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Brazzil
- Economy - October 2003
LEGAL GUIDE FOR THE
FOREIGN INVESTOR IN
BRAZIL Introduction
It was a great
satisfaction for
CESA - CENTRO DE ESTUDOS DAS SOCIEDADES DE
After choosing the topics,
defining the chapters and distributing the tasks involved, in
The success attained and
the significant positive feedback on this project made us at CESA
The fifth edition of this
guide was thoroughly updated and expanded by the various CESA
The consolidated success
of the Guide and consequent demand for a more up-to-date
Finally, we should mention
that CESA was founded in January 1982, and today includes
São Paulo, April, 2001
CESA
- Centro de Estudos das Sociedades de Advogados
Clemencia
Beatriz Wolthers - President
Orlando Giacomo Filho
- Council President Moira V. Huggard-Caine - Secretary Director COOPERATORS The CESA Board of Directors would like to thank the following law firms that collaborated in the preparation, updating and translation of each chapter of this Legal Guide for Foreign Investors in Brazil. AMARO, STUBER E ADVOGADOS ASSOCIADOS S/C Av. Paulista, 1499, 18º andar, 01311-928 São Paulo, SP. Fone: 11 3284-9911 Fax: 11 3283-0483 e-mail: lawyers@amarostuber.com.br
Internet: www.amarostuber.com.br ARAÚJO E POLICASTRO ADVOGADOS S/C Av. Brigadeiro Faria Lima, 2894, 11º andar, 01452-002 São Paulo, SP. Fone: 11 3049-5700 Fax: 11 3845-2120/3842-6195
e-mail: arapo@araujopolicastro.com.br AZEVEDO SETTE ADVOGADOS S/C Rua Paraíba, 1000, 14º andar, 30130-141 Belo Horizonte, MG. Fone: 31 3261-6656 Fax: 31 3261-6797
Internet: www.azevedosette.com.br BARBOSA, MÜSSNICH & ARAGÃO Av. Almirante Barroso, 52, 32º andar, 20031-000 Rio de Janeiro, RJ. Fone: 21 3824-5800 Fax: 21 2262-5536/5537
e-mail: mailbox@bmalaw.com.br BATISTELA ADVOGADOS E CONSULTORES JURÍDICOS Rua General Jardim, 770, 8º andar, conjs. C/D, 01223-010 São Paulo, SP. Fone: 11 256-7366 Fax: 11 256-7366
e-mail: jab.adv@terra.com.br BRITO, MERCADANTE & ROCHA ADVOGADOS Rua Profº Antônio Aleixo, 523, 1º andar, 30180-150 Belo Horizonte, MG. Fone: 31 3275-1891/1709 Fax: 31 3275-2003
e-mail: bmradvogados@bmradvogados.com.br CAMARGO, DIAS ADVOGADOS ASSOCIADOS Av. Liberdade, 65, 4º andar, conj. 408, 01503-000 São Paulo, SP. Fone: 11 3107-5551 Fax: 11 3107-5551
e-mail: camargodias@originet.com.br CASILLO - ADVOGADOS Rua Lourenço Pinto, 500, 80010-160 Curitiba, PR. Fone: 41 310-6800 Fax: 41 310-6868
e-mail: casillo.advocacia@lawyer4u.com CASTRO, BARROS, SOBRAL,VIDIGAL, GOMES ADVOGADOS Praia de Botafogo, 228, 15º andar, 22359-900 Botafogo, RJ. Fone: 21 2553-1855 Fax: 21 2552-1796 e-mail: mailrj@cbsvg.com.br
Internet: www.cbsvg.com.br CEGLIA NETO, ADVOGADOS Rua Paula Oliveira, 31, 04530-020 São Paulo, SP. Fone: 11 3845-5244 Fax: 11 3845-6959
e-mail: ceglia@amcham.com.br DEMAREST E ALMEIDA ALMEIDA, ROTENBERG E BOSCOLI - ADVOCACIA Al. Campinas, 1070, 01404-001 São Paulo, SP. Fone: 11 3888-1800 Fax: 11 3888-1700 e-mail: mainbox@demarest.com.br
Internet: www.demarest.com.br FELSBERG,PEDRETTI, MANNRICH E AIDAR ADVOGADOS E CONSULTORES LEGAIS Av. Paulista, 1294, 2º e 3º andares, 01310-915 São Paulo, SP. Fone: 11 3141-9100 Fax: 11 3141-9150 e-mail: mail@felsberg.com.br
Internet: www.felsberg.com.br GOULART PENTEADO, IERVOLINO E LEFOSSE - ADVOGADOS Rua Paes Leme, 524, 6º e 7º andares, 05424-904 São Paulo, SP. Fone: 11 3093-6700 Fax: 11 3031-5008/3819-0364 e-mail: gpilbra@gpilbra.com.br
Internet: www.gpilbra.com.br GREBLER, PINHEIRO, MOURÃO E RASO ADVOGADOS S/C Rua Pernambuco, 353, 7º andar, 30130-150 Belo Horizonte, MG. Fone: 31 3261-1400 Fax: 31 3261-8199 e-mail: gpmr@gpmr.com.br Internet: www.gpmr.com.br MACHADO, MEYER, SENDACZ E ÓPICE - ADVOGADOS Rua da Consolação, 247, 4º andar 01301-903 São Paulo, SP. Fone: 11 3150-7000 Fax: 11 3150-7071 e-mail: mmso@mmso.com.br
Internet: www.machadomeyer.com.br MATTOS FILHO, VEIGA FILHO, MARREY JR. E QUIROGA ADVOGADOS Av. Paulista, 1499, 20º andar, 01311-928 São Paulo, SP. Fone: 11 3147-7600 Fax: 11 3147-7770
e-mail: mflaw@mflaw.com.br NEHRING E ASSOCIADOS - ADVOCACIA Av. Paulista, 1159, 17º andar, conjs. 1701/9, 01311-921 São Paulo, SP. Fone: 11 288-2577 Fax: 11 288-2071
e-mail: nehring@uninet.com.br NORONHA ADVOGADOS Av. Brigadeiro Faria Lima, 1355, 3º andar, 01452-919 São Paulo, SP. Fone: 11 3038-8090 Fax: 11 212-2495/7903 e-mail: noadsao@noronhaadvogados.com.br
Internet: www.noronhaadvogados.com.br NOVAES, PLANTULLI E MORTARI ADVOGADOS Av. Brigadeiro Faria Lima, 2601, 9º andar, conj.94, 01451-001 São Paulo, SP. Fone: 11 3816-1930 Fax: 11 3813-2688 e-mail: novaes@novaesadvs.com.br
Internet: www.novaesadvs.com.br PAULO ROBERTO MURRAY - ADVOGADOS Avenida Paulista, 1499, 13º andar, 01311-928 São Paulo, SP. Fone: 11 3171-3344 Fax: 11 3171-3444 e-mail: murray@prmurray.com.br
Internet: www.prmurray.com.br PINHEIRO NETO ADVOGADOS Rua Boa Vista, 254, 9º andar, 01014-907 São Paulo, SP. Fone: 11 3247-8400 Fax: 11 3247-8600 e-mail: pna@pinheironeto.com.br
Internet: www.pinheironeto.com.br STRAUBE ADVOGADOS Rua Cel. Xavier de Toledo, 316, 5º andar, 01048-000 São Paulo, SP. Fone: 11 255-8744 Fax: 11 214-3553 e-mail: straube@sti.com.br TESS ADVOGADOS Avenida Brasil, 471, 01431-000 São Paulo, SP. Fone: 11 3059-2900 Fax: 11 3059-2901
e-mail: tess@tesslaw.com TOZZINI, FREIRE, TEIXEIRA E SILVA - ADVOGADOS Rua Líbero Badaró, 293, 21º andar, 01095-900 São Paulo, SP. Fone: 11 3291-1000 Fax: 11 3291-1111 e-mail: mail@tozzini.com.br
Internet: www.tozzini.com.br TRENCH, ROSSI E WATANABE - ADVOGADOS Av. Dr. Chucri Zaidan, 920, 8º andar, Market Place Tower, 04583-904 São Paulo, SP. Fone: 11 3048-6800 Fax: 11 5506-3455 e-mail: sergio.caiuby@bakernet.com
Internet: www.bakernet.com ULHÔA CANTO, REZENDE E GUERRA - ADVOGADOS Av. Pres. Antonio Carlos, 51, 12º andar, 20020-010 Rio de Janeiro, RJ. Fone: 21 3824-3265 Fax: 21 2240-7360
e-mail: ucrgrj@amcham.com.br VEIRANO E ADVOGADOS ASSOCIADOS Av. Presidente Wilson, 231, 23º andar, 20030-021 Rio de Janeiro, RJ. Fone: 21 3824-4747 Fax: 21 2262-4247 e-mail: rjoffice@veirano.com.br
Internet: www.veirano.com.br XAVIER, BERNARDES, BRAGANÇA, SOCIEDADE DE ADVOGADOS Av. Brasil, 1.008, 01430-000 São Paulo, SP. Fone: 11 3069-4300 Fax: 11 3069-4301
e-mail: xbblawsaopaulo@xbb.com.br YARSHELL, MATEUCCI E CAMARGO ADVOGADOS Av. Paulista, 1499, 3º andar, conj. 301, 01311-200 São Paulo, SP. Fone: 11 288-4322 Fax: 11 284-1644
e-mail: ymcadvs@amcham.com.br Secretária Executiva: Rua Boa Vista, 254, 4º, sala 413, 01014-907 São Paulo, SP. Fone: (11) 3104-8402 Fax: (11) 3104-3352 Silvia Miranda Naufal
LEGAL GUIDE FOR THE
FOREIGN INVESTOR IN
BRAZIL CONTENTS
1. THE BRAZILIAN LEGAL SYSTEM
Brazil
is organized as a federative republic, constituting the
indissoluble union of the states, municipalities and the Federal
District.
The legal system adopted
in
Brazil is codified,
and laws are issued by the federal government, the states and
municipalities, with due regard for their individual spheres of
authority. Court decisions are based on the correct application of
the laws prevailing in
Brazil.
When there is no specific legal provision, the court decides on
the basis of analogy, customs and general legal principles.
Judicial precedents do not bear the force of law in
Brazil,
although they do exercise an important role supporting the court's
decision.
The Federal Constitution
establishes the legislative authority of the federal government,
the states and the municipalities, thereby avoiding the issuance
of laws that are redundant or conflicting with those in the other
spheres. The legislative authority of the federal government, with
due regard for the principles of the Federal Constitution, is
hierarchically superior to the authority of the states and
municipalities.
The federal government is
therefore vested with exclusive authority to legislate on civil,
commercial, penal, procedural, electoral, agrarian, maritime,
aeronautical, space and labor law; expropriation, bodies of water,
power, computer science, telecommunications, radio broadcasting,
the monetary system, exchange, credit policy, insurance, foreign
trade,
mining deposits, nationality, citizenship, and other matters.
The Federal Constitution
allows the federal government, states and the Federal District to
legislate concurrently regarding certain matters, such as, tax,
financial, economic and prison law; production and consumption;
liability for damages to the environment and the consumer;
education and teaching; and social security, protection and
defense of health. In this case, the authority of the federal
government is limited to the issuance of general guidelines on
these matters, with the states and the Federal District being
charged with supplementary legislation on these matters, with due
regard for the general guidelines of federal legislation.
The legislative authority
of the municipalities is restricted to matters of local interest.
The Federal Constitution
is at the head of the Brazilian legislative system, and ensures
the fundamental rights and guarantees of the citizen; governs the
political/administrative organization of the Federative Republic
of
Brazil; defines the
individual spheres of authority of the Executive, Legislative and
Judicial Branches; regulates the tax system; and provides for
socioeconomic and financial policy. The states are organized and
governed by their own constitutions and laws, with due regard for
the principles mentioned in the Federal Constitution.
The main legal documents
in
Brazil are the codes,
which contain the basic legislation on the matters dealt with
thereunder. Some of the more important of these codes are the
Civil Code, the Tax Code, the Penal Code, and the Commercial Code.
None of these codes supersedes the Federal Constitution, which is
the supreme law of
Brazil. 2. INSTITUTIONS FOR ECONOMIC DEVELOPMENT2.1. Government Ministries and Secretaries
The Statute for
Administrative Reform (Decree-Law No. 200/67 and its subsequent
alterations), classified the Federal Administration into two
categories, Direct and Indirect Administration. The first deals
with services which are integrated with the administrative
structure of the Presidency of the Republic and its Ministries.
The Indirect Administration deals with matters relating to the
diverse entities, public (Autarchies) or private (Societies of
Mixed Economy, Public Firms and Foundations), linked to a
Ministry, but administratively and financially independent.
The Federal Public
Administration is directed by the President of the Republic and
aided by Ministers of State.
The Ministries are
independent organs at the top of the Federal Administration
subordinate only to the Presidency and outlined by the 1967
Administrative Reform with later alterations (the last reform was
implemented by Provisional Remedy No 2.123-28 de 26/01/2001), to
wit:
2.2. National Monetary Council
One of the diverse organs
of the Ministry of Finance, the National Monetary Council (NMC) is
presided over by the Minister of Finance, with the objective of
elaborating currency and credit policies, with a view to the
economic and social progress of the country. The functions of the National Monetary Council are to: supervise the application of resources of public or private financial institutions with the intent of providing, in different regions of the country, favorable conditions to the harmonious development of the national economy, coordinate monetary, creditary, budgetary and fiscal policies, regulate the foreign value of the currency and the balance of payment, strive for the liquidity and solvency of financial institutions, etc... 2.3. Central Bank of Brazil The Central Bank of Brazil (BACEN) is also linked to the Ministry of Finance and its principle functions are: fulfill the norms expedited by the National Monetary Council, be a depository of official gold reserves and foreign currency reserves, control credit of all forms, control foreign capital under the Law, control check payments and other papers, represent the Brazilian Government with international financial institutions, carry out the inspection of financial institutions, put into effect buying and selling operations of federal public titles as an instrument of monetary policy, etc... 2.4. Chambers of Commerce
With a view to
approximating
Brazil
economically to other countries, increasing the commercial and
financial flow between countries, there are a series of Chambers
of Commerce. Among them are the American Chamber of Commerce, the
Japanese Chamber of Commerce and Industry, and the
Italian-Brazilian Chamber of Commerce and Industry, Chamber of
Foreign Commerce (CAMEX) 3. FOREIGN CAPITAL3.1. General Features
Foreign capital in
Brazil
is governed by Laws Nos. 4131 (the Foreign Capital Law) and 4390
of September 3, 1962 and August 29, 1964, respectively. Both laws
are regulated by Decree No. 55762 of February 17, 1965, and have
been amended.
According to Law No. 4131,
"foreign capital is considered to be any goods, machinery and
equipment that enter
Brazil
with no initial disbursement of foreign exchange, and are intended
for the production of goods and services, as well as any funds
brought into the country to be used in economic activities,
provided that they belong to individuals or companies resident or
headquartered abroad".
There are two official
exchange markets in
Brazil,
both of which are subject to Central Bank regulations:
Both markets operate at
floating rates freely negotiated between the parties, and the key
distinctions between them are that (i) the commercial/financial
exchange market, as a rule, is restricted to transactions that in
certain cases require preliminary approval from the monetary
authorities; and (ii) the tourism exchange market is open to
transactions that do not require any preliminary approval from
Brazilian monetary authorities. Exchange operations are effected by means of exchange contracts entailing an inflow or outflow of foreign currency. 3.2. Registration of Foreign Capital
Circular No. 2997 of
August 15, 2000, issued by the Central Bank of
Brazil,
introduced the electronic registration system for foreign direct
investment in
Brazil.
This circular took effect on September 4, 2000 and brought some
changes in foreign direct investment registration in
Brazil
and the obtaining of information on these transactions.
Since then, registration
of foreign investments has been made through the RDE-IED (Registro
Declaratório Eletrônico - Investimento Externo Direto) Mode, which
is part of the Central Bank Information System (Sistema de
Informações do Banco Central - SISBACEN).
For electronic
registration purposes, foreign direct investment is defined as the
permanent ownership interest held in the Brazilian investee, or,
according to common market practices, the ownership interest
intended to be permanently held by nonresident investors, whether
individuals or legal entities, residing, domiciled or
headquartered abroad, through the ownership of shares or quotas
representing the corporate capital of Brazilian companies, as well
as the allocated capital of foreign companies authorized to
operate in
Brazil.
The party responsible for
the foreign direct investment must first enroll in SISBACEN,
according to the rules currently in effect. When registered
through the RDE-IED, foreign direct investments will be given a
permanent number for the investor-investee case, and all
subsequent changes and additions will be made under this same
registration.
The major changes
introduced by Circular 2997/00 are the following: (i) registration
of foreign direct investments is now made through a statement,
which means that the Brazilian investee and/or the representative
of the foreign investor are responsible for registration of
foreign investments, which will no longer be subject to
preliminary review and verification by the Central Bank; and (ii)
registration of foreign investments will also be made in Brazilian
currency. All foreign investments must be registered with the Central Bank of Brazil. This registration is essential for offshore remittances, capital repatriation and registration of profit reinvestment. 3.3. Currency Investments
No preliminary official
authorization is required for investment in currency. The
investment to subscribe for capital or to buy a stake in an
existing Brazilian company can be remitted to
Brazil
through any banking establishment authorized to deal in foreign
exchange. However, closing of the exchange contract is conditional
on the existence of a RDE-IED registration number for the foreign
investor and the Brazilian investee.
Registration of the
investment is made through the RDE-IED System by the Brazilian
company receiving the investment within 30 days of closing of the
exchange contract for the remittance, together with documents
reflecting capitalization of the funds. Foreign currency investments must be registered in the original currency or, upon express request of the investor, in another currency, maintaining the exchange parity, in addition to the registration in Brazilian currency, as mentioned above. 3.4. Investment by Conversion of Foreign Credits
If the transaction is not
registered in the RDE-IED System, investment by foreign credit
conversion will be subject to preliminary authorization from the
Department of Foreign Capital Control and Registration (Fiscalização
e Registro de Capitais Estrangeiros - FIRCE). After authorization,
a token exchange transaction must be performed, representing the
purchase and sale of the foreign currency.
Pursuant to article 8 of
the Annex to Circular 2997/00, conversion into foreign direct
investment is defined as �the transaction whereby credits eligible
for offshore transfer based on prevailing rules are used by
nonresident creditors to acquire or pay in an ownership interest
in the capital of a company in
Brazil.�
Registration of foreign
direct investment resulting from conversion, however, depends on
receipt by the Brazilian investee of (i) a statement from the
creditor and committed investor, defining exactly the due dates of
the installments and respective amounts to be converted, and in
the event of interest and other charges, also the period to which
they refer and the respective rates and calculations, and (ii) a
binding statement from the creditor, agreeing to the conversion. The Brazilian company has 30 days to capitalize these funds and apply for registration with the Central Bank of Brazil. 3.5. Investment by Import of Goods without Exchange Cover
Investment by import of
goods without exchange cover requires the preliminary approval of
FIRCE and SISCOMEX.
Registration through the
RDE-IED Mode requires that both tangible and intangible assets be
exclusively intended for paying-up of capital.
Registration of foreign
direct investments resulting from the import of intangible assets
without coverage by an exchange contract requires preliminary
approval of FIRCE. For tangible assets, registration requires (i)
the value of the registration made through the ROF (Registro de
Operações Financeiras - Registration of Financial Transactions)
Mode of the RDE System linked to the Import Declaration (DI); and
(ii) the currency stated on the corresponding ROF.
Registration of foreign
capital that enters
Brazil
in the form of assets must be made in the currency of the
investor�s country or, upon express request of the investor, in
another currency, maintaining the exchange parity.
Foreign capital is
considered to be any goods, machinery or equipment that enter
Brazil
with no initial disbursement of foreign currency, and are intended
for the production or marketing of goods or rendering of services.
The import of used goods or under tax incentives is conditional on
the absence of similar goods in
Brazil.
Used goods must be used in projects that foster the country�s
economic development. Once the imported goods have been cleared by customs, the Brazilian company has 180 days to incorporate them into its capital and another 30 days to apply for registration of the investment with the Central Bank of Brazil. 3.6. Investment on the Capital Market
On January 26, 2000, the
Brazilian Monetary Council approved Resolution 2689, whereby any
nonresident investors, whether individuals or legal entities,
individually or collectively, are allowed to invest on the
Brazilian financial and capital markets.
Investment Companies -
Foreign Capital, Investment Funds - Foreign Capital, Annex IV
Portfolios (mechanisms created by Annexes I, II and IV) and
Fixed-income Funds - Foreign Capital, were replaced by a single
investment mechanism through which foreign funds flowed into
Brazil
by nonresident investors may be invested in fixed- or
variable-income instruments and investment modes offered on the
financial and capital markets to resident investors.
Nonresident investors will
now use the same registration to invest in the fixed- and
variable-income markets, and may migrate freely from one type of
investment to the other. To access these markets, the foreign
investor must appoint a representative in
Brazil,
who will be responsible for registration of the transactions, fill
out the form attached to Resolution 2689/00 and obtain a
registration with the Brazilian Securities Commission (Comissão de
Valores Mobiliários - CVM).
Pursuant to Article 6, I
of Resolution 2689/00, securities belonging to foreign investors
must be kept in custody by entities authorized by CVM or by the
Central Bank to provide such service, or registered, if
applicable, with the Special Settlement and Custody System (Sistema
Especial de Liqüidação e Custódia - SELIC) or with a registration
and financial settlement system supervised by the Central Agency
for Custody and Financial Settlement of Securities (Central de
Custódia e de Liquidação Financeira de Títulos - CETIP). In all transactions carried out in the name of a nonresident investor, the exchange contract must state the RDE registration number in the appropriate blank. 3.7. Remittance of Profits
There are normally no
restrictions on the distribution and remittance of profits abroad.
Profits as from January 1, 1996 are exempt from income tax
withholding.
Profit remittances must be
registered as such through the RDE-IED Mode, considering the
ownership interest held by the investor in the total shares or
quotas that make up the paid-up corporate capital of the investee. Brazil has signed double-taxation treaties with the following countries: Sweden, Japan, Norway, Portugal, Belgium, Denmark, Spain, Germany, Austria, Luxembourg, Italy, Argentina, Canada, Ecuador, the Netherlands, the Philippines, France, South Korea, the Czech Republic and Slovakia, Finland, Hungary, India and China. 3.8. Reinvestment of Profits
According to the Foreign
Capital Law, reinvestments are �profits made by companies
established in
Brazil
and allocated to persons or companies resident or domiciled
abroad, which have been reinvested in the company that produced
them or in another sector of the domestic economy".
Reinvested earnings are
registered in the currency of the country to which such earnings
could have been remitted, and reinvestments derived from
investments made in Brazilian currency will be registered in
Brazilian currency (Article 20 of Circular 2997).
Earnings obtained by a
foreign investor and further reinvested in Brazilian investees
(even if such investees are different from the companies in which
the earnings were obtained) for the purpose of paying up or
purchasing shares and/or quotas, may be registered under
Investment in the RDE-IED System. These earning to be reinvested
are registered as foreign capital (in the same manner as the
original investment) thus increasing the tax base for tax
assessment on any future repatriation of capital.
In the cases of reinvestment by profit capitalization, interest on net equity and profit reserves, the ownership interest held by the foreign investor vis-à-vis the total number of paid-in shares or quotas in the corporate capital of the investee in which the earnings were originated will be observed. 3.9. Repatriation
Foreign capital registered
with the Central Bank of
Brazil
may be repatriated to its country of origin at any time without
preliminary authorization.
According to article 690,
II of the 1999 Income Tax Regulations, foreign currency amounts
registered with the Central Bank of
Brazil
as nonresident investments may be repatriated without income tax
assessment. In this case, the foreign currency amounts, which
proportionally exceed the original investment (capital gain) will
be subject to 15% withholding income tax.
Notwithstanding such
provision, after enactment of Law 9249/95 and Normative Ruling
73/98, the tax authorities have questioned calculation of the
capital gains earned by a nonresident based on such nonresident�s
original investment in reais rather than on the foreign currency
amount registered with the Central Bank.
In the specific case of repatriation of capital, it should be noted that the Central Bank of Brazil will normally examine the net worth of the company involved, as shown on its balance sheet. If the net worth is negative, the Central Bank of Brazil may decide that there was dilution of the investment, and may thus deny authorization for repatriation of a part of the investment in proportion to such negative result. 3.10. Transfer Abroad of Investments in Brazil The ownership interest owned in a Brazilian company by a foreign investor may be sold, assigned or otherwise transferred abroad, with no tax implications in Brazil, irrespective of the price paid. The foreign purchaser will be entitled to register capital in the same amount as the registration previously held by the selling company, once again regardless of the price paid for the investment abroad. In this case, the registration number in the RDE-IED Mode of the Central Bank of Brazil should be changed to reflect the name of the new foreign investor, which is essential to allow the new investor to remit/reinvest profits and to repatriate capital. 3.11. Restrictions on Remittances Abroad Remittance of funds abroad is restricted when such funds are not registered in the RDE-IED System, since remittance of profits, repatriation of capital, and registration of reinvestment are all based on the amount of foreign investment registered. 3.12. Restrictions on Foreign Investment According to article 52 of the Temporary Provisions Act of the Federal Constitution, the participation of foreign capital in financial institutions is subject to the approval of the Brazilian Government, which will determine if such participation is in the country�s best interests.
Participation of foreign
capital is prohibited or, in some cases, restricted in the
following activities:
Brazilian companies, even
when under foreign control, may request and obtain permission to
operate in the mining sector. 4. The Brazilian Foreign Exchange Markets
Although the Brazilian
Foreign Exchange Markets are not totally free, due to the controls
imposed by the Brazilian Central Bank (�BACEN�), in recent years
they have been deregulated, leading to a present situation in
which almost every type of transfer from/to
Brazil
are permitted to be performed and find a definition in the
regulation.
Under the Brazilian
regulation there are two different foreign exchange markets: (i)
the Free Rate Exchange Market and (ii) the Floating Rate Exchange
Market. There is a third way of performing transfers from/to the
country, which consists in the international transfers of reais.
The Free Rate Exchange
Market (also known as �Commercial Market�) is the foreign exchange
market in which the majority of exchange transactions related to
export and import are performed. It is also in this market that
transactions related to foreign investments registered with the
BACEN are performed. The registration of foreign capital with the
BACEN is a service established in the early 60�s that allows non
residents to register their capital invested in the country with
the BACEN. There is a registration certificate granted to those
non-resident investors that register their capital, that allows
them to remit profits, dividends and the principal invested
through the same market the capital has entered.
A recent innovation in the
foreign exchange and foreign investment regulation, is the
electronic system of registration of transactions. Such system
allows some transactions (equity and debt) investments), performed
in the Free Rate Exchange Market, to be registered by means of an
electronic system that can be accessed by the Internet, waiving
the prior authorization requested for certain transactions.
With the growth and
sophistication of transfers of funds made between different
countries, there were many types of transfers of funds from/to the
country not regulated by the Free Rate Exchange Market. It was
under that context that the Floating Rate Exchange Market has been
created. In this market, the majority of transactions that cannot
be made under the Free Rate Exchange Market are regulated.
Payments of services rendered abroad or acquisition of real estate
property in
Brazil
by non-residents are examples of these transactions. Even
transfers with a very broad definition, as transfers for
constitution of �cash funds�, are defined by the Floating Rate
Exchange Market�s regulation. Almost all investments made through
an exchange transaction performed in this market cannot be
registered with the BACEN.
The third possibility for
performing transfers of funds from/to
Brazil
is through international transfers of reais. It is not necessary
to have an exchange transaction in order to perform such
transfers. The vehicle used in order to make international
transfers of reais possible are non-residents accounts is reais
maintained with a Brazilian financial institution (former �CC5
accounts�). Each debt and/or credit made on such accounts are
considered an entrance of funds in the country or its remittance
abroad. 5. FORMS OF ASSOCIATION5.1. Types of Companies
Brazilian Commercial Law
provides for several types of companies: Unlimited Partnership "Sociedade
em Nome Coletivo", General Partnership "Sociedade em Comandita
Simples", Unlimited Partnership between Capital and Labor "Sociedade
de Capital e Indústria", Limited Partnership "Sociedade em
Comandita por Ações", Limited Liability Companies by Quotas "Sociedade
por Quotas de Responsabilidade Limitada" and Corporations "Sociedades
Anônimas".
The Law gives corporate
status to such companies, which thus become legal entities
separate from their participants. Apart from such company
structures, Brazilian Commercial Law also foresees other forms of
association such as joint ventures and consortiums which, under
the law, do not have a legal status separate from their
participants; the participants of such associations do not merge
into one legal entity, but rather continue to contract rights and
obligations individually, although for the common benefit of the
group.
Brazilian Law also
provides for the formation of civil societies, associations,
foundations and co-operatives, forms of association which, either
due to their charitable nature or because of the particular
characteristics of their formation or objectives, are different
from commercial organisations and accordingly receive different
legal treatment.
We should mention at this
point that, apart from Corporations (Sociedades Anônimas), all the
corporate types foreseen under Brazilian Commercial Law may
function as civil societies, insofar as this is permitted under
the Brazilian Civil Code. In Brazil the most used forms of enterprises are the "Sociedade Anônima" (S/A) and the "Sociedade por Quotas de Responsabilidade Limitada"(LTDA.). This is due to the fact that in both cases the participants have limited liability. The other forms of company are rarely used, but, sometimes, they can fulfil specific purposes. 5.1.1. Sociedade Anônima (Corporation) - S/A
An S/A or Corporation,
governed by Law N. 6.404 of December 15, 1976, amended by Law N.
9.457 of June 5, 1997, is fundamentally a commercial corporation
by legal definition, with its capital represented by shares. It
could therefore be defined as a business corporation having as its
objective the earning of profits to be distributed to the
shareholders.
The S/A receives a
corporate name adding the expression �Sociedade Anônima�, before
or after the chosen name, extended or abridged (S/A), or by either
adding the word �Companhia� or �Cia.�. It can be used in the
corporate name, the name of the founder or a �fantasy� name. The
corporate name can describe the corporate aims or the activity
carried out, but this description is not mandatory.
There are two kinds of
S/A: a publicly held company which obtains funds through public
offers and subscriptions and is supervised by the Securities
Commission, and a closed company which obtains capital from its
own shareholders or subscribers, having a simple accounting and
administration system.
The capital of an S/A is
divided into shares which represent part or fractions of such
share capital. Depending on the rights or advantages conferred to
its holders, the shares may be common, preferred or fruition
shares.
Common shares entitle the
holder to the rights of common or essential shareholders.
Preferred shares have special rights of a financial or policy
nature, and fruition shares result from the paying off of common
or preferred shares.
By means of a
Shareholders� Agreement, the shareholders can enter into an
agreement between themselves as regards the purchase and sale of
their shares, to establish pre-emptive rights for their
acquisition, and also as to the manner in which they exercise
their voting rights. The obligations set forth in the Shareholders
Agreement are enforceable by specific performance.
The S/A may be managed by
a Board of Officers and by an Administrative Council or only by a
Board of Officers, depending on that which the By-laws determines.
The Administrative Council
is a body which set the general policy for the company�s business
but is not vested with executive powers. Its existence is
mandatory in publicly held and authorised capital S/As and
optional in closed S.A.s. Its members must be shareholders,
individuals residing or not in the country. It must be composed
of, at least, three members.
The Board of Officers is
the executive body of the S/A. Its responsibility is to represent
the company and to practice all such acts as are necessary for its
operation. It is composed of at least two officers, who may or may
not be shareholders, and who must be individuals residing in the
country, and who may be elected for a tenure of three years at the
most. The Fiscal Council is the body which polices the company�s administration. Its operation may be permanent or temporary. Its installation is based on the need of the company to establish a rigorous control over the actions of the administration. Whenever installed, it is composed of at least three and, at most, five members, with an equal number of substitutes. 5.1.2. Sociedade por Quotas de Responsabilidade Limitada (Limited Liability Company by Quotas) - LTDA
The LTDA, which is
governed by Decree N. 3.708 of January 10, 1919, is a hybrid
between a partnership and a company by shares, with aspects of
each type of entity.
