices by the initial
carriers.
Third party access to the infrastructure is allowed only after the

exclusivity period ends. The decree expressly allows the following
types of access: swap, operational exchange of natural gas, and
extension of transportation capacity. ANP has authority to regulate
how this access will be performed and to establish the criteria to
define the third parties’ volume that will enter the pipelines.
Although it was expected that the decree would clarify some aspects
of the Gas Law, it left many aspects under ANP’s regulatory control.
Some worth mentioning include: i) the definition of delivery point and
reception point; ii) the end of the exclusivity period due to the pipeline
reaching its maximum capacity; iii) the regulation of the operational
exchange (swap) and new fees resulting from it; iv) fees to be paid by
loaders; v) evidence of technical capacity for foreign companies to
participate in public bids; vi) performance indicators of the concession
contract; vii) authorization to expand the capacity of existing
pipelines; and viii) requirements and conditions for granting and
transfer of ownership of the authorization of processing units or
treatment of natural gas.
Due to such regulatory gap, on 18 March 2016, ANP launched

Resolution No. 11/2016, which consolidated Brazil's legal framework
for natural gas. The resolution regulates the transportation through gas
pipelines, emphasizing swap operations and open access to gas
pipelines.
On the other hand, the industry is still waiting for the 1st Bidding
Round for construction of gas pipelines in Brazil, since ANP, after
TCU's decision in December 2015, suspended the process for
allegedly overpricing the project. Subsequently, in August 2016 ANP
decided to cancel the auction to choose a company to construct a gas
pipeline between the cities of Itaboraí and Guapimirim.
Abengoa, Alupar, Celeo Redes Brasil, Construtora Elevação, DM

Construtora de Obras and Exactum Consultoria e Projetos were

registered to participate in the bidding and were refunded the

registration and access to technical data fees.
Perspectives for the Natural Gas Market. In April 2017 the

National Council of Energy Policy published a resolution establishing
new directives for the natural gas sector in Brazil (Resolution No.
10/2016). The Government's declared objective is to create conditions
to attract investments and increase competitiveness in a scenario of
Petrobras' reduced participation and low oil prices. This same
resolution also created the Technical Committee for the Development
of the Natural Gas Industry in Brazil (CT-GN), which is expected to
present a proposal within 120 days with measures necessary to
improve the sector's legal framework.
Amongst the 19 directives that will guide the new natural gas policies,
we highlight the stimulation of competition, the removal of economic
and regulatory barriers, the development of short-term and secondary
markets, and the promotion of integration between the sectors of
natural gas and electric energy, targeting a balanced allocation of
risks, adequacy of the natural gas supply model for thermoelectric
generation and the gas integrated planning-electricity.
The CT-GN will be coordinated by the Ministry of Mines and Energy

(MME) and will be represented by agents of the Chief of Staff
Ministry, Ministry of Science, Technology, Innovation and
Communications, Ministry of Planning, Ministry of Finance, Ministry
of Industry, Foreign Trade and Services, Energy Research Company
(EPE), National Oil, Natural Gas and Biofuel Agency (ANP),
National Energy Agency (ANEEL), National Forum of State
Secretaries of Mines and Energy (FME), Brazilian Association of
Regulatory Agencies (ABAR), and representative associations of
agents that act in the various chains of the natural gas sector.
Downstream
Any company may submit a proposal to ANP to operate or to
construct refineries or natural gas processing units. It is important to
highlight that this authorization may only be granted to companies or

consortia organized in compliance with Brazilian legislation and with
a head office and administration in Brazil, subject to other conditions
provided for by ANP’s specific regulations.
Establishing a distributor in Brazil also requires prior authorization

and registration from ANP. ANP has issued several specific
ordinances regulating and explaining in detail all the necessary
documentation and information to be provided so as to obtain said
authorization.
In order to obtain both the registration and the authorization, the

prospective distributor must meet several conditions, among which is
the minimum stated capital, and the necessary infrastructure for
storing the by-products.
Exportation and importation

In order to receive authorization to export or import crude oil and its
by-products, the exporter or importer must provide ANP with all the
necessary information and documentation related to the business to be
rendered. Such information must be updated by the company every 18
months, subject to cancellation of said authorization.
According to specific ordinances issued by ANP which regulate this

business, both the import and export of crude oil, its by-products and
condensed gas, must be performed in strict compliance with certain
objectives and principles set forth by the Petroleum Law, such as
protection of consumers and the Brazilian Treasury, foreign trade
rules, national energy policy, principles of transparency and legality,
rules for protection of the economic order, and environmental
regulation.
To carry out import and export transactions, Brazilian companies must

be registered with the Registro e Rastreamento da Atuação dos
Intervenientes Aduaneiros (“RADAR”), which will allow such
company to access the Brazilian Electronic Foreign Trade System
(Siscomex - Sistema Integrado de Comércio Exterior).

The Siscomex is the Brazilian foreign trade management system that

integrates the activities of the Foreign Trade Secretary (Secretaria de
Comércio Exterior – SECEX), the Federal Revenue Agency – SRF
and the Brazilian Central Bank - BACEN, in registering, following
and controlling all steps related to import and export operations.
Requirements for companies enrolling with the RADAR may vary

depending on the specific circumstances under which the Brazilian
entity will operate.
Environmental aspects
Brazilian environmental policy is implemented at federal, state and
municipal levels. The Federal Environmental Protection Agency is the
Brazilian Institute of the Environment and Renewable Resources
(Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais
Renováveis - IBAMA). IBAMA is responsible for implementing
environmental policy at the federal level, which includes issuing
certain rules (to specify general rules enacted by the National Council
of Environment), inspecting environmental activities and conducting
environmental licensing proceedings. States and some Municipalities
have their own environmental protection agencies which are
competent to enact laws and rules that must be observed within their
respective territories. Environmental licensing may also be conducted
by State and Municipal environmental agencies, as established by law.
As per Supplementary Law No. 140/2011 and Federal Decree No.

8437/2015, IBAMA is the competent agency to carry out
environmental licensing proceedings for oil and gas activities
conducted offshore and in transitional areas, which comprise both
offshore and onshore areas and for production of unconventional
resources both offshore and onshore (including drilling, fracking,
implementation of production lines and flowlines).
Ruling No. 422/2011, enacted by the Ministry of Environment,

regulates and establishes special procedures for environmental
licensing of offshore conventional activities. These procedures vary
depending on the type of activity in the oil and gas industry. The

complexity of the proceedings vary depending on the sensitivity of the
area, the existence of pre-existing regional environmental studies or
studies conducted in previous licensing proceedings or in special
reference proceedings conducted directly by IBAMA. The complexity
depends upon the need for more or less detailed environmental studies
to be prepared by the applicant during the first phase of each
proceeding. As a general rule, the licensing proceedings comprise the
following activities and steps:
1. License for Seismic Research – a license issued to conduct seismic

research, which complexity varies depending on the depth of the area
in which the research will be conducted or the environmental
sensitivity of the area, as defined by IBAMA;
2. Operating Drilling License – a license issued to conduct drilling

activities, which complexity varies depending on the depth of the well
area, the distance of such area from shore and the environmental
sensitivity of the area, as defined by IBAMA;
3. Licensing proceedings involving the issue of preliminary,

installation and operating licenses for production and outflow of Oil &
Gas – a proceeding that concludes with the issue of an operating
license for the production and outflow of hydrocarbons. The first step
of the proceeding is generally the most complex and time consuming
as it requires environmental studies and public hearings to be
prepared, as the case may be. The Preliminary License is granted to
attest the viability of the project, while the Installation License
authorizes the commencement of the facilities installation and the
Operating License enables the commencement of such activity; and
4. Licensing proceedings involving the issue of preliminary,

installation and operating licenses to conduct long-term tests – an
administrative proceeding that concludes with the issue of an
operating license to conduct long-term tests, provided that in certain
cases, the proceeding may be simplified and only require the issue of
both Installation and Operating Licenses or the issue of an Operating
License only, if the test: (i) involves one well, (ii) has a validity of less

