Brazil. Is foreign investment subject to review in your jurisdiction? Briefly describe the regulatory framework and authorities.

Transcription

1 CROSS-BORDER FOREIGN DIRECT INVESTMENT PROJECT INTERNATIONAL M&A SUBCOMMITTEE AMERICAN BAR ASSOCIATION SECTION ON BUSINESS LAW Brazl Walter Stuber 1 Walter Stuber Consultora Jurídca São Paulo, Brazl 1. Outlne Is foregn nvestment subject to revew n your jursdcton? Brefly descrbe the regulatory framework and authortes. What s the relevant foregn nvestment legslaton n your jursdcton? Who enforces the foregn nvestment legslaton. What knd of nvestments are caught? The treatment gven to foregn nvestments n Brazl s qute lberal. The legslaton makes no dstncton between natonal and foregn companes, the basc prncple beng that jurdcal treatment must be granted to foregn and natonal captal n exactly the same terms. Generally, there are no restrctons to foregn captal n Brazl, except for few busness actvtes whch are subject to specal regulatons that preclude or restran non-natonals from engagng n such actvtes or requre specal approvals thereof: 1 Ths report has been updated on June 19, 2012 to be publshed n the webste of the M&A Commttee before the Amercan Bar Assocaton (ABA) Annual Meetng n Chcago on August 2, The author s the Immedate Past Co-Char of the Internatonal Securtes and Captal Markets Commttee of the ABA s Secton of Internatonal Law (SIL) and the Co- Char of the Internatonal Fnancal Products and Servces Commttee of the SIL for

2 The acquston of news and TV and rado broadcast companes by foregn ndvduals or legal enttes or Brazlan natonalzed ndvduals of less then 10 years s lmted to 30% of the total captal and of the votng captal (Consttutonal Amendment No. 36 of 2002, Law No. 4,117 of August 27, 1962, as amended by Law No. 10,610 of December 20, 2002) and stll may occur only f the foregn ndvdual or company ncorporates a Brazlan company n accordance wth Brazlan legslaton and mantans ts head offce n Brazl. Foregners may not own or run prvate companes that render servces connected to valuable custody and transportaton (Law No. 7,102 of June 20, 1983). The acquston of real estate n rural areas and busness near nternatonal borders by foregners requres the pror consent of the Natonal Securty Councl (Law No. 6,634 of May 2, 1979). By means of publc concesson, Brazlan legal enttes may carry out publc ar servces, wth up to one-ffth of ts votng captal held by foregn ndvduals or companes. Any modfcaton to the corporate structure of a Brazlan legal entty nvolvng foregn ndvduals or companes requres the approval of the Mnstry of Defense (Law No. 7,565 of December 19, 1986 and Decree No. 92,319 of January 23, 1986). Foregners are not allowed to carry out nuclear actvtes wthn the Brazlan terrtory because ths s an actvty wth the monopoly of the Federal Unon (Artcle 21, Item XXIII, n combnaton wth Artcle 177, Item V of the Brazlan Federal Consttuton). The regstraton of ownershp of a vessel wll be granted to an ndvdual resdent and domcled n Brazl or to a publc or prvate entty subject to Brazlan law. The foregner who s not resdent and domcled n Brazl may be granted regstraton of vessel n sport or recreatonal actvty. (Law No. 7,652 of February 3, 1988, as amended by Law No. 9,774 of December 21, 1998). The Federal Unon mantans the postal servce and the natonal ar mal, but there s no unanmous understandng on whether the Federal Unon has a monopoly over such actvtes. It should be stressed, however, that there s no rule about foregners holdng ownershp n postal servces companes n Brazl. Foregners are not allowed to partcpate, drectly or ndrectly, n the corporate captal of any health care company n the country, unless otherwse provded by law (Artcle 199, Paragraph 3 rd of the Brazlan Federal Consttuton n combnaton wth Artcle 23 of Law No. 8,080 of September 19, 1990). Foregn ownershp of health care companes may be allowed by the Brazlan Natonal Health System (SUS) n the followng cases: () donatons made by nternatonal bodes lnked to the Unted Natons; () techncal cooperaton enttes; and () loan or fundng. Stll, t s necessary to submt to the supervson of the SUS all actvtes performed and all agreements executed. Foregners may also hold an ownershp nterest n health care companes for proft purposes to serve Brazlan company s employees and ther dependents, wthout any burden to the Brazlan Socal Securty system. Actvtes such as nsurance and bankng requre specfc approval. In our jursdcton foregn nvestments are governed by Law No. 4,131, of September 3, 1962, as amended (the Foregn Captal Law), and regulated by Decree No. 55,762, of February 17,