The LTDA. can be organised
as a civil or commercial company, depending on the definition of
its objectives set forth in the Articles of Incorporation.
The LTDA is established by
a contract and it has only one class of partner, the limited
liability quotaholders. Each quotaholder is liable for the
totality of the capital and not only for his quotas, until the
capital is fully paid-up. From there on, the quotaholders will
have no further liability to the company or third parties.
As there is only one kind
of partner, any quotaholder is able to manage the company. The
partners may delegate their managing powers.
The capital of the LTDA is
divided into quotas. The quota represents the amount in money,
credits, rights or assets by which the quotaholder contributes for
the formation of the company. The quotas must be registered and
are not represented by securities or certificates. As the
ownership and the number of quotas are written in the Articles of
Association any transfer of title over the quotas will require an
amendment to such Articles, under signature of all of the
quotaholders or, at least, of the quotaholders who represent the
majority of the capital, but necessarily with the assignor�s and
the assignee�s signatures. If Decree N. 3708/19 or the Articles of Association are silent on a given matter, the rules of S/A law compatible with the LTDA. may be applied. 5.1.3. Rules Common to S.A.s and LTDA.s .
Although foreseen in the
Law which governs S/As, the operations involving the
transformation, merger, consolidation or splitting of companies
can also can be performed by LTDAs. or even by any other kind of
company so permitted under Brazilian Law.
The transformation is the
transaction which a given company, without dissolving it, has its
corporate type transformed into another.
The merger is the
transaction through which one or more companies are absorbed by
another, succeeding them in all rights and liabilities.
The consolidation, in its turn, is the transaction through which two or more companies amalgamate, with a view to forming a new company which will succeed them in all rights and liabilities. Finally, the split up is the transaction by which the company transfers parts or the totality of its net equity to one or more companies, established for this purpose or otherwise, resulting in the extinction of the divided company, if it has passed on all of its net equity, or dividing its capital, if it has passed on only part of its net equity. 5.1.4. Other Types of Companies As noted before, the other company types are not commonly used but may become attractive under certain circumstances. Thus, we will briefly comment on those which are sometimes used. 5.1.5. Sociedade em Nome Coletivo (General Partnership)
The relevant corporate
feature of the General Partnership is the partners� unlimited
liability vis-à-vis the company�s debts.
Thus, all partners are
jointly liable with the company for its liabilities before third
parties. However, the partners� assets cannot be executed until
all the company�s assets have been exhausted.
Responsibility for the
management of the company falls on all of the partners, as long as
the Articles of Association does not specifically determine which
partner will have this responsibility. If such delegation exists,
this partner will have the exclusive right to represent it before
third parties. The company�s name may be the full name of one or more partners, adding the expression �& Cia.� if other partners� names should be omitted. 5.1.6. Sociedade em Conta de Participação (Partnership with One Ostensible and One �Hidden� Partner) - SCP
Although designated "sociedade"
(company), the law does not confer upon the SCP the legal entity
status. The SCP is a joint venture agreement composed of two or
more persons, one of them being a merchant, the so-called
ostensible partner, who shall perform in his own name all
necessary acts to achieve the goals set forth in the Agreement for
the formation of the SCP.
On many occasions the SCP
is founded for a specific period of time, with the aim of
executing certain specific transactions, such as exploiting a
given commercial opportunity or to construct a building for
resale, being liquidated subsequently. Its remarkable feature is that it does not reveal to the third parties the majority of its partners, as only the ostensible partner appears and does business in his own name.
The ostensible partner is
liable for the business, but the �hidden� partners, in their turn,
assume responsibilities towards him as set forth in the relevant
agreement for the formation of the SCP.
There are few formalities
needed in order to establish an SCP and its existence may be
substantiated by the same kind of proof admitted in the
substantiation of a commercial contract. It is, therefore, a
company existing only between the parties, but not in relation to
third parties who deal exclusively with the ostensible partner. The SCP has no corporate or trade name, as the ostensible partner deals with third parties using his own name, trade name or denomination. 5.1.7. Consórcio (Consortium)
The consortium is a form
of association of companies aiming for the development of a
specific project. It is governed by Law 6.404 of December 15,
1976.
The consortium is formed
by means of an agreement between two or more companies, but its
formation does not bring a new legal entity into existence. The
parties preserve, therefore, their corporate identity, pooling
their efforts to achieve certain objectives.
The parties only bind
themselves under the terms of the consortium agreement made, each
party being liable for its specific obligations as established
therein, without any assumption of joint liability before third
parties, except if agreed otherwise. The consortium agreement must contain the following basic covenants:
The agreement and its subsequent amendments must be filed before the Commercial Registry with jurisdiction over the territory in which its head office is located. When the documents are filed, the Commercial Registry issues a certificate which must be published in the Official Gazette, and in a widely circulated newspaper. 5.2. Registration Process Brazil has two kinds of public registers for companies: the commercial registry service performed by the 27 Brazilian States Commercial Registries and the Civil Registries service which is performed by the Civil Registries of Deeds dna Documents usually found in the Brazilian cities. In the most developed regions of Brazil, these registries are usually well organised with highly trained personnel and modern equipment, which contribute to making the registry service efficient and cheap. 5.2.1. The Commercial Registry
To determine if a company
should be registered with the Commercial or Civil Registries, one
must examine its type and its objectives. Should the objectives
indicate a commercial activity, the corporate type must be one of
those available to commercial companies.
Since it is legally
defined as a commercial company, an S/A must have its acts of
incorporation submitted for filing to the Commercial Registry.
Such filing should be requested to the Commercial Registry in the
Brazilian State where the company is headquartered, through a
request dated and signed by any company�s manager or attorney in
fact.
The request for the filing
of the Articles of Association of the S/A must be accompanied, by
the following documents:
The filing of the
Incorporation documents and subsequent amendments of other
commercial companies must, in the same manner, be presented to the
President of the Commercial Registry with jurisdiction over the
place of the company�s head office, by way of a petition signed
and dated by any partner, by an attorney or a person duly
authorised.
Generally the request to
file the acts of incorporation of other commercial companies must
be accompanied by the following documents:
5.2.2. The Civil Registry
The Civil company, defined
as that company which has not adopted the structure of an S.A. and
does not engage in commercial activities, comes into existence
upon the registration of its Articles of Association or By-Laws at
the Civil Registry with jurisdiction over the place of the
company�s head office.
To accomplish its
registration, the civil company, duly represented by its managing
partner, or attorney-in-fact or manager, must file a petition with
the Civil Registry accompanied by the following documents:
The civil companies�
contracts, Articles of Association or By-laws may only be filed at
the Civil Registry, if they have been certified by a lawyer and
the signatures of all the partners have been notarised.
The actual act of
registration of a civil company consists of a declaration by a
public officer, registered in a proper book at the Civil Registry,
of the presentation and registration of the incorporation act. 6. PUBLICLY-HELD COMPANIES6.1. General
The Law no. 6.404/76
(�Brazilian Corporations Law�) makes a distinction between
�closed� and �open� companies. Open (or publicly-held) companies
must necessarily take the form of a corporation and their
securities are traded on stock exchanges or the over-the-counter
market.
Because publicly-held
companies are permitted to raise funds through public offerings of
their securities, they are subject to a series of specific
obligations imposed by law and by regulations issued principally
by the Brazilian Securities Exchange Commission, aimed at
protecting the investor. The Brazilian Securities Exchange
Commission (Commissão de Valores Mobiliários - the �CVM�), which
was created by Law no. 6.385 of December 7, 1986, is a federal
agency linked to the Ministry of Revenue. The purpose of the CVM
is to regulate, develop, control and supervise securities markets
in
Brazil.
Thus, while in closed
companies there is great freedom to establish rules for the
operation of the company that will best serve the shareholders�
interests, publicly-held companies are subject to a number of
restrictions that reduce the shareholders� flexibility in
establishing the bylaws that will govern the company.
In addition to complying
with the provisions of the Brazilian Corporations Law,
publicly-held companies must also fulfill various registration
requirements in order to have their securities traded on the stock
exchange or on the over-the-counter market. It is also worth noting that only publicly-held companies may issue depositary receipts (DRs), which are certificates representing shares in the company. DRs are traded on foreign markets, enabling the company to raise funds outside Brazil. 6.2. Securities Market
The sector of the
Brazilian financial system referred to as the �Securities Market�
encompasses a variety of transactions involving securities issued
by publicly-held companies, such as shares, debentures,
subscription bonuses, promissory notes for distribution and
founder�s shares (partes beneficiárias).
As mentioned above,
transactions involving securities issued by publicly-held
companies may be carried out on the stock exchanges or in the
over-the-counter markets, and are regulated principally by the CVM. Stock exchanges, which are governed by the Resolution no. 2.690/00 of the National Monetary Counsel, may be formed as association or corporations and shall, as a principal purpose, establish a place or system appropriate for the buying and selling of bonds and/or securities in a free and open market, especially organized and supervised by the stock exchange itself, its members and regulatory authorities.
Over-the-counter markets
trade
in securities issued by publicly-held companies that are not
registered on the stock exchanges.
Although the members of
the organized over-the-counter market are subject to supervision
and inspection by the CVM, they are considered to be
self-regulating and must, as agents of the CVM, monitor market
participants and transactions carried out in the market.
CVM Instruction no. 243/96, which governs the operation of the organized over-the-counter market, establishes, between other related activities, as a principal purpose for the organized over-the-counter market, the establishment of a system appropriate for the buying and selling of variable income bonds and/or securities, as defined in applicable regulations, in a free and open market, especially formed and supervised by the over-the-counter market itself, brokers, participants and regulatory authorities. 6.3. Administration
Publicly-held companies
are required to have a two-tiered management structure, composed
of an executive committee and a board of directors, unlike closed
companies, in which a board of directors is optional.
The board of directors,
which has a decision-making function, must have at least three
members, all elected at the general annual meeting of the
shareholders of the company. Directors may be non-residents, but
must be shareholders of the company.
The officers of the
company, who have executive and representative functions, need not
be shareholders but must be residents in
Brazil. In order to register securities with the CVM for trading on the stock exchanges or over-the-counter market, publicly-held companies must have, in addition to a board of directors, an investor relations officer who is responsible for providing information to investors, the CVM and to the stock exchanges, if applicable, in accordance with CVM Instruction no. 202 of December, 1993. The requirement for an investor relations officer is related to publicly-held companies� obligations to disclose and/or communication various information related to their business. 6.4. Periodic Filing Requirements and Other Information
In addition to the
publication requirements applicable to all corporations under the
Brazilian Corporations Law, once a publicly-held company�s
securities have been registered with the CVM, the company must
provide information on a periodic basis to the CVM, the stock
exchange on which its securities were first admitted for trading,
the stock exchange on which its securities were most traded in the
last fiscal year and to any other stock exchange that requests
such information (CVM Instruction 202). The information that must be submitted on a regular basis, at the times and in the form established by regulation, consists mainly in:
In addition to the
information listed above, certain events or facts can trigger an
obligation to submit information, again at the times and in the
form established by regulation, such as:
With respect to item (vi)
above, an act or fact related to the business of a company will be
considered to be material if it could influence (i) the quoted
price of securities issued by the company; (ii) the decision by
investors to
trade
in the company�s securities; (iii) the decision by investors to
exercise any rights attached to their ownership of the company�s
securities.
Material acts and facts
must also be disclosed through publication in the same
widely-circulated newspaper in which the company generally
publishes other required information.
Under CVM Instruction no.
69 issued in September, 1987, any natural or legal person, or
group of persons acting jointly or representing the same interest,
that attains a shareholding in a publicly-held group equal to or
greater than ten percent of any type or class of voting shares,
must disclose the following information: (i) name and particulars
of the shareholder(s); (ii) the reason for acquiring the
shareholding and the number of shares expected to be acquired;
(iii) the number of shares, as well as rights to subscribe for
voting shares of any type or class, already held directly or
indirectly by the shareholder(s) or related person(s); (iv) the
number of debentures convertible into voting shares already held
directly or indirectly by the shareholder(s) or related person(s);
(v) information on any contract(s) or agreement(s) regarding the
exercise of voting rights, purchase and sale of shares or of
debentures convertible into common or preferred shares, even if
such contracts or agreements have not been filed at the
headquarters of the company.
Likewise, any time the
persons or group of persons referred to in the preceding paragraph
increase their shareholdings by five percent or more, they must
disclose the information listed above. Initially, the information
must be submitted to the CVM and, if applicable, published in the
press and submitted to the stock exchanges.
In addition to any
requirement to publish a statement of material fact or disclose
the information under CVM Instruction no. 69 that may be
applicable, the following transactions must also be communicated
to the CVM and to the stock markets or brokers in the
over-the-counter market through which the company�s shares are
traded (CVM Instruction no. 299 of February, 1999):
Furthermore, the basic
information contained in the company�s registration with the CVM
must be kept up to date and the CVM must be informed of any change
in that information.
Such information must not
only be submitted to the CVM but also be kept available to
security holders at the investor relations department of the
company. The CVM also makes the information available to the
public, with the exception of information classified as
confidential by the company.
However, if disclosure of
periodical or transaction-related information would affect the
legitimate interests of the company, the company may elect not to
disclose such information, provided that it submits to the CVM the
reasons that lead it to believe the disclosure would place the
company�s interests at risk.
The means of publication
of required information by publicly-held companies are also
regulated. The information must be published in a
widely-circulated newspaper issued either in the same city as the
stock market on which the securities of the company were most
traded in the last two fiscal years, or in the city in which the
headquarters of the company is located. The company must use the
same newspaper for all publications. 7. REGULATORY FRAMEWORK OF LOCAL CAPITAL MARKETS7.1. Relevant Laws Affecting Local Capital Markets
The key law dealing with
securities markets in
Brazil
is Law No. 6,385 (the "Securities Law"). Additionally, Law No.
6,404 (the �Corporation Law�) contains relevant provisions for the
regulation of the capital markets.
The Securities Law creates
the Brazilian securities and exchange commission (Comissão de
Valores Mobiliários - �CVM�) and regulates the overall operation
of the capital markets, the public distribution of securities, the
listing of securities on exchanges, disclosure requirements,
activities of brokers and intermediaries, types of securities
negotiated and the types of companies which can be traded on the
capital markets. The Securities Law grants regulatory and police
powers to CVM.
The regulation of the Securities Law is made through resolutions, circulars, instructions, opinions, deliberations and other administrative rules issued from time to time by the National Monetary Council (�CMN�), the Central Bank of Brazil (the �Central Bank�), CVM, the stock exchanges and the organized over-the-counter markets (�Organized OTC�). 7.2. Local Regulatory and Supervisory Authorities7.2.1. The National Monetary Council Pursuant to the Securities Law, CMN has the following powers with respect to the securities market: (i) to define the general policy relating to the organization and operation of the capital markets, (ii) to issue regulations on the extension of credit in the market, and (iii) to determine general rules to be followed by CVM for the performance of its functions; and (iv) to define the activities which CVM must perform in cooperation with the Central Bank. 7.2.2. The CVM
CVM is the governmental
agency responsible for regulating and supervising compliance with
the Securities Law and all other aspects of the local capital
markets.
CVM is governed by a
president and four board members appointed for an indefinite
period by the President of
Brazil,
each of whom must have expertise in the securities market.
CVM also has police powers
over all participants in the local security markets. These
participants include brokers, dealers, financial institutions,
stock exchanges, Organized OTC, publicly-held companies,
investment funds and companies, portfolios and custodians,
independent auditors, consultants and market analysts.
CVM may take actions and
impose administrative sanctions on any persons and entities which
fail to comply with the Securities Law, the Corporations Law and
with other regulations which CVM is responsible for enforcing. The
primary sanctions that CVM may impose include: (i) issuance of
warnings; (ii) pecuniary penalties; (iii) suspension of the
registration or authorization to participate in the securities
market; (iv) temporary prohibition to participate in the
securities market; and (v) suspension and removal of directors and
officers of breaching companies, including companies participants
of the securities distribution system.
Civil and criminal
liabilities of the breaching party of the securities regulation is
not affect due to the imposition of any penalty on such breaching
party.
Brazil
has been a member of the Council of Securities Regulators of the
Americas (COSRA), International Organization of Securities
Commissioners (IOSCO) and Mercosul since the execution of these
agreements. To date CVM has entered into memoranda of understanding concerning information-sharing and legal assistance with the securities regulators in the following countries: United States (the SEC and the Commodities Future Trading Corporation), Germany, Argentina, Australia, Bolivia, Canada/Quebec, Chile, China, Equator, Spain, France, Hong Kong, Italy, Malaysia, Mexico, Paraguay, Peru, Portugal, Thailand and Taiwan. 7.2.3. The Central Bank
According to Law Nr.
4.595, the Central Bank is responsible for implementing policies
of CMN related to monetary policy, exchange controls, regulations
of financial institutions (including brokers and dealers), control
of foreign investment (including investment in the securities
markets) and such other matters regarding the securities markets
which CMN determines that fall under Central Bank regulatory
powers. The President of the Central Bank is appointed by the President of Brazil for an indefinite term and this appointment is subject to ratification by the National Congress. 7.2.4. Self-Regulation Self-regulatory organizations in the Brazilian securities markets, typically stock exchanges and the Organized OTC, act as ancillary institutions to CVM, being subject to the supervision of such agency. It is incumbent on such entities to police their members and to ensure compliance with applicable rules and regulations. There are, as well, pure self-regulatory entities, which are not subject to any scrutiny by CVM, as the Brazilian association of investment banks (Associação Nacional dos Bancos de Investimento - ANBID). 7.2.4.1. The Stock Exchanges
The main Brazilian stock
exchanges are located in São Paulo (�Bovespa�) and Rio de Janeiro
(�BVRJ�).
Securities, such as
shares, commercial papers, debentures and derivatives, are traded
on Bovespa. Government bonds are traded on BVRJ.
The functions of the stock
exchanges are to organize, maintain, register and supervise the
transactions of securities. For such purposes, the stock exchanges
may issue a regulation to complement the one enacted by CVM.
Currently, the following
negotiable instruments may be traded on
Brazil's
stock exchanges (i) securities duly registered with CVM, (ii)
rights arising therefrom, (iii) stock indexes and (iv) derivative
instruments and, (v) upon previous authorization of the Central
Bank and CVM, government bonds and other negotiable instruments
issued by private entities.
Recently, Bovespa
implemented the �home-broker� system, whereby investors can
deliver orders to their brokers through the internet, which, in
turn, are linked to the electronic systems of Bovespa.
On December 11, 2000,
Bovespa launched a new trading market (the "New Market") designed
exclusively for the listing and trading of shares issued by
companies, which accepts to be bound by corporate governance and
disclosure standards higher than those imposed by Brazilian law.
On the New Market, the
company must (i) issue common shares only; (ii) keep a free float
of at least 25% of its outstanding shares; (iii) extend to all
shareholders the same terms and conditions obtained by the
controlling shareholders in the event of a sale of control (tag
along rights); and (iv) disclose any self-dealing transactions.
Clearance for and
settlement of securities transactions are carried out by a local
clearing entity controlled by the stock exchanges and are done, as
a general rule, on the 2nd and on the 3rd business days following
the relevant closing date (financial and physical settlement,
respectively).
There is currently one clearing house in Brazil: Companhia Brasileira de Liquidação e Custódia (�CBLC�), a private company based in São Paulo, which provides custody and settlement services to Bovespa, BVRJ and SOMA (Organized OTC entity). 7.2.4.2. The Organized OTC1
The Organized OTC
comprises partnerships or commercial companies specifically
incorporated with the purpose of trading securities, in accordance
with CVM rules and subject to CVM�s prior approval.
The following securities
may be traded on the Organized OTC: (i) securities registered with
CVM for
trade in the Organized
OTC; (ii) certificates of investments in film production (certificado
de audiovisual); (iii) quotas of closed-end investment funds,
which were subject to a public distribution (such as, e.g., stock
mutual investment funds, real estate mutual investment funds and
others); and (iv) other securities expressly permitted by CVM.
Currently, there is only
one Organized OTC operating in
Brazil:
the Sociedade Operadora do Mercado de Ativos (�SOMA�), in Rio de
Janeiro. Central de Custódia e Liqüidação Financeira de Títulos (�CETIP�),
a clearing system, has also received an authorization to operate
as an Organized OTC, but has not started to operate under this
authorization yet. For the admission of a specific security in SOMA, a market maker specialized in the trading with such security must be appointed. 7.2.4.3. Associação Nacional dos Bancos de Investimento - ANBID
On December 09, 1998, the
National Association of Investment Banks (Associação Nacional dos
Bancos de Investimentos - ANBID) approved a self-regulatory code
(the �ANBID Code�), establishing certain disclosure standards
which should be followed by the members of ANDIB while
coordinating public offerings of securities in the Brazilian
market.
The ANBID Code sets forth disclosure rules for the public distribution of both debt and equity securities in the primary and the secondary market in Brazil. Pursuant to its provisions, the financial institutions acting as coordinators of the underwriting syndicate (�underwriters�) are responsible for the preparation of the prospectus. Such entities shall conduct independent due diligence to obtain all material information concerning the issuer's business, properties and financial conditions, the relevant securities and other facts which may have a bearing on the investor's decision with regard to the offered or solicited investment. The ANBID Code also establishes comprehensive rules for the minimum content of the offering prospectus., which must contain, at least, (i) information regarding the risk factors, (ii) description of the business of the issuer, (iii) management�s discussion and analysis of financial condition and results of operations of the issuer based on the three preceding fiscal years, (iv) information about outstanding securities of the issuer, and (v) relevant litigation affecting the issuer and transactions with related parties. 7.3. Definition of Securities
In
Brazil,
the concept of securities is formal and is statutorily defined.
According to the Securities Law and regulations thereof issued
from time to time, the following are deemed as securities: (i)
shares, founders shares (partes beneficiárias), debentures,
warrants and coupons of the aforesaid securities; (ii) stock
indexes; (iii) commercial papers; (iv) subscription rights; (v)
subscription receipts; (vi) options; (vii) share deposit
certificates; (viii) certificates of investments in film
production; (ix) certificates representing mercantile contracts
for deferred purchase of energy; (x) collective investment
contracts; and (xi) real estate receivable certificates. The CMN
is vested in powers to create other securities. The following negotiable instruments are expressly excluded by the Securities Law from the definition of securities: (i) federal, state and municipal public bills; and (ii) negotiable instruments issued by financial institutions. Negotiable instruments that are not deemed as securities are subject to the control and monitoring of the Central Bank of Brazil. 7.4. Offer and Distribution of Securities in Brazil7.4.1. Concept of Public and Private Offer and Distribution of Securities
The offering and
distribution of securities in
Brazil
are subject to the restrictions imposed by the Securities Law. Any
offering or distribution of securities to the public at large is
subject to prior registration with CVM.
The Securities Law defines
public offerings as those conducted by means of (i) the use of
lists or bulletins of sales or subscription, offering circulars,
prospectuses or advertisements made to the public; (ii) the search
for subscribers or buyers for the securities, by means of
employees, agents or brokers; and (iii) the negotiation in stores,
offices or any other places accessible to the public, or through
the use of any instrument of public communication.
Registration is intended
to provide adequate and accurate disclosure of facts concerning
the issuer and the securities it proposes to sell. The
registration, however, does not judge the risk inherent in
investing in the securities. Therefore, it does not preclude the
sale of securities in poorly managed or unprofitable companies. Issuance and distribution of debt securities outside Brazil by Brazilian companies are not subject to registration with CVM. 7.4.2. Registration Process The public distribution of securities in Brazil may only be made by companies which are registered with CVM as publicly-held companies. In addition to the registration with CVM prior to their distribution to the public, the company must also be accepted for trading on a stock exchange or on the Organized OTC where the relevant securities will be traded. 7.4.2.1. Registration of the Issuer as a Publicly-Held Company The documents and information required for the registration with CVM include by-laws, minutes of the meeting appointing an investor relations officer and audited financial statements of the three preceding fiscal years. The registration of a company with CVM usually takes from 30 to 120 days. The stock exchanges and the Organized OTC usually require the filing of the same documentation submitted to CVM in order to approve the trading of securities on such entities. 7.4.2.2. Requirements for a Public Distribution of Securities
The public offer or
distribution of securities, either on the primary or on the
secondary market, must be previously authorized by CVM. For such
purposes, the coordinator of the transaction shall file with CVM
the documentation required in the applicable regulations, which
includes: (i) minutes of the meetings of the corporate body,
approving the issuance of the securities; (ii) a copy of the
agreement for the distribution or underwriting of the securities;
(iii) a draft of the agreement entered into between the members of
the syndicate for the distribution of the securities; (iv) a copy
of the stabilization contract, if any (stabilization is not
permitted without such contract); (v) a draft of the prospectus,
in accordance with the guidelines of the ANBID Code; The registration for public distribution has the same characteristics of the one related to the securities� distribution by publicly-held companies. 7.4.3. Issue of Depositary Receipts: Access to the Foreign Capital Markets Brazilian companies may access foreign capital markets to raise funds through the issuance of equity securities by establishing a depositary receipt program.
Depositary Receipts (�DRs�)
are certificates evidencing shares or other stock-related
securities issued by a Brazilian publicly-held company.
The implementation of such
program requires the appointment of a non-Brazilian depositary,
which will issue the depositary receipts abroad based on the
shares custodied in its name in
Brazil,
in another Brazilian custodian, which will be designated by the
depositary to custody the shares underlying the DR.
The DR program may or may
not be sponsored by the Brazilian issuer of the underlying
securities.
The establishment and
operation of a DR program requires the prior approval of CVM and
the Central Bank. Registration with CVM is required to ensure the
same level of disclosure to the holders of both DRs and the
underlying securities. Registration with the Central Bank is
required for the transfer of funds from and to
Brazil.
After the registration of the program with CVM and the Central Bank, shares held by Brazilians or foreigners may be at any time deposited with the custodian for the issuance of the corresponding DRs abroad. Foreign investors may sell the DRs abroad or request the cancellation of the DR and sell the underlying shares in Brazil. 7.4.4. Access to the Brazilian market by Foreign Companies through BDR Programs
Foreign corporations may
trade
their securities in the Brazilian stock markets through the
issuance of securities deposit certificates issued by Brazilian
institutions, representing securities issued by foreign
publicly-held companies (�BDRs�). The establishment of BDR
Programs must be previously approved by CVM and the Central Bank. BDRs may be issued either in a sponsored program, which has three different levels, or in a non-sponsored program. In either case, the issuer of the underlying securities must be subject, in its country of origin, to the supervision of an agency with function similar to that of CVM and which has executed a cooperation agreement with CVM. 7.5. Tender Offers for Shares of Brazilian Companies7.5.1. Take-Overs through Tender Offer According to the Corporation Law, the acquisition of control of a Brazilian publicly-held company by means of a tender offer may be made in cash or through exchange with shares.
The offer must be made for
a number of voting shares sufficient to ensure the control of the
company and must be made through, and guaranteed by, a financial
institution.
The tender notice (edital) shall disclose, among others, the identity of the acquirer, the number of shares it proposes to acquire, the price and other payment conditions, the procedure for the tendering of the shares, and other terms and conditions of the tender offer. 7.5.2. Going Private - Delisting Tender Offer
The controlling
shareholder may at any time make a tender offer for the
acquisition of all voting and non-voting shares held by minority
shareholders, for the purpose of delisting the corporation.
Under a delisting tender
offer, the minority shareholders are called to (i) sell their
shares to the controlling shareholder; and (ii) express their
opinion in favor of or against the delisting.
The delisting is subject
to the cumulative fulfillment of two conditions, namely: (i)
shareholders representing at least 51% of all outstanding shares
of the corporation (voting and non voting shares) must approve the
delisting in a shareholders' meeting called for such purpose; and
(ii) shareholders representing at least 67% among the shareholders
who had agreed to sell shares, vote in favor of or against the
delisting must either sell their shares at the offer or approve
the delisting.
If the 67% limit is not reached, the company is not delisted, the controlling shareholder (i) may acquire only up to 1/3 of the free float and (ii) may not launch a new tender offer during the two years following the settlement of the first offer.. 7.5.3. Voluntary Tender Offer
The acquisition of shares
by a controlling shareholder of a Brazilian publicly-held company,
without making a tender offer, is limited to 10 % of each class or
type of shares.
The tender offer must be
approved in advanced by CVM and may be conditioned upon the
acceptance of a maximum or minimum number of shares. The tender
notice (edital) must contain the following information, among
others: (i) terms and conditions of the offer, (ii) if the tender
offer is a condition of any transfer of control transaction and
the kind of such condition, (iii) reasons and goals of the offer
and (v) if the controlling shareholder has the intention to delist
the company.
Furthermore, if the
controlling shareholder makes a new purchase offer within two
years at a price higher than the one paid to those who accepted
the first offer, such earlier sellers must be reimbursed for the
balance of the prices.
Lastly, if within one year
of the offer any event occurs that leads to exercise of the
withdrawal right, the shareholders who sold their shares in the
tender offer, but would have the right to withdrawal, if they had
not sold their shares, will be entitled to any positive difference
between the withdrawal price and the price paid at the time of
acceptance of the offer. In the event the tender offer has the purpose of acquiring more than 1/3 of the free float or result on the acquisition of more than 1/3 of the free float, the rules established for delisting tender offer must be followed. 7.6. Investor Protection Rules7.6.1. Disclosure by Publicly-Traded Companies
Publicly held companies
must divulge quarterly financial statements (Informações
Trimestrais - ITRs) and annual reports (Demonstrações Financeiras
Padronizadas - DFP and Informações Anuais - IAN, which is
equivalent to an SEC F-20 form). The reporting company must also publish notices of certain facts (Fato Relevante) whenever any act of fact which may materially affect the trading of securities takes place. 7.6.2. Disclosure by Shareholders of Publicly-Traded Companies
Controlling shareholders,
officers, and managers of a publicly-traded company must notify
CVM and the stock exchange or Organized OTC where the securities
of such company are traded whenever there is a 5% increase in
their holdings of any class or type of shares in the company. The
information to be furnished includes the number of shares
purchased, the price at which the securities were acquired, the
reasons and the objectives related to the acquisition and a
statement by the purchaser regarding the existence of any
agreement related to the exercise of voting right or to the
transfer of securities issued by the company. Non-controlling shareholders are required to inform to CVM and to disclose to the market whenever their direct or indirect participation in the voting capital of publicly-held companies increases by 10%. Such information must contain, at least, the identity of the acquirer, the purpose of the acquisition(s), the number of shares acquired, the total participation in the voting capital of the company, if the acquirer owns debentures convertible into voting shares and the existence of any agreement related to the exercise of voting rights or to the transfer of securities issued by the company. Thereafter, any increase of 5% in the voting capital must be equally informed and disclosed. 7.6.3. Market Manipulation and other Fraudulent Practices in the Securities Market
CVM rules also addresses
(a) market manipulation, (b) creation of artificial demand, supply
or price conditions, (c) adoption of unfair practices and (d)
fraudulent transactions.
Price Manipulation in the
securities market is the use of any process or means to, directly
or indirectly, increase, maintain or decrease prices of
securities, inducing third parties to buy or sell such securities.
Artificial demand, supply
or price conditions, in the securities market, are created by
transactions in which the participants or broker, by willful
misconduct or omission, alter, directly or indirectly, the flow of
purchasing and selling orders.
Fraudulent transactions in
the securities market are those transactions which use any
mechanism or device intended to mislead third parties, aimed at
obtaining illicit economic advantages for the parties involved in
the transaction or for any other party.
Unfair practices, in the
securities market, are those which result in an unfair dominant
position of one party vis-à-vis the other market participants in
the trading with securities
Breach of such rules is
deemed a serious offense by CVM regulations, and may subject the
participants to penalties ranging from admonition to 20-year
suspension of the license to operate in the capital markets.