then 180 days, (iii) is located at a distance of more than 50 meters

from shore, and (iv) is conducted in areas deeper than 50 meters.
Environmental licenses are always issued based on the premises and

information provided during the proceeding and contain conditions to
be followed while the license is valid. If the conditions are breached,
the licensed company may be subject to administrative penalties and
criminal penalties, which may include cancellation of the
environmental license.
As to timing, Brazil has been reviewing its licensing proceedings in an

attempt to reduce the time required to obtain a license. Ruling No.
422/2011 provides for terms of 6 or 12 months for IBAMA to issue a
final opinion on the granting or denial of each of the Licenses
abovementioned, but such deadlines may be suspended if IBAMA
requires the applicant to present further clarification or conduct
additional studies. In this way, the length of a proceeding may vary
depending on the specific case.
The Ruling also contemplates the possibility of conducting public

hearings during the proceeding, but the need for such hearing will
depend on the specific case and/or upon request by the Public
Attorney’s Office or other legitimate party, including the relevant
stakeholders or the society involved. The rules concerning public
hearings are stated in CONAMA Resolution No. 9/1987 (which is
currently under review).
Also with respect to environmental licensing proceedings, it is

important to mention that except in certain cases, onshore oil and gas
exploration and production, as well as activities of midstream and
downstream are conducted by the State in which the activity is
developed. The environmental licensing proceedings for such
activities vary depending on the legislation of each State, but
generally comprise three phases, each of them concluded with a
Preliminary License, an Installation License and an Operating
License. Also in general terms, the first step of the proceeding will be
preceded by environmental studies prepared by the applicant and
public hearings, as the case may be.
Environmental liability includes three types of liability: civil liability,
administrative liability and criminal liability. Civil environmental
liability obliges a party causing environmental damage to recover the
environment or indemnify the community for such damage.
Environmental legislation also contemplates piercing the corporate
veil whenever the existence of the legal entity is considered a barrier
to recovering damages.
Causing environmental damage, operating without the proper

environmental license or breaching license conditions, among other
legal violations, may also trigger administrative and criminal
liabilities.
Law No. 9,605, of 13 February 1998, and Decree No. 6,514, of 22

July 2008, define environmental crimes and administrative infractions,
respectively, and establish the applicable penalties. Both
administrative and criminal sanctions may be imposed on individuals
and legal entities that cause environmental damage, including officers,
partners, shareholders, members of the board of directors, managers
and employees.
Criminal and administrative sanctions imposed on legal entities may

vary from warnings to fines of up to BRL 50,000,000.00 and a
suspension of the activity, a prohibition on obtaining public lines of
credit or a prohibition on contracting with Public Authorities.
Criminal sanctions over individuals may include imprisonment. It is
important to note that the threshold is set per infraction/typified crime.
In some recent cases, authorities were able to identify one pollution
event in different infractions/crimes, resulting in multiple fines which
significantly exceeded the threshold.
In addition to those statutes, there are several other supplementary

rules regarding mandatory environmental audits, implementation of
environmental impact evaluations, preparation of emergency and
contingency plans in case of accidents, restrictions and rules on the
use of chemical dispersants, and communication of accidents, among
others.

Tax Aspects
a) General Overview
Companies engaged in the oil and gas industry must pay all
mandatory Brazilian taxes applied to any other industry.
This section aims to summarize the most significant tax aspects that
may particularly affect oil and gas companies.
b) Special Custom Regime for Export and Import of Goods Used

on Activities of Research, Development and Production of Oil
and Gas – REPETRO
In order to develop the oil and gas industry, the Brazilian Government
enacted Decree No. 3,161 of 2 September 1999, providing a special
customs regime known as “REPETRO.” This regime was intended to
provide oil and gas exploration and production companies with access
to listed equipment with a reduced tax burden, provided that the
customs value of the equipment exceeds USD 25,000 per item. It also
aims to offer local suppliers favorable conditions vis-à-vis foreign
equipment.
REPETRO is currently ruled by Decree No. 6,759/09 and by Brazilian

IRS Normative Ruling No. 1,415/2013, as amended by IRS Normative
Ruling No. 1.601/2015, Customs Management General Cordination
(COANA) Ordinance No. 3/2014 and No. 45/2014. Note that
REPETRO will remain in force until 31 December 2020. However,
REPETRO's extension is being considered under the National Council
of Energy Policy (CNPE) Resolution No. 2/2016.
The REPETRO regime is available for equipment listed above USD

25,000 under IRS Normative Ruling No. 1,415/2013 (“REPETRO
assets”). In a nutshell, the following assets may qualify for the
REPETRO regime: (i) vessels used for activities related to research
and production of oil and gas fields and those used for storage and the
support of relevant activities; (ii) machines, apparel, instruments, tools
and equipment used for activities related to oil and gas research and

production; (iii) oil and gas drilling and production platforms and
platforms destined to support such activities; (iv) automobiles
assembled with machines, apparel, instruments, tooling and equipment
destined for activities of research and production on oil and gas fields;
and (v) structures created to support platforms.
In addition, REPETRO also applies to machines, apparel, instruments,

tooling, equipment and other parts and pieces intended for: (i)
operating equipment listed under the abovementioned Normative
Ruling; (ii) rescue, accidents prevention and fire fighting; and (iii)
environment protection.
Note that goods subject to finance leasing agreements cannot be

imported under the REPETRO regime, according to Article 3,
paragraph 4th, - of IRS Normative Ruling No. 1,415/2013.
Brazilian legal entities may qualify for the REPETRO regime if: (i)
they hold the rights to explore and research oil and gas fields
(“concessionaires”); or (ii) they were contracted by an oil and gas
concessionaire, or its subcontractors, to perform services or to time-
charter vessels for the execution of such activities. If the service
contractor or the charterer is domiciled abroad, it can appoint a
Brazilian legal entity to act as importer of record for REPETRO
purposes.
Brazilian legal entities must obtain a REPETRO license (habilitação)

before entering into any REPETRO transaction. This first phase, i.e.,
the REPETRO license application, consists of an application
submitted by the oil and gas concessionaire to the Brazilian IRS,
under which the concessionaire indicates the contractors,
subcontractors or third parties designated for the import of the
REPETRO items.
The REPETRO allows the importer to benefit from three different

special customs regimes: (i) Drawback; (ii) Notional Export; and (iii)
Special Temporary Admission.

• Drawback is governed by Ordinance SECEX No. 23, dated as of

14 July 2011, and allows the importer to import inputs with
suspension or exemption of federal customs duties (i.e., import
duty, federal excise tax, PIS and COFINS) provided that inputs
are used in the manufacture of goods destined to export.
• Notional Export is the sale by the manufacturer or trading

companies of goods produced in Brazil to companies domiciled
abroad, with payment in convertible currency or national
currency. Although delivery is made in Brazil, it is leveled to
regular export for fiscal and exchange purposes, that is to say,
exempted from federal taxes (Article 10 of IRS Normative
Ruling No. 1,415/2013).
• REPETRO Temporary Admission allows the importer to import

listed equipment valued at USD 25,000 or above with full
suspension of federal customs duties (i.e., import duty, federal
excise tax, PIS and COFINS) for their length of stay in the
country. A REPETRO applicant must provide the Brazilian IRS
with, amongst others, the following documents: (i) Request for
the Concession of the Regime (Requerimento de Admissão
Temporária or RAT); (ii) Term of Responsibility (Termo de
Responsabilidade), through which the applicant undertakes to
pay the value corresponding to the suspended taxes if it fails to
comply with REPETRO’s conditions; and (iii) instrument of
guarantee, if the value of the suspended taxes is more than BRL
100,000.
To qualify for REPETRO’s temporary admission, a given asset must:

(i) belong to a legal entity domiciled abroad; (ii) be imported without
exchange coverage; or (iii) come directly from abroad or have been
submitted to export customs clearance or have been transferred from
another special customs regime. In case of vessels, REPETRO's grant
will also be subject to the Brazilian Navy’s authorization to operate in
Brazilian waters.