3 Foregn nvestments are not subject to revew n Brazl, but must be regstered wth the Central Bank of Brazl (Banco Central do Brasl Bacen). The government agency whch s responsble to enforce the foregn nvestment legslaton n Brazl s Bacen. All foregn nvestments made n the Brazlan terrtory must be regstered, wthout any excepton whatsoever. Under Brazlan law, foregn nvestor means any ndvdual or legal entty resdent, domcled or wth head offce abroad (.e. outsde Brazl), whch also comprses a foregn-owned or foregn-controlled company. It s mportant to note that the key element to determne as to whether an nvestor s foregner or not s the concept of domcle. The natonalty s not relevant to ths effect. Therefore, a Brazlan nvestor domcled outsde Brazl makng an nvestment n our jursdcton wll be deemed to be a foregn resdent for the purposes of our Foregn Captal Law. The foregn captal regstraton s electronc and must be made through the Internet by means of a module known as RED-IED (the ntals n Portuguese stands for Regstro Declaratóro Eletrônco Investmento Externo Dreto and can be translated nto Englsh as Electronc Declaratory Regstry - Drect Foregn Investment), whch s part of the Central Bank Informaton System (Sstema de Informações do Banco Central SISBACEN). Ths regstraton s essental for offshore remttances (transfer abroad of profts, dvdends, etc.), captal repatraton (return of the nvestment, n case the foregn nvestor decdes to redeem partally or totally the nvestment made n Brazl) and regstraton of renvestment (when the profts are contrbuted as captal to the same Brazlan company or to any other legal entty headquartered n Brazl). It s necessary to regster wth Bacen: () the foregn nvestor; () the Brazlan company that receves the nvestment; and () the equty nvestment made by the foregn nvestor n the Brazlan company. 2. Thresholds What are the relevant thresholds whch trgger the applcaton of the foregn revew process? There are no relevant thresholds whch trgger the applcaton of the foregn regstraton. All foregn nvestments must be regstered wth Bacen. 3. Substantve Test What s the substantve test for clearance? There s no substantve test for clearance n Brazl. As already mentoned heren, all foregn nvestments must be regstered wth Bacen wthout any exceptons. 3

4 4. Protected Industres Are any ndustres protected and subject to specal rules? There are no protected ndustres. The rules are exactly the same for all types of busness actvty (ndustral, commercal, servce or any other knd of actvty). 5. Partcular Investors Are there any specal provsons applcable to certan nvestors? If so, what are they? There are no specal provsons applcable to certan nvestors other than for specfc tax purposes. All the foregn nvestors are treated n the same way. Brazlan law defnes favored taxaton country or dependency, prvleged fscal regme and related party for tax purposes. The expresson favored taxaton country or dependency (país ou dependênca com trbutação favorecda) s used n the Brazlan tax legslaton nstead of tax haven or fscal paradse (paraíso fscal) and means any country or dependency of a country that does not mpose tax on ncome or, when mposes, t s a low-tax country, n whch the applcable ncome tax rate s equvalent to any percentage varyng between zero and 20% (maxmum). The defnton s contaned n artcle 14 of Law 9.430, of December 27, 1996, whch ntroduced the transfer prcng regulatons n Brazl. For the purpose of the Brazlan tax legslaton, prvleged fscal regme (regme fscal prvlegado) means any jursdcton that met one or more of the followng requrements: () t does not tax ncome or where the maxmum applcable tax ncome rate s below 20%; () t grants fscal advantages to a non-resdent ndvdual or legal entty: (a) wthout requrng that substantal economc actvty be made n the country or dependency; or (b) condtoned to the non-exercse of substantal economc actvty n the country or dependency; () t does not tax the earnngs obtaned outsde ts terrtory or mposes a maxmum applcable rate below 20% to such earnngs; (v) t does not permt access to nformaton regardng the captal stock structure, ownershp of assets or rghts or to the economc transacton entered nto between the partes. All these percentages may be reduced or changed at any tme by the Executve Branch. Ths concept s provded for n artcle 23 of Law No , of June 23, 2008, whch approved new wordng for artcles 24-A and 24-B of Law 9.430/96. Artcle 30 of Law /2009, clarfed that t s not necessary to attend smultaneously and cumulatvely all the requrements lsted above and that t s suffcent to attend only one for a country or dependency to be treated as a prvleged fscal regme. The meanng of related party, whch ncludes any ndvdual or legal entty resdent or domcled abroad (outsde Brazl) whose captal stock characterzes ts controller or afflate as defned pursuant to Law No , of December 15, 1976 as subsequently amended (the Brazlan Corporaton Law BCL). Afflate (colgada) s a company n whch the nvestor 4