Furthermore, an investor who is damaged by such prohibited conduct
has the right to an indemnification for losses and damages
suffered. There have been few cases brought before the courts and, therefore, it is not possible to establish a definite trend of judicial interpretation with respect to market manipulation. 7.6.4. Insider Trading �Insiders� are defined as controlling shareholders and managers (directors and officers) of the company. Pursuant to CVM rules, insiders may not use information relating to a material act or fact to which they had privileged access due to their position to obtain for themselves or other persons any advantage through the trading of securities.
Although not defined as
insiders, the following persons are subject to the same
restrictions: brokers, dealers and other members of the
distribution system and whoever, due to his/her position or
function or for any other reason, has knowledge of material
information prior to its disclosure to the market. Family
relationships are taken into account in determining insider
status. Insider trading is also considered a serious offense by CVM regulations, subjecting the participants to penalties. Furthermore, where an investor has been injured by insider trading in the purchase or sale of securities, such investor has the right to indemnification for the losses and damages suffered. 7.7. Money Laundering Law
Law No. 9,613 of March 3,
1998, provides for criminal offenses of money laundering or
concealment of assets, rights and valuables (the �Money Laundering
Law�).
The Money Laundering Law
presents several obligations for legal entities engaged in the
securities industry, including stock and commodities exchanges,
Organized OTCs, banks, brokers, dealers, asset management
companies, branches and representatives of foreign financial
institutions. The obligations imposed on such entities by the Money Laundering Law include: (a) to identify and maintain data on all clients; (b) to keep for a 5-year period a file on all transactions performed by such clients which exceed certain established limits; (c) to comply with all requests of the Financial Activities Controlling Council ("COAF"), as determined by the relevant courts; and (d) to develop and implement internal controlling systems to monitor and detect transactions which may constitute money laundering such as operations involving amounts not in consistency with the financial situation of the parties, tradings which repeatedly cause losses or profits to one of the involved parties and negotiations involving amounts substantially above market conditions. 7.8. Civil Remedies7.8.1. Securities sold in Violation of the Registration and/or Prospectus Requirements
Where an investor has
purchased a security which was sold in violation of the
registration and/or prospectus requirements of the Securities Law,
the following remedies are available: (i) an action for the
recovery of damages based on the Corporations Law which may be
commenced by the Office of the Public Prosecutor ex officio or
upon the request of CVM; and (ii) an action for the recovery of
damages based on Article 159 of the Brazilian Civil Code which may
be commenced by a person who has been injured by any action or
omission of an individual or company.
Investors may also recover
damages against anyone who has been engaged in fraudulent
transactions or transactions involving artificial conditions of
demand, price manipulation or inequitable practices.
Derivative actions for
misleading information or omissions may be brought against the
issuer's administrators (directors and officers) based on Articles
155 and 157 of the Corporations Law. Any shareholder may initiate
a derivative action if the board remains inactive for more than
three months after a decision taken by the shareholders' meeting.
Shareholders representing 5% or more of the company's capital may
initiate a derivative action, despite a decision of the
shareholders' meeting to the contrary. Any investor may also sue issuers, underwriters and intermediaries if their concurrence in the act which inflicted damage on, such investor can be proven. 7.8.2. Insider Trading Where an investor has been injured by insider trading in the purchase or sale of securities, the remedy available is an action based on. CVM Instruction No. 8 and Article 94, 158 e 159 of the Civil Code. 7.8.3. Fraudulent Brokerage Activities and Handling of Brokerage Accounts7.8.3.1. Excessive or Unfair Profits or Commission Where an investor has been injured by fraudulent brokerage practices in the purchase or sale of securities, such as the undertaking of excessive or unfair profits or commissions, the remedies available include an action for injuries based on Article 159 of the Civil Code or Articles 18 et. seq. of the Brazilian Consumer Protection Code. While actions under the Civil Code are nominally subject to a statute of limitations period of 20 years, actions under the Consumer Protection Code are normally subject to a period of 5 years. 7.8.3.2. Operating While Insolvent or Not in Sound Financial Condition and Other Losses Caused by Intermediaries If an investor has been injured by a broker who was operating while insolvent or otherwise not in sound financial condition and other losses caused by intermediaries, the remedies available include an ordinary action under Article 159 of the Civil Code. 7.8.4. Class Actions Class actions in Brazil are restricted to environmental matters and certain other specific situations which do not include securities matters. However, the Public Prosecutor may commence actions on behalf of and for the benefit of investors under Law No. 7913. 7.8.5. Waiver of Rights Investors acquiring a security may, in principle, waive their rights under the securities laws, rules and regulations. However, such waivers may be disregarded by a judge if not conspicuously communicated to investors or if such waiver is deemed to contravene fundamental principles of investor protection. Consumer protection provisions are considered a matter of public order and, accordingly, nominally may not be waived. For the same reasons, private agreements will not preclude actions brought by CVM or any stock exchange. 7.8.6. Procedural Requirements7.8.6.1. Jurisdiction The state courts generally have jurisdiction over civil suits seeking a remedy for a securities violation. The statutory basis of jurisdiction is found in the Brazilian Code of Civil Procedure. 7.8.6.2. Venue Except as otherwise provided by the parties, the courts of the domicile of the defendant are competent to hear any case. 7.8.6.3. Statute of Limitations on Actions and When It Begins to Run
Under Article 177 of the
Brazilian Civil Code an action in personan (against a person
involving personal rights) is subject to a 20-year statute, of
limitation and an action in rem (against, property) to a period of
10 years. There are various exceptions to this basic rule. 8. TAX SYSTEM8.1. General Features
8.1.1. The current
Federal Constitution, which was promulgated on October 5, 1988,
allocates taxing power between the Union, the States and
Municipalities, granting unto each of them the power to levy
tributes.
8.1.2. Tributes in
Brazil
are divided into taxes, betterment fees, social contributions,
other contributions and compulsory loans. Each level of
government is alloted specific taxes which are listed in the
Constitution.
8.1.3. Fees are levied
based on police power (regulatory fees) or they are the
counterpart of specific and divisible public services actually
rendered or made available to the citizens (service fees).
8.1.4. Betterment fees
(which are not commonly levied) are collected from the owners of
real state that benefits from public works.
8.1.5. Contributions can
only be levied by the Federal government. These contributions
are: (a) social contributions; (b) to intervene in the economic
domain, (c) in the interest of professional or economic
categories and (d) to finance social security.
8.1.6. Compulsory loans
can also be levied, but only by the Federal government.
Compulsory loans can only be collected in case of urgent public
investment and in case of relevant national interest or to
defray extraordinary expenses resulting from public calamity,
war or imminence thereof.
8.1.7. Unless otherwise
expressly specified in the Constitution, the creation and
collection of tributes must obey some fundamental constitutional
rules, among which deserve to be mentioned:
8.2. Federal Taxes The following taxes may only be levied by the Federal government: Import duties; Export duties; Income and capital gains tax; Tax on industrialized goods; Tax on credit and exchange transactions, on insurance and on securities; Tax on rural land and Tax on large fortunes. 8.2.1. Income Tax:
(a) Income tax is
assessed on income and capital gains earned by resident
individuals from domestic or foreign sources at the rates of 15%
and 25% (depending on the level of income); corporate income tax
is assessed on profits and capital gains generated by operations
carried out within
Brazil
or abroad.
(b) corporate income tax
is normally assessed on
net
profits generated by operations carried out by the company.
Taxable income is equal to
net
profits (ascertained in quarterly or annual balance sheets)
adjusted by additions and deductions set forth in income tax
legislation.
(c) Corporations
required to calculate their income tax on
net
profits adjusted by additions and deductions set forth in income
tax legislation may opt to estimate it in accordance with
special rules set forth in income tax law.
(d) Current corporate
income tax rate is 15% regardless of the corporation�s business.
There is a 10% supplementary tax on the portion of
net
profits which exceeds R$ 20.000,00 per month.
(e) Dividends based on
profits ascertained as of January 1, 1996 paid out or credited
by corporations are no longer subject to income tax (either at
the source or as part of the taxpayer�s return), whether paid
out to individuals or corporations domiciled in
Brazil
or abroad.
(f) Withholding income
tax (IRF) is imposed on income paid, credited, remitted or
delivered to non-residents, at the rate of 15% or 25% according
to the nature of the income (as of 01.01.2001, a regulatory fee
will be also imposed on the remittances of royalties or any
compensation deriving from transfer of technology, at the rate
of 10%, cases in which the withholding income tax rate is 15%).
As noted above, dividends are not taxed.
(g) As of January 1,
1997 a number of rules were introduced in income tax law to
regulate transfer pricing in deals carried out by resident
individuals or corporations with non-resident parties regarding
importation and exportation, and payment of interest abroad.
These rules apply to deals which involve the following
situations: (i) a domiciled corporation that carries out
business with non-domiciled related parties; (ii) a domiciled
individual or corporation which carries out business with a
related or unrelated party domiciled in a country where income
tax is assessed at a rate lower than 20% or non-existent.
8.2.2. The tax on
industrialized goods (IPI) is levied on the output and on the
importation of industrialized goods. IPI is a value-added tax;
the amount of tax due may be off- set by the credits arising
from the tax imposed on the purchase of raw materials,
intermediary products and packaging materials. However, such
mechanism is not applicable to credits related to fixed assets.
Rates are assessed on the value of industrialized goods as they
are imported or output from domestic plants, and vary in
accordance with the nature of goods; the average rate is 10%
which may be increased or lowered by the tax administration. IPI
is not levied on exports.
8.2.3. The Tax on credit
and exchange transactions, insurance and securities (IOF) is
assessed on the amount of bank loans and similar transactions,
on the amount of foreign currency purchased or sold, on
insurance premiums and the price of securities sold or
purchased. The Tax rate depends on the kind of the operation. 8.2.4. The Tax on large fortunes (IGF) has not been created yet. 8.3. State and the Federal District Taxes
States and the Federal
District are allocated the following taxes:
8.3.1. ICMS is the main State tax and is imposed on operations regarding the circulation of goods, including importation, and on interstate and intermunicipal transportation and on communications services. ICMS is a value-added tax which allows the taxpayer to record input tax credits from the ICMS paid on the purchase of raw materials, intermediary products, packaging materials. Credits related to fixed assets are admitted with restrictions. Interstate rates vary from 7% to 25% (average rates are 18% for RJ, SP, MG and RS and 17% for other states and DF); in interstate operations applicable rates are 7% or 12% depending on destination. ICMS is not levied on exports. 8.4. Municipal Taxes
8.4.1. Municipalities
and the Federal District are granted the following taxes:
8.4.2. ISS is levied on the rendering of certain services listed in federal law. As a rule, the average rate is 5%. 8.5. Social Contributions
8.5.1. The Federal
government may levy the following social contributions to fund
social programs:
9. ANTI-TRUST LEGISLATION
For almost thirty years,
Brazil
had an antitrust law that although greatly inspired by the U.S.
regulatory model was in fact inoperative. The mechanisms created
to enforce Law no. 4,137, of September 10, 1962, were swept in the
bureaucratic system of the government.
In 1990 and 1991, however,
Laws nos. 8,002 and 8,158 helped to focus on a new set of issues
such as the establishment of a new economic order, as well as the
protection of free competition and of the consumers� rights. It
was in this scenario that Law no. 8,884 was enacted on June 11,
1994.
The powers of the
antitrust enforcement agency CADE (Administrative Council of the
Economic Defense), formed in 1962, were strengthened. As a
government agency under the Ministry of Justice, CADE is now
better equipped to carry out its constitutional duties. CADE,
assisted by the Secretary of Economic (SDE) and the Secretary of
Economical Follow-up (SEAE) Law of the same Ministry of Justice,
exerts its powers on behalf of the community, and as such
considers to have jurisdiction over any acts performed outside the
country which may have any consequences in
Brazil.
The Law deems it a domestic company any foreign company which has
any subsidiary, branch, agency, office, representative or the like
in
Brazil (article 2, §
1o , modified by Law no. 10.149, dated 21/12/00). Therefore, as
provided in § 2o of the same article, the foreign company shall be
notified of all procedural acts, independently of any power of
attorney or any contractual or statutory provisions, in the person
responsible for its branch, agency, subsidiary or any other
establishment in
Brazil.
Law no. 8,884/94
specifically states these authorities� jurisdiction over any and
all individuals and legal entities, whether public or private,
organizations and joint ventures, including those of a temporary
nature, or without legal personality. The new antitrust Law also
sets forth the instances where there will be individual liability
of the officers, severally or jointly with the company itself. In
addition, Section 18 admits, under limited circumstances, the
theory of disregard of the legal entity (piercing the corporate
veil).
Among those acts contrary
to the economic order and therefore prohibited by the antitrust
law are, for instance, to limit or impair any free competition; to
control any relevant market of goods and services; arbitrary
increase of profits and the abusive exercise of economic power.
Furthermore, the following acts are contrary to the Brazilian
legal system now in force: any price fixing agreements between
competitors; market sharing covenants; any obstacles created to
new competitors attempting to enter the market; dumping;
restraints on the
trade
of certain goods to increase prices; and fixing of any excessive
prices. The Law also lists at least twenty-four different kinds of
infringement to be carefully examined, whenever considering any
business association or combination of efforts. The penalties can
be, based on the nature of the infringement, the number of times
it has occurred, and the economic situation of the infringer. They
may reach thirty percent of the company�s total gross sales in the
preceding year, together with fines ranging from 10% to 50% of the
amount of the transactions, that can be charged in double in case
of recurrence. Moreover, it is worth mentioning that there are
other penalties which could be imposed such as prohibition to do
business, to enter contracts or request fiscal or legal incentives
from government-owned companies.
The unexcused non
appearance of the defendant or third parties, when notified to
render oral explanations, in the course of preliminary
investigations or of administrative procedures, shall subject the
absentee to a fine from R$ 500,00 (five hundred reais) to
10.700,00, (ten thousand and seven hundred reais), taking into
consideration his financial situation (article 26, § 5o, wording
given by Law no. 10.149/2000). Moreover, the defendant may be
subject to a penalty from R$ 21.200,00 (twenty-one thousand and
two hundred reais) to R$ 425.700,00, (four hundred and twenty five
thousand and seven hundred reais), taking into consideration his
financial situation, in case he may impede, obstruct or in any
other way raise difficulties to the accomplishment of any
investigation, be it in the administrative procedure or in its
preliminary phase (article 26 - A, introduced by Law no.
10.149/2000).
Another innovation created
by Law no. 10.149/2000, relating to the above mentioned penalties,
is the possibility to obtain and execute a lenient settlement with
authorities, through which individuals or the legal entities
responsible for the violation to the economic order will be
exonerated from any punitive action by the public administration
or at least obtain a reduction from one to two thirds of
applicable fine, should they decide to collaborate with the
investigations and the administrative procedure (article 35-B).
We should also note that
CADE, SDE and SEAE procedures may be initiated based on any
third-party claim. CADE�s decisions are, from an administrative
standpoint, unappealable, which means that the aggrieved party may
refer only to the judiciary power if it wishes to pursue further
legal actions.
Law no. 8.884/94 also
provides for the obligation to submit to CADE�s approval any
transactions that may hinder any free competition or result in
dominance of a certain market. Submission may be effected prior to
completion of the transaction or within a maximum term of 15
(fifteen) working days immediately thereafter (from January 1st
the fee shall be R$ 45.000,00)2. CADE�s prior approval is usually
preferable if we take into account the complexities and
undesirable consequences of an �a posteriori� submission,
including a potential unwind of an action or series of actions
already implemented. It is important to note that, for article 54 purposes, one must consider acts that may prejudice free competition or result in market domination, and so must be submitted to CADE for approval, the amalgamation of companies or group of companies resulting in a market share of over twenty percent, or if any of its participants has registered an annual gross invoicing equivalent to R$ 400.000,003 (four hundred thousand reais).
Article 54 evidences that
many acts of amalgamation may be approved, once certain
circumstances of fact and law are duly justified (increase of
productivity, better quality, technology improvement, no direct
damage to the existing competition, and above all, clear benefits
to consumers as a result of price reduction). At last, CADE may
condition its consent to certain undertakings by the interested
parties which shall otherwise incur penalties for non-compliance.
On August 19, 1998, CADE
issued Resolution no. 15, which details the information and
documents required to be attached to an application, be it made
before or after the judicial act. The list of required data is
very comprehensive and may present some difficulties to the
submitting party, since some documents refer to international
levels.
On its final part, Law no.
8884/94 provides for, under certain circumstances, the possibility
of taking over violating companies, by means of a judicial order,
and thereafter nominating an intervenor to manage them.
At last, we wish to point
out the existence of a draft law, which foresees the creation of
the National Agency of Consumers and Competition Defense (ANC),
which shall substitute CADE, SDE and SEAE. The main changes
suggested by this draft law, which shall still be approved by the
National Congress, are the following: (a) the general director of
ANC shall have powers to take decisions without submitting them to
the Competition Court (CADE´s substitute), (b) there shall be a
reduction in relation to the level of companies ´s invoicing
obliging them to submit any acts to CADE´s consent, from annual R$
400.000.000,00 (four hundred million reais) to annual R$
150.000.000,00 (one hundred and fifty million reais), (c) the term
for acts presentation to CADE shall be reduced. 10. LABOR LAW IN BRAZIL
Labor Law in
Brazil
was influenced by transformations in Europe, the various countries
concern in creating law to protect workers, and particularly the
commitment made by the country with the International Work
Organization, which combined with important domestic factors -
such as the government labor policy and the industrial upsurge -
triggered the creation of a series of laws.
Only in 1943, the
Consolidation of the Brazilian Labor Laws (CLT) was created to
group the few laws existing at that time in addition to the
institutes developed by legal scholars.
The Consolidation of the
Brazilian Labor Laws (CLT), the primary legal system that rules
labor relationships, accounts for more than 900 articles.
Among the chapters forming
this system there are important norms relating to: Labor Safety General Norms, Working Hours Duration, Minimal Salary and Vacations Norms, Medicine and Occupational Safety Norms, Special Work Tutorship Norms, Work Nationalization Norms, Woman Work Protection Norms, Underage Work Protection Norms, Individual Employment Contract Norms, Workers �Union and Trade Association Norms and Classification,
Workers� Union and
Trade Association
Contribution Norms.
Besides, the CLT has the
whole legal system concerning Labor Court, such as applications
and related agencies, also stating the norms that rule labor
proceedings in
Brazil.
Although the CLT was
enacted in 1943, with the passing of time the Brazilian legal
system was modernized with the creation of a number of laws ruling
certain issues such as the Law concerning Strikes, or the laws
that brought new wording to CLT�s articles.
With the enactment of the
Federal Constituition in 1988, in addition to the labor norms duly
consolidated, new labor rights were created or improved in the
body of the final version.
The labor rights provided
for by labor laws stemming from either the CLT, specific laws or
from the Federal Constitution are the following: (1) minimal salary; (2) 44-hour weekly working hours; (3) salaries not decreased; (4) unemployment insurance; (5) 13th salary; (6) profit sharing; (7) additional pay for overtime; (8) annual vacations; (9) maternity leave; (10) paternity leave; (11) prior notice; (12) retirement; (13) approval of collective norms; (14) employment-related accident insurance; (15) Workers � Compensation Fund; (16) right to strike; (17) provisional tenure for members of Internal Commission for Accident Prevention, employees victims of employment-related accident and the pregnant employee; (18) tips; (19) commission; (20) family allowance; (21) education allowance; (22) transport pass; (23) food pass; (24) children�s aid; (25) unhealth premium; (26) risk premium; (27) night premium; (28) transference premium; (29) funeral aid; (30) weekly paid rest; (31) unemployment insurance;
(32) signed social
card.
Finally it is important to
emphasize other sources of law existing and which are respected by
the Brazilian legal system.
(a) Collective Bargaining
and Collective Labor Agreements;
(b) Superior Labor Court
Jurisprudence Statements;
(c) Norms issued by the
Ministry of Labor; and
(d) some Agreements
developed by the International Employment Organization.
As a consequence of the
high cost borne by companies related to the so-called labor
charges, the number of companies adopting outsourcing and the
flexibilization of labor rights resulting Collective
Bargaining/Agreement grew substantially.
There is a clear tendency
in recent decisions rendered by the Superior Labor Court towards
accepting flexibility as an important fact in the current phase of
development of employment relationships.
In fact,
Brazil
has been undergoing an important historic moment where large
changes are expected to occur.
11. FOREIGN WORK IN BRAZIL
The Ministry of Labor,
through the Immigration General Coordination (CGIg), has the
specific competence of being responsible for the work
authorization for foreign nationals, to issue a concession of
visas, according to the Law NR. 6.815 dated of 19 August of 1980.
There are different sorts
of visas defined by the Brazilian Laws, whose eligibility depends
on each specific situation and purpose of the trip. Therefore, not
all of them allow foreigners to work in
Brazil.
Generally, there are no restrictions about the nationality of the
applicant and spouse or children under 21 years old.
The law establishes 7
(seven) categories of visas:
The most commonly used types of visas are the tourist, temporary and permanent visas. 11.1. Visas for Short-Term Business Visitors and Tourists
Persons from some
countries will require a visa to travel to
Brazil
on short-term business or for tourism. Business visitors or
tourists traveling on these types of visas must not work or render
any kind of technical assistance, nor receive remuneration for
services from any source in
Brazil.
The Business visa may be
obtained at the Brazilian Consulate having jurisdiction over the
place of residence of the applicant, and the application generally
consists of the following:
The Business visa allows
the foreigner to participate in meetings, conferences, fairs, and
seminars, to visit potential clients, to research the market and
to perform similar activities. Foreigners holding this visa shall
not work in
Brazil,
subject to the application of a fine to the company employing
foreigners bearer of the inappropriate visa, as well as to
deportation of the foreigner.
Tourists� visa
applications usually only requires a round-trip airline ticket.
This type of visa only supports tourism purpose trips, subjecting
the company that employs foreigners holding this visa to the
application of a fine and to the deportation of the foreigner.
If a visa is required for
the country to which the applicant is going after
Brazil,
that visa must already be included in the passport, prior to
requesting the Brazilian visa. The visa is generally issued within 24 hours. This type of visa may be valid for a period up to 90 (ninety) days from the date of first arrival in Brazil. It may be utilized for multiple entries during that period. An extension for a further period up to three months may be obtained from the Immigration Authorities in Brazil, prior to expiration of the visa. In any case, the foreigner may only remain in the country for 180 days within a 365-day period (not calendar year). 11.2. Temporary Work Visas
For persons coming to
Brazil
on a temporary basis for working purposes, there are other
categories of visas:
The applicant for any of these types of visa shall previously obtain a Work Authorization from the Brazilian authorities. It is an administrative act, which comes under the competence of the Ministry of Labor, as an exigency of the Brazilian Consular Authorities, according to the national legislation, to obtain a concession of permanent and/or temporary visas, for foreign nationals wishing to work in Brazil. Upon approval, the work authorization shall be published on the Federal Official Gazette, and the designated Consulate shall be notified, so that the foreign national may apply for the visa issuance. 11.3 Other Temporary Visas
The visas listed below do
not allow its bearer to work in
Brazil
or receive any remuneration from a Brazilian source:
(1) Mission of Studies
and Religious Mission: The candidate must not receive any
compensation in
Brazil.
This visa may be granted to religious persons for specific
mission in
Brazil
for up to one year.
(3) Trainees. This visa
is eligible to foreigners who intend to come to
Brazil
for a trainee program during the 12 month period after
graduation, with no labor relation to any Brazilian entity. Visa
application requires proof of graduation within the last 12
months, as well as proof that any kind of remuneration shall be
paid exclusively from abroad. This visa may be granted for a
maximum period of 1 year.
(4) Internship Programs.
This visa is eligible to foreign individuals admitted to an
internship program, including employees of foreign companies in
internship program in the Brazilian subsidiary, with no labor
relation to any Brazilian entity. Visa application requires
Commitment Term executed between the intern, the Brazilian
institution and responsible control entity. This visa may be
granted for a maximum period of 1 year. (5) Health Treatment. This visa is eligible to foreign individuals who intend to come to Brazil for health treatment purposes. Visa application requires medical recommendation and proof of the means for payment of the health treatment 11.4. Permanent Employment Visa
The Permanent visa may be
issued, basically, under two circumstances: (i) family relation to
a Brazilian national (marriage, children); or (ii) appointment to
the representation and managing position of a Brazilian company
(Statutory Director).
In case the candidate is
married to a Brazilian citizen or has a Brazilian child he/she
shall be eligible for applying for a permanent visa at the
Brazilian Consulate abroad, before coming into the country, or at
the Ministry of Justice if the candidate is already in the
country. In this case, the candidate shall be allowed to work in
Brazil.
The permanent visa may
also be issued in the case of a foreign company that has a branch
or subsidiary in
Brazil,
and wishes to transfer a statutory director or manager to the
Brazilian company. Therefore, individuals who will be permanently
transferred to
Brazil
to work for a subsidiary or branch of a foreign-owned company in
the capacity of director or manager may apply for a permanent
employment visa. To apply for a permanent visa for its director or
manager, the company must have, at least, US$ 200,000 invested in
Brazil
and registered within Central Bank of
Brazil. In addition, persons who have been employed in Brazil in a temporary capacity (regardless of whether the company is Brazilian or foreign owned) for a period of four years, may apply to convert their status to permanent. To obtain permanent employment authorization for an individual working in Brazil on a temporary basis for four years, application must first be made to the Ministry of Justice at least 30 (thirty) days prior to the completion of the four year term. 11.5. Registration upon Entry into Brazil
All foreign who enter in
Brazil
holding a Temporary Work visa or a Permanent visa must register
with the Federal Police/Ministry of Justice and obtain the
foreigners ID card within 30 (thirty) days of arriving in
Brazil.
This rule applies only to alien residents in
Brazil,
immigrants, and temporary residents coming for employment.
Artists, sportspersons, tourists or short-term businesspersons are
not required to register.
Temporary work visa and
permanent visa holders shall also register before the taxpayer
registry office (Federal Revenue) for taxation purposes, provided
that the worldwide remuneration shall be taxed according to the
Brazilian tax legislation. Upon definitive exit from
Brazil
and repatriation, the foreigner shall present to the Federal
Revenue the so-called �Declaration of Final Departure� and request
the cancellation of the taxpayer registration in order to cease
levy on the individual remuneration. Furthermore, professionals employed by a Brazilian company shall also obtain the so-called �Labor Card� in order to comply with Brazilian labor legislation. 11.6. Travel in Advance of Permanent or Temporary Employment Persons needing to conduct business in Brazil prior to obtaining employment authorization and the appropriate visa, may do so by obtaining a short-term business visa. However, they shall not work in Brazil or receive any remuneration locally until the employment authorization and visa are issued. Furthermore, the individual must obtain the permanent or temporary visa outside of Brazil. 11.7. Employment of Spouses/Children
Accompanying spouses and
children are allowed to remain in the country as a dependent of
the visa holder for as long as his/her visa is valid. However,
spouses and children are not permitted to engage in employment or
any work activity while residing temporarily in
Brazil,
but they shall be authorized for employment if converted to
permanent resident status. 12. ACQUISITION OF REAL ESTATE IN BRAZIL12.1. Introduction
Under Brazilian law,
questions relating to property are governed by the law of the
place where the property is located. Thus, issues regarding real
estate property situated in
Brazil
are governed primarily by the Brazilian Civil Code (�BCC�).
Pursuant to the Brazilian
Civil Code, assets are divided into two broad categories: movable
and immovable. Movable are those assets which can be moved by
external forces or by themselves, without causing their own
destruction or devaluation.
Immovable assets are those
which are by nature immovable or fixed in the land, and can not be
partially or totally removed without causing their own destruction
or devaluation. The category of immovable property comprises land
together with its surface, and all things attached to or forming
part of the land, the air space above the land and the subsoil,
except for the mines and products from the subsoil, as well as
waterfalls, which constitute, for the purposes of exploitation and
usage, separate assets from the land. In this sense, according to
the Brazilian Federal Constitution (�Federal Constitution�), the
exploitation of mineral resources and hydroelectric power requires
federal authorization or license. Some assets, however physically
movable, are considered immovable by the law, by reason of the use
to which they are put by the owner, i.e., industrial machines and
equipments. Likewise, property rights are also treated as
immovable property, such as rights in rem over immovable property,
government stock incorporating an inalienability clause, and the
right of an heir to inherit property. Foreigners individuals or foreign-owned companies can acquire real estate property in Brazil in the same conditions applied to national individuals or companies. However, special conditions may apply to foreigners or to foreign-owned companies, referring to the purchase of property located near the coast or frontiers or certain specific areas designated as being of national security. Rural areas can be acquired by foreigners or foreign-owned companies, according to specific law dispositions, which will be discussed in item 3.2. Foreigners or foreign-owned companies can also acquire rights in rem related to immovable property. 12.2. Possession and Ownership
With respect to real
estate properties, two broad categories of rights emerge: the
right of possession and the right of ownership:
(i) The right of
possession is a personal right to exercise certain powers of
ownership such as: the right to claim, maintain or recover the
possession of property; the right to receive its fruits
(including rents and other income from the property), the right
to be indemnified for necessary improvements carried out, and
the right to retain the object.
The possession of property
is forfeited by abandonment, by transference, by the loss or
destruction of the property, by its becoming ineligible for
purchase or sale, by a third party taking possession of the
property, by the non institution, in due time, by the possessor,
of the applicable claim to maintain or reinstate the possession,
and by constituto possessorio.
(ii) The right of
ownership is the most important of all property rights and is
defined by the Brazilian Civil Code as the right of an
individual to use, enjoy and dispose of his goods, and to
recover them from whoever may have taken possession of them
unlawfully. It is an absolute and exclusive right, which may,
however, belong to several persons at the same time, in relation
to the same property, as in a co-ownership or condominium, which
is when each of the co-owners of an asset has all the property
rights in relation to an ideal part of such asset. The right of ownership may be restricted in view of public interest or in respect for the property rights of third parties, as in the following situations: (i) the expropriation of real estate properties by the government (ownership of private property is transferred to the expropriating authority against payment of an indemnity); (ii) the restrictions relating to the division of urban land as, for example, those restrictions to buildings construction, establishing of industrial plants in critical pollution zones, etc, imposed by the law of the municipality where the property is located; (iii) the restrictions imposed in the interest of national security, such as the restrictions on the sale of private land in the coast or within 150 kilometers of the national frontier; and (iv) the restrictions to the right of the proprietor to freely dispose of his goods, arising from the status of insolvency, bankruptcy or �concordata� of the proprietor, in order to protect the creditor�s rights. 12.3. Acquisition and Loss of Ownership12.3.1. General Provisions
According to Brazilian
law, ownership of real estate property is constituted upon the
registration of the public or private instrument through which the
sale was accomplished at the appropriate Real Estate Registry of
the location where the property is situated. The execution of an
instrument involving real estate property that was not registered
at the respective Real Estate Registry will only become a binding
instrument between the parties involved in the sale agreement and,
thus, will not be enforceable against third parties. Real estate
property is acquired by the registration of the act which have
transferred the property, due to any cause, such as: (i) by the
sale and purchase agreement signed by the parties; (ii) by
accession (which is the enlargement of the land caused by the
incorporation of parcel of the soil, dislocated by natural
forces); (iii) by prescription (which is the acquisition of
ownership by the possessor who, although not being the owner, has
had the possession of the property during a certain period of
time, stipulated by law); and (iv) by inheritance.