REPETRO’s assets may stay in Brazil, under temporary admission,
for the length of the period conceded in the respective Declaratory Act
(“Ato Declaratório Executivo - ADE”) which granted the regime
request and of the relevant supporting contract (i.e., concession
agreement and services agreement executed with the concessionaire or
its subcontractor). If the temporary admission was granted under an
operational lease, rental or free loan agreement, the regime will be
granted for the term of such agreements. The temporary admission of
vessels must observe the term granted by the Navy authorities for the
vessel’s operation within the country.
In order to extend the validity of REPETRO, its beneficiary must

request an extension of such regime to the Brazilian (Requerimento de
Prorrogação do Regime or RPR) before it terminates.
The temporary admission regime will be extinguished and the related

Term of Responsibility will be cancelled if the beneficiary adopts any
of the following measures: (i) re-exports the asset abroad; (ii) delivers
the asset to the National Treasury, free of any expenses, if the
Customs authority agrees to receive it; (iii) destroys the asset, at the
beneficiary’s sole expense; (iv) transfers the asset to another special
custom regime; or (v) forwards the asset for consumption.
c) Convenio ICMS No. 130/07
State Value-Added Tax (“ICMS”) is a tax on sales and services,

payable upon import of an asset into Brazil, or upon its sale or transfer
within Brazil, or as to certain communications and intra and interstate
transportation services, at the time when the service is provided.
Under the Brazilian Constitution, ICMS benefits must be created by

agreement of all Brazilian States and the Federal District through a
specific legal act called Convenio ICMS. Convenio ICMS works as a
general authorization under which each state (or the Federal District)
shall enact its own provisions.

From a state tax standpoint, the REPETRO regime is governed by

Convenio ICMS No. 130/07, 26 as amended by Convenio ICMS 163/10
and Convenio ICMS 04/13 which authorizes the states and the Federal
District to exempt and reduce the ICMS tax basis on imports, under
the REPETRO of listed assets destined for oil and gas activities.
The following are among the benefits granted by Convenio ICMS No.
130/07:
(i) ICMS tax basis reduction on imports of listed assets applied to

installations destined for oil and gas production so that the total
ICMS tax burden would be 7.5% under the non-cumulative
system, or 3% under the cumulative system, as elected by the
taxpayer. This tax treatment is also granted to imports of inputs,
accessories, parts and pieces destined to guarantee the operation
of the listed oil and gas assets.
(ii) ICMS exemption or tax basis reduction on imports of listed

goods applied to installations destined for oil and gas
exploration so that the total ICMS tax burden would be 1.5%
without the accrual of the corresponding ICMS credit.
(iii) ICMS exemption on imports of equipment destined to be

exclusively used for the provision of services during the
exploration phase and to imports of equipment of interconnected
use in both exploration and production phases which has entered
the country to provide services for a period equal or longer than
24 months.
(iv) ICMS exemption on transactions preceding the exit of assets and

goods manufactured in Brazil, destined to entities domiciled
abroad, and subsequently followed by the import of the same
assets and goods under REPETRO to be used in oil and gas
26
Convenio ICMS No. 58, of 28 October 1999, authorizes the Brazilian
states and the federal district to grant ICMS reductions or exemptions levied
on imports of assets into Brazil under the temporary admission regime in
general.
exploration and production installations, within or outside the
state territory in which the manufacturer is located.
To date, the States of Amazonas, Alagoas, Bahia, Maranhão, Rio de

Janeiro Rio Grande do Norte, Rondônia, Santa Catarina and Sergipe
have fully incorporated the benefits of the relevant Convenio. The
states of Espírito Santo, Paraná, Rio Grande do Sul and São Paulo
have partially incorporated such benefits.
More recently, however, the Federal District has been excluded from
Convenio ICMS No. 130/07 27, and the State of Rio de Janeiro
suppressed all ICMS benefits granted to the oil and gas industry
through the enactment of Legislative Decree No. 2/2016.
d) Bonded Warehouse Special Customs Regime
IRS Normative Ruling No. 513 of 17 February 2005 and its

amendments, allows the operation of a bonded warehouse regime,
applicable to the construction and conversion of listed offshore oil rigs
and rig modules, inside the rigs under construction or conversion, in
quaysides or in any other industrial seashore or port facilities,
intended for the construction of maritime structures, oil rigs and rig
modules.
The bonded warehouse regime may apply to materials, parts, pieces

and components used to construct and convert listed offshore rigs and
modules in Brazil, intended for the exploration and production of oil
and gas, and contracted by foreign companies. In order to qualify for
the regime, a Brazilian company must be contracted by a foreign
company to construct or convert an offshore oil rig or module. This
regime provides for the suspension of the federal taxes levied on
imports (i.e., import duty, federal excise tax, PIS and COFINS). It also
applies to the taxes levied on the local acquisition of goods (i.e.,
federal excise tax, PIS and COFINS), provided that such goods are
incorporated into the oil rig or rig module to be exported. As a matter
of fact, the “suspension” of federal taxes means that no taxes will be
27
Convenio ICMS 100/16.
due, provided the oil rigs or rig modules being constructed or

converted are intended for export.
The bonded warehouse regime also applies to oil rigs and rig modules
that are notionally exported from Brazil - i.e., whenever these assets
are acquired by a foreign buyer, without leaving the Brazilian
territory, and are delivered by order of such foreign buyer to the legal
entity contracted to carry out their construction or conversion, the
payment must be made in convertible currency.
On the other hand, if a rig or module is not exported – notionally or

physically – the taxes suspended must be effectively paid with a late
fine and interest. In addition, if a given asset has not been incorporated
into the rig or module being exported, the suspended taxes
corresponding to such asset will also be due.
e) Withholding Income Tax on Charter and/or Rental of Vessels

Brazilian Withholding Income Tax (WHT) is generally levied on
income paid, credited or remitted abroad by Brazilian residents at a
15% rate, if the recipient is domiciled in a regular tax jurisdiction, and
at a 25% rate, if recipient is domiciled in a low-tax jurisdiction
(Article 685 of the Brazilian Income Tax Regulation).
Nevertheless, the Brazilian WHT rate is reduced to zero on amounts

paid, credited or remitted abroad, in consideration for the charter
and/or rental of vessels, as provided by Article 1 of Brazilian Law No
9,481 of 13 August 1997, amended by Law No 13,043 of 13
November 2014.
To qualify for the zero rate reduction, however, the relevant

charter/rental agreement must be duly registered with the Brazilian
authorities. In addition, if the charter/rental agreement was entered
together with a service agreement for the provision of activities
associated with the research and exploration of oil and natural gas, the
charter/rental fees must not exceed the following percentages of the
overall revenues arising from both relevant contracts, as follows:

(i) 85% in case the charter/rental involves a Floating
Production Systems – FPS;
(ii) 80% in case the charter/rental involves a drilling rig
vessels; and
(iii) 65% in case the charter/rental involves other
vessels, such as seismic and/or support vessels.
f) Contribution for Intervention in the Economic Domain (CIDE)

on Fuels
Law No. 10,336 of 20 December 2001, created CIDE which is the

contribution levied on the import and sale of certain types of fuel (i.e.,
gasoline and its chains, diesel and its chains, aviation kerosene and
other types of kerosene, fuel-oil, liquefied petroleum gas (including
derived from natural gas and naphtha) and ethyl alcohol fuel, as per its
Article 3), at the rates fixed in Article 5.
However, Decree No. 5,060 of 30 April 2004, and its amendments,

including the Decree No. 8,395/15, which increased the CIDE rates
levied on gasoline (and its chains) to BRL100/m³ and levied on diesel
(and its chains) to BRL50/m³. The relevant decree has also maintained
the CIDE rates at zero for other listed products. CIDE taxpayers are
the producers, formulators or importers of liquid fuels. Note that the
CIDE amounts paid may be deducted from PIS and COFINS levied on
the sales of liquid fuels in Brazil.
Note that according to Article 10 of Law No. 10,336/01, CIDE does

not apply to sales of goods to commercial export entities (e.g., trading
companies), with the sole purpose of exportation.
g) Municipal Service Tax (“Imposto sobre Serviços de Qualquer

Natureza – ISS”)
Federal regulations list specific services to which a municipal services
tax (ISS) applies. Rates vary from 2% to 5%, depending on the type of

service and the particular municipality in which the party rendering

the services is located. Therefore, each municipality may set forth in
the relevant municipal law that the recipients or agents of the services
in Brazil are responsible for collecting the tax due.
In this regard, some Brazilian Municipalities, such as Macaé, in the

North of the State of Rio de Janeiro, offer reduced ISS rates for oil
and gas related services provided that the taxpayer organizes itself
and/or performs the services within their territories.