5 has a sgnfcant nfluence over t (artcle 243, 1 of the BCL, as amended by Law No , of May 27, 2009). One company wll have sgnfcant nfluence over another when t holds or exercses the power to partcpate n decsons on fnancal or operatonal polces of the afflate (artcle 243, 4 of the BCL, added by Law /2009). Sgnfcant nfluence s presumed to exst when one company holds at least 20% of the votng stock of another, but does not control t (artcle 243, 5 of the BCL, added by Law /2009). Controlled company (controlada) s a company n whch another company, known as the controller (controladora), ether drectly or through other controlled companes, has the rghts of a partner n the frst company whch permanently grants to the controller prevalence n votng the frst company s corporate decsons and the power to elect the majorty of ts management (artcle 243, 2 of the BCL). For tax purposes, the followng enttes wll be deemed to be related to the Brazlan company: (a) the parent company, when domcled abroad; (b) an offshore branch (flal) or dependency (sucursal); (c) any ndvdual or legal entty resdent or domcled abroad who/whch s ts controller or afflate, as defned by the BCL; (d) any legal entty domcled abroad whch may be deemed as ts controlled company or afflate, pursuant to the BCL; (e) any legal entty domcled abroad when both such non-resdent company and the Brazlan company are under the same corporate control or common admnstraton or when at least 10% of the captal stock of each one belongs to the same ndvdual or legal entty; (f) any ndvdual or legal entty resdent or domcled abroad who/whch, jontly wth the Brazlan company, holds an equty partcpaton n a thrd company and the aggregate sum of the partcpatons characterzes them as controllers or afflates, as defned by the BCL; (g) any ndvdual or legal entty resdent or domcled abroad who/whch s an assocate of the Brazlan company n any undertakng through the formaton of a consortum or condomnum; (h) any ndvdual resdent abroad who s a relatve or collateral of any knd (relatve n-law) up to the thrd degree, spouse or companon of any of the Brazlan company s drectors or of ts drect or ndrect controllng partner or shareholder; () any ndvdual or legal entty resdent or domcled abroad who/whch s ts exclusve agent, dstrbutor or grantee (concessonáro) for the purchase and sale of goods, servces or rghts; and (j) any ndvdual or legal entty resdent or domcled abroad to whom/whch the Brazlan company s the exclusve agent, dstrbutor or grantee for the purchase and sale of goods, servces or rghts. The concept of related party (pessoa vnculada), for tax purposes, s contaned n artcle 23 of Law No /1996. Under Brazlan law the consortum and the condomnum are not legal enttes but dfferent forms of jont ventures. The condomnum s bascally the common ownershp of an asset whch s governed by artcles to of the Brazlan Cvl Code (Law No , of January 10, 2002). The consortum s a contract governed by artcles 278 and 279 of the BCL and must be regstered at the Commercal Regstry of the place where ts head offce s located. On June 4, 2010, the Secretary of the Brazlan Federal Revenue Offce (Receta Federal do Brasl RFB) ssued RFB Normatve Instructon No. 1037, whch contans an updated lst of favored taxaton countres. The new lst s n full force and effect as from June 7, 2010, date of ts publcaton n the Offcal Gazette of the Unon (Dáro Ofcal da Unão DOU). For the purpose of ths lst (whch s deemed to be a black-lst ), the Brazlan tax authortes ncluded the countres or dependences that, accordng to the Brazlan Government, do not mpose tax on ncome or, n whch the applcable ncome tax rate s equvalent to any percentage varyng between zero and 20% (maxmum), as well as whose natonal legslaton 5