Likewise, any act which
modifies, extinguishes, transmit or create rights related to
immovable properties must be registered with the competent Real
Estate Registry, such as: (i) court orders by which undivided land
is divided among different owners; (ii) court orders in the
winding-up of an estate of a deceased person or the division of
property, awarding immovable property to creditors in payment of
the debt of the estate; (iii) public auctions and adjudications;
and (iv) orders of separation, divorce and nullity which involves
the settlement of property or rights in rem related to immovable
properties. The main grounds for extinguishing real estate ownership are: (i) expropriation, which is the unilateral act of public law by which individual ownership is transferred to the relevant government authority, upon payment of fair compensation by said authority, due to public interest; (ii) transfer; (iii) waiver (for example, when the heir renounces his rights of inheritance); and (iv) abandonment or destruction of the property. 12.3.2. Acquisition of Rural Property by Foreign Person or Foreign Legal Entity
The acquisition of rural
property by foreigners who have permanent residence in
Brazil
or by foreign companies authorized to operate in
Brazil
is regulated by Law No. 5.709(�Law No. 5.709/72�). This law
provides that individual foreigners with residence in
Brazil
cannot acquire more than an area equivalent to 50 (fifty) units of
rural property called �módulos rurais�. The area of each �módulo
rural� is determined by the law of the unit of the Federation
where the land is located, according to the specific economics and
environmental characteristics of the region where the property is
situated and to the kind of agricultural activity to be developed
in such area. Foreigners who do not have permanent residence in
Brazil
cannot acquire rural properties in
Brazil,
except if such acquisition is due to inheritance rights. On the
other hand, the restrictions to the acquisition of rural
properties by Brazilian companies with foreign equity control are
now being questioned because of the 1995 amendment to the Federal
Constitution which removed the distinction between Brazilian
companies and Brazilian companies with foreign equity control.
However, the restrictions on foreign individuals and foreign
corporate entities authorized to operate in
Brazil
remain in force. According to Law No. 5.709/72 foreign companies can only acquire rural property if the purpose is the implementation of agricultural, cattle-raising, industrialization or colonization projects, and that such projects must be linked to their respective statutes. Such projects must be approved by either the Brazilian Agriculture Ministry or the Department of Trade and Industry, as the case may be. The President of Brazil may, upon specific decree, authorize the acquisition of rural property beyond the provisions of the current law, in cases where such property is the object of priority projects involving the country�s development plans. 12.3.3. General Remarks and Requirements Upon Purchase The acquisition of a real estate property in Brazil due to inter vivos transactions is generally agreed between the purchaser and the seller by means of a sale agreement. If a property is acquired by a single buyer (not in a condominium situation), than the buyer has absolute title to that area of ground. In case of multiple ownership (as it is the case of condominium), each owner can exercise all the rights of ownership, except those incompatible with the indivisibility of the property (for example, the property can not be sold without the approval of all owners, and the price paid must be divided among them). Besides the specific requirements related to transactions involving immovable property, Brazilian law requires, as for any other type of contract, that the parties of a sale and purchase contract be capable to perform such a transaction. They must have full legal age (majority), be mentally healthy, or, if not capable, they must be duly represented to perform such a transaction. 12.4. Taxation12.4.1. Inter-Vivos Transfer Tax - ITBI
Inter-Vivos Transfer Tax
(�ITBI�) is a tax assessed by the municipalities which is due when
real estate property or rights in rem to any real estate property
(except those in guarantee), and also assignment of rights for the
acquisition of property is transferred, for any reason whatsoever,
and on a remunerated basis. For example, the rate established to
the Municipality of São Paulo, according to São Paulo Municipal
Law No. 11.154, varies from 2% to 6%, depending on the property�s
value. ITBI is not assessed when the transfer of real estate property or rights to any such property takes place to pay up the capital of a company or when resulting from any merger, consolidation, spin-off or liquidation of the legal entity, except if in any of the above mentioned cases, the acquirer�s chief activity is the purchase and sale of such assets and rights, lease or commercial lease of real estate property. 12.5. Real Estate Investment Funds - Financial Instrument
Real Estate Investment
Funds were established to provide funds for developing real estate
ventures for subsequent sale, letting or leasing. The Brazilian
Securities Exchange Commission must authorize, regulate and
inspect Real Estate Investment Funds operations and
administration.
Property Investment funds
are currently being used for the purposes of raising funds for the
construction of several Shopping Centers throughout
Brazil.
Previously, pension funds were direct investors of real estate
projects but currently they are investing indirectly, by
purchasing shares of property investment funds.
Both individuals and
corporations resident or domiciled abroad are entitled to acquire
such shares, provided that the funds resulting from the investment
are duly registered with the Central Bank of
Brazil,
thereby enabling the return abroad of the respective investment
and the gains resulting therefrom. Capital gains resulting from
investments on property investment funds are subject to
withholding tax (IR) at a rate of up to 20% upon disposal or
drawing of Real Estate Investment Funds quotas. 13. ENVIRONMENTAL LAW IN BRAZIL13.1. Constitutional Basis
Environmental protection
in
Brazil is foreseen in
the Federal Constitution, Article 225, which states that �every
person has the right to an ecologically well-balanced
environment.�
The federal, state and
municipal governments have competence on environmental matters in
Brazil.
The common material competence to protect the environment, combat
pollution and preserve forests, animal and plant life is
established in Article 23 of the Constitution.
The competence to
legislate on environmental matters in
Brazil
is established by Article 24 of the Constitution. It sets forth
the concurrent legislative competence of the federal government,
the states and Federal District. The federal government is
competent to issue general rules and the states and the Federal
District have complementary legislative competence.
Therefore, the states and
Federal District can legislate on environmental protection aspects
through specific laws and take measures to apply federal
environmental laws.
In the absence of a
general federal law, the states and the Federal District have full
legislative competence. The supervenience of a general federal law
suspends the effects of state law in case of a discrepancy since
these must not oppose federal laws.
On the other hand, in
cases where general federal law already exists, states, Federal
District and municipalities only have competence to supplement the
federal law.
Municipalities only have
competence to supplement federal and state legislation if they
have local interest. This means that the municipalities cannot
abolish the federal and state requirements, but can demand
additional measures focusing on local interest.
In short, the states and
the Federal District are allowed to create more severe laws than
those established by the federal government. Municipalities,
despite not being able to legislate on environmental protection,
are entitled to issue supplementary laws and rules establishing
penalties to polluters.
There are many laws
regarding the environment under constitutional previsions. Federal
Law 6.938/81, which established the National Environmental Policy
in
Brazil, is the most
important law on this matter, bringing many legal instruments,
such as: environmental standards; environmental zoning;
environmental licensing, environmental impact evaluation, among
others.
Considering that the environmental licensing process may cause delay or block the establishment and operation of a new enterprise, the environmental licensing is the first legal instrument that we will comment on. 13.2. Licensing of effectively or potentially polluting activities
Environmental licensing is
an administrative process through the competent environmental body
that grants licenses for the location/design, construction (or
expansion) and operation of undertakings and activities which use
environmental resources considered effective or potential
polluters, and enterprises which may cause environmental damages,
according to Article 10 of Federal Law no 6.938/81.
In the environmental
licenses, the environmental bodies establish the conditions,
restrictions and standard controls that the venture must obey.
The following licenses
must be obtained:
According to Article 225,
IV, of the Federal Constitution, in order to obtain the first
license for projects or activities considered to be potentially or
effectively polluting, an environmental impact study and
associated report must be carried out. This is further described
in CONAMA (National Environmental Council) Resolution no. 001/86
and is part of the environmental licensing process. Granting of
the referred license depends on its approval. CONAMA Resolution no. 237/97 amended and complemented some aspects of CONAMA Resolution no. 001/86, and also describes the licensing process. 13.3. Liabilities for environmental damages
Article 225, Paragraph 3
of the Federal Constitution, establishes that �conduct and
activities considered harmful to the environment shall subject
infractors, whether natural persons or legal entities, to penal
and administrative penalties, notwithstanding the obligation to
repair any damage caused.�
Thus, the Brazilian
Constitution foreseen three types of environmental liabilities:
civil, administrative and criminal, each one with its respective
penalties.
13.3.1. Civil liability
for environmental damages - In Brazilian law, civil liability
for environmental damages is a strict liability, based on the
risk of the activity, regardless of the existence of
culpability, not being necessary to prove any intention or
guilt. This strict liability is also set forth in Article 14 of
Federal Law no 6938/81.
It is only necessary to
impose to the one who carries out the activity to repair the
damages caused if the existing link between the activity and the
environmental damage brought on has been proved.
This means that the risk
involved in the exercise of the activity, whether or not
outwardly dangerous, and whether or not for profit, is the basis
for assessing responsibility for repairing the damage caused,
regardless of blame.
Aiming to reestablish
the situation closest possible to the existing prior to the
damage, measures capable of recomposing the damages brought on
are frequently prioritized. Only the damages which are not
capable of been repaired shall be converted on the payment of
damages
13.3.2. Administrative
Liability - Administrative liability occurs when by action or
omission, there is a violation of the rules regarding use,
enjoyment, promotion, protection or recovery of the environment.
The administrative
penalties, at the federal sphere, are set forth in Chapter VI of
Federal Law no. 9.605, which took effect on February 12 1998,
and in Decree no. 3.179, which took effect on September 21 1999.
Administrative penalties
are foreseen in case of non compliance with the mentioned
legislation, such as: fine (once or ongoing daily), temporary
interdiction of the establishment or activity, forbiddance to
contract with the Public Authority; loss or suspension of
eligibility for credit lines from official financing
institutions, and total or partial suspension of the activity
that resulted in the damage.
13.3.3. Criminal
Liability - In accordance with Article 3 of Federal Law no.
9.605/98, the penalties stipulated are applicable to natural
persons and legal entities.
The penalties can be
applied separately, together or alternatively, to legal entities
are: pecuniary fines,restriction rights and service rendered to
the community, in accordance with Article 21 of Federal Law no.
9.605/98, depending on the criterion of the jurisdictional body.
Penalties applicable to
natural persons are: incarceration, house arrest, service
rendered to the community, temporary loss of rights, total or
partial suspension of the activity, pecuniary installment and/or
fine.
It is important to
consider that as per Federal Law no. 9.605/98, it is possible to
disregard a corporate entity if the personality of the
corporation will represent an obstacle to recovery of the
damages caused to the environment.
14. PRIVATIZATION14.1. National Privatization Program
The Brazilian
privatization program favors the transfer of activities which
could be better handled by the private sector out of the hands of
government and into that sector. Such a reorganization frees the
State from the burden of losses incurred by these business
ventures and enables public administrators to focus on other
issues important to the Brazilian economy. Brazil�s national privatization program was instituted by Law No. 8.031, of April 12, 1990 (replaced by Law No. 9.491, of September 9, 1997 and subsequent amendments thereof) and is regulated by Decree No. 2.594, of May 15, 1998 (as amended). The statute applies to the sale of certain assets owned and/or companies controlled by the federal government. The concession of public services to private entities was also defined by Law 9.491 as one type of privatization. The National Privatization Board (�Conselho Nacional de Desestatização - CND�, formed by State Ministers), which reports directly to the President of Republic, is the highest authority responsible for conducting the privatization process according to said statute. The National Bank for Economic and Social Development (BNDES) also has an active role as the Privatization Fund Manager, supplying administrative and operational support to the CND, retaining consultants and specialized services as necessary for carrying out the privatization, contact the securities systems and stock exchanges, among others. Recent measures have given new impulse to the program and brought within its framework concessions of government-controlled enterprises. 14.2. Public Services Concession
Law No. 8.987, of February
13, 1995, regulates Article 175 of the Federal Constitution of
1988 and establishes the rules for concessions of public services.
This so-called Concessions Act expressly excluded radio and
television transmission services. This statute was later amended
by Law No. 9.074, of July 7, 1995, and regulated (among others) by
Decree No. 2003, of September 10, 1996, and Decree No. 1.717, of
November 24, 1995, which established new rules and regulations for
the approval and extension of public service concessions,
including the extension of certain electrical energy concessions.
Law 8.987 expressly requires that concessions be granted after a
public bidding process. Law No. 9.074 makes it clear that, with
certain exceptions, federal, state and municipal governments are
forbidden to perform public services by means of concessions or
licenses in the absence of a law specifically authorizing and
defining such services.
Nevertheless, prior laws
limiting the areas of economic activity eligible for privatization
have now been replaced by laws that more broadly define the types
of entities, regardless of activity, that may be privatized. For
instance, above-mentioned Law No. 9.491 defines most of the
companies, including financial institutions, directly or
indirectly controlled by the federal government, as well as most
public services concessionaires, as being eligible for
privatization. Meanwhile, various industry-specific pieces of
legislation have been adopted or proposed to eliminate or limit
the government monopolies over certain industries. For instance,
the General Telecommunications Act (Law No. 9.472, of July 16,
1997) regulates Constitutional Amendment No. 8, of August 15,
1995, to allow private sector competition in the
telecommunications industry. Also by way of Constitutional Amendment No. 8, the Brazilian Congress approved Law No. 9.295/96, which stated that concessions for the exploitation of cellular telephony, classified as a �restricted public service�, must be granted, through a public bidding procedure, to Brazilian companies, with at least 51% of their voting capital belonging, directly or indirectly, to Brazilian nationals. The public bidding procedure was aimed at the granting of the so-called �B Band� license, for which a secret bid equal to or above a certain minimum amount was offered by the bidders. 14.3. Sectors Subject to Privatization
Economic activities that
were first authorized to be conceded to the private sector and are
either already privatized or currently undergoing privatization in
Brazil
include the following:
14.4. Evolution and Results of the Privatization Program Since the enactment of Law No. 8.031, in 1990, as many as 128 State-controlled companies have been privatized by federal and state governments through September 2000, totaling more than US$ 95 billion. Among them are CSN (the national steel mill); Mafersa (a manufacturer of railroad equipment); Escelsa, Light, CERJ, CEEE (partial), CPFL, Eletropaulo, Gerasul, COELBA, CESP (partial)(major companies in the electricity sector); CRT (the state telephone company of Rio Grande do Sul); COMGÁS, CEG (gas distribution companies) and RFF (the national railway line). In addition, all of the major steel (i.e. Usiminas, Cosipa, Acesita and CST), petrochemical (i.e. Poliotelinas) and fertilizer (i.e. Ultrafertil) companies have also been privatized. The most controversial privatization was that of the Federal Government�s sale of its controlling stake in Brazil�s largest mining and transportation company, Companhia Vale do Rio Doce (�CVRD�).
Until now, most
privatizations have been achieved through auctions on the
Brazilian stock exchanges. Law No. 8.666, of June 21, 1993,
regulates Article 37, XXI, of the Federal Constitution and
establishes the rules for the public bidding process. This federal
act was later amended by Law No. 8.883, of June 8, 1994, and Law
No. 9.648, of May 27, 1998, which established requirements for,
inter alia, bid invitations, methods, payment, and guarantee
forms. The Administration has already submitted for public
comment, prior to sending it to Congress, a new Bill (�Preliminary
Proposal for New Bidding Law�) which would reform the bidding
process, including new requirements for bidding entities to post a
surety bond in connection with bids.
The privatization program
has been extended not only concessions for public services
controlled by the Federal Government, but those of states and
municipalities as well. Each state and municipality has powers to
establish the rules for its own program and, therefore, the
privatization of state- or city-owned companies is made pursuant
to specific local rules. In this regard, the State of São Paulo
has carried out one of the most successful privatization programs
in
Brazil. Since the
publication of the state privatization act, São Paulo has
transferred to the private investors, among others, the
exploration of public services of distribution of piped gas (both
in the metropolitan, performed by COMGÁS, and country areas,
performed by recently created Gas Brasiliano and Gas Natural), as
well as generation (Paranapanema and Tietê, which resulted from
CESP�s partial spin-off) and distribution of electricity (CPFL and
Eletropaulo, two of the largest Brazilian distributors). Following
such trend, the State of Paraná is about to transfer to private
investors the controlling interest of COPEL, deemed to be the
Brazilian best state-owned electricity company. Other States, such
as Bahia, intend to privatize their water treatment/sanitation and
gas distribution companies.
Finally, there have been
amendments to other areas of Brazilian law to facilitate the
privatization process and attract foreign participation. The
Brazilian Company Law (No. 6.404/76) has been amended to alter
dissenter rights of minority shareholders to allow more
flexibility in cases of mergers or split-ups commonly deployed in
connection with privatizations. In addition, President Cardoso has
signed Decree No. 2.233/97, allowing companies directly or
indirectly controlled by foreign capital to have access to
financing from public financial institutions. This decree defines
those priority areas of economic activity within the meaning of
Law No. 4.131/62 to be allowed such financing, thus benefiting
recently privatized companies in such sectors.
Despite inevitable delays
and obstacles, the privatization program in
Brazil
has had a good decade. The Cardoso Administration estimates that
the federal government has received as much as US$ 70 billion in
the past three years through privatizations in the electricity and
telecommunications industries alone. The participation of foreign
capital has reached approximately 40% of such amount. In summary,
the Brazilian privatization program, including the sell-off of
mining and transportation giant CVRD and, in 1998, that of
Telebrás, the holding of the telecommunications system, the
largest privatizations ever in Latin America, has attracted
worldwide interest and has significantly contributed to boost
foreign investment in
Brazil. 15. PUBLIC BIDDING AT CONCESSION AND PERMISSION FOR PUBLIC WORKS AND SERVICES15.1. Introduction
The Brazilian Federal
Constitution, in article 37, insert XXI and article 175
establishes that apart from exceptions foreseen by law, works,
services, purchases and alienations, will be contracted by direct,
indirect or foundational public administration of any of the
Departments of the Union, the States, Federal District and
Municipalities, through process of public bidding - by one of
these manners: competition, price inquirying, invitation, contest,
auction and recently, by a form denominated �bid� promoted
exclusively for the Union and regulated by provisional order n.
2026 of 21.12.2000.
As a rule, for the adequate choice of each modality of bid, the value of the contract has to be considered, however it is important to recall that there are hypotheses in which due to the complexity of the object the value of contracting isn�t predominant. Whatever modality is adopted, the supremacy of the public interest will rule over the private interest in order to obtain the most efficient result for the public administration.
15.2. Modalities
The Bid is the adequate
modality for purchases or alienation of realty, usage grantee,
rendering of services or construction of public work. Normally it
is destined for transactions of great sums, while the Price
Inquiry is for medium prices; the Invitation, on all of the
bidding modalities involves services of lesser amounts.
The Contest is destined to
select technical and artistic works, while the Auction is reserved
for the alienation of goods for, the best price for the
administration to whoever offers the best bid after the minimum
value of evaluation.
The bid was established to
regulate the contracting that involves the supply of goods or
common services, done in a public session, by the means of written
and verbal proposals, attempting to make the most economic, safe
and efficient purchase. However, for this modality the contracting
of works and engineering services, rentals or alienation are
excluded by law.
Whatever the procedure of
bidding, the principles of isonomy, legality, impersonality,
morality, publicity, administrative probity, objective judgement
must be obeyed in order to choose the proposal which is most
advantageous to Public Administration to assure equal conditions
to all the participants before the calling instrument, as well as
fixing demands of technical and economic qualification, and
maintaining the bidding conditions effective. In this context, with the intention of regularizing the constitutional provisions, instituting norms for public bidden and Public Administration contracts and other measures, the Federal Laws n. 8666 of 21.06.1993 and n. 8883 of 08.06.1994 and also the Federal Law n. 8987 of 13.02.1995 recently updated by the laws n. 9648/98 and 9791/99 were published, which specifically deal with the system of concession and permission for the rendering of public services, as well as Constitutional Amendments n. 8/95 and 19/98 which altered respectively the inserts XI and XII of the article 21 and insert XXVII of article 22 of the Brazilian Federal Constitution. 15.3. Concession and Permission for Public Service
At Federal level, article
21, XII of the Federal Constitution foresees the sectors which can
be exploited by the Federal Union, directly or through
authorization, concession or permission, which are: services of
radiodiffusion, of sounds and images and other telecommunication
services; services and installation of electric energy and the
energetic use of water courses in articulation with the States
where the potential hydroenergetic stations are situated; air and
space navigation and airport infrastructure; the services of rail
and water transport between Brazilian ports and national frontiers
or which transpose the limits of the State or Territory;
interstate and international road passenger transport services;
and sea, river and lacustrine ports.
The concession of public
service is basically the formal administrative contract, signed
through public bid through competition. The objective is the
legalization of the delegation of the execution of a service of
the Public Authority to the private which will assume risks for
the period of the contract. It aims primarily to satisfy the
conditions of regulation in the rendering of services, its
continuity, efficiency, the modernity of equipment and
installation, the expansion of the range of coverage, and mainly,
the courtesy in the rendering and market fees. On the other hand, the Permission for public service is a simple, discretionary and precarious act of unilateral delegation of Public Authority, made by an adhesion contract which may, at any time, revoke or establish new conditions to the permitee. 15.4. Enabling
The Public Authority, with
a view to triggering the process which has as its objective the
concession or permission, will publish a deed justifying the
respective granting and defining the objective, field and time
period. Subsequently, it will publish the invitation to the bid,
being that in case of concession, this is through competition.
To those interested in
taking part of any bidding modality, besides having to achieve the
specific requirements for each modality, the documentation
required by law which looks for guarantees in the judicial,
economical, financial application and tax regulation, must be
presented, except legal exceptions for some modalities which are
exempt from presenting such documentation.
With the presentation of
the documentation relative to judicial application, technical and
economic-financial qualification and tax regularity, and if the
bid´s invitation so permits, the formation of consortium for
participation in the public bidding will be allowed.
Being qualified, the bidders will present their proposals attending the requirements pre-established in the bid´s invitation and any person can obtain certificates as to the contracts, acts, decisions or reports related to the public bidding or to the actual concessions or permissions. Judgement will adopt the criteria of the smallest price for the tariff of the service to be rendered or the biggest offer, for the granting of concession, in the cases of payment to the conceding power or both criteria jointly. When there is equality of conditions between the participants, preference will be given to the Brazilian company, exclusiveness in the rendering of services, except in impracticable technical and economic cases, will not be conceded. 15.5. Dispensing and Ineligibility of Public Bidding
There are three situations
in which the law concedes the exemption of the discharge of the
public bidding process: when the object represents a small sum, in
case of emergency to solve public calamity, war or intense
disorder, or, for the purchase or rental of real estate, which for
relevant reasons in its selection - for example the geography
positioning of the estate - would remove the need for a bidding;
these reasons are expressly listed in article 24 of the Law
8666/93. The cases where bidding is not obligatory occur when there is the impossibility to fulfill a public bidding due to the incapacity of having competition among the competitors due to the nature of the professionals or companies with notorious specialization among other circumstances described in the article 25 of the Law 8666/93 as, acquisition of equipments or such things that may only be supplied by producers, companies or exclusive commercial representative or even, for the reinstatement of artistic pieces or objects of historical value (Law n. 8666, article 13). 15.6. Administrative Contract
The concession will be
formalized through a contract which will contain clauses which
define the parts, the objective, area and period; manner, form and
conditions for the rendering of the services; criteria,
indicators, formulas and parameters which define the quality of
the service; the price of the service and criteria for
readjustment; rights, guarantees and obligations of the users;
future projections for amplification and modernization; form of
inspection; contractual penalties and others. Building and
financial schedules can be demanded of the execution of the work
connected to the concession and guarantee of the true fulfillment
of the obligation related to the concession, in contracts related
to the concession of public service preceding the execution of
public work. The concessionaire will be able to contract third parties for the development of activities which are inherent, accessory or complementary to the conceded services, being that this relationship will be ruled by private law and will not affect the responsibility of the first for all damage caused to the conceding power, to users or to third parties. Subconcession is also permitted providing it is foreseen in the contract and authorized by the conceding authority and preceded by competition. 15.7. Guarantees If foreseen in the invitation to bid, the existence of guarantee as to the fulfillment of the contract is common. Except where foreseen by law, the guarantee will be by check bond, insurance or bail to be chosen by the contractee as long as the corresponding value of the insurance does not exceed 5% of the contract value. 15.8. Inspection and Extinction of Concession or Permission
Every concession or
permission presupposes the rendering of adequate service to the
full attendance to users, in a form that satisfies the conditions
of regularity, continuity, efficiency, security, presently,
generality, courtesy in the rendering and reasonableness of
tariffs.
The concession and
permission will be extinguished at the end the contractual term,
expropriation (the taking back of the service by the conceding
part for motive of public interest), or in case of incompliance of
the basic fundamentals of the administrative bids forfeiture
(declaration in the case of total or partial non execution of the
service), rescission, annulment, bankruptcy or extinction of the
company which is the concessionaire or decease or incapacity of
the incumbent, in the case of an individual company.
In this process it is the
responsibility of the grantor, with basis on the interest of
defense of the consumers, the inspection power of the activities
formed by commissions, which will have access to the data relative
to the administration, accounting, technical, economical and
financial resources of the grantee, being able to intervene in the
concession.
In the case of non fulfillment of any contractual clause, on the party of the grantor, a special judicial action can be applied for the dissolution of the contract. 15.9. Online Auction
With a view to optimizing
the public budget and the agility in the administrative contract
procedures, the Government of São Paulo authorizes the direct
administration offices, governmental agencies of the State, by the
Decree n. 45085/2000 the use of online system of hiring or
purchasing of equipments and services needed for the State. The
electronic auction is allowed to any company that is enrolled in
the system and providing it is within the limit of up to eight
thousand Reais, which waives the need for a bidding, as
established in the insert II of the Article 24, of the Federal Law
of Bidding.
The procedure is an
electronic auction, in which wins whoever presents the best offer.
It may also be applied to the modality of public invitation, in
which the object will be purchased with immediate delivery.
The objective is to
improve the quality of information in the State through a system
in which anyone interested has access to the governmental
procedures.
16. TELECOMMUNICATIONS16.1. Telecommunications in Brazil - Brief Overview
Law 4117/62 edited the
Brazilian Telecommunication Code which, for more than 35 years,
regulated telecommunications services throughout the country and
authorized the constitution of the Brazilian Telecommunications
Company Empresa Brasileira de Telecomunicações S.A., known as
EMBRATEL.
In 1972, Law 5792
established the policy for the exploitation of public
telecommunications services and created the public company
TELEBRÁS (Telecomunicações Brasileiras S.A.) to promote, among
other activities, through its subsidiaries and associated
companies, the exploitation of public telecommunication services
in
Brazil and abroad.
TELEBRÁS was named a
�general concessionaire� for exploiting public telecommunications
services, and its subsidiaries and associated companies were
designated �delegate concessionaires�. Thus, TELEBRÁS, its
subsidiaries and associated companies formed the TELEBRÁS System
which eventually included EMBRATEL as well.
In mid-1998, the TELEBRÁS
System underwent a complete restructuring process that included
the privatization of the companies that were part of the group.
The great investment flow was steered toward expanding
telecommunications services in light of new technologies.
The telecommunications
sector - today basically under private enterprise - is investing
heavily against the accumulated lag brought by nearly two decades
of state monopoly, represented by the old TELEBRÁS System.
Currently, the main targets of the sector are to: (i) expand and
universalize the nation�s telecommunications network; (ii)
technologically modernize the structure and operation of the
system; (iii) diversify and multiply the number of products and
services and (iv) increase competition to attract and maintain
customers.
Much criticism has been
made about the quality of the services rendered to customers
following privatization. This criticism that can be attributed,
among other reasons, to: (i) the massive investments that have
been required to modernize the technical systems and which have
yet to produce all the results initially expected, as well as (ii)
the lack of qualified personnel since the offer of employment in
this sector has practically doubled in
Brazil
in the last three years following privatization.
In point, this apparent
delay in promoting changes in the telecommunications sector has
brought losses and wear to the system. On the other hand, it
provided the country with the opportunity to carry out an
ambitious and well-planned project, conceived through the
observation of the privatization experiences of the sector in
other nations and of
Brazil�s
own experience with privatizations in other sectors. The
Government was able to avoid many of the mistakes that occurred in
other countries. In Mexico, for example, the privatization model
was concentrated and one sole company took over the whole market.
In Chile, in a diametrically opposed experience, the market was
opened to so many separate companies that it, together with a
total lack of restrictions, caused a price war that led to many
companies going bankrupt and generating a tremendous drop in the
quality of the services. The compromise model adopted by
Brazil
sought, instead, to stimulate gradual transition with the intent
of having the consumer, and the market itself, become used to the
new system and adapt to the competition.
A marked characteristic of
the first phase of the opening of the telecommunications sector
was the creation of duopolies in the area of telephony in order to
grant companies time to establish and consolidate themselves in
the market before free competition begins to be permitted, in the
year 2002. For the time being, competition can be said to be
restricted to the dispute between concessionaire companies and
mirror-companies in the fixed telephony market and between Band A
and Band B in mobile telephony. The duopoly proved that it is
possible to implement a mechanism of competition in a short time
whereby the consumer benefits and the operators are preserved from
market uncertainties.
The year 2002 shall be the
year of the second phase for Brazilian telecommunications. With
the sector completely deregulated, new companies may join the
market while the existing companies shall be permitted to operate
in any region, in any service and in any band as well as acquire
equity interest in other companies, thus making the market
conditions even more advantageous for the consumer. However,
considering the marked trend in Europe and the United States
toward the formation of oligopolies in this sector, ANATEL shall
certainly have difficulties in avoiding the increase of
concentration in the Brazilian market. In the long term, the
greatest challenges for the restructuring process of Brazilian
telecommunications shall be to avoid as much as possible the
possibility of concentration and protect the competitive
environment.
Considering the
deregulation expected as of January, 2002, fixed telephony
companies will only be permitted to exploit new services if they
are able to meet, by December, 2001, the universalization
commitments established by ANATEL. Applicable legislation has
determined December, 2003, as the target date for completion of
these commitments but companies have been working to make
themselves ready earlier so as to accelerate their entry into the
free market, since ANATEL will grant new services to be exploited
as soon as the referred targets have been duly met. Hence, and in spite of the delay in completing the reforms, the magnitude of the expansion and improvement goals reached so far is quite astonishing. The average premium obtained with the privatization of the extinct TELEBRÁS System and the concessions for exploitation of Band B cellular telephony carried out in 1998 were nothing short of spectacular. The total amount collected was approximately US$ 28 billion, equivalent to a fifth of the amount collected in all the privatizations that took place in the sector between 1984 and 1996 - worldwide - according to data of the International Telecommunications Union - ITU. Truly, this comparison with the past is impressive: in the last four years of privatization, more telephones have been installed then in all of the previous 25 years. With regard to cellular telephony, the expected growth will be even higher. While the fixed telephony network has grown more than 60% since 1998, the expansion of cellular telephony reached 80.2% between June, 1999 and June, 2000. 16.2. Development of Cellular Telephony
Currently
Brazil
operates bands A and B. However, bands C, D and E that constitute
the Personal Mobile Service - SMP, are today being licensed and
will compete with the providers of mobile cellular telephony
service - SMC that operate in bands A and B.
Sales growth and the
development of the cellular telephony sector in
Brazil
has been impressive. The original goals were exceeded by far.
While the number of cellular phones grows at a rate of 51%
worldwide, growth in Latin America has been 105% on average, and
the accelerated growth of cellular telephony services has
contributed to the ever-increasing expansion of the supplementary
market of telephone accessories. Further, the development of the
roaming national network in
Brazil
represents, today, one of the highest in the world. Though the majority of existing cellular services are still within the traditional system, sales of pre-paid cellular calls, which began more recently, already represent, according to ANATEL, more than 50% of the market. 16.3. Regulatory Agency for Telecommunications (ANATEL)
The regulatory agency for
telecommunications is the National Telecommunications Agency -
ANATEL, which has administrative independence, absence of
hierarchical subordination and financial autonomy. Basically, ANATEL is empowered to: (i) issue rules on the licensing, rendering and use of the telecommunication services in the public sector; (ii) establish, control and follow the rate structure regarding each type of service rendered in the public sector; (iii) sign and manage concession contracts; (iv) issue rules of procedure for providing telecommunications services in the private sector; (v) monitor, advise of and repress legal infractions against the economic order regarding telecommunications, without prejudice to the competence of the Administrative Council for Economic Defense (CADE); (vi) administrate the field of radio broadcasting and the use of satellite orbits; (vii) define the types of services based on their objectives, scope of rendering, form, means of transmission, technology employed and other attributes; (viii) inspect the rendering of the services and apply administrative sanctions to transgressors of the telecommunications rules and regulations. 16.4. General Telecommunications Law
The Telecommunications
Code was revoked by General Telecommunications Law no. 9472 of
July 16, 1997 (LGT) which provides, basically, on the following
institutional aspects: (i) fundamental principles that regulate
the exploitation of telecommunications in
Brazil;
(ii) creation, operation and competence of the regulatory agency;
and (iii) general organization of telecommunications services.