International Trade Regulation
International trade relations are regulated by a set of rules and
agreements negotiated in bilateral, regional and/or multilateral forums,
aimed at promoting the transparency of such relations and the
continuous liberalization of international trade within the context of
the global economy.
In this context, it is worthy to note the activities of the World Trade

Organization (“WTO”), which was created in 1994, and is made up of
more than 147 members, including Brazil. Moreover, trade relations in
Brazil are also heavily influenced by the rules of MERCOSUR, which
includes Argentina, Uruguay and Paraguay 28 as founding members,
and Venezuela (since 12 August 2012). Bolivia, 29 Chile, Peru,
Colombia, Ecuador, Guyana and Surinam 30 are associate members.
The international trade system, established under the WTO and other
international agreements, has a direct impact on: (i) virtually all trade
in goods; (ii) the international provision of services, including
distribution, telecommunications and financial and professional
services; and (iii) the protection of intellectual property rights.
These rules provide businesses with access to new markets, improved

competitive conditions in existing ones and a framework in which to
plan investments and within which to rely upon the enforcement of
international obligations.
Brazil is a founding member of the WTO. Thus, the Brazilian

government is responsible for ensuring compliance with WTO
Agreements on the national level, for safeguarding the Brazilian
industry against unfair trade practices implemented abroad and for
affording the commercial viability of foreign companies. The WTO
Agreements were incorporated into national law in December 1994,
28
Paraguay’s membership has been suspended since June 2012.
29
Bolivia is in the process of becoming an effective Mercosur member.
30
The membership of Guyana and Suriname is still pending ratification.
following the ratification of Presidential Decree No. 1,355 of

30 December 1994.
In addition, as a member of the Asunción Treaty, which established

the Southern Common Market or MERCOSUR in 1991, Brazil is part
of a free trade zone aimed at eliminating all tariff and non-tariff
barriers for virtually all trade among the group’s founding members,
thus guaranteeing a free transit of products, services and factors of
production between and among the member states.
Moreover, the Asunción Treaty established a customs union with a

Common Foreign Tariff (TEC) ranging from 0 to 20 percent for
85 percent of products, applicable to imports from non-member states.
It also put in place a common set of rules of origin and the gradual
coordination of macroeconomic policies among member states.
Additional protocols to the Asunción Treaty, such as the Protocol of

Brasilia, the Protocol of Ouro Preto, the Protocol of Fortaleza and the
Protocol of Olivos, provide MERCOSUR with, inter alia, the
following:
• A dispute settlement system based on three alternatives:

(i) negotiation; (ii) conciliation; and (iii) arbitral procedures,
with the possibility of an ad hoc arbitration tribunal and/or a
permanent tribunal of review
• The status of a legal person, which allows MERCOSUR to

respond as a single entity with rights and obligations, and to
enter into international negotiations as a bloc
• An institutional structure, in which decisions are taken under a

consensual and intergovernmental basis, and subsequently
incorporated by each member state in its own legislation
• A common set of rules for a competition regime under a regional

approach

Brazil is also a founding member of the Latin American Integration
Association (“ALADI”), which was created in 1980, with the view of
establishing an economic preference zone that would provide
favorable conditions to the growth of bilateral enterprises, as a prelude
to the institution of multilateral relationships in Latin America. Under
the auspices of ALADI, Brazil signed several trade agreements with
other Latin American countries, granting and receiving a large number
of tariff preferences.
Aside from the free trade zone with its MERCOSUR partners,
Brazilian imports and exports benefited from significant preferences
contracted with Mexico, Bolivia, Cuba, Chile, Peru, Colombia,
Venezuela and Ecuador, which provided Brazil with a privileged
position among the best countries as the region to invest in the import-
export business.
Over the past few years, MERCOSUR has been involved in several
diplomatic initiatives toward the signing of relevant international trade
agreements, such as the negotiations with the European Union, India
and South Africa, aside from the hemispherical efforts to create a free
trade zone in the Americas.
An Overview of the Brazilian Regime for Trade Remedies

Other than import restraints, a number of policies of firms or
governments are designed to influence international trade. The use of
discriminatory pricing or subsidies, in particular, may be used by both
governments and enterprises to promote exports. For decades, many
versions of these practices have been considered “unfair” by the
international system and several national systems.
To such practices, the international rules have permitted certain

responses from the importing nations, such as anti-dumping duties or
countervailing duties.
To comply with its obligations under the WTO, Brazil adopted

supplementary regulations in the fields of trade remedies, including
subsidies, anti-dumping duties and safeguards. Law No. 9,019/95

provides for the application of anti-dumping duties and countervailing

measures, while Decree Nos. 1,751/95, 1,488/95 and the recently
issued 8,058/2013 regulate the administrative proceedings carried out
to determine and eliminate the practices of subsidies, safeguards and
dumping, respectively.
In brief, the administrative procedure for the investigation of alleged

dumping or subsidy can be divided into three phases. The first entails
the scrutiny of the petition filed by the petitioner(s) representing a
domestic industry. This petition should include, inter alia, positive
information to demonstrate the practice of dumping/subsidy, the harm
to the domestic industry and the causal link between the
dumping/subsidy measure and the injury to the same. The Brazilian
authorities (“SECEX/DECOM”) will examine the petition, and they
may ask for additional information during the second phase of the
procedure, which will be concluded after a final hearing to be attended
by the petitioner and interested parties. At this hearing, a technical
note will be circulated, summarizing the main data that will be
considered by SECEX/DECOM when evaluating the case.
The last stage encompasses the submission of the final opinion drafted
by SECEX/DECOM for the review of the Trade Protection Technical
Group (“GTDC”), a task force created under the auspices of the
Brazilian Chamber of Foreign Commerce (“CAMEX”). CAMEX,
which is in charge of formulating policies and coordinating activities
related to foreign trade, will then issue a final decision as to whether
or not a provisional or definitive anti-dumping duty or countervailing
measure may be imposed.
In relation to anti-dumping duties, interested parties may request that

the government initiate a “public interest” assessment, which is an
instrument for interested parties in Brazil that may be negatively
affected by the dumping duties (for example, those facing a
potentially higher domestic price, or a threat of scarcity) to submit
their views to the government in parallel to the anti-dumping
investigation.