6 does not allow access to the nformaton regardng the captal stock structure or ownershp of the legal enttes organzed under the laws of any such jursdcton. The current lst comprses the followng jursdctons: () Andorra; () Angulla; () Antgua and Barbuda; (v) Netherlands Antlles; (v) Aruba; (v) Ascenson Island; (v) The Commonwealth of The Bahamas; (v) Bahren; (x) Barbados. (x) Belze; (x) The Bermuda Islands; (x) Brune; (x) Campone d`itala; (xv) Channel Islands (Alderney, Guernsey, Jersey and Sark); (xv) Cayman Islands; (xv) Cyprus; (xv) Sngapore; (xv) Cook Islands; (xx) Costa Rca; (xx) Djbout; (xx) Domnca; (xx) Unted Arab Emrates; (xx) Gbraltar; (xxv) Granada; (xxv) Hong Kong; (xxv) Krbat; (xxv) Labuan; (xxv) Lebanon; (xxx) Lbera; (xxx) Lechtensten;; (xxx) Macau; (xxx) Madera Island; (xxx) Maldves; (xxxv) Isle of Man; (xxxv) Marshall Islands; (xxxv) Maurtus Island; (xxxv) Monaco; (xxxv) Montserrat Island; (xxxx) Nauru; (xl) Nue Island; (xl) Norfolk Island (xl) Panama; (xl) Ptcarn Islands; (xlv) French Polynesa; (xlv) Qeshm Island; (xlv) Amercan Samoa; (xlv) Eastern Samoa; (xlv) San Marno; (xlx) Sant Helena Island; (l) Sant Luca; (l) The Federaton of Sant Ktts and Nevs 2 ; (l) Sant-Perre and Mquelon Island; (l) Sant Vncent and the Grenadnes; (lv) Seychelles; (lv) Solomon Islands; (lv) The Kngdom of Swazland; (lv) Swtzerland 3 ; (lv) The Sultanate of Oman; (lx) Tonga; (lx) Trstan da Cunha; (lx) Turks and Cacos Islands; (lx) Vanuatu; (lx) U.S. Vrgn Islands; (lxv) Brtsh Vrgn Islands. The man consequence s that the lsted countres and dependences are subject to a hgher wthholdng ncome tax rate on the remttance abroad of captal gans and of the remuneraton due for renderng of servces, whch s equvalent to 25%. For countres n jursdctons whch do not fall nto ths category, the applcable rate s only 15%. The same rates are vald n the case of payment of nterest on net equty (juros sobre captal própro) for both stuatons. The tax exempton appled to ncome earned n Brazlan Prvate Equty Funds (Fundos de Investmento em Partcpação FIPs) s not applcable. The current applcable taxaton rules for nvestments n the Brazlan fnancal and captal markets must also be observed. In the case of foregn nvestors, these rules may be summarzed as ndcated heren. There s an ncome tax wthheld at source at the followng: () for stocks, futures and lsted optons, publc securtes: zero rate; () for funds and overthe-counter (OTC) dervatves: 10%; and () for nterest and captal earnngs: 15%. Only for nvestors wth head offces n favored taxaton countres or dependences, the applcable tax rate s establshed by the same rules appled to Brazlan resdents, as follows: (a) perod of up to 180 days: 22.5%; (b) perod from 181 days up to 360 days: 20.0%; (c) perod from 361 days up to 720 days: 17.5%; and (d) perod above 721 days: 15%. There s also the tax on fnancal operatons (IOF) for all nvestors at the followng rates: (a) for short term nvestments, charged on fxed ncome earnngs for applcatons of less than 30 days; decreasng rates from 96% to zero, accordng to the perod of applcaton; (b) 2% rate appled to entry of varable ncome and fxed ncome foregn nvestments; and (c) 1.5% rate on fxed ncome fnancal nvestment, Natonal Treasury bonds and Depostary Recepts (DRs). 2 Probably by mstake, the RFB ncluded Sant Ktts (also known as Sant Chrstopher) and Nevs twce n Normatve Instructon 1037/ As further explaned n ths report, the ncluson of Swtzerland n the lst was temporarly suspended by the RFB s Secretary by means of Executve Declaratory Act No.11, of June 24,