Telecommunications
services are organized to provide free, wide and fair competition
among companies exploiting such services, being subject to the
general protection rules of economic order. Acts carried out by
the service provider that can affect, in any way or form, free
competition and free initiative are prohibited, pursuant to the
provisions of article 19, XIX of LGT and according to the
regulation established by Resolution no. 195 and its Annex. With
this purpose, ANATEL set forth in said law a defined set of rules
for interconnection, infra-structure sharing and unbundling that
the agency considered necessary.
Under the LGT,
interconnection is the link between telecommunications networks
that are operationally compatible, whereby users of the services
of one network may communicate with the users of the services of
another or access available services. The LGT deems the
interconnection - implemented as of January, 1999 - a legal
obligation reciprocal between providers of services of public
interest. As a consequence, the sharing of the available assets
for purposes of interconnection is mandatory in
Brazil,
and is carried out through freely negotiated contracts, provided
that applicable regulation is observed.
Infra-structure sharing is
basically regulated by article 73 of the LGT, whereby �providers
of telecommunications services of public interest shall be
entitled to use the posts, ducts, conduits and rights of way
belonging or controlled by providers of telecommunications
services.� Furthermore, Public Consultation no. 239 set forth the
rules on the time frame for the installation, customers'
requirements, environmental protection, optimization of resources
and social purpose of the property. Unbundling, in turn, under the General Regulation for Interconnection - RGI, consists of untwining pairs of copper wires or their respective functions, that make up the external network of local access of the Local Switched Fixed Telephony (�STFC-L�) thus allowing a third party to use such wires for independent access to the customer. In Brazil, the juridical problem of unbundling is the non-existence of express legal provision that imposes on the operators - owners of the twined pair - the obligation to negotiate the assignment of the use of the elements or functions separated from the twined pair. 16.5. Use of Revenues from the Telecommunications Sector
Law no. 9.998 of August
17, 2000 created the Fund for Universalization of
Telecommunications Services - �FUST�, the purpose of which is to
provide funds to defray the portion of costs that are attributed
exclusively for meeting the obligations of universalization of
telecommunications services that cannot be recovered with the
efficient exploitation of the service. As of the year 2001, the
operators began paying over 1% of their gross revenues to finance
said fund. The resources of FUST shall also serve to exempt or
subsidize rates for certain users such as schools, libraries and
hospitals. Furthermore, the funds shall be used to install
telecommunications services in isolated places and establishments
which operators are usually not interested in for commercial
reasons. Law no. 10.052 of November 28, 2000, instituted, in its turn, the Fund for Technological Development of Telecommunications (�Funttel�). This fund was created with an initial budget of R$ 100 million originating from the earlier Fund for Inspection of Telecommunications (�Fistel�). FUNTTEL shall be allocated 0.5% of the gross revenues of the providers of telecommunications services plus 1% of the amount collected for services rendered through telephony. Its purpose is to finance technological research in the areas of telecommunications developed by small and average-size companies so as to increase the competitiveness of the Brazilian telecommunications industry. 16.6. Brazilian Telecommunications Sector vis-à-vis the Foreign Investor
The transfer of the
controlling interest in companies that are providers of
telecommunications services in
Brazil
is strictly regulated by ANATEL, in accordance with articles 202
and 98 of the LGT and other later applicable rules.
One of the most important
rules issued, of relevant interest to the foreign investor in
Brazil,
is Resolution 101/99 of ANATEL. Intending to avoid infractions to
the economic order in the telecommunications sector, ANATEL adopts
certain concepts and criteria to verify transfers of controlling
interest that could incur in prohibition, restriction, limitation
or condition.
In this sense, under the
terms of said legal provision, controlling interest is the
individual or legal entity who, directly or indirectly: (i)
participates in, or appoints a person or member to, the Board of
Directors, Board of Officers or other body with equivalent
attribution, of another company or of its own controlling
shareholder, (ii) holds statutory or contractual veto over any
matter or decision of the other; (iii) is sufficiently empowered
to block the installation of a qualified quorum or decision
required by force of statutory or contractual provision, with
regard to the decisions of the other, (iv) holds shares of the
other, of a class which grants separate voting right.
Furthermore, this legal
provision deems a company to be an affiliate of another if it
holds, directly or indirectly, at least 20% of the voting capital
of such other, or if at least 20% of the voting securities of both
companies are held, directly or indirectly, by one same individual
or legal entity.
Said Resolution also
establishes that the juridical transaction resulting from the
partial or total assignment by the controlling interest of the
control over the provider of the telecommunication services shall
represent a transfer of control.
Finally, any changes to
the corporate structure of the company that could represent a
transfer of control must first be submitted to ANATEL, especially
when: (i) the controlling interest or one of the member of its
group withdraws or comes to hold less than 5% of the voting
capital of the provider or of its controlling interest, (ii) when
the controlling interest ceases to hold the majority of the voting
capital of the company and (iii) when the controlling interest,
through any form of agreement, totally or partially assigns to a
third party the powers to direct, in effect, the company�s
activities. With regard to the market balance of the telecommunications sector, one can state that development has been extremely positive: between 1995 and 2000 the Gross Domestic Product increased by 15% while the telecommunications sector showed an expansion of 130%. In the year 2000, the sector concentrated 33% of all the foreign investments made in the country, with Brazil being, according to ANATEL, the country that invested by far the most, worldwide, in increasing is telecommunications base. The repressed demand for telephony has practically disappeared in Brazil and the cost of a telephone line has dropped from US$ 2 thousand to less that US$ 500. 16.7. Telecommunications Services Legal System
The Law differentiates
between two systems for the rendering of telecommunications
services: the public and the private.
The public system
presupposes the rendering of a service of collective public
interest. Its existence, universality and continuity shall be
ensured by the Federal Government itself. Such services are
exploited by the providers derived from the privatization of the
old TELEBRÁS System, through concession.
The concession of services
was granted by ANATEL through competitive bidding, without
exclusivity. Concessionaires are subject to the business risks and
their revenues come from billings. The maximum term of the
concession is of 20 years with the possibility of a one-time-only
renewal or extension for an equal period.
After three years from the
signing of the concession contract, and should there be true and
general competition among the providers of the respective
telecommunications services, ANATEL may submit the concessionaries
to the unrestricted rate system.
On the other hand,
permission for exploiting telecommunications services is only
granted on a temporary basis, by means of a simplified competitive
bid process.
The exploitation of the
service under the private system is based on the constitutional
principles of economic activity, its main guidelines being free
and broad competition among the service providers, balance in the
relations between service providers and users and the
technological and industrial development of the sector. This
private system is subject to the permanent supervision of ANATEL.
Rates and prices to be
charged by the service providers under the private system are
unrestricted. Nevertheless, any prejudicial act against
competition as well as economic power abuse shall be repressed, in
accordance with specific legislation.
The exploitation of the
service in the private system shall depend on prior authorization
by ANATEL and will allow for the right to use the frequency
associated therewith. The authorization shall be granted through a
bidding process, in the same pattern of public utility service
concessions.
There is no limit to the
number of authorizations to be issued by ANATEL for the
exploitation of the service in the private sector, except for
technical limitations or excess of competitors that can affect the
rendering of the public services.
The right to the use of
radio frequency, under exclusive nature or not, shall depend on
prior grant by ANATEL, issued through a specific authorization,
linked to the concession, permission or authorization for the
exploitation of telecommunications service. The authorization for
the use of radio frequency in the public sector shall be for the
same term as the term of the concession or permission to which it
is associated. In the case of services carried out in the private
sector, the term shall be of up to 20 years, which can be extended
once for an equal period, regardless of the term authorized for
the exploitation of the service. The authorization for the use of the radio frequency shall only be assigned and transferred when the corresponding transfer of the concession, permission or authorization linked to it takes place. 16.8. Incentives
The law offers the
providers of telecommunications services incentives for
development telecommunications-related products, through specific
credit, tax and customs policy instruments.
In this sense, the
Brazilian government, though having practically eliminated one of
its special importation regulations - the �ex-tariff� - still
maintained certain important exemptions for several different
components intended for the telecommunications field, which used
to be subject to import duties at a rate of up to16%. Recently, Law no. 10.176 of January 11, 2001, extended the earlier tax incentives, of which the most important tax benefit consists of the exemption of excise tax (�IPI�) rates on the items set forth in said Law, such rates that will be gradually increased until 2009. 16.9. The Future of Telecommunications Services
At the beginning of this
new decade, the Brazilian telecommunications sector is just about
to overcome - still in the year 2001 - one of its biggest
challenges: wide access of the Brazilian population to fixed
telephony service, the greatest objective proposed by the LGT.
Moreover, certain
important regulatory developments are in course that will ease the
use of accelerated technological convergence, technically more and
more feasible, through the development of multimedia
communications companies.
Among the many types of
telecommunications services currently being exploited in
Brazil,
ever-expanding, are: Mobile Cellular service (Band A and B),
Cable-TV Service, Multichannel Multipoint Signal Distribution
Service (MMDS), Subscription TV and Radio Broadcasting Signal
Distribution Service through Satellite (DTH), TV Broadcasting
Retransmission Service (RTV), Television through Subscription,
Definition of Technological Standards for Digital TV, Mobile
Internet, Personal Mobile Service (SMP), Short Message Service (SMS),
among others.
The companies providing
Paging Services are undergoing a server crisis because of the
development of cellular telephony. The diversification of the
business, as well as the entry in the call center markets and of
access to internet in their own paging area may be the only way to
ensure the paging companies� survival.
In this scenario,
Brazil,
today, can already be considered a wireless society, that is, a
market where the penetration of cellular phones is much greater
than the penetration of personal computers (PC). Hence, the
combination of internet and this access to information with a
mobility function is a natural result. In the next two years it is
estimated that the number of wireless accesses to the internet
will exceed the connections via PC, through one form of access
does not exclude the other since the use and profile of the users
are obviously different.
Broad band services, one
of the alternatives for high-speed and low cost internet, will be
the object of substantial investments by 2002. In this light, the
corporate market will represent the new goal of the companies in
the sector.
The corporate mobile
communications sector (trunking) which aggregates the cellular
phone and radio has a discreet presence, with a very specific
target public, hence, with a different marketing strategy,
concentrated in sending mail-orders and making visits to clients.
The future of the business is directly linked to the end of
restrictions. Currently, the trunking companies are prohibited
from operating paging services or roaming with the use of the
operational structure of common cellular telephony operators and
to sell to individuals, being limited to legal entities. The
Brazilian market, however, is likely to follow the North American
model where trunking companies compete freely with normal
telephone operators and paging companies.
The third generation of
cellular (Cellular 3G) will arrive in
Brazil
in 2003. In the meantime, the existing companies operate with CDMA,
TDMA and GSM (Global System for Mobile Communication)
technologies. However,
Brazil,
in the next few years, can expect a predominance of voice services
as a principal source of revenue of providers of
telecommunications services in general. 17. ELECTRIC ENERGY
The Brazilian electric
sector went through profound changes in the last decade. It is
worth mentioning the redefinition of the role of the State and the
massive entry of private investments in this sector, as well as
the gradual definition of an economic model based on free
competition, which is still under implementation.
The Constitution
attributes to the Union, the owner of the hydraulic energy
potentials, the competence to exploit, either directly or through
concessions, permissions or authorizations �the electric energy
services and installations and the energetic utilization of
watercourses� (art. 21, XII, �b�).
The ruling for the grants
of exploitation of electric energy was substantially renewed in
1995 by Laws 8987 and 9074, which aimed to simultaneously meet the
scope of privatization of the concessionaires of public services
of electric energy and the definition of the rules applicable to
the new agents appeared in the electric sector4. The guidelines
for the concession of the public services of electric energy were
provided for by Law 9427/96. Subsequently, Law 9648/98 brought
important precepts for the implementation of the new model of the
Brazilian electric system.
The establishment of a
competition based model purported to make the offer and the demand
more flexible, thus resulting in the appearance of:
(i) Trading Agents and
Agents Importers of electric energy;
(ii) a new category of
offerors (producers) of electric energy, the Independent
Producer, i.e., a company or a consortium of companies that
receives, according to the electric potential resources to be
exploited, concession or authorization for exploitation of
electric energy designed for total or partial commercialization,
at its own expense and risk (i.e., without the existence of a
captive public, as it occurs with the concessionaires of the
public service of electric energy) and without tariff fixation.
The Selfproducers (i.e., an individual, or a legal entity, or a
consortium of companies that receives a concession or
authorization for producing electric energy designed for its own
use), through a specific permission, may also commercialize, on
these same bases, their excess production of electric energy in
a casual and temporary way5;
(iii) the so-called
�free consumers� (arts. 15 and 16 of Law 9074/95), which are
able to choose the supplier of energy with which they will enter
into a contract, being also provided the progressive expansion
of this group of consumers.
This stimulus to
competition reinforced however the need of establishment of a new
model applicable to the restructuring of the electric sector,
comprising the definition (i) of the agents responsible for the
regulation and operation of the new Brazilian electric system;
(ii) of the basic characteristics of such a system to make
feasible the implementation of an efficient and competitive model,
and (iii) of the contractual models applicable to the sector.
From the institutional
standpoint, it shall be highlighted the creation, by Law 9427/96,
of a specific regulating body for the electric sector, the
National Agency of Electric Energy (�ANEEL�), as a
quasi-governmental agency linked to the Ministry of Mines and
Energy, however with its own competence and incomes, as well as of
�ONS� - National Operator of the Electric System, a private law
entity created by Law 9648/98 and integrated by agents of the
electric sector and free consumers, according to the pertinent
legislation.
In summary, it is
incumbent upon ANEEL �to regulate and inspect the production,
transmission, distribution and commercialization of electric
energy� (Law 9427, art. 2), while ONS is basically responsible for
the �activities of coordination and control of the operation of
generation and transmission of electric energy in the
interconnected systems� (Decree 2655/98, art. 25).
Further, the creation of
�MAE� - Wholesale Electric Energy Market - must also be
highlighted. MAE was equally foreseen by Law 9648/98, and is
supported by the Market Agreement, a multilateral adhesion
agreement executed by agents of the electric sector (voluntary or
obligatory participants in MAE, according to the provisions of
Decree 2655/98 and the applicable ANEEL Resolutions), designed for
processing free transactions of purchase and sale of electric
energy, with emphasis on short-term transactions (spot market).
The Brazilian electric
sector is, in its large majority, interconnected, in which its
main agents operate in a coordinated form so as to maximize the
efficiency of the productive process6. This coordinated operation,
which was implemented in the 1970s and was during a long time
directed by the �GCOI� (Coordinating Group for Interconnected
Operation) is presently an attribution of ONS, carried out by
means of generation dispatches. It is the interconnected system that, from a structural standpoint, permits the free contracting of the electric energy supplier, through the assurance of free access of suppliers and free consumers to the systems of the concessionaire (or permissionaire) of transmission or distribution public services, by means of the payment of the cost of transportation involved (Law 9074, art. 15, § 6). In the model in phase of implementation, the generation, transmission, distribution and the commercialization of electric energy are considered separately, including for the effects of the granting and contracting of the respective services. The ruling on the grant for hydroelectric and thermoelectric exploitation consider the modality of generation (e.g., concessionaire of public service, independent producer, selfproducer, etc.) and the capacity of the hydraulic and thermic potential resources.
As to the contractual
models applicable to the electric sector, we may promptly
identify7:
(i) the �initial
contracts� that are characteristic of the present transition
phase. In these, ANEEL establishes, regarding the assured energy
of each plant, the amounts of energy and the demand of power
object of the respective initial contracts, as well as the
tariffs to be applied to the respective contracts, being further
indicated the parties - the buyer and the seller. The annual
amounts applicable to the initial contracts shall the effective
in the period 1998-2002, and shall then be reduced by 25% per
annum until the extinction of such contracts in 2005;
(ii) the freely
negotiated bilateral contracts, by which the amounts not
attained by the initial contracts may be negotiated, as well as
those object of progressive release. Law 9648/96, art. 12,
provides that the operations of purchase and sale of energy in
the interconnected electric systems shall be made within the
MAE�s ambit; and
(iii) the short-term
contracts (spot contracts) designed for allowing the
commercialization of the energy actually produced or demanded
that has not been object of bilateral contracts. MAE is
primarily the ambient constituted for the processing and
financial liquidation of such contracts, operating in a way
somehow like that of an exchange entity. MAE adopts a series of
mechanisms of price formation and a system of periodical
bookkeeping and liquidation of the operations.
The operation of this
short-term market is object of an extensive set of rules (MAE
Rules) in process of progressive implementation according to the
ANEEL Resolution 290/2000. MAE adopts a system of a double
bookkeeping, generating ex-ante indicative prices (based on
computational models and adjustment rules), which may be utilized
by the contracting parties for establishing the price of the
contracted energy, and an ex-post price, which, based on real
availability and load data, reflects with a better accuracy the
cost of electricity, being therefore utilized as the base for MAE
payments.
Resolution 290/2000
establishes the implementation of the MAE Rules in three phases: (i)
the first phase, by September 1, 2000 characterized by the
definition of the ex-ante price of the energy on a monthly or
weekly basis; (ii) the second phase, by July 1, 2001,
characterized by the beginning of the double bookkeeping, with
prices calculated ex-ante and ex-post; and (iii) the third phase,
by January 1, 2002, characterized by the beginning of the
definition of prices and quantities in intervals of at most one
hour, being the double bookkeeping maintained. MAE is therefore designed to regulate the commercial and financial aspects of the transactions of purchase and sale of electric energy, while most of the dispatch and delivery of the contracted energy are coordinated and made by ONS.
The bilateral contracts
and the spot contracts are basic contractual mechanisms of a
competitive electric energy market. This system of free
negotiation between agents has, however, a counterpoint purporting
to defend consumers: it is the system of �normative values�, which
is a mechanism that limits the re-pass, for the supply tariffs, of
the prices freely negotiated upon the acquisition of electric
energy.
Considering the phases of
transmission and distribution separately, the specific contracts
should be finally summarized. As regards transmission, the lines
comprised in the Basic Network Interconnected Electric System are
made available to the ONS by the concessionaires of transmission,
by entering into the Contracts of Provision of Transmission
Services, and such entity then, as the representative of these
concessionaires, enters into Contracts of Use of Transmission
Systems with the respective interested parties. The other
transmission installations that are not comprised in the Basic
Network are made directly available to the users by the
concessionaires of transmission, and the respective contracts are
entered into with the ONS� intervention. In both cases, it is
further necessary to enter into the Connection Contract with the
respective concessionaire of transmission, establishing the
responsibility for the implementation, operation and maintenance
of the connection installations. As to the distribution segment,
the Contract of Use of the Systems of Distribution and the
respective Connection Contract must be entered into with the
concessionaire or permissionaire of local distribution.
ANEEL fixes the tariffs
for the use of the installations of transmission and the tariffs
for the use of the systems of distribution of electric energy,
according to the applicable resolutions.
ANEEL established the
limits and conditions for economic agents� participation in the
electric energy sector (Resolution ANEEL 278/2000), in view of the
continuous entry of new economic agents in the sector as a result
of the processes of unbundling and privatization of electric
energy companies, bidding by new competitors for exploitation of
hydraulic potential and the authorizations for new thermoelectric
plants and small hydroelectric centrals, and taking into account
the need of controlling the participation of economic agents in
the present phase of transition of the electric energy market.
The changes introduced in
the electric energy sector represent fundamental alterations in
relation to the primitive model. However, the complete regulatory
structure is still pending full definition. Among the themes that
shall be addressed are the unbundling of the activities of
generation, transmission and distribution of electric energy, the
revision of tariffs and, as regards thermoelectric plants, free
competition in the offer and transportation of natural gas.
We hope we have thus
provided a concise preliminary introduction of the Brazilian
electric system. 18. The Regulation of Financial Institutions and Leasing in Brazil18.1. Financial Institutions
The basis for the
regulation of the financial and banking sector in general is
Banking Law No. 4.595/64 and subsequent regulations to such law
which regulate the national financial system, which is composed of
the National Monetary Council (CMN), the Central Bank, state-owned
banks and private financial institutions. The CMN is the
institution responsible for currency and credit policies,
including matters relating to foreign exchange, interest rate
policy and the regulation of the operations of financial
institutions in general. The Central Bank implements the currency and credit policies established by the CMN and supervises all financial institutions, both public and private. 18.2. Principal Financial Institutions
Public Sector
The federal and state
governments of
Brazil
control several commercial banks and financial institutions, whose
primary purpose is to foster economic development, largely in the
areas of agriculture and industry. In addition to performing
commercial banking activities, state development banks act as
independent regional development agencies.
The Brazilian
government-controlled banks include Banco do Brasil, Banco
Nacional de Desenvolvimento Econômico e Social - BNDES (�BNDES�)
and other public sector development, commercial and multiple
service banks. Banco do Brasil, a government-controlled bank,
provides a full range of banking products to both the public and
private sectors and is the largest commercial bank in
Brazil.
BNDES, a government-controlled development bank, is primarily
engaged in the provision of medium-and long-term financing (either
directly or indirectly through other public and private sector
financial institutions) to the Brazilian private sector, largely
to industry. Other federal public sector development, commercial
and multiple service banks include Banco da Amazônia and Banco do
Nordeste do Brasil S.A., as well as a number of commercial and
multiple service banks controlled by the various state
governments, the largest of which is Banespa. This last bank as
well as Banestado, Banerj and Credireal have been privatized. The
governments goal is to privatize all of the state owned banks.
Private Sector
The private financial
sector includes commercial banks, multiple-service banks,
investment, finance and credit companies, investment banks,
securities dealers, brokerage firms, credit cooperatives, leasing
companies, insurance companies and other entities. In
Brazil,
the largest participants in the financial markets are financial
conglomerates involved in commercial banking, investment banking,
financing, leasing, securities dealing, brokerage and insurance.
There are a number of different types of private-sector financial
institutions in
Brazil,
including the following:
(a) Multiple-Service
Banks. Multiple-service banks, are licensed to provide a full
range of commercial banking, foreign exchange transactions,
investment banking, consumer finance and other services,
including fund management and real estate finance.
(b) Commercial Banks:
primarily engaged in wholesale and retail banking, and are
particularly active in taking demand deposits and lending for
working capital purposes, and in finacing international
trade
related transactions. (c) Investment Banks. Banks principally engaged in taking time deposits, underwriting securities, , specialized lending , and administration of investiment funds. 18.3. Principal Conditions for the Functioning of Financial Institutions in Brazil
In accordance with the
provisions of the Banking Law:
(a) In order to operate
in
Brazil, financial
institutions must have the prior approval of the Central Bank.
(b) Financial
institutions may only invest in the equity of another company if
they obtain the prior approval of the Central Bank, and the
types of activities of the companies they may invest in are
restricted under regulations established by the National
Monetary Council �CMN�. Such investments may, however, be made
through the investment banking unit of a multiple-service bank
or by an investment bank.
(c) Financial
institutions may only own real estate if they occupy such
property. If real estate is received in satisfaction of debt
such property must be disposed of within one year.
(d) Financial
institutions may not lend more than 30% of their adjusted
shareholders� equity to any single person or group.
(e) Financial
institutions may not grant loans to or guarantee transactions of
any company which holds more than 10% of their share capital,
except in certain limited circumstances and subject to the prior
approval of the Central Bank.
(f) Financial
institutions may not grant loans to or guarantee transactions of
any company in which they hold more than 10% of the share
capital, except in the case of acquisition of debt securities
issued by their leasing subsidiaries. (g) Financial institutions may not grant loans to, or guarantee obligations of, their executive officers and directors or their families, or to any company in which such executive officers and directors, including the family of such executive officers or directors, hold more than 10% of the share capital. 18.4. Rules and Measures Regarding Solvency of Financial Institutions
Resolution No. 2.099, in
1994, adapted Brazilian banking regulations to the risk-weighted
capital adequacy rules of the Basle Accord, with slight
modifications. At the same time it set minimum capital
requirements for financial institutions, based upon the types of
activity exercised. Regulations contained in Resolution 2.399 of
June, 1997 established more rigorous solvency rules. These
resolutions are, in general, more restrictive than the Basle
Accord. The principal example of such more rigorous treatment is
that only Tier 1 capital plus revaluation reserves (basically
shareholders
net
worth) may be considered in establishing the capital adequacy
ratio. In addition to this the ratio, established by Resolution
no. 2.099, of 8% of capital to assets, as adjusted for certain
off-balance-sheet items, under the regulations published in June,
1997 was changed to a minimum ratio of 10% for institutions
established for at least 6 years.
Resolution 2.099 of August
17, 1994 established the minimum capital and
net
equity limits to be observed by financial institutions and other
institutions authorized to operate by the Central Bank:
(a) Commercial bank or
multiple service bank -- R$ 7,000,000.00;
(b) Investment bank or
development bank -- R$ 6,000,000.00;
(c) Credit, financial,
leasing and investment corporations -- R$ 3,000,000.00 ;
(d) Securities brokerage
companies and a corporation which administers securities
investments R$ 600,000.00.
Beyond the minimum capital
and net
equity requirement, the financial institutions shall maintain an
amount of adjusted
net
equity that is compatible with the degree of risk in its asset
structure, in accordance with the classification of risks
established in the Resolution.
In accordance with Resolution 2815, dated 01/24/2001, in the event of noncompliance with the minimum capital and net equity criteria established by the Central Bank of Brazil, information may be solicited regarding measures to be adopted for the normalization of the situation. If there is no normalization of the criteria established regarding the minimum capital and net equity criteria, the financial institution shall be penalized in accordance with the terms of Law 6.024, dated 03/13/74. 18.5. Foreign Investment in Brazilian Financial Institutions
Article 52 of the
transitory provisions to the Federal Constitution established that
any investment by foreign individuals or corporate entities in
Brazilian financial institutions, including both the setting up of
new foreign controlled institutions and the purchase of any
interest, whether controlling or otherwise, in existing
institutions, will only be permitted if duly authorized by the
Brazilian Government as a consequence of international treaties,
reciprocal treatment or because the investment is of interest to
the Brazilian Government.
The Government delegated
to the CMN the responsibility for analyzing and making
recommendations on the government interest regarding applications
for foreign investment in the sector. As a result of such
procedure, a substantial number of investments by foreign
investors in Brazilian financial institutions, most involving the
control of such institutions, have been approved on a case by case
basis and authorized by Presidential decree. Once the authorization has been conceded, foreign investors and Brazilian investors shall receive equal treatment unless express provisions of applicable law determine otherwise. Foreign investments in financial institutions must be registered with the Brazilian Central Bank in the same manner as foreign investments in other sectors of the economy, pursuant to Law No. 4.131/62 and respective modifications and regulations. 18.6. Leasing
Leasing transactions are
governed by Law No. 6.099 of 1974, as amended, on December 12,
1983, by Law No. 7.132 and by regulations related to these laws
issued by the CMN. Leasing operations are regulated by Resolution
No. 2,309 dated August 8, 1996.
Brazilian leasing
companies. Only leasing companies authorized to operate by the
Central Bank and, in some specific instances, other financial
institutions, may enter into domestic leasing agreements. The
regulations as to foreign investments in leasing companies are the
same as those already described for financial institutions in
general.
In order to be authorized
to function as a leasing company, a company must be organized as a
corporation (sociedade anônima). The company must meet minimum
capital requirements determined by the National Monetary Council.
The activities of leasing companies are restricted to leasing and
which shall be denominated as a �companhia de arrendamento
mercantil�
Leasing agreements in
Brazil
usually range from two to five years, with rental charges set,
either in Reais that are adjusted at floating interest rates, or
as per the cost variation of internal market funds, or in dollars
or other hard currency for funding originating abroad. These regulations do not apply to true or operating lease agreements. Any corporation, for example, may enter into a commercial leasing operation as lessor. The Operational Lease is mentioned in Article 6 of Resolution 2,309 dated August 1996.
Types of leasing
operations in
Brazil.
Brazilian law authorizes the following principal types of leasing
operations: domestic leasing, domestic sale and leaseback,
international leasing, export sale and leasing, export sale and
leaseback.
International leasing. The
regulations governing the leasing of foreign-produced equipment
into
Brazil provide that
any asset which may be imported into
Brazil
under existing regulations, may be the subject of an international
lease in accordance with the rules established in Resolution No.
1969 dated September 30, 1992.
International leases are
required to have a minimum-two year lease term and the total cost
of leasing may not exceed the price of comparable import financing
alternatives. The maximum term is the same as he useful life of
the good.
In accordance with
Circular No. 3025, dated January 1, 2001, it was established that
for the purpose of registering external leasing transactions, the
manufacturer shall provide information regarding the useful life
of the goods or equipment, for new and used goods or equipment,
and a specialized company will provide the necessary information
for real estate.
The lease terms must be
submitted for approval to the Department of Control and
Registration of Foreign Capital (FIRCE) of the Central Bank of
Brazil,
for approval of the interest rate and other financial conditions.
Certain other approvals are also required depending upon the asset
involved.
19. ELECTRONIC COMMERCE19.1. General Aspects
Brazil
accounts for approximately 40% of the total internet use and for
more than 50% of the total revenue from e-commerce transactions in
Latin America. Estimations show that the size of the Brazilian
e-commerce market will grow by a geometric progression in the next
years, comprising transactions business to business (�B2B�) and
transactions business to consumers (�B2C�), despite the turmoil in
the securities market of technology companies.
As yet, there is no
statute in
Brazil
dealing specifically with e-commerce. Experts and government
authorities are presently discussing whether the matter will
require legislation to a major or a minor extent. They agree,
however, on the necessity to adopt specific legislation for the
sake of legal certainty to businesses carried out in the virtual
world.
At the present, two bills
are being reviewed in the Brazilian Congress which deal with
electronic commerce: the �Projeto de Lei 1.589, of 1999, da Câmara
dos Deputados� (Bill no. 1.589, of 1999, by the lower house of
Congress), and the �Projeto de Lei no. 672, do Senado Federal�
(Bill no. 672, by the Senate, also dated 1999). The first of these
bills was prepared by the Special Committee on Computer Laws of
the Brazilian Bar Association - São Paulo branch, and is inspired
after the proposal for a Directive of the European Community
(today enacted under no. 1999/93/CE) as well as on the suggested
provisions set out in the Model Law on Electronic Commerce (1996)
of the United Nations Commission on International
Trade
Law - UNCITRAL. The second bill, presented just a few months
following the other, features nearly all of the provisions of the
mentioned Model Law.
Bill no. 1.589/99, in
short, addresses the following topics: (i) ruling out the need of
special prior authorization for one to offer goods or services in
the electronic environment; (ii) requirement of proper
identification of the offeror, the host, the access provider and
the security systems used for recording the electronic agreement;
(iii) rules of utilization of private information; (iv) security
and certification in the transactions; (v) liability of the
intermediary, carriers and hosts of information; (vi)
applicability of consumer protection laws to consumers; (vii)
legal effect of electronic signatures and electronic documents;
(viii) publicly-issued and privately-issued electronic
certificates; (ix) liability of the notary public in connection
with electronic certification; (x) electronic records; (xi) powers
of the Court system to authorize, regulate and supervise the
practice of the certification business; (xii) powers of the
Ministry of Science and Technology to regulate the technical
features of certifications; (xiii) administrative and criminal
penalties. Bill no. 672/99, more concise than the other, deals with the following points: (i) granting legal effect to data messages; (ii) equalizing an electronic message to a printed message; (iii) equalizing electronic authentication methods to a signature; (iv) authentication of information in the electronic environment; (v) obligations related to retaining electronic messages; (vi) lawfulness of binding statements and contracts made by electronic messages; (vii) principles applicable to identifying the sender and the addressee, and to determining the time and place of messages. 19.2. Applicability of the Brazilian rules of Law in General
Given the absence, at
present, of a specific law to address the legal issues arising out
of virtual transactions, electronic commerce shall be governed by
the existing rules of law applicable to brick-and-mortar
businesses and practices in the country, either by direct
application or by resorting to analogy. The relevant parts of the
Brazilian Law for the Introduction of the Civil Code also apply,
in view of the international nature of electronic commerce.