As a result of this proceeding, CAMEX may, in the same order that
imposes the duties, “suspend” them for one year if they understand
that the measures (normally imposed for five years) are not aligned
with the public interest. If by the end of the one-year suspension, the
authorities do not reinstate the duties, they are automatically
terminated.
Trade remedies are efficient tools that may be used by the private
sector in Brazil as a competitive advantage to hinder the increase in
imports that jeopardizes its market share in the national market. Two
of the benefits of trade remedies are: (i) guaranteeing market presence
at a national level and (ii) protecting investments related to the entry
into this market.
In this context, in 2010, Brazil issued a regulation aimed at avoiding

the circumvention of trade measures applied by the Brazilian
government (CAMEX Resolution No. 63/2010). This resolution
provides for the extension of ongoing trade remedies to third countries
as long as they are found involved in circumvention practices devised
to thwart the effectiveness of trade measures adopted by Brazil. These
measures can also be extended to parts and components of the
products subject to trade remedies, provided that these parts are being
exported to Brazil so as to evade the imposition of anti-dumping
duties or countervailing measures on imports of the final product.
In terms of procedure, the administrative investigation of

circumvention practices is very similar to dumping or subsidy
investigations. However, the anti-circumvention investigation is
devised to assess whether, in view of unreasonable changes in trade
flows – as of the initiation of the investigation that resulted in the
imposition of trade remedies – the remedial effect of these measures is
being undermined. In Brazil, there are two anti-circumvention
investigations currently being carried out by the authorities.
Given the frequent recourse to the abovementioned remedies by WTO

members, such mechanisms have actually been applied as non-tariff
barriers against imports. Therefore, participating and intervening in

the investigation of trade remedies undertaken abroad is of great

importance to Brazilian exporters.
Likewise, foreign companies exporting to Brazil must be aware of

possible investigations initiated at a national level, which may affect
their commercial interests.
International Trade Law in Brazilian Courts

Presidential Decree No. 1,355 of 30 December 1994, incorporated the
WTO Agreements into national law, thereby conferring jurisdiction to
domestic courts to oversee claims of violations of such rules. The
WTO offers importers and exporters a set of useful tools to open
markets that would otherwise remain closed. To take advantage of
WTO opportunities, a business must learn how to use the rules,
understand and incorporate them into its strategies and monitor the
country’s compliance with its obligations under the WTO.
In case of any violation of WTO agreements, a mechanism of dispute

settlement may be set up as an alternative to guarantee international
compliance to such set of rules and the adoption of practices
compatible with the negotiated agreements.
Also under MERCOSUR’s framework, the ad hoc arbitration tribunal

and the permanent tribunal of review were designed to resolve
conflicts between member states and individuals/entities domiciled
therein. Just as it occurs in the WTO, the referred courts are intended
to maintain the objectives expressed in MERCOSUR agreements,
which are sustained by the general principles of nondiscrimination,
trade liberalization and regional integration.
When should a business use domestic courts in Brazil to enforce

international trade rules? The following are some situations in which a
government may violate its international undertakings, and a remedy
may be available:
1. Internal laws and regulations are applied in such a manner as to

protect domestic production vis-à-vis imports.

2. Government discriminates against imported or exported
products, or services and service suppliers based on the country
of origin, particularly when goods or services from distinct
origins are treated differently.
3. Anti-dumping, countervailing or a safeguard investigations are

conducted by Brazilian authorities in a manner not consistent
with international agreements signed by Brazil and to the
detriment of imports.
4. Environmental protection rules, sanitary measures or technical

requirements are applied so as to block imports.
5. Import licensing regime or other acts undertaken by Brazilian

customs authorities are inconsistent with WTO or MERCOSUR
rules.
6. Government imposes export restrictions with respect to joint

ventures that have foreign investment.
Private companies are increasingly presenting claims before domestic

courts that question measures that are inconsistent with the WTO or
MERCOSUR, especially in the fields of tax regulation, rules of origin
and environmental law.

Corporate Criminal Law and Compliance

Criminal liability Individuals
Both the perpetrator and the abettor are subject to the same penalties
in Brazil, since the Criminal Code provides that "whoever contributes
to a crime is subject to its sanctions". Minor sentence balancing can be
established for the abettor, in comparison to actual perpetrators. This
subtle difference tends to be even slighter when it comes to so-called
collective crimes, i.e. crimes perpetrated by a group of persons, each
of them with an important, but individual role.
Considering this framework, every individual who engages in acts

which lead to crimes are criminally liable, provided (i) they acted
willfully (similar to mens rea); and (ii) they knew (or should have
known, considering their role in the company) they were engaging in a
prohibited activity.
For example, an employee who, while filling out a form, provides

information he/she was given, is not criminally liable if the
information appeared to be legal. The higher ranked employee who
willfully provided the said employee with false data would be liable,
in turn.
Thus, an officer, manager or legal representative of a company can

only be held criminally liable if he/she directly or indirectly
influenced the criminal harm or, having the duty to stop it, did not
take the appropriate measures.
Legal entities and companies
According to the Section 3 of Federal Act 9,605/98, legal entities,

such as companies, may face criminal sanctions only when involved
in environmental crimes. However, to be subject to criminal sanctions,
some requisites must be met such as: (i) when the crime was
committed according to a decision by its legal representatives or board
of management; or (ii) when committed for the company's own
benefit.

There are different types of criminal penalties that the company may
be sentenced if convicted: fines up to USD 1.5 million, restitution for
damages, recovery of degraded areas, suspension of licenses, etc. The
company may also be permanently dissolved if it is a constant
recidivist of environmental crimes.
Main crimes related to corporate criminal law:

Tax crimes: A manager or legal representative of a company could be
held criminally liable for tax evasion provided in Federal Act
8,137/90, if he/she deceives tax authorities, neglects to provide
information or provides false information to tax authorities, issues
fake invoices, provides incorrect or untrue data, or omits operations of
any kind in a document or book required under tax laws.
Whenever tax authorities suspect that a taxpayer is involved in a

scheme/fraud to avoid paying taxes, they are required to report it to
the police.
If the tax, including its fines, is paid before the criminal lawsuit is
initiated, or if the taxes are considered undue/improper, the criminal
lawsuit will be immediately dismissed.
To avoid taxpayers giving up on challenging tax assessments because

of fear of criminal prosecution, the Brazilian Supreme Court ruled that
criminal investigations involving tax crimes can only be launched
after an administrative proceeding on tax assessment, when the public
authorities rule whether there is a tax debt is due and its amount.
Money laundering: The Brazilian Anti-Money Laundering and

Financing Terrorism Federal Act No. 9.613/98, which was
significantly amended in 2012, specifies that any act that conceals,
dissimulates the nature, origin, location, disposition, movement or
property of assets, rights or values originated, directly or indirectly,
from any criminal offense, including misdemeanors, falls within the
crime of money laundering.

The law is based on the Financial Action Task Force

Recommendations which identifies three phases of money laundering
crimes: (i) placement; (ii) layering; and (iii) integration of assets
originating from crime.
Even if money laundering crimes are related to a prior criminal

offense, the proper authorities may investigate money laundering acts
and initiate a criminal lawsuit even before the prior criminal offense
has received a definitive ruling from the courts.
It is important to stress that the money owners may be held criminally

liable, as well as anyone who arranges to facilitate the use, acquisition
or retention of criminal property on behalf of another person, or even
an individual who works for an entity having knowledge that it is
being used directly or indirectly for money laundering, may also be
held liable.
On the other hand, some corporations and individuals, such as

financial institutions, those dealing with currency or stock exchanges,
insurance entities, credit card companies, leasing and factoring
companies, gold, jewelry and luxury item dealers, real estate agents
and several others, have a legal duty to establish anti-money
laundering and terrorism financing policies and report all suspicious
activity to the authorities.
Environmental crimes: Environmental criminal infringements are set

out in Federal Act No. 9,605/98, which splits environmental
protection into five categories of crimes: (i) against flora; (ii) against
fauna; (iii) crimes of pollution; (iv) operating without proper licenses;
and (v) against cultural and social heritage.
Most environmental crimes are considered misdemeanors, especially

those activities which result in less offensive harms to the
environment, such as operating without license or deforestation of
small areas of flora. Misdemeanors such as these may result in the
case being closed without trial by making a deal with the Public
Prosecution Office.