7 Furthermore, for the frst tme the RFB also dentfes the enttes whch are subject to the concept of prvleged fscal regme (regme fscal prvlegado) 4 and must obey the Brazlan transfer prcng rules. These rules bascally requre the adjustment of the revenues and expenses n transactons entered nto between related partes 5, when there s overnvocng or under-nvocng related to mport and export operatons, n order to avod that 4 For the purpose of the Brazlan tax legslaton, prvleged fscal regme (regme fscal prvlegado) means any jursdcton that met one or more of the followng requrements: () t does not tax ncome or where the maxmum applcable tax ncome rate s below 20%; () t grants fscal advantages to a non-resdent ndvdual or legal entty: (a) wthout requrng that substantal economc actvty be made n the country or dependency; or (b) condtoned to the non-exercse of substantal economc actvty n the country or dependency; () t does not tax the earnngs obtaned outsde ts terrtory or mposes a maxmum applcable rate below 20% to such earnngs; (v) t does not permt access to nformaton regardng the captal stock structure, ownershp of assets or rghts or to the economc transacton entered nto between the partes. All these percentages may be reduced or changed at any tme by the Executve Branch. Ths concept s provded for n artcle 23 of Law No , of June 23, 2008, whch approved new wordng for artcles 24-A and 24-B of Law 9.430/96. Artcle 30 of Law /2009, clarfed that t s not necessary to attend smultaneously and cumulatvely all the requrements lsted above and that t s suffcent to attend only one for a country or dependency to be treated as a prvleged fscal regme. 5 The meanng of related party, whch ncludes any ndvdual or legal entty resdent or domcled abroad (outsde Brazl) whose captal stock characterzes ts controller or afflate as defned pursuant to Law No , of December 15, 1976 as subsequently amended (the Brazlan Corporaton Law BCL). Afflate (colgada) s a company n whch the nvestor has a sgnfcant nfluence over t (artcle 243, 1 of the BCL, as amended by Law No , of May 27, 2009). One company wll have sgnfcant nfluence over another when t holds or exercses the power to partcpate n decsons on fnancal or operatonal polces of the afflate (artcle 243, 4 of the BCL, added by Law /2009). Sgnfcant nfluence s presumed to exst when one company holds at least 20% of the votng stock of another, but does not control t (artcle 243, 5 of the BCL, added by Law /2009). Controlled company (controlada) s a company n whch another company, known as the controller (controladora), ether drectly or through other controlled companes, has the rghts of a partner n the frst company whch permanently grants to the controller prevalence n votng the frst company s corporate decsons and the power to elect the majorty of ts management (artcle 243, 2 of the BCL). For tax purposes, the followng enttes wll be deemed to be related to the Brazlan company: (a) the parent company, when domcled abroad; (b) an offshore branch (flal) or dependency (sucursal); (c) any ndvdual or legal entty resdent or domcled abroad who/whch s ts controller or afflate, as defned by the BCL; (d) any legal entty domcled abroad whch may be deemed as ts controlled company or afflate, pursuant to the BCL; (e) any legal entty domcled abroad when both such non-resdent company and the Brazlan company are under the same corporate control or common admnstraton or when at least 10% of the captal stock of each one belongs to the same ndvdual or legal entty; (f) any ndvdual or legal entty resdent or domcled abroad who/whch, jontly wth the Brazlan company, holds an equty partcpaton n a thrd company and the aggregate sum of the partcpatons characterzes them as controllers or afflates, as defned by the BCL; (g) any ndvdual or legal entty resdent or domcled abroad who/whch s an assocate of the Brazlan company n any undertakng through the formaton of a consortum or condomnum; (h) any ndvdual resdent abroad who s a relatve or collateral of any knd (relatve n-law) up to the thrd degree, spouse or companon of any of the Brazlan company s drectors or of ts drect or ndrect controllng partner or shareholder; () any ndvdual or legal entty resdent or domcled abroad who/whch s ts exclusve agent, dstrbutor or grantee (concessonáro) for the purchase and sale of goods, servces or rghts; and (j) any ndvdual or legal entty resdent or domcled abroad to whom/whch the Brazlan company s the exclusve agent, dstrbutor or grantee for the purchase and sale of goods, servces or rghts. The concept of related party (pessoa vnculada), for tax purposes, s contaned n artcle 23 of Law No /1996. Under Brazlan law the consortum and the condomnum are not legal enttes but dfferent forms of jont ventures. The condomnum s bascally the common ownershp of an asset whch s governed by artcles to of the Brazlan Cvl Code (Law No , of January 10, 2002). The consortum s a contract governed by artcles 278 and 279 of the BCL and must be regstered at the Commercal Regstry of the place where ts head offce s located. 7