(a) Rules applicable to
contract formation
Just as any other legally
binding promise - the enforceability of which requires but a party
capable of entering into a legal obligation, a lawful object and a
format which is prescribed or not barred by law - legal
obligations carried out in the electronic environment may be
regarded valid where such requirements are met, in light of the
Brazilian Civil Code. In dealing with Evidence, Brazilian Code of
Civil Procedure determines that any morally and legally acceptable
means can serve to prove the truth of facts, even where such means
have not been previously defined. Some practical difficulty
exists, however, as to the utilization as written evidence if
litigation arises. In Brazilian civil procedure practice, evidence
with respect to information kept in electronic records generally
will rely on experts� review and opinion; the issues on altering
the contents of an electronic document and on the uncertainty as
to the authenticity of its authorship remain unsolved by the
existing laws.
(b) Rules applicable to
responsibility of suppliers of goods or services
Liability in connection
with goods and services sold by electronic means is subject to the
same rules applicable to other methods of commerce.
In particular, where they
are sold to consumers, the respective electronic transactions will
be subject to the rules of the Code of Protection and Defense of
Consumers - Law no. 8.078/90. The code is applicable where the
matter at issue is a consumer transaction, which is determined by
the presence of the so considered consumer (individual or legal
entity that acquires products or services as an end user) and of
the supplier of goods or services (individual, legal entity or
unincorporated entity, whether national or foreign, that conducts
business of, for instance, manufacturing, assembling, creation,
construction, transformation, import, export, distribution or
commerce of products, or performs services) in a business
transaction. The provisions of the Code of Protection and Defense of Consumers apply to consumer transactions in the virtual media, especially in connection with: (i) the right to information about the seller and the features of the offered good or service; (ii) protection against unfair business practices and misleading advertising; (iii) database and records of consumers; e (iv) the right to repudiation. 19.3. Tax Aspects of the Electronic Commerce
Like other countries,
Brazil
has not taken a position about taxing electronic commerce of
intangible goods (software, images, sounds and other virtual
utilities). On the other hand, the commerce of tangible goods done
by electronic media, as well as the commerce of some intangible
goods done by the usual means (e.g. �shelf software�), are subject
to value added tax (�Imposto sobre Circulação de Mercadorias e
Serviços de Transporte e Comunicação� - ICMS).
As to the services of
Internet access providers, there exists some confusion between the
States and the Municipalities as to which one of them has the
competency to impose taxes on such kind of transaction. Brazilian
Federal Constitution has given States the power to tax
transactions related to communication services - through ICMS tax.
On the other hand, Constitution empowers Municipalities to tax -
through ISSQN tax - any services which are not subject to ICMS and
which have been previously specified by Constitutional Laws (�Leis
Complementares�). However, Constitutional Laws have not set enough rules on that matter, which has caused a debate within the Court System on whether or not providing internet access is a communication service, for tax purposes. 19.4. Intellectual Property
The provisions of the
Brazilian Copyright Law (Law no. 9.610, of Feb19, 1998) and of the
Brazilian software law (Law no. 9.609, of Feb 19, 1998) apply to
works of authorship comprised in the electronic commerce
environment (texts, sounds, drawing, photographs,
computer programs, etc.)
At least four types of intellectual property work may be found in
the mediums currently used for electronic commerce: (i) computer
programs, (ii) multimedia works, (iii) websites, and (iv)
electronic data base.
Computer programs enjoy
the protection granted by the Software Law and by the Copyright
Law. The Multimedia work, which encompasses several forms of
expression, enjoys the protection granted by the Copyright Law,
through the provisions related to each of its forms of expression.
The website is also granted protection by said Law, to the extent
that the Law will protect each work of authorship incorporated
therein (graphic expressions, sounds, computer programs, etc.).
The electronic data base is granted protection by the Copyright
Law where, by virtue of the arrangement, selection or format of
its contents, it constitutes a work of authorship; protection is
not granted to a data base where such requirements are not met.
Issues on whether extra protection is needed for covering other
forms of creative work incorporated in the website (e.g, structure
and business methods), as well as for the contents of a data base
(data considered per se), have been the subject of discussion of
specialists, and still lack adequate legal support in
Brazil.
The business of
registration of domain names in
Brazil
has been entrusted to the �Fundação de Amparo à Pesquisa do Estado
de São Paulo - FAPESP�, by delegation of the Internet Managing
Committee of
Brazil
(�Comitê Gestor Internet do Brasil�). Registration of domain names
is governed by Resolution no. 1/98 of the Managing Committee.
The above referred
resolution provides that the right to a domain name shall be
granted on a first-come-first-serve basis (provided that the
applicant meets the relevant requirements). By the terms of the
act, one cannot register a domain name consisting of immoral
words, or a name that belongs in the list of reserved names of the
Managing Committee or FAPESP, nor a name which may mislead people,
such as those name that constitute highly known or notorious marks
(unless the its lawful owner is the party requesting the name). The registration of the domain may be canceled, among other situations, for non compliance of the rules established by the Managing Committee or by a court order (Item 5 of the �Ato Normativo para a Atribuição de Nomes de Domínio na Internet no Brasil�). The matter has been discussed in several lawsuits seeking the cancellation, enjoinder or suspension of the domain name, or the assignment thereof to the plaintiff along with a prohibition of use imposed on the defendant. In most of those lawsuits, provisional remedies were granted to the plaintiff, where requested on sufficient grounds. Neither FAPESP or the Managing Committee make available to the public an administrative procedure for reviewing and deciding on the cancellation of already granted domain names, upon a mere request of an interested party. 19.5. Initiatives of the Government
At the Government level,
it is worth mentioning the enactment of the Rules on Public Keys
Infrastructure of the Federal Government - ICP-Gov (Decree no.
3587/2000) and also an act of the Brazilian internal revenue
service (�Secretaria da Receita Federal�), the �Instrução
Normativa� no. 156/99, which established the use of electronic
certificates by individuals and entities in their electronic
transactions with such federal agency.
On August 2000, the
Federal Government created the Executive Committee on Electronic
Commerce (�Comitê Executivo de Comércio Eletrônico�), designed to
foster the development of electronic commerce and related
technologies and infrastructure. The Committee consists of
representatives from the Government, from the business community
and from the scientific community. The Federal Government submitted to public consultation a proposed Bill on authenticity and evidentiary value of documents issued, executed or received by Federal, State or City public bodies by electronic media. Since the period for submitting suggestions has lapsed as of January 2001, the proposed Bill shall be forwarded to Congress. 19.6. Electronic Documents As Probative Material In Court The purpose of the present paper is to briefly evaluate the citizen�s ability to use technological developments to demonstrate facts in court. Does the constitutional principle of Right of Defense allow the party to use the newly created contract techniques deriving from telematics? The answer to this question shall be the main concern of this paper. 19.7. General Theory of Proof
The proof is the means
used by litigators to convince the judges of a certain fact in his
or her favor, in the course of a court dispute. Most of the
litigation cases require decision on questions of fact. As a rule
the judge�s access to such facts depends on evidence. At least on
a theoretical level, the probability to reach a fair trial is
proportional to the availability of probative mechanisms.
The final addressee of the
evidence is the judge. The decision must be made in accordance
with the evidence presented in the process (art. 128 of the
Brazilian Code of Civil Procedure). The judge shall decide
according to the �formal truth� principle and not the �real
truth�. The purpose of this rule is to avoid arbitrary decisions.
During the probative phase
of the procedure, the judge�s action must be extremely careful and
seek for broad access to every means necessary to a clear and
grounded analysis and formation of his decision. The Brazilian
Constitution might be invoked, should the judge deny the
litigator�s right to produce evidence (art. 5, LV). The judge,
based on legal criteria (rational persuasion), is supposed to
reconstruct the facts discussed, in order to qualify the manner of
their witnessing. The judge is free to analyze facts. However,
such liberty does not mean that the judge may act arbitrarily.
With regard to the means
of evidence, the Brazilian legal system does not present a limited
number of allowed evidence, but admits �all legal means, as well
as those morally acceptable, even if not particularly specified in
this Code� (Art. 332 of Brazilian Code of Civil Procedure).
Brazilian regulations accept even the so-called �non-typical� or
�nameless� evidence. It does, however, repudiate the
�illegitimate� evidence, that is, illegally produced or contrary
to the law.
The documentary proof is
defined as the thing it represents, reproducing a certain
expressed idea or a past event. As ideas and facts are both
regarded as facts in court, a document is the representation of a
fact. As a representative thing, the document does not exist in
the natural state - it is formed necessarily from its author�s
work, and therefore takes a certain material form or means. Documents may be written or not, may be public or private. They can also be grouped according to their origin, authenticity, means of formation (direct or indirect; written or graphic), content (descriptive or constitutive) and form (formal or not), etc. A document is deemed to be �ad solemnitatem� whenever its form is of the essence of the act, and �ad probationem� when it works as a mere evidence of the act or of its effects. Public documents, provided that they are signed by public officials (to whose acts faith is given), are assumed authentic (juris tantum), unless their falsity is proven.
As far as private
documents are concerned, it is controversial whether they are
fully enforceable, due to the diversity of forms in which they
appear, for instance, a private document written and signed or
merely signed. The law assumes that
the representations it contains are true. However if its signature
is questioned in court this assumption must be removed (art. 388,
I of Brazilian Code of Civil Procedure), until the interested
party proves its authenticity. Litigators may argue the falsity of
a public or private document, with the purpose to have it
judicially declared. The private document may be written by the
party who signed it or by others. Occasionally the document is not
signed. Traditional legal authors regard the signatory as the
writer of the document. The signature is not required only in
documents which, by nature, are not normally signed, such as
commercial books. A number of questions about �electronic documents� and their enforceability as evidence arise from this analysis. The use of electronic means in the constitution of legal acts represents the progressive replacement of handwritten signatures by electronic pulses or transmissions. The author�s signature does not necessarily follow the document. It is replaced by codes or confidential passwords. 19.8. Types of Documentary Evidence The traditional concept of documentary proof has to give room to a new form of expression, which is neither oral nor written, but digital8. A document stands for a declaration, a representation of a present or past event. Digital documents are not different, except with regard to the form of perception by the viewer/addressee, which is not immediate. In other words: for the representation to become understandable, it is necessary to resort to an electronic device, an intermediary that allows the analyst to understand the declaration contained in the document.9 Within the wide range of documents, the electronic one ranks among the indirectly representative documents. A digital document is therefore any object which is able to transmit the representation of a present or past event, by means of interaction with an electronic device10. 19.9. Representative Support
The content of an
electronic document is dependent on a representative support,
i.e., an object bearing the digital declaration (floppy disk,
magnetic tape, compact disk, etc.). The representative support is
a subject related to the legal requirements of preservation of
documents.
In principle, some legal
authors considered the magnetic support (representative support)
to be the original of the document11, and not the information it
contained on a digital form. This position seems to be overcome by
new concepts, according to which the support is a mere means of
preservation of the document, whose essence lies on its content.
In the 80s12, some Western
European countries such as Belgium and France, deemed the
transcription or the printing on paper of the content of the
electronic document as a copy. Notwithstanding, this did not mean
that the copies (seen here as the printed content of an electronic
document on a paper support) could not be used in court. A better
interpretation of the French regulations points out that the use
of a �faithful and reliable copy� is allowed, provided that the
original is lost or not recoverable (art. 1.348, �a�, French Civil
Code).
From the 80s on, European authors and legislation have been through a number of important transformations. Today, the support is no longer deemed to be the original of the document. The Directive 97/7 of the European Union for the distance commerce regulates contracts between consumers and suppliers through means of communication and in the absence of the party or of the parties13. The Directive, considering the lack of security in the preservation of data in magnetic support, and aiming at the protection of the contracting parties, requires that the declarations made in distance marketing contracts be confirmed in writing or any other durable means (art. 5). Preservation of electronic documents is a subject of concern to both the European Union regulations and legal authors. In 1.998, the Prospective UCC (Uniform Commercial Code), Bill of the Uniform Commercial Code for the EU, already mentioned the word record instead of writing (art. 2B). For the purposes of the UCC, the term record means the information printed on a tangible means or filed on an electronic means or any other recoverable in an intelligible way14. 19.9.1. Procedural Issues of Proof The analysis of the probative value of the electronic document - and its acceptability in Court - is divided into three main aspects: proof of existence of the document; proof of the origin of the declaration therein contained; proof of the content thereof. 19.9.2. Evidence of Existence of an Electronic Document
If telematics advantage
lies on speed, it may be said that its inconvenience is fugacity.
Proof of existence of the document may be sometimes hard to
produce. And Brazilian regulations determine that proving the
existence of the document is a burden to the one who claims it
(art. 333, I and II of Brazilian Code of Civil Procedure - CPC).
In some Civil Law
countries such as Belgium and France there is a distinction
between legal acts and legal facts. A legal fact may be proven by
any means admitted by law (assumptions, witnesses, confessions,
etc.), while the legal acts, as a rule, must be proven by means of
written document.
In
Brazil,
the general rule is the liberty in the use of the different
methods of producing evidence, either listed or not in the
statutory law (art. 332, CPC). However, this rule admits a few
exceptions, for instance the agreements involving a certain
amount.
Italian legal authors
usually accept for probative purposes the declarative document
(which encompasses the electronic document) as equivalent to the
private document (art. 2.702 of the Italian Civil Code)15. The
cases in which the private document has probative effects are
listed in the same article.
Common Law countries
recognize, at their turn, two fundamental rules that seem to
represent a barrier to the proof of existence of an electronic
document: the rule of the indirect witness (hearsay rule) and the
rule of the original (best evidence rule)16. The examination of
these two rules will allow us to understand how this legal system
deals with the issue.
Due to the hearsay rule,
witness proof is only accepted if it arises from a direct and
personal contact of the witness with the facts he or she states.
In the application of this rule to written documents, a document
could not be deemed a proper means of proof, if the author is not
present to witness to it. As in electronic documents several
individuals handle the original information, it is clear that such
rule is an obstacle to the proof of existence of the document.
According to the best
evidence rule, a document is in principle valid as a means of
proof only if presented in its original version. The electronic
document takes a digital form and its representative support alone
is materialized. As a consequence the original rule hinders the
proof of existence of the electronic document, since it is
non-material.
There are however a number of exceptions to the hearsay rule and to the best evidence rule. Some samples are the British Civil Evidence Act of 1.968 and the North-American Business Records Exception, to be further analyzed. 19.9.3. Origin of Declaration and Electronic Signature
Another subject of
interest is the identification of the author of the declaration.
It is closely connected to the digital signature issue, to be
further reviewed in detail. As a matter of fact, the mere
insertion of a name at the end of an electronic document cannot be
equal to the traditional signature. The latter has peculiarities
(mainly those regarding handwriting of the signatory), which
render it unique and hard to be forged.
The commercial practice
has brought some solutions to the problem. A secret code
(password) is a source of identification of the user generally
adopted in electronic transactions. The weakness of the method
lies on its inability to identify the individual physically. This
would require the use of techniques for remote recognition of
certain particular characteristics of the individual, such as
fingerprints or voice.
The developments of the
information technology have been followed by new and modern
methods for recognition of the author of the electronic document.
What is today called electronic signature is a special digital
procedure of controlling the origin of electronic documents. A
cryptographic system has been accepted as a proof similar to that
of the traditional signature17. The user of the electronic system
is provided with a couple of asymmetric keys, one of them private,
and the other one public. Both have an alphanumerical code, but
the private key has a secret code known only by the user. The code
corresponding to the other key is of public domain and belongs to
a list accessible to the other users. The two keys are compatible
and reciprocally identifiable. And therefore the system of digital
signature or electronic signature is rendered feasible18. For probative purposes, the electronic signature is deeply different from traditional signature. The latter is a directly representative documentary evidence. The judge can therefore directly assess the evidence. The digital form requires a different procedure: the verification of the origin of the declaration depends on the intervention of an electronic device. Therefore, the electronic signature is not a directly representative evidence. Consequently the proof of declaration contained in the electronic document is documentary, but the proof of its origin is constituenda19, i.e., it is an evidence to be made. 19.9.4. Evidence of the Content of the Document
Are the electronic
documents reliable as a means of proof? Can we trust documents,
which may be manipulated, knowing that such manipulation may leave
no traces?
There are two kinds of
risk regarding electronic documents: the errors and the frauds.
The errors may have different sources: human, technical or
external. Most of the human errors are due to inadequate data
manipulation. Errors of an external nature are due mostly to the
environment (bad weather conditions). Technical defects derive as
a rule from the bad functioning of software or hardware. The fraud
differs from the error because a fraud is a willful act.
Problems of frauds involving electronic commerce are not easy to solve. Some legal authors propose the creation of new crimes, with severe penalties (in Brazil, the Bill of Law no. 1.713/96 is now being examined by the Parliament). However, frauds do exist even in traditional methods of commerce, and they may be regarded as exceptions. 19.9.5. Bills of Law
In Great Britain, the
above-mentioned Civil Evidence Act (1.968) was a pioneer statutory
law. It regulated the electronically produced evidence, stating
the minimum requirements for court acceptance. The requirements
included a certificate of identification of the document, which
should be signed by the responsible for its content before it is
presented in court.
In the United States of
America there is the Uniform Business Records as Evidence Act and
the Uniform Rules of Evidence, also enacted in the 60s. They
contemplate an exception to the hearsay rule and to the best
evidence rule, according to which the electronic evidence would be
acceptable in contents of commercial nature. The Business Records
Exception, as it is named, admits electronic documents regardless
of its author�s witnessing.
In France, the Parliament
has converted court interpretation into law, according to which a
written document is not always required, in case of material
impossibility. (Law dated July 12th, 1980).
One of the most complete
and modern regulations on the subject is the Italian law no. 59 of
1.997. It provides a detailed discipline for the admission of
electronic documents as means of proof, contemplating
cryptographic signature, digital copies, etc.
Recent regulations in
Brazil
demonstrate regulatory improvements on electronic documents (Law
9.800, May 26th, 1.999, authorizing the litigators to send
electronic documents and applications/pleadings via facsimile; and
Federal Tax Agency Instruction, no. 156, December 22nd, 1.999,
regulating the use of electronic documents in Tax Law acts).
Other Bills of Law in discussion are: no. 1.589/99 and 1.483/99, regulating the validity of electronic documents and digital signature. BL no. 672, 1.999, on electronic business. The Brazilian Bar Association has presented a Bill of Law in the Parliament on August 13th, 1999. 19.9.6. Final Remarks
Brazilian regulations,
though in a preliminary approach, are progressively taking into
account recent developments in technology. While a lot of work
lies ahead to be done, it is important to stress that a certain
concern to regulate the subject is already detected.
As an old saying goes, law
is never up to scientific evolution. This explains why statutory
laws regulating scientific issues are supposed to be broad and
general, giving some room for adjustments.
The electronic document is
fully acceptable as probative material, not being an exception to
the rule of art. 332 of our Civil Procedure Code, as long as
individual guarantees and public order principles are respected. 20. INFORMATION TECHNOLOGY20.1. National Information Technology Policy
It was only in 1984 that
Brazil
first enacted legislation governing the national information
technology policy, through Law 7,232/84.
With the objective of
improving the Country�s qualification in the information
technology field, to the advantage of social, economic and
cultural development, this Law provided that the principles below
should be followed:
(a) governmental action
in the orientation, coordination and incentive of information
technology activities;
(b) supplementary
participation of the State in the productive sectors in cases of
national interest or in cases where private initiative was
unable to act or had no interest in acting;
(c) intervention of the
State to ensure appropriate protection of the national
production of certain classes and types of goods and services,
as well as the improvement of the country's technological
qualification;
(d) prohibition of
illegal or actual monopoly situations;
(e) continuous
adjustment of the information technology process to the
peculiarities of the Brazilian society and definition of
political guidelines for information technology activities,
taking into account the need to protect and improve the
Country�s cultural identity, the strategic nature of the sector
and its influence, for the achievement of higher social welfare
levels;
(f) direction of the
national efforts towards programs that prioritize the economic
and social development and strengthen national sovereignty in
its various fields;
(g) establishment of
mechanisms and legal and technical instruments for the
protection of secrecy of stored, processed and disclosed data,
to ensure the privacy and the security of individuals and
private or public legal entities;
(h) establishment of
mechanisms and instruments to ensure every citizen the right to
access and to rectify existing information about him/her on
public or private databases; (i) establishment of mechanisms and instruments to ensure the balance between productivity gains and employment levels in the automation of productive processes; and
(j) governmental action
to foster and protect the development of national technology and
the economic, financial and commercial strengthening of national
companies, as well as to foster cost reduction of products and
services, thus ensuring them better opportunities for
international competitiveness;
The national information
technology policy would, in turn, be implemented through the
following instruments:
(a) the establishment of
rules regarding quality standards and official certification of
information technology products and services;
(b) the use of public
funds to foster information technology activities;
(c) the improvement of
forms of international cooperation to enhance the country�s
technical qualifications in the area;
(d) the education,
training and qualification of the personnel in this area;
(e) the establishment of
a special system for the concession of tax and financial
incentives, in favor of national companies, aiming at the growth
of information technology activities;
(f) the standardization
of communication protocols between the data-processing
information systems; and
(g) the establishment of
specific programs to foster information technology activities by
the state-owned financial institutions.
The structuring and
commercial use of databases and the software protection should be
subject to specific regulation.
To achieve its aims, Law
7,232/84 granted exclusive privileges to national companies,
defined as those exclusively, permanently, effectively and
unconditionally under the control of Brazilian individuals,
resident and domiciled in the Country.
Law 7,232/84 also
authorized the Executive Power to impose restriction on the
import, production, operation and commercialization of information
technology goods and services, thus facilitating the adoption of a
market reserve in favor of the national companies as defined
above. This reality has been deeply changed since 1991. Law 7,232/84 was followed by Laws 8,191/91 and 8,248/91. Constitutional Amendment 6/95 modified the constitutional provision that authorized special treatment favoring Brazilian companies with national capital (which definition was similar to the one adopted by Law 7,232).
Under the legislation
referred to above, market reserve and privileges granted to
national companies engaged in the information technology field
were consequently extinguished.
In line with the reality
worldwide, the national information technology policy focused on
seeking international competitiveness, in an open market,
encouraging companies that, irrespective of the origin of their
capital, were engaged in the manufacturing of information
technology and automation goods with desirable levels of local
aggregated value (calculated according to the rules of a
predetermined basic productive process), quality production
standards and research and development investment in the sector.
Currently, the incentives
to the sector are laid down in Law 10,176/01. Following the
directions taken by the development of the national information
technology policy, Law 10,176/01 provides for incentives to any
company planning to develop or produce information technology
goods, irrespective of the origin of its capital, with due regard
to desirable quality standards, local aggregated value and
research and development investments.
Nevertheless, the
provisions of Law 10,176/01 - specially those referring to the
preference to be given by Public Administration for the
acquisition of information technology goods and services and to
the local aggregated value required for the use of the regulated
incentives - indicates the simplification of the bureaucratic
procedures for concession and fulfillment of requirements imposed
for the use of such incentives and reveals that the governmental
actions shall primarily focus on research and development
investments (see 13.3 below for more details).
However, it should be
pointed out that regulations of Law 10,176/01 have not yet been
enacted and that the constitutionality of many of its provisions
are being questioned by the State of Amazonas. According to the
State of Amazonas, although Law 10,176/01 grants more favorable
incentives to the companies set up in the Manaus Free-Trade
Zone (Zona Franca de Manaus - ZFM), it violates constitutional
principles that guarantee the maintenance of the ZFM until 2013 as
a free-trade
area for export and import and also benefited by tax incentives. Finally, it is important to mention that the Ministry of Science and Technology and its respective Secretariats are responsible for the national information technology policy. 20.2. Tariff Policy and Mercosur
The information technology
and automation goods are included on the list of exceptions to the
application of import rates adopted in the Mercosur for third
countries. A linear and automatic conversion of applicable rates
is provided for in order to reach a maximum common tariff of 16%
in 2006. The trade of information technology goods between the Mercosur countries receives the benefit of a 100% reduction, provided that the rules of origin agreed upon between the countries involved in the negotiation are complied with. 20.3. Incentives to the Development and Local Production of Information Technology Goods and Services
As already mentioned, the
incentives to the local development and production of information
technology goods are currently governed by Law 10,176/01.
Pursuant to that Law, the
agencies and entities of the Federal Public Administration,
whether direct or indirect, the foundations established and
maintained by the Public Power and other organizations under the
direct or indirect control of the Union will give preference, in
the acquisition of information technology and automation goods and
services, with due regard to the order set below, to the
following:
(a) goods and services
with technology developed in the country; and
(b) goods and services
produced according to a basic productive process, in the form to
be defined by the Executive Power.
In the exercise of this
preference, equivalent conditions of delivery terms, support
services, quality, standardization, compatibility, and performance
and price specification must be taken into account.
The companies engaged in
the development or production of information technology and
automation goods, which invest in information technology research
and development, will be entitled to the following incentives:
(a) reduction of the Tax
on Manufactured Products (Imposto sobre Produtos
Industrializados - IPI); and
(b) accelerated
depreciation of new machines, equipment and instruments to be
used in the manufacturing.
The following percentages
will be adopted for the IPI reduction: (a) 95% from 1/1/2001 to 12/31/2001; (b) 90% from 1/1/2002 to 12/31/2002; (c) 85% from 1/1/2003 to 12/31/2003; (d) 80% from 1/1/2004 to 12/31/2004; (e) 75% from 1/1/2005 to 12/31/2005; and
(f) 70% from 1/1/2006 to
12/31/2009, date on which the incentive will expire. The IPI credit is assured to raw materials, intermediary products and packaging material used in the manufacturing of information technology goods benefited by the incentives.
Such incentives will only
be granted to the information technology and automation goods
specified by the Executive Power according to the parameters set
forth in Law 10,176/01. The Executive Power will also define the
basic productive process (Processo produtivo básico - PPB) to be
adopted for the obtainment of the incentives.
The new aspect of the law
is that the PPB will be established by the Executive Power based
on a project proposal (presented by the interested companies,
according to current understanding) submitted to the Ministry of
Science and Technology.
Compliance with minimum
research and development investment limits and with specific rules
to the allotment of funds to be invested is also required for the
use of the incentives.
The implementation of
profit sharing programs, pursuant to the legislation in force on
the matter, as well as the implementation of a quality standard in
the form to be defined by the Executive Power is also required to
obtain the benefits provided for in Law 10,176/01.
The companies engaged in
the manufacturing of information technology goods and which
operate in the ZFM, or areas under the scope of the
Superintendence for the Development of the Amazon (Superintendência
do Desenvolvimento da Amazônia - SUDAM), Superintendence for the
Development of the Northeast Region (Superintendência do
Desenvolvimento do Nordeste - SUDENE) and of the Center-West
Region follow a different and more favorable system. As an example, the companies in the ZFM are entitled to IPI exemption up to the year 2013 and to a reduction in the Import Tax (Imposto de Importação - II) for raw materials, intermediary products and secondary materials as well as for packaging, used in products sent to other regions of the national territory, proportional to the degree of national content of the end product manufactured in the ZFM. The companies located in areas under the scope of the SUDAM, the SUDENE and in the Center-West Region are entitled to the IPI exemption up to the year 2003 and to more favorable percentages of reduction of the taxation until 2009. 20.4. Software Legal Protection
As provided for in Law
7,232/84, the software legal protection was object of a separate
regulation. Currently, the matter is governed by Law 9,609/98.
Among other aspects of
this law, we emphasize the following:
(a) software is defined
as the organized set of instructions in natural or codified
language, contained in physical support of any nature, of
necessary use in automated machines for data processing,
devices, instrument or peripheral equipment, based on digital or
analogical technique, to make them run in certain ways and for
certain purposes; (b) software is protected by Law 9,610/88 - Copyright Law - with due regard to provisions of its specific legislation;
(c) the employer, client
of the services or public agent has the exclusive right to the
software developed during the agreement term or statutory
relationship, which is expressly aimed at research and
development, or where such activity of the employee, contracted
party or civil servant is set forth, or further results from the
nature itself of the obligations undertaken under such
relationships;
(d) the use of the
software in the country will be object of a license agreement.
In the absence of the license agreement, the tax document
referring to the acquisition or licensing of copies shall be
considered legal evidence of the regular use of the software;
(e) the acts and license
agreements referring to the right to sell the foreign software
shall set forth, regarding taxes and charges, the responsibility
for the payments and shall establish the remuneration due to the
software owner, resident and domiciled abroad;
(f) with regard to item
(e) above, it shall be deemed null any clause which limits the
production, distribution or commercialization, in violation of
the rules in force, which exempts any of the contracting parties
from the responsibilities for occasional claims of third
parties, resulting from defects or copyright violation;
(g) the license
agreement for software use, the corresponding tax document, and
the physical supports or the respective packaging must legibly
indicate the technical expiration date of the commercialized
version;
(h) the person who
commercializes software, whether as the titleholder of software
proprietary rights or as titleholder of the commercialization
rights undertakes, within the national territory, during the
technical validity of the respective version, to ensure to the
respective users the rendering of complementary technical
services in connection with the proper running of the software,
taking into account its specifications, such obligation
surviving also should the commercialization of the software be
discontinued during its validity term;
(i) the protection of
software rights is granted irrespective of registration and is
assured to foreigners domiciled abroad provided that the country
of origin grants equivalent rights to Brazilians and foreigners
domiciled in
Brazil;
(j) notwithstanding, the
software may be registered with the National Institute of
Industrial Property (Instituto Nacional da Propriedade
Industrial - INPI) to facilitate the protection of the rights
related thereto, being thus the secrecy of the data furnished
for such purpose ensured ;
(k) the software is
protected for 50 years counted as from January 1st of the year
subsequent to its publication, or from the date of its creation;
and (l) violation of software copyrights subjects the infringer to detention from six months to two years or fine. If the violation consists of the reproduction for sale, the penalty shall be the imprisonment from one to four years and fine. 20.4.1. Taxes Applicable to Operations Involving Software
Pursuant to Administrative
Rule 181/89, the II and the IPI are levied on the importation of
software. The Tax on the Circulation of Goods (Imposto sobre
Circulação de Mercadorias e Serviços - ICMS) has also been
charged.
The II and IPI rates vary
according to the tax classification of the imported products. In
the State of São Paulo, the ICMS internal rate for software
transactions is of 18%.
In defining the basis for
calculation of the II and IPI applicable to imports,
Administrative Rule 181/89 admits a separation of the value of the
software from the value of its support, in such a way as to allow
the II and the IPI to be paid only on the value of the support. If
no separation exists the II and IPI will be levied on the total
value of the transaction.
In respect of the ICMS in
the State of São Paulo, article 50 of Decree 45,490/00 (ICMS
Regulation) sets forth that in transactions involving software,
whether personalized or not, the basis for calculation of the ICMS
is twice the value of the support.
The same Administrative
Rule 181/89 also sets forth that the Withholding Income Tax (Imposto
de Renda Retido na Fonte - IRRF) is levied on payments of software
copyrights to non-residents. The IRRF rate provided for the
payment of royalties (a concept that covers such copyright) is of
15%. If the payment is for programming services, the rate may
reach 25%.
Law 10,168/00 established
the Contribution for the Intervention in the Economic Domain (Contribuição
de Intervenção no Domínio Econômico - CIDE) due by legal entities
which hold licenses of use or which acquire technological
knowledge, or further by signatories of technology transfer
agreements, levied on the relevant remunerations, which rate is of
10%.
A tax credit regarding
this contribution was introduced by Provisional Measure 2,062-63
of 02.23.2001. There is a discussion whether the CIDE applies to
any and all royalty payments, including those related to software,
or only to payments related to technology transfer.