On the other hand, more severe crimes may expose the company and
its representatives to reputational damage and more severe penalties,
because, as mentioned above, only legal entities may be held
criminally liable for environmental crimes in Brazil.
IP and unfair competition crimes: In accordance with the Brazilian

Industrial Property Act No. 9,276/93, individuals may be held
criminally liable for infringement of copyright, patent, industrial
design, trademark, software, unfair competition, and money fraud.
Crimes against copyright are of a public nature, and are prosecuted by

the Public Prosecutor's Office. Crimes of patent, industrial design,
trademark and unfair competition are of a private nature, which means
a private lawsuit must be filed by the owner of the right or through
associations that represent him.
The private lawsuit must be preceded by a search and seizure of

samples to be used as evidence. The proceeding must be authorized by
a Court and accompanied by two experts, who will draft an official
report to confirm whether there has been an infringement.
The victim cannot request that a company's activities, if operating

legally, be suspended until the expert report has been completed.
Aside from this, generally the victim is responsible for destroying the
counterfeit goods.
Most infringements of IP and unfair competition are considered

misdemeanors, making it possible to close the case without trial by
making a deal with the Public Prosecutor's Office.
Cartels and antitrust crimes: Cartels are considered serious criminal

offenses in Brazil, which may lead to the imprisonment of executives
and employees involved in agreements among competitors, according
to the Section 4 of Federal Act No. 8,137/90.
Agreements among competitors are subject of special offences

provided by Federal Act 8,666/93, when they take place during public

procurement procedures in order to reduce, by any means, its

competitiveness.
Until the Antitrust Authorities launch their an investigation into a

cartel, it is possible to negotiate a leniency agreement that could lead
to a reduction of administrative penalties and to the dismissal of the
criminal liability against the officers and employees of the company
involved in criminal activity.
Brazilian antitrust law also allows the possibility to negotiate a special

agreement, called Leniency Plus, that allows the dismissal of the
criminal liability by showing evidence of the existence of another
cartel in which the company is involved.
Crimes against the Financial System: Running a financial institution

fraudulently or recklessly, providing false information to the
competent authorities regarding securities or accounting records,
issuing fake bonds or without the proper issuing license, having and
dealing assets without an accountancy register, and running a financial
institution without licenses are some of the crimes that could put
officers and managers in jail, because these infringements are
considered felonies in Brazil.
Capital flight and maintaining a bank account abroad without the

knowledge of the Brazilian Central Bank are also crimes that are
generally committed by companies and individuals and are generally
related to other crimes, such as tax evasion.
Corruption: It is considered corruption to offer or pay a bribe or any

other type of advantage to any Brazilian or foreign authority in order
to incite, omit or delay an official duty.
The investigation of acts of corruption in Brazil may also lead to the

launch of other investigations abroad if the company's actions meet
the criteria of those provided in the Foreign Corrupt Practices Act
(FCPA) and UK Bribery Act, for example.

According to the Brazilian Anti-Bribery Act, besides the criminal
liability of the individuals involved in corruption, the company
involved may face other serious non-criminal consequences that are
analyzed in the compliance chapter.
Fraud: Generally, companies may be victims of unlawful actions

performed by its employees, clients and suppliers that may cause huge
financial damages through the misappropriation of assets.
Brazilian law authorizes the freezing of assets that were gathered

through the use of illegal funds in order to secure the reparation of the
damages caused by the perpetrator to the victim.
Crimes against the consumers: Individuals may be held criminally

liable for acts against the right to information (misleading information,
absence of warning and information regarding harmful or unhealthy
products and services, or not providing a product manual in
Portuguese) and against fair advertisement (misleading
advertisement).
To offer, display for sale or maintain products in warehouses, or

render services under legal conditions, such as offering a counterfeit
product for sale, is also considered a crime.
Counterfeiting related to pharmaceutical goods, or the production or

sale of such goods without the proper licenses, are considered heinous
crimes under the Brazilian Criminal Code, and the offender may be
imprisoned for up to 15 years.
Crimes against the rights of employees and occupational injuries:

A manager may be held liable if he/she fails to comply, through fraud
or violence, with a labor right assured by existing labor laws.
According to the International Labor Organization, Brazil is one of the

world leaders in occupational accidents, which generally occur
because of noncompliance with safety rules by the employer and
employees. In the case of fatal labor accidents or body injuries
involving employees, a police investigation will be launched to assess

if any member of the company failed to take measures to prevent the

accident.
Bankruptcy crimes: Federal Act No. 11,101/2005 provides for

criminal liability in the event certain acts are performed to deceive
creditors or evade legal obligations prior to bankruptcy, during the
process or after bankruptcy is declared. In addition, the company
managers and the judicial manager are deemed equivalent to the
debtor or the bankrupt party for all criminal purposes provided in said
law.
Brazil's Anti-Corruption laws

Brazilian authorities are closing ranks against corruption. The
Brazilian Federal Police has conducted several special operations to
combat corruption, money laundering and related crimes. As a result,
thousands of individuals have been arrested, and a number of foreign
multinationals - including U.S. and other companies subject to the
FCPA or other similar foreign legislation - have been implicated.
Often, information obtained by the Brazilian authorities is shared with
foreign authorities.
In Brazil, in addition to the anti-corruption provisions of the Criminal

Code, on 1 August 2013, Brazil's former President Dilma Roussef
approved the country's Anti-Corruption Law (Law No. 12,846/2013),
which came into force in January 2014. In March 2015, the federal
government issued a decree with regulatory details for the application
of Law No. 12,846/2013.
The main features of the law are the following:
(i) Subjected Persons
The Anti-Corruption Law provides that the following entities

(legally or de facto organized, even if temporarily) will be
strictly liable for prohibited acts committed in their interest or
benefit, exclusive or not:

I. business organizations and sole proprietorships, incorporated
or not, regardless of the type of organization or corporate model
adopted;
II. any foundation or association of entities or persons; and
III. foreign companies with offices, branches or representation in

Brazil.
(ii) Prohibited Acts
The Anti-Corruption law applies not only to corruption cases. It also

applies to other illegal conduct committed against local and foreign
public administration. The following conduct is prohibited by law:
I. promising, offering or giving, directly or indirectly, an undue

advantage to a public agent, or to a third party related to
him/her;
II. financing, defraying, sponsoring or in any way subsidizing,

any wrongful acts provided by law;
III. making use of an individual or legal entity interposed to

conceal or dissimulate its real interests or the identity of the
beneficiaries of the acts performed;
IV. regarding public tenders and contracts:
a) thwarting or defrauding, through an adjustment,

arrangement or any other means, the competitiveness of a
public tender procedure;
b) preventing, disturbing or defrauding the performance of

any act of a public tender procedure;
c) removing or attempting to remove a tenderer by fraudulent

means or by offering any type of advantage;

d) defrauding a public tender or a contract arising therefrom;
e) creating, in a fraudulent or irregular manner, a legal entity

to participate in a public tender or enter into an administrative
contract;
f) fraudulently gaining an undue advantage or benefit from

modifications or extensions of contracts entered into with the
Public Administration, without authorization provided by law
or in the public tender invitation or the respective contractual
instruments; or
g) manipulating or defrauding the economic and financial

balance of contracts entered into with the Public
Administration.
V. hindering the investigation or auditing activities of public

agencies, entities or agents, or interfering with their work,
including within the scope of the regulatory agencies and
supervisory bodies of the national financial system.
(iii) Sanctions
The sanctions set forth in the Anti-Corruption Law are harsh and
include:
Administrative sanctions:
1. fines ranging from 0.1% to 20% of the gross revenue of the legal
entity in the fiscal year (which in Brazil is the calendar year)
prior to the administrative proceedings being initiated, excluding
taxes, which will never be less than the advantage obtained,
using estimates when possible; and
2. publication of the decision condemning the acts.
If it is not possible to use the criteria of the value of the gross revenue
of the legal entity, the fine will range from BRL 6,000.00