8 part of the proft of the Brazlan company that normally would be taxed n Brazl f the transacton was structured otherwse be transferred to another foregn company based n a favored taxaton country or dependency or s deemed to be subject to a prvleged fscal regme wth the sole and exclusve purpose of savng the correspondng Brazlan tax. The same prncple also apples f the transacton nvolves an unrelated company,.e. a foregn legal entty wthout any formal relatonshp wth the Brazlan company, but s made wth the same purpose (avod the payment of the correspondng Brazlan tax). In addton, Brazlan thn captalzaton rules establshed by Provsonal Measure No. 472, of December 15, 2009, transformed nto Law No. must be duly observed. Ths means that n the case of ntercompany loans between a foregn legal entty whch s domcled n a favored taxaton country or dependency or s deemed to be subject to a prvleged fscal regme, as lender, and a Brazlan company, as borrower, the nterest pad by the Brazlan borrower to the foregn lender wll only be deductble for ncome tax purposes f the debt/equty rato of the Brazlan borrower does not exceed 30% of ts net worth value. Therefore, under the current legslaton, the foregn companes subject to a prvleged fscal regme are only adversely affected by the transfer prcng and thn captalzaton rules outlned above, whch also apply to the companes wth head offces n favored taxaton countres or dependences. Accordng to the classfcaton set forth by Normatve Instructon 1037/2010 the followng enttes are subject to prvleged fscal regme n Brazl 6 : () () () (v) (v) (v) n the case of Uruguay, the regme appled to the enttes ncorporated n the form of Socedad Fnancera de Inverson (SAFI), whch s the Uruguayan Fnancal Servce Corporaton whch wll exst untl December 31, 2010; n the case of Denmark, the regme appled to the enttes ncorporated n the form of holdng company (Dansh Holdng Company) whch do not exercse any substantve economc actvty; n the case of Netherlands (Holland), the regme appled to the enttes ncorporated n the form of holdng company (Dutch Holdng Company) whch do not exercse any substantve economc actvty 7 ; n the case of Iceland, the regme appled to the enttes ncorporated n the form of Internatonal Tradng Company (ITC); n the case of Hungary, the regme appled to the enttes ncorporated n the form of the offshore KFT, whch s the acronym for Korlátolt Felelõsségû Társaság (the Hungaran Lmted Lablty Corporaton); n the case of the Unted States of Amerca, the regme appled to the enttes ncorporated n the form of Lmted Lablty Company (LLC) whose equty partcpaton s formed by non-resdents, whch are not subject to the US federal 6 In the case of Luxembourg, the prvleged fscal regme appled to the enttes ncorporated n the form of holdng company (Luxembourg Holdng Company) was revoked by RFB Executve Declaratory Act No. 3, of March 25, 2011, as a result of the termnaton of ths vehcle. 7 As further explaned n ths report, the ncluson of the Dutch Holdng Companes wth no substantve economc actvty has been suspended by the RFB s Secretary by means of Executve Declaratory Act No. 10, of June 24,

9 ncome tax, such as Delaware, Nevada, Florda and other US states whch adopt a smlar regme; (v) n the case of Span, the regme appled to the enttes ncorporated n the form of Entdad de Tenenca de Valores Extranjeros (ETVE), whch s the Internatonal Spansh Holdng Company; and (v) n the case of Malta, the regme appled to the enttes ncorporated n the form of Internatonal Tradng Company (ITC) and Internatonal Holdng Company (IHC). Therefore, the Dansh or Dutch Holdng Companes whch have a substantve economc actvty do not fall nto ths category. The latest lst of favored taxaton and prvleged fscal regmes countres and dependences announced through RFB Normatve Instructon 1037/2010, whch ncluded Swtzerland as a favored taxaton jursdcton and the Dutch Holdng Companes as prvleged fscal regme enttes, dslked many people who dd not agree wth such classfcaton! For ths reason, by means of RFB Normatve Instructon No. 1045, of June 23, 2010, the Brazlan tax authortes decded to permt the affected offshore jursdctons to apply for the request of the revew of ther classfcaton as favored taxaton or prvleged fscal regme country or dependency. Ths new measure came nto force on the followng day (June 24, 2010), after ts publcaton n the Offcal Gazette of the Unon (Dáro Ofcal da Unão DOU). The revew request mentoned heren must be sent by the representatve of the foregn government of the nterested country or dependency and addressed to the RFB s Secretary, together wth proof of the content and effectveness of the applcable tax legslaton that justfes the revew of the correspondng classfcaton. It can be receved wth suspensve effect at the dscreton of the RFB s Secretary. Both the grantng of the suspensve effect and the result of the analyss of the revew request shall be formalzed by means of an Executve Declaratory Act (Ato Declaratóro Executvo ADE) ssued by the RFB s Secretary and publshed n the DOU. Based on RFB Normatve Instructon 1045/2010, Swtzerland and Netherlands already decded to use ths prerogatve. The Dansh Government requested the revew of the status of the Dutch Holdng Companes, for the purpose of beng excluded of the prvleged fscal regme status, and the suspensve effect was granted by means of ADE No. 10, of June 24, The Swss Government also requested the revew two exclude Swtzerland of the status of favored taxaton country and the suspensve effect was granted by means of ADE No. 11, of June 24, Both acts have been publshed n the DOU of June 25, 2010 and are n full force and effect. It should be noted, however, that ths suspenson s only temporary and ts effectveness wll cease at any tme, f and when the RFB concludes that the challenged classfcaton should be mantaned and denes the revew request. For ths reason, to avod any undesred surprses, t s advsable to wat to structure any transacton orgnated from Swtzerland or havng as a vehcle a Dutch Holdng Company wth no substantve economc actvty, untl ths matter s fnally defned by the Brazlan tax authortes. 9