The rules set forth in
article 50 of the ICMS/SP Regulation are also valid in regard to
software sales in the market of the State of São Paulo. However,
there is no specific rule for the IPI taxation on the resale of
imported software.
According to Decree-Law
406/68, with supervening amendments, the ISS applies to data
processing software services, among other services. Because the
ISS is levied by the Municipality administration, the effective
taxation must be analyzed in the light of the legislation of the
Municipality where the renderer of the services has his
establishment. However, it is important to mention that some
Municipalities adopt the view that the ISS is due on software
sales, including "off-the-shelf" sales.
It is also important to mention that disputes of tax competence, involving the IRRF, the IPI, the ICMS and the ISS are frequent in the enforcement of the legislation object of the comments above and definition of the tax treatment to be adopted to imports and sales, in the national software market. Those disputes have as background the discussion regarding the classification of the software payment as payment of royalties, services or goods. 20.4.2. Financial Remittances for the Payment of Software
The financial remittances
abroad as payment for software are governed by Circular 2,682/96
of the Central Bank of
Brazil
(Banco Central do Brasil - BACEN).
According to this Circular
the following remittances in connection with software
transactions, together with the required documents, are made at
the floating exchange rate:
(a) payment of sole copy
software;
(b) payments related to
the updating, leasing, maintenance and customization of software
when they are not subject to registration with the Brazilian
Institute of Industrial Property, the INPI (payments related to
technology transfer are subject to registration with the INPI);
and (c) transfers made by companies that distribute foreign software, due as a result of the revenues obtained with such software sales in Brazil. 20.5. Internet In addition to the Joint Ministerial Regulation 147/95 of the Ministry of Communication and of Science and Technology, which creates the Internet Management Committee in Brazil (Comitê Gestor Internet do Brasil - CGIB) and lists its duties, and to Resolutions 1 and 2, both of 1988, by the CGIB Coordinator, which govern the registration of domain and the assignment of IP addresses (Internet Protocol), there is no specific regulation applicable to the Internet. 20.6. Bills As a consequence of the information technology fast development, there are numerous bills on the matter being discussed. Among the matters to be regulated, we highlight the following: crime for the undue use of computer technology, structuring and use of database, security of bank transactions carried out through electronic means, electronic commerce, electronic documentation and digital signature. 20.7. Final Comments
Significant progress has
been seen in the national information technology policy over the
last few years. However, the specific legislation on the matter is
not significant in number, being basically restricted to the
provisions that were referred to above and which need to be better
systematized.
The matters and disputes
that are not covered under this specific legislation, are subject
to the rules of our traditional law, especially Civil, Consumer
and Tax laws, which presently need to be modified in order to
contemplate the relationships in the digital era, which are
characterized by a high degree of dynamism, innovation and
informality.
This is a current overview
on the matter. Its development once again leaves the challenge of
adapting the Law to the social, economic and cultural changes up
to the lawmakers. 21. COMMERCIAL REPRESENTATION
Commercial Representation
in
Brazil is governed by
Laws nos. 4.886 and 8.420, of December 09, 1965 and May 08, 1992,
respectively. According to these Laws, Commercial Representation
is defined as the intermediation activity, performed on a
permanent basis by any person or company20 committed to act in the
market of products or services on the behalf of one single company
or of several companies21.
Therefore, the Commercial
Representative will perform its duties by gathering buying
proposals from prospective customers and sending them for the
approval of the represented company. In case of acceptance of the
proposal, the Commercial Representative will be entitled to a
previously and contractually agreed upon percentage of the
transaction ("commission"), conditioned to the effective payment
performed by the customer, except if the contract foresees the
right to commission independently of the buyer's payment.
It is also foreseen in the
above mentioned Laws that every Commercial Representative is
obliged to be registered before the Commercial Representatives
Council of the Brazilian State where the respective activities
take place, bearing in mind that these Councils have a regulation
power concerning the profession.
Also, pursuant section 27
of the Law No. 8.420, the contract must be in written, and must
contain, in addition to the specific provisions agreed upon by the
parties, the topics foreseen in that section, such as for instance
: (i) general conditions of the representation; (ii) indication
and features of the products; (iii) duration of the contract; (iv)
indication of the area, or areas where the representation will be
performed, as well as the allowance (or not) for the represented
company to perform direct sales of its own in the indicated area,
or areas; (v) granting (or not) the exclusivity of the selling
area (total or partial); (vi) commission in favor of the
Commercial Representative and its payment schedule, conditioned
(or not) to effective collection of the buyers' payments; (vii)
exclusivity (or not) on the behalf of the represented company's
products; (viii) indemnity to be paid to the Commercial
Representative in case of unjustified termination of contract,
which cannot be less than the equivalent of 1/12 of the total
retribution paid to the Commercial Representative throughout the
duration of the contractual relationship. It is very important to emphasize that despite the provision found in section 1 of Law no. 4.88622, due to the stronger enforceability of Brazilian Labor Law, there is a serious risk that represented company should have to respond labor claims from its Commercial Representatives23 -- except if the representative is a company.
Thus, so as to avoid such
claim and its heavy economic burdens, it is of crucial relevance
that the represented company include the following restrictions in
all its Commercial Representation Contracts : (i) Commercial
Representative must always be established as a company formed by
at least two partners; (ii) Represented Company must avoid giving
orders directly to the partners of representative company or to
its personnel also, these same orders must restricted to the
performance of the obligations of representative24. 22. DISTRIBUTION AGREEMENTS
The Distribution
Agreements in
Brazil
may be divided in two similar but not identical categories :
(A) Commercial
Distribution Agreements, and (B) Ordinary Distribution Contracts. 22.1. Commercial Distribution Agreements
The first of the above
mentioned categories is governed by Law no. 6.729 of November 28,
1979 (amended by Law no. 8.132 of December 26, 1990) and is
restricted to the relations maintained between the Automotive
Vehicles and Spare Parts Producers (Auto Makers) and their
Distributors (Dealers).
Pursuant to Section 2 of
Law no. 6.729, only automobiles, trucks, buses, agricultural
tractors and motorcycles are considered as ruled by its
provisions, what leads us to conclude that any other sort of
automotive vehicle, such as boats and non agricultural tractors,
are excluded from the scope of its provisions, therefore belonging
to the second category, that is to say, to the Ordinary
Distribution Contracts, which will be commented opportunely.
According to Law no. 6.729
(section 3), the Commercial Distribution Agreements, concerning
the Dealer's role, comprise: (i) the
trade
of the automotive vehicles described in section 2; (ii) their
spare parts25; (ii) the technical assistance to the customers;
(iii) the free concession for the use of the Maker's trademark.
Among the provisions of
section 3 of Law no. 6.729 we also find the possibility of the
Commercial Distribution Agreement to foresee the prohibition of
the
trade of new
automotive vehicles produced by other makers26. On the other hand,
the Dealers have the right to
trade
new spare parts made or furnished by third parties, taking into
consideration the binding to the so called "fidelity level"27.
Besides, the Dealers are entitled to trading second hand
automotive vehicles and original spare parts produced by any other
maker, as well as other merchandises and services compatible with
the Agreement. In section 5 of Law no. 6.729 we find the basic provisions which must be present in all Commercial Distribution Agreements, enumerated such as follows : (i) definition of the operational area where the Dealer shall perform its activities28; (ii) minimum distances between the different establishments of Dealers29;
Also, the Dealer Company
commits itself to
trade
the maker's automotive vehicles and spare parts, as well as to
give the technical assistance to customers, in accordance with the
respective Commercial Distribution Agreement. Nevertheless, the
Dealer is forbidden, personally or through third parties, to
perform such activities outside its delimited operational area30.
Despite the fact that
operational area is defined in the Commercial Distribution
Agreement on behalf of the Dealer, section 6 of Law no. 6.729
allows the maker to contracting a new Dealer, as long as the
market in operational area shows proper conditions to do so, or
when a vacancy from a terminated previous agreement occurs31.
The Commercial
Distribution Agreement must also contemplate, in accordance with
to section 7 of Law no. 6.729, a binding "Automotive Vehicles
Quota" to be acquired by the Dealers and which is to be defined
taking into account the following items: (i) the estimate of the
maker's production32; (ii) the "quota" must correspond to a part
of the estimated production33; (iii) the contracting parties must
agree on the Dealer's "quota"34; (iv) the quota's definition must
not take into account the Dealer's inventory35 and is to be
revised annually36. Section 10 of Law no. 6.729 mentioned above opens for the contracting parties the possibility of including in their Commercial Distribution Agreement an obligation on the Dealer's part to maintain in its inventory a previously stipulated amount of products, proportional to its new products trade flow or rotation37.
In section 12 of Law no.
6.729, there is a provision prohibiting the Dealer to sell new
Automotive Vehicles to others rather than the final consumers.
That is due to the fact that the Law does not admit the sale for
purposes of resale, except in the following cases : (i) trades
between Dealers linked to the same Maker limited to 15% and 10% of
the "Automotive Vehicles Quota" of Trucks and of other Automotive
Vehicles, respectively; (ii) International Trading.
Furthermore, under Law no.
6.729, the Maker is bound to preserve the equality of prices and
conditions of payment among all Dealers which, in turn, are free
to establish their own prices to the consumers.
Despite the respect owed
to the Dealers' operational area by the Maker, the latter can
perform "Direct Sales of Automotive Vehicles" in the following
cases:
(1) Independently of
Dealer's performance or request: (i) to the Public
Administration or Diplomatic Representations; (ii) to consumers
considered as "Special Buyers" by the "Category Convention".
(2) Through the Dealers:
(i) to Public Administrations or Diplomatic Representations;
(ii) to Automotive Vehicles Fleet Owners; (iii) to consumers
considered as "Special Buyers" by the "Category Convention",
when so requested by a specific Dealer.
Anyway, the level of
direct sales and its repercussion on the Dealers' "Automotive
Vehicles Quota" must be always foreseen by the "Category
Convention" and any kind of act which may lead to the Dealers'
subordination or to an interference in their business management
is expressly prohibited.
In accordance with
sections 17 and 18 of Law no. 6.729, the previously mentioned
"Category Convention" is inherent to the Commercial Distribution
Agreement and may be defined as a General Agreement, which must be
made between the civil entities representing the Makers and the
respective Dealers' National Category. Likewise, this "Category
Convention" will have legal enforcement between the signing
parties as well as regulation power over their relationship, in
accordance with and subordinated to Law no. 6.729.
Furthermore, pursuant to
Law no. 6.729 all Commercial Distribution Agreements must always
observe a standard written form and its content must be in
accordance with sections 20 and 21, which foresee that the written
term of the agreement will always have the following provisions :(i)
specification of products; (ii) definition of the operational
area; (iii) minimum distances between each dealers'
establishments; (iv) dealer's quotas; (v) requirements concerning
dealer's financial condition, management, equipment, specialized
personnel, facilities and technical capacity; (vi) undetermined
duration of the agreement which can only be terminated in
accordance with Law no. 6.729 provisions, contemplating the
possibility of an initial duration of at least five years38
Finally, the Commercial
Distribution Agreement may be terminated in the occurrence of the
following events : (i) by consensus between both parties; (ii) by
the sending of the written notice mentioned above in case of an
initial five-year agreement; (iii) by initiative of the innocent
party, in the event of an agreement, breaching, infringement of
Category Convention or of Law no. 6.72939.
Still, if Maker sends to
Dealer the written notice in order to terminate the initial
five-year agreement about which we have already commented above,
under sections 23 up to 25 of Law no. 6.729 the Maker would be
binding to: (i) buy back the whole Dealer's inventory of
automotive vehicles and spare parts by the price offered to
Dealers on the day of such indemnity payment; (ii) buy all
Dealer's equipment, machinery, tools and plant (except for the
real estate), by their market price, as long as their acquisition
has been either determined by the Maker or not opposed by it right
after receiving a written notice from the Dealer informing about
these acquisitions; (iii) pay an indemnity to the Dealer
corresponding to 4% of Dealer's gross invoicing of goods and
services projected for the remaining period of the prematurely
terminated contract plus three months, based on the last two years
previous to termination or the actual duration of the agreement if
termination should come to occur before then40.
In relation to Commercial
Distribution Agreement of undetermined duration the consequences
of its termination are foreseen by sections 24 up to 27 of Law no.
6.729 as follows :
(1) Termination caused
by the Maker: (i) Maker must buy back the whole Dealer's
inventory of new automotive vehicles and new spare parts by the
price offered to consumers on the day of the agreement's
termination; (ii) Maker must buy all Dealer's equipment,
machinery, tools and plant (except for the real estate), by
their market price; (iii) Maker must also pay an indemnity to
the Dealer, corresponding to 4% of its last gross invoicing of
goods and services projected for the next 18 months, plus three
months per each five years of the agreement's duration, based on
the last two years previous to termination41.
(2) Termination caused
by the Dealer: dealer must pay an indemnity corresponding to 5%
of the total value of all merchandises it has bought in the last
four months previous to termination. Regardless of which party may have caused the agreement to terminate, all values owed to the innocent party must be paid no later than 60 days from the agreement's termination day. 22.2. Ordinary Distribution Contracts
Unlike Commercial
Distribution Agreements, the so called Ordinary Distribution
Contracts have no specific Law governing the parties'
relationship. As a matter of fact, this sort of contract is
governed by the general provisions found in the Brazilian
Commercial Code of 1850 and in the Brazilian Civil Code of 1916.
Because of that, the
contracting parties are free to regulate their relations, almost
exclusively by means of the contract, taking into account only the
already mentioned general provisions on obligations, as foreseen
under Commercial and Civil Codes42.
Also, if the contract does
not foresee a form of indemnity for termination, this shall only
be claimable by the innocent party in case of proven occurrence of
tort. Nevertheless, it is important to notice that if the parties'
distribution relationship is linked to products considered as
"Automotive Vehicles" under Law no. 6.729, these parties are
forbidden to regulate their contract by any Law other than this
one, being null and void any provision in contrary.
Furthermore, if the
parties relationship should involve an intermediation performance
by the Distributor on behalf of its Contractor's products, and not
of its obligation to buy the products for resale, no matter what
the denomination for the contract may be, it will always be a
"Commercial Representation" contract governed by Laws nos. 4.886
and 8.420 about which we have commented above.43 23. INTERNATIONAL CONTRACTS INTELLECTUAL PROPERTY23.1. General Features
As a member of the
Stockholm Convention of 14th July 1967 (under which the World
Intellectual Property Organization - WIPO was set up),
Brazil
subscribes to both the Paris Convention (for protection of
industrial property) and the Bern Convention (for protection of
literary and artistic works).
Intellectual property
comprises literary, scientific and artistic property, and is
treated under civil law, as opposed to industrial property, which
comes under commercial law.
In May 14, 1997 it comes
to force the new Industrial Property Code - Law 9.279 from May 14,
1996, which covers inventions, utility models and industrial
designs, manufacturers' marks,
trade
and service marks, showing the origin and source of products. It
also foresees the penalties against industrial property crimes. The National Institute of Industrial Property (INPI) is the government entity in charge of industrial property rights, and the formal examination of requests for the granting of patents and registration of trademarks. 23.2. Patents
Patents may be granted for
the protection of inventions, utility models, and industrial
designs. The protection granted by a patent extends for 20 years
for inventions, 15 years for utility models and 10 years,
extendable for three 5 year period for designs, all of them
counted as from the date the request for protection is lodge at
INPI. It was created the Certification of Addition, where it could
be protected the improvements introduced in a patent invention. As
an accessory of the patent application, it will have always the
same term of it.
Proceedings for the
granting of a patent are lengthy and time-consuming. An
application must be submitted to INPI, containing the inventor's
claims, a full description of the invention, designs of the
invention (when applicable), and evidences of compliance with all
legal requirements. Once the application has been presented, a
preliminary formal examination takes place, and a certificate of
filing is issued. The application will be considered confidential
for 18 months, at the end of which the application will be
officially published. The inventor may ask for an anticipated
publication, avoiding, this way, this 18 months period in
suspense. After the lodge of the application, there will be open a
36 months term to inventor or any interested third party to
request formal examination of the application. Failure to request
formal examination will cause the application to be considered
withdrawn, being its object turned into public domain. It was
given a 60 day extra period to claim for the restoration of the
appliance through the payment of a specific tax. Until the end of
the formal examination it may be presented, by the inventor or by
any interested third party, information and documentation in order
to give support to the examination. After the end of the formal
examination a decision will be published, determining the
granting, denial or shelving of the application. Should no appeal
be filed, the final certificate will be issued after the payment
of specific tax.
The owner of a foreign
patent may file an application for the corresponding patent in
Brazil
within the priority claim under the Paris Convention: twelve
months for patents of invention and utility models, and six months
for industrial designs, as from the date of application in the
country of origin. Commercial use of the patent must be initiated within 3 years from the date of issuance of the certificate, or the patent may be object of a Compulsory License. The patent may also lapse in the following cases: (i) by the expiration of its legal term; (ii) by its caducity; (iii) if the inventor fails to pay the required annuities to INPI; (iv) if the inventor expressly waives the privilege; (v) in the event of foreigner inventor, by the absence of an attorney duly qualified and domiciled in the country; or (vi) if it is administratively cancelled or judicially annulled. Once extinguished the patent, its object falls in public domain. 23.3. Trademarks
Application for a
trademark may be either as a foreign or a Brazilian trademark. A
foreign trademark is registered under the terms of the Paris
Convention, which establishes an exclusive priority term of six
months from the date of the application in the country of origin
for its owner to apply for registration of this same trademark in
other countries which are signatories to this convention.
In order to file this
application in
Brazil,
it is necessary to submit a certified copy of the trademark
application in the country of origin or the certificate of
registration to INPI.
The principal objective in
registering a trademark within the period of priority pursuant to
the convention - apart from securing protection - is to enable the
trademark to be licensed or transferred in return for a royalty
payment.
Any interested party may
apply for registration of a Brazilian trademark, whether Brazilian
or foreign. Application and registration of this trademark must
follow the provisions of the Brazilian Industrial Property Code.
If a trademark is applied
for in
Brazil by a foreign
party without the priority claim established in the Paris
Convention, it is considered a Brazilian trademark, and therefore
the convention benefit will not be afforded.
Pursuant to Brazilian law
and regulations, royalties cannot be charged for trademark or
patent license agreements in the following cases:
Brazilian law requires
that the owner of the trademark exercises licit and effectively
the activity for which it is claimed protection for the goods or
services covered by such trademark. In order to apply for
registration of a trademark in
Brazil,
evidence that the applicant is a company in good standing under
the laws of its country and of the company's field of business is
required.
Trademark registration
affords protection for ten years. This period may be extended for
successive ten years period.
Actual use of a trademark
is essential to its protection in
Brazil
which registration might lapse if it is not used within five years
from the date of its concession or if its use is interrupted for
more than five consecutive years. The owner of the trademark in Brazil can provide proof of use, or by the licensee that actually uses it. 23.4. Technology Transfer Agreements
Transfer of technology
involving Brazilian parties or industrial property rights
registered in
Brazil
are governed by Normative Act INPI No. 120 of December 17th 1993.
Normative Act 120 embodies
acts or agreements involving transfer of technology: patent use
agreements, trademark license agreements, technology transfer
agreements, sharing costs agreements and contracts for rendering
of technical and scientific assistance services.
INPI approval of such
agreements is required for purposes of enforcing third parties and
remittance abroad of payments resulting from the agreements and
tax deduction of such payments. Other valid documents evidencing the transfer of technology and the conditions governing such transfers (invoices, for instance) may also be submitted to INPI for approval, thus permitting remittance of funds abroad and tax deduction of payments resulting from the transfer.
Generally, technology
transfer agreements must clearly state their object and the
industrial property rights involved, and describe in detail how
the transfer will take place.
The above mentioned
agreements must state the conditions for the actual commercial use
of patents regularly applied for and granted in
Brazil;
the licensing of a trademark applied for and registered in
Brazil;
the acquisition of know-how and technology not protected by
industrial property rights; and the obtainment of techniques,
planning and programming methods, research, studies and projects
intended for execution or rendering of specialized services.
Trademark license and
commercial patent exploitation agreements must also state whether
the trademark license or commercial patent exploitation is
exclusive, and whether subcontracting is permitted. The term of
the agreement must not exceed the trademark registration or the
patent term.
Technology transfer
agreements may contain clauses regarding the confidentiality and
unavailability of the technology to be transferred. Such
agreements must, in addition, contain clauses providing for the
liability of the parties for any tax obligations resulting from
the transfer. The assignor must supply the assignee with all the
relevant technical information, as well as the necessary technical
assistance, so as to allow for the effective absorption of the
technology.
Contracts for rendering of
technical and scientific assistance services must state the time
required for the specialized services, the number of technicians
required, their specialization and training programs, and must
specify the remuneration.
Remuneration of the
technology to be transferred may be at a fixed price, a fixed
price per item sold, a percentage of the profits, or a percentage
of the
net sale price, less
taxes, fees and other charges agreed to by the parties.
International and domestic price levels for similar transactions
may be taken into account for purposes of INPI examination of the
remuneration involved.
The request for approval
must be submitted to INPI on the proper form, together with an
original via of the agreement or equivalent document. INPI may
request further documentation. Approval will be granted within 10,
20 or 45 days, depending on the value of the agreement; whether or
not it contains clauses providing for the confidentiality or
unavailability of the technology; or whether examination of the
act or contract hinges on an outside opinion or information. Should INPI request supplementary documentation, the interested party has twelve months to comply, or the case will be shelved. Once the requested documentation has been submitted, INPI will examine the request within the terms mentioned above. If INPI fails to examine during the time frame established, the agreement or equivalent document will be considered approved, the only requirement being attachment of an instrument of liability signed by the parties or their legal representatives.
INPI may suspend or annul
the approval, should it conclude that it is not in conformity with
prevailing legislation. INPI may, at its own discretion, wish to follow up on the technology transfer procedure. 23.5. Franchising
In
Brazil,
the franchising system is ruled by the Law nº 8.955, dated
December 15, 1994. Complementing the legal text the ABF (Brazilian
Association of Franchising), entity which takes care of the ethics
in the activity in
Brazil
had elaborate an Auto Regulation Code of franchising that,
nowadays is also a support as a set of director rules to the
implementation of the franchising system, as well as to solve the
questions originated from this activity.
Beyond the definition of
the franchising system the Law 8955/94 rules the relationship
between franchiser and franchisee, since the preliminary
negotiation until the formalization of a franchising agreement,
establishing furthermore about the penalties in the event of non
accomplishment of some determinations.
The key point of the Law
8955/94, without any doubt, is embodied in its article 3, that
treats of obligation of the franchiser to furnishing to the
potential franchisee the Franchise Offering Circular (adaptation
of original Uniform Franchise Offering Circular U.F.O.C.). It is
the real direction about the mandatory content of the Offering
Circular that have to be given to the potential franchisee 10 days
before the signature of the franchising agreement or pre-agreement
or before the payment of any kind of tax by the franchisee (art.
4º).
In its 3rd article, the
Franchise Law determines that the Offering Circular contains among
other information:
The law establishes
furthermore that the Offering Circular and the Franchising
Agreement shall be elaborated in a clear and accessible reading
avoiding, this way, confusing and uncertain texts, susceptible of
several interpretation.
In the remainder the Law
8.955/94 repeats the direction which before its issue were
emerging from the Brazilian Tribunals, mainly in respect to the
nonexistence of employment vinculum between franchiser and
franchisee or between the franchiser and the franchisee employees,
except in case where exists evident dissimulation of the
employment agreement with or without collusion between the parties
involved.
It is important to note
that it is not mandatory to register a Franchising Agreement
before any governmental authority to be valid, but to be
executable against third parties, it shall be registered before
the National Institute for Industrial Property - INPI, according
to the Normative Act no. 115/93 and if the franchiser is a
foreigner party, it has to be registered in the Central Bank of
Brazil
in order to permit the remittance of the payments foreseen in the
contract, and fax deduction of such payments.
24. INTERNATIONAL TREATIES2.4.1. General Features
Treaties are legally
binding written agreements between international entities that can
be made between States, between States and international
organizations, or between international organizations themselves,
provided that the parties are represented by qualified agents. The
purpose of treaties is to discipline freely agreed-upon legal
relationships, with a lawful and feasible object , in order to
assure the contracting parties that the provisions therein
contained are duly complied with and observed.
Before an
international-level ratification, these treaties and conventions,
negotiated and signed by the President of the Republic, must be
submitted to the National Congress: first to the House of
Representatives, and subsequently to the Senate, whose President
enacts a formal Legislative Decree. The treaties thus become
effective and part of the internal legal system. They are then
enacted and published, essential steps to make them enforceable on
the internal level. The last step is to register the Treaties with the UNO Secretariat. Once this registration is accomplished, the Treaties are presented to other countries, that is to the International Order. 24.2. Trade From the point of view of international trade, Brazil is a member of the WTO (World Trade Organization that replaced the GATT (General Agreement on Tariffs and Trade) by virtue of the Marrakech Agreement signed in 1995. Brazil was one of the signatory States of the Bretton Woods Agreement (which created the International Monetary Fund, IMF, and the International Bank for Reconstruction and Development, IBRD); it is a founding member and a shareholder of the Interamerican Development Bank, IDB, and has State-observer status with the European Economic Community. Brazil also has a permanent Representation in Brussels. Brazil signed bilateral agreements with Austria on 03/13/ 1993, the European Economic Community, on 01/31/ 1994, Turkey, on 04/10/(1995, Uruguay, on 05/06/1997, and entered into complementary agreements with Peru, on 07/21/1999, Costa Rica, on 04/04/2000. It also signed a memorandum with Argentina on 10/29/1999. 24.3. Intellectual Property Concerning intellectual property protection and international technology trade, Brazil was one of the founders of the Paris Union, and has been a member of the World Intellectual Property Organization, WIPO, since 1975. It is a signatory of the Convention of the Paris Union for the Protection of Industrial Property, including the Hague review of 1935 and the Stockholm review of 1967. Brazil is also signatory of the Patent Cooperation Treaty (PCT) signed in Washington in 1970, which was ratified and enacted as an internal Brazilian law. The 1971 Strasbourg Agreement referring to the International Patent Classification is effective in Brazil as an internal law. With regard to the bilateral relations as to industrial property, Brazil has signed several agreements, i.e.: with Sweden (1955) for protection of trademarks, with France (1983) regarding industrial property, with the former USSR (1982) for scientific and technological cooperation, with the USA (1957) and Italy (1963) regarding copyrights. 24.4. Taxes
With respect to Tax Laws
governing international
trade
relations,
Brazil
signed, ratified and transformed several bilateral international
agreements into internal laws �in order to avoid the double
taxation of income (international double taxation agreements). The
agreements with the following countries are noteworthy: Germany
(1976), Argentina (1982), Austria (1976), Belgium (1973), Canada
(1986), South Korea (1992), Denmark (1974), Ecuador (1988), Spain
(1976), Finland (1974), France (1972), Hungary (1972), Italy
(1981), Japan (1967 and 1978), Luxembourg (1980), Norway (1970),
Portugal (1971), the Netherlands (1990), Sweden (1976 and 1986)
and Czechoslovakia (1991), France (1993 and 1994), United States
of America (1994) and Finland (1996). It has also signed
international income tax exemption treaties for maritime
navigation and airline companies with: South Africa, Germany,
Chile, France, Italy, United Kingdom and Ireland, Switzerland. And
Venezuela. By virtue of the agreements to avoid double taxation,
Brazil
applies reduced rates, as established in said agreements, to the
prejudice of the rates established by the internal Brazilian laws
referring to the projected income, including the interest on the
acquisition of assets on credit. Said reduction in rates is
allowed, even if the payer has assumed the tax burden, by virtue
of the agreements executed in
Brazil
or abroad, with persons residing in
Brazil
or abroad. In addition, Brazil entered into a complementary agreement with Cuba on 05/27/1998, with the objective of developing technical cooperation projects and actions related to tax management and customs management. The agreement prioritizes tax management, more specifically, tax collection, and procedures and systems for the relationship between tax management and the bank network, through the adaptation or development of an income classification system. The agreement also provides for information technology systems for tax collection management and the development of systems for information and network technology. 24.5. Latin America
After the Second World
War,
Brazil was one of the
main agents instrumental in establishing a free
trade
zone in Latin America. It was one of the founders of the Latin
American Free
Trade
Association, LAFTA, established under the Treaty of Montevideo on
February 16, 1960.
Brazil,
Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay,
Peru, Uruguay and Venezuela signed this Treaty.
In 1980 these States
created the American Integration Association (ALADI), under the
Montevideo Treaty of August 12, 1980, �in order to proceed with
the integration process of promoting the region�s harmonious and
balanced socioeconomic development.� (Treaty preamble, 1980).
It was within this time-honored tolerance of limited scope agreements (under the 1980 ALADI Treaty) that Brazil and Argentina signed important bilateral treaties, allowing, soon thereafter, for the swift creation of a bilateral common market area. These treaties are as follows: the Integration, Development Cooperation Treaty, signed in Buenos Aires on November 29, 1988; 24 protocols, followed by other bilateral accords on topical issues, including the Treaty for Establishment of the Brazilian/Argentine Binational Companies Statutes on June 6, 1990. Brazil signed the Economic Cooperation Agreement (ECA), with Venezuela (1994) and Uruguay (1997). It also signed multilateral economic agreements with Argentina, Chile, Mexico, Uruguay and Venezuela, in 1995. 24.6. MERCOSUL
The MERCOSUL Treaty,
signed in Asuncion, Paraguay, in March 26, 1991, proposes the
constitution of a common market between
Brazil,
Argentina, Uruguay and Paraguay, which entails:
(a) the free circulation
of goods, services and production factors among the nation
members, by eliminating tariffs barriers between the four
countries;
(b) the establishment of
a common external tariff, and the adoption of a common business
policy within its regional and international economic and
commercial relationship;
(c) the coordination of
a sectorial macroeconomics policies among the member nations in
foreign
trade,
agricultural, industrial, fiscal, monetary exchange, capital,
service, customs, transportation and communication matters, as
well as any other issue that may be agreed upon;
(d) the commitment of
the State members to harmonize their legislation aiming at the
complete integration process
As from January 1, 1995,
there is no longer tariffs barriers among the participating
countries. Most of the products originated from any of the four
countries (there is still a list of few exceptions) are freely
trade
within the region with no import tariffs at all. Additionally, a
Customs Union was also established to be in force as from January
1, 1995. To that effect, an instrument aimed at motivating the
member States to become externally competitive was created: The
Common External Tariff (�CET�)
As with European Union,
the Common External Tariff (CET) shall be one of the cornerstones
of the MERCOSUL integration process. Accordingly, in order to
prevent deflections in the
trade
flow, a tariff ranging from 0% to 20% was established.
Such tariff will cover
most of the products imported into the region from non-members
States, with the exception of those products considered to be
�sensible� in their respective countries, such as capital goods,
informatics and telecommunications in
Brazil.
According to the decision
7/94 of the Common Market Council (�CMC�), as of January 1st,
2001, a Common External Tariff (�TEC�) of fourteen percent (14%)
has been implemented for capital goods in relation to
Brazil
and Argentina. Paraguay and Uruguay have up to January 1st, 2006
to implement such tariff. However, we must mention that the CMC
decisions 20/00 and 68/00 provide for the constitution of common
systems of capital goods which are not produced in the area, what
would change aspects of the already consolidated TEC, upon the
exercise of negotiations with term up to June 30, 2001. Within
this same range, there would also be contemplated proposals to
modify the TEC for capital goods produced in the area, which may
be submitted by the Member States to the
Trade
Commission up to June 30, 2001.
In relation to the
informatics and telecommunications goods, the convergence of
tariffs was scheduled for January 1st, 2006. A maximum common
tariff of sixteen percent (16%) was determined to start on such
date. The CMC decision 68/00 provides, however, the submission, by
the Common Market Group (�GMC�) of an assessment for the possible
reduction of protection levels and tariff spread practiced for the
production chain of capital, informatics and telecommunications
goods, whether they are produced or not in the Mercosur Member
States, for the purpose of making the required adjustments to the
TEC.