(approximately USD 1,920.00) to BRL 60,000,000.00 (approximately
USD 19,200,000.00) .
Judicial sanctions:
I. loss of assets, rights or valuables representing, directly or

indirectly, the advantage or benefit gained from the
infringement;
II. partial suspension or interdiction of its activities;
III. compulsory dissolution of the legal entity; and
IV. prohibition from receiving incentives, subsidies, grants,

donations or loans from public agencies or entities and from
public financial institutions or institutions controlled by the
Government, from one to five years.
The application of sanctions set forth in the Anti-Corruption Law does

not affect the application of sanctions arising out of violations of the
Improbity Law (Law No. 8,429/1992) or the Public Procurement Law
(Law No. 8,666/1993).
Strict Liability:
Administrative and judicial sanctions under the Anti-Corruption Law,

including loss of assets, rights or valuables will be applied on a strict
liability basis. This means that the authorities only need to show that
the illegal acts were committed for the benefit or interest of the legal
entity.
Successor Liability:
The Anti-Corruption Law sets forth successor liability in the event of

amendments to the articles of association, transformation, merger,
acquisition or a spin-off of the company. In case of mergers and
incorporations, successor liability will be limited to payment of fines

and the full restitution of damages, up to the limit of the assets

transferred.
(iv) Factors to be taken into consideration in applying sanctions
The Anti-Corruption Law sets forth a list of factors that will be taken
into consideration in applying sanctions, which include: the
seriousness of the offense; the advantage gained or sought; whether
the offense was fully or partially completed; the level of damages; the
negative effects produced by the offense; among others. Decree No.
8,420/2015 sets forth objective criteria, based on those factors, to
determine the calculation of the fine - including aggravating
circumstances and mitigating factors. For instance, if a company has
an effective compliance program in place it may be entitled to a
reduction of between 1% to 4% on the calculation of the applicable
fine.
Specifically, it is important to note that the Anti-Corruption Law

includes two factors that incorporate significant changes to Brazilian
anticorruption legislation.
First and as mentioned above, a legal entity that has an effective

compliance program in place will receive credit since "the existence of
mechanisms and internal integrity procedures, audit and incentive
denunciation of irregularities in applying the code of conduct and
ethics within the legal entity" will also be taken into consideration
when determining the sanctions to be applied.
Decree No. 8,420/2015 provides guidance on what needs to be

covered in an entity’s compliance program (referred to as the Integrity
Program) in order for it to be considered effective. According to the
decree, the Integrity Program must be customized and structured
pursuant to the characteristics of each legal entity and the particulars
of its activities. This provision is important and solidifies the
understanding that there are no “off-the-shelf” compliance programs.
Further, the decree establishes 16 parameters against which an
Integrity Program will be evaluated:

I. Commitment by the legal entity’s senior management,
including board members, proven by their clear and
unequivocal support for the program;
II. Standards of conduct, code of ethics, policies and integrity

procedures to be applied to all employees and administrators,
regardless of their position or role;
III. Standards of conduct, code of ethics and integrity policies that

are extended, when necessary, to third parties such as
suppliers, service providers, intermediaries and other
associates;
IV. Periodic training on the integrity program;
V. Periodic analysis of risks in order to implement necessary

adjustments to the integrity program;
VI. Accounting records that precisely and completely reflect the

transactions of the legal entity;
VII. Internal controls that assure that reports and financial

statements of the legal entity are readily prepared and
trustworthy;
VIII. Specific procedures to prevent frauds and illicit acts within

tender processes, in the execution of administrative contracts
or in any interaction with the public sector, even if
intermediated by third parties, such as the payment of taxes,
subjection to inspection, or obtainment of authorizations,
licenses, permits and certificates;
IX. Independence, in structure and authority, of the internal

department that is responsible for enforcing the integrity
program and monitoring its compliance;

X. Channels to report irregularities, openly and broadly

disseminated among employees and third parties, and
mechanisms to protect good-faith whistleblowers;
XI. Disciplinary measures enforced against those found to have

violated the integrity program;
XII. Procedures that assure the immediate suspension of

irregularities or detected infractions and the timely
remediation of the damages caused;
XIII. Proper due diligence conducted prior to engaging third parties

and, depending on the circumstances, the monitoring of third
parties such as suppliers, service providers, intermediaries,
and other associates;
XIV. Verification, during a merger, acquisition or other corporate

restructuring, of the occurrence of irregularities or illicit acts,
or the existence of vulnerabilities in the legal entities
involved;
XV. Continuous monitoring of the integrity program to ensure it

remains effective at preventing, detecting and otherwise
addressing the wrongful acts set forth in Article 5 of the Anti-
Corruption Law;
XVI. Transparency surrounding donations to candidates and

political parties made by the legal entity.
Another important factor that will be taken into consideration when

applying the sanctions will be "the cooperation of the legal entity with
the investigation of the offense". Decree No. 8,420/2015 sets forth that
this could reduce the fine by 1% to 1.5%, regardless of a leniency
agreement.

In this context, and in line with anti-corruption systems adopted in
other countries, especially the United States and the United Kingdom,
Brazilian law will now expressly recognize that companies with
effective compliance programs in place and that cooperate with
authorities in investigating offenses will receive more favorable
treatment.
(v) Enforcement authorities
The highest authority of the relevant Agency or entity of the

executive, legislative and judiciary has standing to prosecute and
impose administrative sanctions under the Anti-Corruption Law.
The Office of the Federal Comptroller General ("CGU" / Ministry of

Transparency, Supervision and Control) has authority to investigate,
process and sanction illegal acts set forth in the law that are committed
against foreign Public Administration. At the Federal Executive
Branch level, CGU will also have concurrent authority to initiate
administrative proceedings against legal entities as well as to audit the
progress of proceedings handled by other authorities.
With respect to judicial sanctions, it will follow the same process as

the Brazilian Class Action (Ação Civil Pública), set forth in Law No.
7,347/1985.
(vi) Leniency agreements
The Anti-Corruption law allows the public administration to enter into

leniency agreements with legal entities that violate the Anti-
Corruption Law, provided they effectively collaborate with the
investigation, and that such collaboration results in: i) identifying
those involved in the violation, when applicable; and ii) rapidly
obtaining information and documents proving the illegal acts under
investigation.
Leniency agreements may only be executed when the following

requirements are cumulatively fulfilled:

I. the legal entity is the first to come forward and demonstrate

its willingness to cooperate with the investigation of the
illegal act;
II. the legal entity completely ceases its involvement in the

investigated infringement as of the date of the proposed
agreement;
III. the legal entity admits its participation in the offense and
fully and permanently cooperates with investigations and the
administrative proceeding, always attending, at its own
expense and whenever requested, to all procedural acts, until
finalized.
In addition, Decree No. 8,420/2015 specifies that implementing or

improving an existing compliance program according to the 16
parameters mentioned above may also be included among the
obligations of a company wishing to enter into a leniency agreement.
The leniency agreement does not exempt the legal entity from its
obligation to redress damages caused. However, it will reduce the fine
by up to two-thirds, and will exempt the legal entity from publication
of the condemnatory decision and from prohibitions on receiving
incentives, subsidies, grants, donations or loans from public agencies
or entities and from public financial institutions or institutions
controlled by the Government, from one to five years.
According to the Anti-Corruption Law, leniency agreements may also

cover violations under articles 86 to 88 of the Public Procurement
Law (Law No. 8,666/1993).
(vii) How to Prepare for the Anti-Bribery Law
Companies should be alert to the impacts resulting from the Anti-

Corruption Law. In order to mitigate risk, we have listed below some
areas that require further attention.