10 It s mportant to bear n mnd that the lst and classfcaton contaned n Normatve Instructon 1037/2010 can be revewed by the RFB at any tme for the purpose of ncludng other jursdctons ether as a favored taxaton country or dependency and/or n the category of prvleged fscal regme, at the dscreton of the Brazlan Government. 6. Natonal Securty Do natonal securty ssues from part of the revew? For foregn captal regstraton purposes, natonal securty s not an ssue. As a general rule, Bacen does not revew foregn nvestments. The only enttes whch cannot be negotated wthout the specfc approval of Bacen are the fnancal nsttutons or other equvalent enttes that are partcpants of the Brazlan Fnancal System, whether the buyer s Brazlan or foregner. The reason for ths dfferent treatment s that such enttes are subject to the control and supervson of Bacen and depend on the pror authorzaton of Bacen n order to operate n our jursdcton. The equty nvestment of foregn nvestors n fnancal nsttutons also requres the authorzaton from the Presdent of the Republc, by means of a specfc decree to be ssued after the transacton s approved by Bacen. Except for nvestments nvolvng the partcpants of the Brazlan Fnancal System, Bacen has no jursdcton to revew foregn nvestments n Brazl n any other type of actvty. 7. State Owned Enttes Are there specal rules for state-owned enttes? There are no specal rules for state-owned enttes. NOTIFICATION, REMEDIES, PENALTIES AND APPEALS 8. Formal Notfcaton Provde an overvew of the formal notfcaton requrements. In partcular: Is flng mandatory or voluntary? If mandatory, do any exceptons exst? When should a transacton be notfed? Is t possble to obtan formal or nformal gudance before notfcaton? Who s responsble for flng? What form of notfcaton s used? Are flng fees requred? Can a transacton close wthout clearance from the Regulator? 10

11 The electronc regstraton of foregn nvestments wth Bacen s mandatory and requred n any type of actvty. There are no exceptons. The regstraton must be made wthn a perod of 30 days counted as from the closng date of the relevant exchange contract. The foregn currency funds transferred to Brazl by the foregn nvestor to make the equty nvestment n the Brazlan company must be converted nto Brazlan currency (Real) and ths converson s effected by means of an exchange contract sgned wth an nsttuton duly authorzed by Bacen to deal n foregn exchange. The regstraton s made by the Brazlan company. If regstraton s not made wthn such 30 day-perod, the Brazlan company mght be subject to a fne mposed by Bacen, whch may vary from R$ 1 thousand to R$ 250 thousand, pursuant to artcle 7 of Law No. 11,371, of November 28, As already explaned, the regstraton s made n electronc form through the SISBACEN. No regstraton fees are requred. Except for nvestments nvolvng partcpants of the Brazlan Fnancal System, the clearance of Bacen s not requred for the closng of any other type of transacton. 9. Procedure and Tmetable As commented above, the regstraton must be made by the Brazlan company wthn a perod of 30 days counted as from the closng date of the relevant exchange contract. Ths regstraton s made n electronc from through the SISBACEN. 10. Publcty; Poltcs In relaton to the notfcaton and clearance process: What publcty s gven to the process and how s commercal nformaton protected from dsclosure? To what extent s the nvestment revew process conducted ndependently of poltcal nfluence? Are customers, compettors, or other nterested partes nvolved n the revew? If so, what rghts do they have? There s no nvestment revew process n Brazl. Although all the foregn nvestments must be duly regstered wth Bacen, the electronc regstered nformaton s only avalable to the nterested partes, who must desgnate the persons who are authorzed and empowered to access, update and change the regstraton data, and must be frst accredted by Bacen to be able to make the relevant entres nto SISBACEN, whenever t s necessary. Such authorzed persons receve a specfc password to access the system. Therefore, the commercal 11