Compliance programs
We recommend that companies create, maintain and update

mechanisms and procedures to prevent, detect, and correct prohibited
acts, the so-called compliance programs. More than ever, compliance
programs will play a key role in the prevention and detection of
possible wrongdoings. These programs will allow companies to
decide on the convenience of making voluntary disclosures to local
authorities, as well as to obtain credit in case of possible wrongdoing.
Compliance programs should be implemented and revised on a regular

basis, considering the key risk factors related to the company and
which may vary depending on the company's size, amount and nature
of commercial operations, location where their activities take place
and risk perception. However, the mere creation and revision of a
compliance program is not sufficient. It is important to disseminate
and apply such programs throughout the company.
The CGU has issued guidelines setting common grounds that

compliance programs implemented by private companies should
follow in order to be considered effective. The guidelines stress that
the main elements of a compliance program are the following:
I. Tone at the top: According to the CGU, this means that top
management should support compliance initiatives and include
them into corporate culture;
II. Body in charge of the Compliance Program: The CGU

highlights the importance of having a body that is in charge of
compliance, and this body should have the appropriate
financial, material and human resources to conduct its
compliance activities. In addition, it is important that such
body has autonomy to make decisions and implement required
measures;

III. Profile and risk analysis: The CGU’s guidelines stress that a
compliance program must be preceded by a profile analysis of
the company, including assessing the market segments it
operates in, the number of employees, the level of interaction
with public agents, among others. The company should also
proceed with a detailed risk assessment;
IV. Structutring of rules and mechanisms: Codes of conduct,

rules, policies and proceedings should be revised and
implemented based on the profile and risk assessment
conducted. It is also important to develop mechanisms to
detect irregularities and a communication plan to disseminate
compliance culture; and
V. Constant monitoring strategies: The CGU’s guidelines also

stress that it is important to have processes in place to verify if
compliance procedures are being followed, combined with
processes to improve the compliance program and remediate
shortcomings.
Training
Companies should invest in training its employees (and third parties

acting on their behalf before the public administration) on key anti-
corruption laws applicable to them, codes of conduct, as well as
internal policies and procedures. In addition to helping prevent
wrongdoing, and in accordance with similar legislation adopted in
other countries and CGU guidelines, training is one of the pillars of an
effective compliance program.
Considering that most of the prohibited acts set forth in law are related
to public tender and public contracts, to comply with the Anti-
Corruption Law, companies should intensify training in those areas.
These measures are important because often employees from
companies commit wrongdoings not only because they are not
familiar with the law but also because they do not know how to react
in certain situations.

In this context, it is advisable to conduct interactive training, in the
local language, with practical examples. The training should fit the
audience and focus mainly on employees exposed to the greatest risks.
Third-party due diligence and corporate transactions
Anti-corruption due diligence on third parties and in corporate

transactions is fundamental to mitigate risks caused by third parties
with which the company does business. Furthermore, due diligence is
imperative to avoid successor liability for the acts an acquired
company committed before the acquisition.
As legal entities can be liable for prohibited acts set forth in the Anti-
Corruption Law committed by any third party, perpetrated for their
interest or benefit, exclusive or not, it is fundamental for companies to
take the necessary precautions in order to assure that they have
relationships with reputable partners. In this context, implementing of
an effective anti-corruption due diligence process on third parties, as
well as continual monitoring of their activities, is extremely important
to reduce risk.
Likewise, since mergers and acquisition do not extinguish the liability

for acts committed by the acquired company, companies must be
aware of the implications of the Anti-Corruption Law in the context of
corporate transactions (including joint ventures). Therefore, besides
regular due diligence normally done in such transactions - that, as a
general rule, include a review of tax, labor and environmental aspects,
among others - companies must also conduct specific due diligence in
order to identify any irregularities related to the Anti-Corruption Law.
Internal investigations
When receiving allegations or becoming aware of suspicious conduct,

companies must act quickly and investigate the facts. Conducting
robust internal investigations may result in real benefits for
companies, since an adequate response to eventual allegations or
occurrences of prohibited acts is considered an essential element for
an effective compliance program by the main international

anticorruption legislation. Besides, by conducting a robust internal

investigation, companies will be better positioned to decide on the
convenience of making a voluntary disclosure or negotiating a
leniency agreement.
For companies to promptly respond to allegations of wrongdoing, they

should develop pre-approved and established internal investigation
procedures. This may include general protocols to be followed in
certain situations. It is important, however, that companies are careful
with how investigations are conducted, in order to guarantee that they
have credible results and that abuses are not committed.
(viii) Comparison between FCPA, UKBA and Brazil's Anti-

Corruption Law?
The chart below compares the key features of the FCPA, UK Bribery
Act and Brazil's Anti-Corruption Law:
FCPA UK Bribery Brazil's Anti-

Act Corruption Law
Bribery of
Yes Yes Yes
foreign officials
Bribery of local
No Yes Yes
officials
Yes Yes Yes, but only if the

Extraterritorial
violation relates to the
reach
Brazilian entity
Books and Yes No No

Records
No No Acts against the Public

Other Administration
prohibited acts
(e.g., fraud in public
tender processes, bid

Act Corruption Law
rigging)
Exception for Yes No No

facilitation
payments
Corporate Yes Yes No

criminal
liability
No Yes for No
"failure to
Strict liability
prevent
bribery"
Anti-
bribery
violation:
up to USD
2 million
per
Up to 20% of
violation /
company's gross
Accounting
revenue of the
Corporate fines violation: Unlimited
previous year or up to
up to USD
BRL 60 MM (approx.
25 million
USD 19.2 MM)
per
violation.
Twice the
benefit
obtained or
sought
Other Debarment, Prohibition to

corporate monitors, Debarment received incentives,
"sanctions" etc. suspension, etc.


Act Corruption Law
Yes
(can be full
Yes defense for
Credit for Yes
(U.S. corporate
compliance (1-4% reduction in the
Sentencing offense of
programs fine)
Guidelines) "failure to
prevent
bribery")
Yes (under the

Credit for self- leniency program, fines
Yes, but
disclosure Yes can be reduced up to
limited
/cooperation 2/3 and some sanctions
are excluded)

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Trench Rossi Watanabe i

ii Trench Rossi Watanabe

Contribution for Intervention in the Economic Domain

Trench Rossi Watanabe iii

iv Trench Rossi Watanabe

Distribution ............................................................................... 147

Trench Rossi Watanabe v

vi Trench Rossi Watanabe

Trench Rossi Watanabe vii

viii Trench Rossi Watanabe

Importing into Brazil

There are three kinds of imports:

1. those not subject to any kind of licensing,

2. those automatically licensed, and

3. those not automatically licensed.

To confirm the licensing requirement applicable to a specific product,

On the other hand, non-automatic licensed imports are subject to prior

Certain products, such as herbicides, pesticides and beverages,

2 Trench Rossi Watanabe

it is set too high, the result may be an excessive remittance of foreign

The Brazilian customs authorities accept the World Trade

Therefore, from a formal standpoint, Brazil strictly follows the WTO

If the price of importing a specific product falls outside SISCOMEX

Trench Rossi Watanabe 3

According to Normative Ruling Nº 1600/2015, the temporary

(i) The temporary importation of products without payment of taxes

4 Trench Rossi Watanabe

Welfare Taxes on Imports ["PIS/COFINS-Import"]) in situations

(ii) The temporary import of products with proportional payment of

The procedure for calculating the State Value-added Tax on Sales

Trench Rossi Watanabe 5

For imports with exchange coverage, once the SECEX's approved

6 Trench Rossi Watanabe

Latin American Integration Agreement

[Revised as of April, 2017 ]

8 Trench Rossi Watanabe

Exporting from Brazil

Trench Rossi Watanabe 9

In the past, exchange control regulations obliged Brazilian exporters

Moreover, Brazilian government tax policy tends to reduce the tax

10 Trench Rossi Watanabe

[Revised as of April 2017]

Trench Rossi Watanabe 11

The IP Law is a modern statute that meets the requirements of the

2. Non-patentable Inventions and Utility Models

12 Trench Rossi Watanabe

There are three prerequisites for the patentability of a creation:

A right of priority shall be granted to the application filed in a country

The patent provides its owner with protection against unauthorized

Trench Rossi Watanabe 13

According to the IP Law, patents may be subject to compulsory

(i) If the patent holder exercises his/her rights in an abusive manner

(iii) If the sale of the patented product or the product obtained

(iv) In case of a dependent patent that represents substantial

(v) In case of national emergency or public interest, including

Such compulsory licenses may be requested by any interested third

With the exception of compulsory licenses under national emergency