12 nformaton s adequately protected from dsclosure and t s not avalable to the publc n general. The regstraton s qute smple and s conducted free and ndependently of any poltcal nfluence and wthout any nvolvement of customers, compettors or any other thrd partes. 11. Undertakngs What oblgatons / undertakngs can be mposed as a condton of clearance to address concerns of the Regulator? At what stage of the procedure can they be offered and accepted? What are these oblgatons, and how they are enforced? Ths s not applcable n Brazl. 12. Penaltes What are the penaltes for: Falure to notfy correctly? Closng before approval or after prohbton of the transacton? Falure to observe a decson of the Regulator (ncludng any oblgatons/undertakngs)? What s the hstory of enforcement practces? The falure to make the regstraton wth Bacen wthn the 30 day-perod, mght subject the Brazlan company to payment of a fne mposed by Bacen, whch may vary from R$ 1 thousand to R$ 250 thousand, pursuant to artcle 7 of Law No. 11,371, of November 28, 2006, and the lack of regstraton wll prevent the foregn nvestor to transfer abroad profts or dvdends dstrbuted by the Brazl company, to repatrate the captal n case of sale of the nvestment and to renvest the profts n the Brazlan company or n any other legal entty headquartered n Brazl. We are not aware of any case n whch Bacen has appled a penalty but we strongly recommend to our clents to make the regstraton on a tmely bass to avod such rsk. 13. What powers does the Regulator have to prohbt or otherwse nterfere wth a transacton? Bacen has only power to authorze, prohbt or otherwse nterfere wth a transacton n the event that t nvolves a fnancal nsttuton or another entty whch s part of the Brazlan Fnancal System. 12

13 14. Does the Regulator provde reasons for ts decsons? If so, are these reasons made publc? What are the opportuntes for appeal or judcal revew? If the authorzaton s not granted for a foregn nvestor to make an nvestment n a fnancal nsttuton, Bacen would normally provde reasons for ts decsons and the nterested party wll have opportuntes to dscuss the matter admnstratvely or judcally and try to reverse ths decson. JOINT VENTURES 15. Please explan how jont ventures are analyzed under your foregn nvestment legslaton? Jont ventures are subject to the same rules and the foregn nvestment made n a Brazlan jont venture company must also be regstered wth Bacen. MULTI-AGENCY AND MULTI-JURISDICTIONAL CONSIDERATIONS 16. Are foregn-to-foregn nvestments caught? The Brazlan legslaton does not contemplate foregn-to-foregn nvestments. 17. To what extent does the authorty consder the exstence of any parallel revews by other authortes wthn the jursdcton, or parallel revew outsde ts home jursdcton, n conductng ts revew? Ths s not applcable n Brazl. PROPOSALS FOR REFORM 18. Are there current proposals to amend the foregn nvestment laws or establsh new foregn nvestment polces? We are not aware of any current proposals to amend the Foregn Captal Law n Brazl or establsh new foregn nvestment polces. Bacen s gradually reducng the exchange controls and t s very lkely that n the future the regstraton wth Bacen wll only represent an mportant tool to measure the volume of the nvestments n the country, for statstcal purposes, as t occurs n other jursdctons (Uruguay, for example). There are, obvously, topcal proposals whch may change the foregn nvestment laws. For example, Brazlan Government has forwarded a bll of law to the Brazlan Congress proposng a number of changes to the Brazlan Aeronautcal Code (CBA). One of the 13

14 prncpal changes s to amend ts artcle 181 to permt foregn nvestors to hold up to 49% of the captal n Brazlan arlne companes authorzed by the Brazlan Cvl Avaton Authorty (ANAC) to operate domestc ar routes. Whle several blls of law ether amng to elmnate any restrctons on foregn captal or mposng restrctons on the same have been underway n the Brazlan Congress for the last decade or so, apparently the Brazlan Government has now embraced the proposal to rase the foregn captal threshold to 49%. Ths has not yet been approved but t s expected to happen n due course. 14