The CMC 68/00 Decision
determines that the Mercosur Member States may establish and
maintain, up to December 31st, 2002, a list of one hundred (100)
items of the NCM as exceptions to the TEC. The Member States shall
notify, up to January 31st, 2001, the remaining States, about
their TEC exceptions proposed as applicable to the above mentioned
Decision, there being room for possible manifests of disagreement.
The Member States may modify, every six (6) months, up to twenty
(20) products of such exception lists, provided they duly obtain
the prior authorization of the GMC.
There is the matter of the
CMC Decision 15/97, providing for a linear increase of the TEC, in
three (3) percentage points, up to December 31st, 2000. With the
CMC Decision 67/00, approved in Florianópolis, the Member States
have agreed to reduce only half percent (0.5%) of the previously
provided increase, thus extending a two and a half percent (2.5%)
increase for a maximum period of two (2) years. The CMC shall
assess, however, the possibility of additional reductions on
occasion of its next meeting, to be held in June, 2001.
There are five exhibits
that are integral part of the MERCOSUL Treaty; I) regarding the
Commercial Liberation Program; II) The General Origin Rule; III)
Resolution of Disputes; IV) Safeguards Clauses and V) Common
Market Group Work Subgroups. These exhibits were provided for in
article 3 of the Treaty, and also establishes that a General
Origin Rules, a Dispute Resolution System and Safeguard Clauses
will be established.
The Institutional
Structure of the MERCOSUL is established by the rules set forth in
the Asuncion Treaty and the Ouro Preto Protocol, until the
formation of the common market.
The institutional bodies
of MERCOSUL are the following:
(a) Common Market
Council (�CMC�) - It is composed by the Ministers of Foreign
Affairs and Economy (or equivalent) of the State members and,
being the highest-level and decision-making institutional entity
of MERCOSUL, CMC is responsible for the compliance with the
rules established by the Treaty of Asuncion. CMC is the entity
authorized to represent MERCOSUL in the negotiation and
signature of agreements with non-members states, international
institutions and other nations in general;
(b) Common Market Group
(�GMC�) - It is composed by four permanent and four alternate
members appointed by each of the State members, representing the
following entities: I) Ministry of Foreign Affairs; II) Ministry
of Economy ( or equivalent); and Central Bank. It is the
executive body of MERCOSUL in charge of implementing the
decisions made by CMC, to supervise the activities of the
MERCOSUL
Trade
Commission (�CCM�) and Administrative Agencies, to propose
measures aiming at the implementation of a commercial
liberalization program, to coordinate a macroeconomics policy,
to participate in negotiations with international agencies and
non-members nations with respect to the signature of agreements
and, if necessary, to be present in dispute resolutions within
MERCOSUL, as well as to organize and coordinate the so called
Work of Subgroups;
(c) The MERCOSUL
Trade
Commission (�CCM�) - It is composed by four permanent and four
alternate members, appointed by each of the MERCOSUL nations and
coordinated by the respective Ministers of Foreign Affairs of
these countries. CCM is entitled to verify that the common
business mechanisms policy are being followed accordingly. CCM
is also the entity entitled to speak out on behalf of the State
members in connection to any claim related to the Common
External Tariff, common business mechanisms and claims raised
out by the private sector;
(d) Joint-Parliamentary
Committee (�CPC�) - It is composed up to 64 (sixty four)
permanent members, with the same number of alternate members.
Each of the State members is entitled to appoint 16 (sixteen)
members, who must also be members of the National Congress of
their respective countries. The CPC represents the legislative
bodies of the State members. Within the MERCOSUL�s structure,
CPC plays a role of an advisory and decision-making entity; (e) Administrative Secretariat (�SAM�) and Social and Economic Advisory Forum (�FCES�) - SAM is entitled to the publication of MERCOSUL Official Gazette and to keep documents. It is also responsible to make public the activities of the GMC. FCES, in its turn, is the entity that represents the social and economic areas of the State members, being an advisory body; and
(f) Subgroups of Work
(�SGT�) - The Subgroups of Work are subordinated to the GMC.
Their task is to carry out studies on specific matters of
MERCOSUL�s interest and to first draft the decisions and
resolutions to be forwarded to the appreciation of CMC.
Currently, there are 10 (ten) sub groups of work formed, as
follows: SGT Nº 1 - Communication; SGT Nº 2 - Mining; SGT Nº 3 - Technical Guidelines; SGT Nº 4 - Financial Matters; SGT Nº 5 - Transport and Infrastructure; SGT Nº 6 - Environment; SGT Nº 7 - Industry; SGT Nº 8 - Agriculture; SGT Nº 9 - Energy;
SGT
Nº 10 - Labor, Employment and Social Security Matters
The advanced stage of
MERCOSUL integration mechanisms signals that Latin America
integration process, at least as far as the Southern Cone region
is concerned, is no longer a mere rhetoric, but a positive action
than can lead to positive and concrete results. 25. Dumping in Brazil25.1. Introduction
The globalization caused
the antidumping regulations to be increasingly used these last few
years, being an instrument often used by national companies as a
way to protect their home markets. Despite the strong economic
tenor of the issue, we will approach solely the legal aspects of
dumping and the �antidumping� legislation in
Brazil
(Law n° 9.019 an Decree n° 1.602, dated August 23, 1995), based on
Article VI of the General Agreement of Tariffs and
Trade
(�GATT�).
Therefore, we will first
of all discuss the legal concept of dumping and its core elements.
It is important to underline that �antidumping� rules may be used
by companies to mitigate or even prevent any dumping event from
occurring, due respect being given to the fact that imposed duties
may never exceed the calculated dumping margin.
Because dumping is usually
mistaken for other actions for economy protection, such as
subsidies and compensatory measures, ahead we will briefly
describe the parameters that allows us to tell one from the other.
We will additionally present a description of the �antidumping� process and its closing or suspension, including closing by petitioners, at governmental request in the event of national interest or execution of price agreement by the company being accused of dumping. 25.2. Concept and Core Elements of Dumping
Legally speaking, dumping
is the export of products at lower prices than those usually found
in exporting company�s like products sold in its home market.
However, although the very difference in price is regarded as an
unfair business action, in order for such a difference in price to
be rendered unacceptable it must be injurious or threat the
national industry.
Therefore, the following
are the core elements of dumping:
(a) Export price lower
than that ordinarily found in the exporter�s domestic market.
Exportation by an exporter of products at prices lower than
those found in said exporter�s home market is intrinsic to
dumping, this being sufficient element to characterize the act
but insufficient to render it unacceptable. The following prices
are taken into account when analyzing said prices and comparing
them to calculate the dumping margin: (i) �ex works� price, that
is, free of taxes; and (ii) cash price.
The comparison of these two prices determines the dumping margin that is the difference between the price found in the exporting market and the export price, calculated by means of a fair comparison, i.e. any differences in marketing conditions must be eliminated with adjustments.
(a) Like product.
Definition of like product found in relevant legislation is
somewhat subjective and unclear, which make an accurate
discussion about this issue rather difficult. According to
legislation, like product is an �identical product, a product
equal in all respects to the product under review, or, in the
absence of such a product, another product that might not be
exactly the same product in all respects but shows very similar
characteristics to those of the product under investigation.�
This excerpt from the Brazilian legislation denotes that the
like product concept is a quite broad one, creating flexibility
that authorities charged with the investigation of dumping
actions may enjoy at this level�.
(b) Injury to the
national industry. According to the legislation, injury is both
the property damage and any threat of material injury to the
domestic industry, whether as yet established or delay in its
implementation. The Brazilian legislation sets some tangible
parameters to determine injury, such as: (i) volume of dumped
imports; (ii) effects of said imports on the like product price
in
Brazil; and (iii)
resulting impact on the domestic industry. Said determination
also includes an objective analysis of the following amounts: (i)
volume of dumped imports; (ii) market share of dumped product
imports in the overall import volume and consumption; (iii)
price. For the determination of threatened injury, the following
aspects will be taken into account: (i) significant growth of
product imports; (ii) sufficient idle capacity or imminent
substantial increase of foreign producer�s productive capacity;
(iii) imports at prices that cause a drop in domestic prices or
prevents a price increase; (iv) stocks.
(c) Causal connection
between injury and the dumping. In a dumping investigation, the
authority seeks to determine whether or not and to what extent
dumped imports are responsible for any injury caused to the
domestic industry, taking into account other factors known to
have possibly caused injury within the same timeframe.
It is our task here to
distinguish dumping from other
trade
protection mechanisms, specially safeguard measures and subsidies.
As provided in GATT�s
Article XIX, the so-called safeguard measures are emergency tools
employed to protect the Brazilian industry and avoid any damage
resulting from increased import volumes. Unlike the dumping,
safeguard measures aim at protecting the national industries
irrespectively of any unfair business act and are usually taken
when the Brazilian industry shows no competitiveness as compared
to foreign products. We must underline that dumping and safeguard
measures are different figures, including as far as imports of a
certain product by the complainant State are concerned.
On the other hand,
subsidies consist of advantages conferred by a State to certain
companies or sectors that end up reducing artificially their
production costs.
Another mistake commonly seen mistake is with dumping and �underselling� and predatory price. However, they are distinct insofar �underselling� consists of sale at a price lower than the cost price, which is not characteristic of dumping that, in turn, is the export at a lower price than the price found in country of origin, whether or not such prices are higher or lower than the cost prices. On the other hand, predatory price consists of sale of products at low prices for the purpose of wiping out competition; such mechanism does not exist in dumping. Additionally, the basic difference between dumping and those two other figures is that the latter should be protected by national competition laws, while dumping is a foreign trade issue. 25.3. Investigating Dumping in Brazil
A dumping investigation in
Brazil
is initiated by the filing of a written petition by national
producers or business associations containing allegations of
possible dumping behavior by a certain company or companies in
their exports into
Brazil.
Said petition must include
sufficient evidence of dumping, injury and causal connection
between these two. Should the allegations on the petition fail to
be clearly substantiated, it will be cancelled.
For a petition to qualify
for review, it must also include the following information: (i)
petitioner�s identification, indication of volume and market share
in the home production (ii) estimated volume and share in national
production of like product; (iii) list of known domestic producers
of like product, who are not represented in the petition and, if
available, indication of volume and their market share in overall
production, as well as statement in support of petition; (iv) full
description of product allegedly imported at dumping prices, name
of country of origin or exporting country or countries,
identification of each exporter or foreign producer known and list
of product importers; (v) full description of product manufactured
in
Brazil; (vi) sale
price in the exporting country (regular price); (vii)
representative export price or, should it be unavailable,
representative price at which product is first sold to an
independent buyer located within the Brazilian territory; (viii)
information on the development of volume of allegedly dumped
imports, effect of such imports on like product prices in home
market and negative impact of imports on the national industry.
Once accepted, the merits
in the petition will be reviewed and an investigation is
initiated.
The petition will be rejected and the proceeding cancelled in the following events: (i) dumping or injury caused thereby is insufficiently substantiated or no reasonable justification for investigation; (ii) petition is not prepared by the domestic industries44 or on its behalf; or (iii) domestic producers, that expressly support the petition, represent less than 25% of the national overall production of like product.
Investigations must be
complete within one year from the opening date, subject to an
additional six-month extension under special circumstances. The
dumping period shall be the nearest twelve-month period possible
to the opening date of investigation and may be, under special
circumstances, be less than twelve months but never less than six
months. On the other hand, time for the determination of injury
shall be sufficiently long as to allow adequate assessment but
never less than three years, and shall mandatorily include a
dumping investigation time.
During the phase of
proceeding where facts will be determined, interested parties45
will have enough opportunity to submit, in writing, any evidence
that might be relevant to the investigation. For that purpose,
additional or complementary information may be requested or
accepted, in writing, and hearings may be scheduled. However,
appearance at such hearings is not mandatory.
Should the information
required fail to be presented to the Brazilian authorities by any
of the parties concerned, the preliminary or final opinion may be
prepared on the basis of the best information available, i.e.,
data provided. Additionally, special treatment to information
provided and indicated as confidential by the parties may be
requested, provided that such a request is duly supported, and
such information shall kept separately.
As an important document
in a dumping investigation, a dumping investigation questionnaire
will be forwarded to all interested parties, who will have 40 days
(subject to an additional 30-day extension) to return them duly
completed. Questionnaires should be accompanied by a defense
petition contesting the initial petition and the Opinion issued by
DECOM notifying the opening date of an investigation.
Prior to the completion of
proceeding, but never before sixty days from the starting date of
investigation, national authorities may impose temporary measures
on imports under investigation, provided that (i) all parties have
expressed their opinions about the petition; (ii) dumping and
injury to the domestic industry is affirmatively determined on a
preliminary basis and authorities decide that such measures are
necessary to prevent any damage in the course of investigation.
Following publication of
preliminary determination of injury and dumping by the Brazilian
authorities, the exporter may willfully undertake satisfactory
obligations to adjust prices or cease importing at dumping prices.
Should SECEX accepts and the newly established CAMEX approves such
an undertaking, the dumping proceeding may be closed or suspended
with no imposition of duties. The investigation, however, may
carry on should exporter or any authority deem desirable.
Acceptance or rejection of
any price agreement is at the sole discretion of Brazilian
authorities, which does not free them from the obligation to duly
justify any rejection. However, although the national industry is
not required to formally voice its opinion on the issue, SECEX
commonly asks for it.
To date, to the best of
our knowledge there is only one preliminary determination of
dumping and injury published, which is included in Circular SECEX
n° 47/00.
As per the review of
agreements, DECOM has published none to date. This shows how new
is the use of the �antidumping� legislation in
Brazil
and the setbacks Brazilian authorities involved in the
�antidumping� process and professionals dealing with the matter
come up against.
Prior to preparing the
final opinion, a hearing is held by SECEX to inform the parties of
critical facts supporting the opinion, and the parties will have
fifteen days to voice their opinions with respect thereto. Upon
expiration of said fifteen-day period, the finding of facts phase
of process will end and no other information received as from such
closing date will be taken into account.
Investigation may be
closed and �antidumping� duties may or may not be imposed, which
translates as �a rate imposed on the imports carried out at
dumping prices, for the purpose of counteracting their hazardous
impact on the Brazilian industry�46. Accordingly, an investigation
will be closed and �antidumping� measures will not be imposed if:
(i) no sufficient evidence exists of dumping or damage resulting
therefrom, (ii) dumping margin is �de minimis�, (iii) volume of
imports object of actual or potential dumping is insignificant.
Alternatively, investigation will be closed and �antidumping�
measures will be imposed if SECEX understands that dumping, injury
and causal connection between them exist.
National authorities may,
then, impose �antidumping� duties and indicate the amount, which
will never exceed the calculated dumping margin. We draw the
attention to the fact that the Brazilian legislation allows
collection of definite �antidumping� duties on products that have
been shipped for consumption up to ninety days prior to the
application of provisional �antidumping� measures whenever there
is: (i) history of dumping causing injuries, or importer was or
should have been aware that producer or exporter is engaged in
dumping behavior and it could cause injuries; and (ii) damage is
caused by great volumes of imports of a given product at dumping
prices in the relatively short period of time.
The �antidumping� duties
and price agreements proposed by exporters will remain in full
force only for as long as the need to mitigate dumping and
resulting damage exist. However, such duties will cease to exist
five years maximum following its imposition, subject to extension
provided that evidence exists that extinction of such duties could
result in dumping again and injury to the national industry. The �antidumping� process may additionally be closed by petitioner or Brazilian authorities. In fact, the petitioner may, at any time, request closing of process, however SECEX may determine the continuation of investigation. Additionally, under special circumstances, decide in view of national interests for the suspension of duties application. 25.4. Conclusion
Based on the foregoing, it
is clear that the �antidumping� is new process and has been
increasingly used in
Brazil.
The Brazilian regulation,
which is based on GATT and WTO agreements, has many details and
allows the parties to dispute other parties� opinions and voice
their own on the matter and requires the submission of detailed
evidence. However, the novelty of the theme brings about many
surprises to authorities and professional dealing with the matter.
26. COMMERCIAL AND CIVIL LITIGATION26.1. The Jurisdiction in Civil and Commercial Cases
Litigation in respect to
commercial and civil matters is decided taking into consideration
the rules of the Civil Code and of the Commercial Code, which are
federal statutes. These codes have been enacted on 1916 and 1850,
respectively, and have been considerably amended during the years,
in many subject matters, by more recent statutes. A bill for a new
Civil Code, which will regulate both civil and commercial matters,
is currently under discussion in the Congress. It may be approved
this year.
The civil and commercial
litigation is presented to the State courts of general
jurisdiction, consisting of an individual judge, and can always be
reviewed, if any party so wishes, by a State Court of Appeals.
Brazilian Constitution does not contemplate trial by jury in
commercial and civil cases.
The procedural rules are
stated in a Civil Procedure Code which is also a federal statute.
By virtue of the federative system, the organization of the courts
and the specific venue rules are contained in the State
legislation. In general, the State courts of general jurisdiction
are not specialized and bear jurisdiction regarding civil,
commercial and criminal cases.
The general rule regarding
the jurisdiction of a law suit is that it be brought before the
court of the domicile of the defendant. This rule applies both to
individuals and corporations. The consent of the parties and the
election of a different jurisdiction, such as that stated in a
contract, is also accepted. All court proceedings in civil and commercial cases are public, except when they involve family matters. 26.2. Costs of Litigation
The litigating parties
have to pay for the jurisdictional services, which vary from State
to State. The general rule is that an initial payment be made by
the plaintiff, usually calculated on a percentage of the amount
disputed, and other payments in the event of appeals, by the party
who presents the appeal.
Lawyers' compensation for
the services rendered to their clients is usually established on
the basis of a percentage of the amount disputed or to be
recovered. This percentage results from an agreement between the
lawyer and his client and is calculated taking into consideration
a number of factors such as the amount of the expected recovery,
the complexity of the work to be executed, the capacity of the
client to pay and the reputation of the lawyer. In most cases a
retainer is negotiated and, in case of success, is set off against
the final fees. Additionally, the Civil Procedure Code provides that all expenses incurred by a winning party be paid by the loser. This includes reimbursement of those fees charged for the jurisdictional services and the fees paid to experts, but also a payment to lawyers. The fees are arbitrated by the court according to the statutory rules and are due to the lawyer. 26.3. Initial Procedures
There are a number of
different proceedings, but this paper with only describe the "processo
ordinário" which is the must usual in contractual or tortious
cases where are discussed values over 20 minimum salary.
A civil or commercial
action begins when the plaintiff's lawyer files a petition before
a court having jurisdiction over the case. The next step is the
service of process to the defendant. This will be effected either
by a court official, who will deliver personally to the defendant
a copy of the complaint, or by mail, when a receipt has to be
signed by the defendant in order to be valid the service. The
defendant will answer the claim in a short period of time
(generally 15 days).
The defendant will seek a
lawyer to defend him, who will submit to the court a response to
the allegations of the plaintiff. This petition may confirm or
deny the facts and may also give a different interpretation to
them as well as also will discuss the legal basis of the
plaintiff. The plaintiff will then file another petition
expressing his answer to the defendant's factual and legal points.
The judge will then request the parties to state the evidence they
wish to produce before the court. Following that, the court must
hold the reconciliation hearings, when the judge will try to have
the parties come to a settlement to dismiss the case. In the event that the reconciliation is not successful and the case has conditions to proceed the judge must �sanear� the process, which is a preliminary judgment by the court of all procedural formalities and issues raised by the parties, except the merits of the case per se. The judge can, at this point, for instance, dismiss the case if he finds that some statutory prerequisite is not present or if he deems that the defendant is not answerable in respect of the claim. The judge will also decide on the kind of evidence he will admit to be produced by the parties. 26.4. Evidence
As will be observed, the
whole process and specifically the production of evidence is
entirely conducted by the judge presiding the case. In principle,
documentary evidence is presented to the court together with the
complaint. The plaintiff will also present his documentary
evidence together with his answer. As a general rule, other
documents pertaining to the case, which will become relevant
during the development of the case, can always be presented by the
parties at any point in time, provided the other party is given
the right to comment on it.
The evidence, other then
documentary, to be produced in the next place is the report or
reports by experts, such as those rendered by an accountant, an
engineer, an appraiser or any other specialized professional. The
judge will appoint the court's expert and the parties will forward
to him questions to be answered in writing. The parties have also
the right to appoint assistant experts of their own choice to
answer the questions and to make comments on the report of the
court's expert.
The next step is the
hearings, which will take place on a date determined by the
presiding judge, after the parties have had the opportunity to
discuss thoroughly the documentary evidence and after the expert's
reports have been examined by the parties.
The parties previously
submit to the judge a list of the witnesses they want to be
examined. During the hearings, the judge will first examine the
witnesses and then give the lawyer of the parties the right to
pose questions. Referred questioning shall not be conducted
directly to the witness, but rather to the judge, who may repeat,
restate or refuse such questions. Also an important feature is
that either party can give testimony, but in this case the party
is not considered a witness. Only witnesses are under oath. All
hearings are transcribed to a written form.
The decision of the case
should take place immediately after the hearings if the parties do
not submit a brief commenting on the testimonies and all evidence
produced. The presiding judge will then re-examine all the records
of the case and after sometime hand down his decision. As one can see, in the Brazilian system, for the "processo ordinário", there is no trial in the sense of an uninterrupted event where all evidence is produced. In fact, the evidence is produced step by step and is progressively incorporated into the dossier of the case and the findings are focused on the formation of the conviction of the judge. 26.5. The Decision The decision of the judge is in writing and contains a brief description of the facts, the issues involved, his opinion in respect of each of the issues and the judgment. The decision may award a party an indemnification, may order a party to take an action or may even declare which is the right interpretation of a clause of a contract. 26.6. Appeals
The Brazilian system
allows many sorts of appeals to both final and interlocutory
decisions, the latter ones encompass those that do not dismiss the
case. The party therefore may always appeal any decision. When the
decision is not final the appeal usually does not suspend the
process. The same lawyer may proceed with the case in all superior
courts. The appeals are judged by a panel of a State court
composed of a presiding judge and an even number of associate
judges. They may revise the decision in respect to the law and the
facts.
From the decision of the
State Court of Appeals the parties may appeal further to the
superior federal courts, which are the Superior Justice Court and
the Supreme Court. If the party claims violation of a federal law
or conflicting interpretation of federal law by other State
courts, he can appeal to the Superior Justice Tribunal. If it is
claimed a violation of the federal constitution, he can appeal to
the Supreme Court. Both these appeals can be proposed at the same
time but they are very restricted and are not admitted in most of
the cases. No discussion of the facts is admitted and only the legal issues are subject to be reviewed in the superior federal courts. The superior federal courts also sit in panels. The appeal to the superior federal courts does not suspend the process and the party can initiate the enforcement proceedings. 26.7. The Enforcement of a Judgment
After the winning party
has a final judgment he will have the right to start the "executory
action" to enforce the judgment in his favor. This is considered a
new procedure and will start when the plaintiffs lawyer files a
petition before the same court of first instance who has decided
the merits of the case.
The plaintiff will state
the amount he claims to be paid but, in many cases, the judgment
has just stated that damages have to be paid and on which basis
they have to be calculated, and, therefore, the actual recovery
will have to be determined by a discussion of the parties in
respect to the basis of the calculation of the recovery. The
executed party will then be serviced of the process, to be
effected by the same methods of the initial suit.
The court will order the
defendant either to pay the amount due or participate in the
calculation of the recovery and then pay it. At this point, the
defendant may file objections he deems necessary, but in any event
he must either deposit with the court the amount due or give a
property to be attached for the guaranty of the execution of the
judgment. "Ações executivas" (Executory actions) have very similar development to that of the initial process in the �processo ordinário� and also afford the same sort of appeals. If at the end the defendant is not able or is not willing to pay the recovery or to perform the action required by court, the attached property is sold in a public action and the money is used to pay the winning party. 26.8. Collection Proceedings
The collection of
promissory notes, of other negotiable instruments and of documents
where the plaintiff has expressly acknowledged the debt towards
the creditor is made by an "executory action" (execução contra
devedor solvente) and the debtor has to deposit the disputed
amount in court or present property to be attached in order to be
able to discuss the collection of the debt.
The �monitory action� (ação
monitória) is used for the collection of credits represented by a
document which does not have all legal formalities.
By mean of the same
executory action the creditors can also claim the delivery of a
certain asset by the debitor or the performance or non performance
an obligation. 27. BUSINESS OPPORTUNITIES IN BANKRUPTCY AND REORGANIZATION PROCEEDINGS
There are several
interesting business opportunities within the field of Brazilian
bankruptcy law. Most people are unaware of many of the
possibilities available, others, though interested, do not obtain
adequate technical-legal (juridical) information indispensable to
formally carry them out.
Quite often fine
opportunities are lost and excellent business transactions are not
carried through due to the want of a specialized attorney or even
the total absence of explanatory comments. In this sense, the
adage �run from the unknown� seems to hold.
Summarized below are a few
business examples that can be transacted, which certainly, if well
conducted, will yield short term profit: a) acquisition of
companies under bankruptcy and/or reorganization process (�concordata�);
b) and, even, the possibility of acquiring assets of these same
companies.
In addition, other matters
of bankruptcy nature that can also be advantageous to companies,
corporations and even entrepreneurs (individual ) refer to: 1)
purchase of real estate, movable properties and livestock of
companies that are a) insolvent, b) bankrupt, c) bankrupt but
authorized to carry on ordinary business, or d) under business
reorganization; 2) acquisition (only) of a portion of the
companies� liabilities with the purpose of, thereafter, judicially
obtaining the title to the assets of these companies under
bankruptcy process; 3) rent, assignment or lease of the assets
owned by companies that: a) are in immediate difficulties but are
financially sound, b) in bankruptcy process, c) bankrupt but
authorized to carry on ordinary business, d) or in business
reorganization process, with the purpose of acquiring, in the
future, these same assets; 4) participation, as an offeror or
bidder, in judicial sales (through offers and/or in auctions), in
the bidding and purchase of real estate assets, movable properties
and others of bankrupt companies; 5) sale of products and of other
assets (real estate or movable properties) to other companies in
financial difficulties or under business reorganization process;
6) total or partial acquisition of the controlling stock of
corporations or the controlling shares of limited companies; 7)
acquisition, though credit assignments, of credit rights
(specifically those of preferred nature) in business
reorganization proceedings and in adjudicated bankruptcy; 8)
expedition of the receipt in advance (independently of the
specific payment form and term 0of the bankruptcy process) of
pending credits of difficult or slow completion or solution, whose
debtors are companies in economic-financial difficulties or under
business reorganization process.
These are a few of the
more conspicuous examples.
On the other hand, it
should be noted that bankruptcy legislation in
Brazil,
in force for the last five decades (Decree-Law 7.661/1945), is
currently going through a salutary reform (Bill of Law 4.376/93).
The future law introduces several innovations, regulating
bankruptcy (which shall be renamed judicial liquidation) and
business reorganization (which shall be renamed judicial
rehabilitation), in an attempt to adjust itself to modern times,
providing a global focus of the corporate world and its
environment. The law strives, furthermore, to protect the company
itself, as a whole, rather than defending the interests and rights
of the creditors and the Treasury, preserving jobs and ensuring,
moreover, the continuity of the productive process and of the
economic activity of the Country.
This author, who
participated in the São Paulo committee in drawing up the bill of
this new law, believes that the future Brazilian bankruptcy
legislation shall not remove the opportunity of interesting
business alternatives. 28. CUSTOMER RIGHTS IN BRAZIL - LEGAL FRAMEWORK AND ENFORCEMENT28.1 General Definition In Brazil, customer rights are known as �direito do consumidor�, which is almost a literal translation of the Saxon name of this branch of law. However, the definition of �customer� as one that just purchases a commodity or service has a wider interpretation in Brazil, because the Brazilian constitution effectively privileges the �public� interest over �private� rights - a principle seen, for instance, in [Art. 5, XXII] of the Federal constitution of Brazil. 28.2. Development of the Law
In the past, customer
rights in
Brazil
were protected by a diversity of laws and decrees, mainly the
Commercial code (1850), Civil code (1917) and other specific
statutes.
It was only in [1990] that
a specific statute was issued with the purpose of encompassing the
range of aspects known as �customer rights�. This is the law No.
8078 or �Código de Proteção e Defesa ao Consumidor� (�Consumer
protection and defense code�, per literal translation) which came
into effect on [March 12, 1991]. The very existence of this law is
due to a constitutional springboard resulting from articles [5,
XXXII], [170, V] of the Brazilian Constitution of [1988] which
laid down the compulsory issuing of such bodies laws. Thus, the
Brazilian law can be best described as fully statutory, with a
strong emphasis on protective measures of constitutional nature. The Brazilian �consumer code� regulates the relationship between the costumer/consumer with the industry, in the commerce and render of services, and with other agents such as importers, imposing several obligations on this economic agents. 28.3. Scope
The Brazilian statute of
Customer rights covers a wide range of subjects, from safety and
health protection of consumers, to access on specific information
regarding goods, assets and services (e.g., validity or use by
dates), to the control (towards elimination) of abusive clauses in
contracts, including those which may lead the consumer into
excessively onerous obligations (involving the �rebus sic
stantibus� principle). There are also included specific provisions
for the recovery of damages (e.g., wrongful acts, breach of
contract, infringement of general or specific public regulations
related with the customers� rights).
This statute has also
swing the balance of judicial protocol in favour of unsatisfied
customer. It is the �inversion of the burden of proof�. To put it
simply, the burden is on the manufacturer to produce evidence that
his goods comply with the norms, not for the customer to prove
that the good were found defective or dangerous. This feature can
be exercised by the presiding judge in cases he deemed
appropriate.
Other new features
implemented by this statute are: (a) The adoption of the doctrine
commonly known as �disregard of the legal entity� (here even
broadened, if compared with the US and European models); (b) New
treatment of the civil liability in case of product failure, which
now hold the producer or manufacturer liable without reference to
the existence or not of specific intention of causing the damage
(The principle is different in the case of services, such as
dentists, engineers et al); (c) Advertising rules that are
particularly strict. In all cases, it is maintained the basic
constitutional principle of �due process of law�. As a consequence of such protective regulations, now manufacturers and service providers must be very careful with their product/work output. Legal counsel is recommended and often required from the pre-plant phase to actual shelf exhibition. 28.4. Enforcement
Interpreting the Brazilian
Customer law, from the point of view of foreign lawyers, can be a
most intricate job. The key to understanding and mastering this
statute is accepting that it brings together, all wrapped up in a
package, civil, administrative and penal sanctions.
There are indeed many behaviours that are now considered as criminal acts, but the code reaffirms the constitutional right of the defendant to due process of the law. Even the drafting of contracts is now a much more detailed job, because of the heavy penalties on abusive clauses. The advertisement was also a target of the policy-makers, and this of course leads to great care with the consequent pre-contractual commitments arising from any press or midia releases. 28.5. Trends
The customer rights
statute in
Brazil
is compatible with the most modern laws of the world. The
Brazilian courts have been cautious in applying the law, so that
it reaches the main objective, which is to protect consumers
whilst at the same time enhancing a healthy competition between
the players in the supply market. For the Brazilian industry, it
means that we have the right scenario for the development of our
manufacturers, so that they can outrun the competitors based out
of
Brazil, and at the
same time interface with possible partners in
Brazil
and abroad. Understanding customer rights in various jurisdictions
will help business people to integrate better, faster and in a
profitable way. 29. ARBITRATION AND RECOGNITION AND ENFORCEMENT OF ARBITRATION AWARDS AND FOREIGN JUDGEMENTS IN BRAZIL29.1. Subject Matter and Applicable Rules
Individuals and entities
which are legally qualified to enter into agreements may resort to
arbitration to settle disputes concerning their property rights.
In other words, such parties may submit to arbitration any issues
involving private property rights with respect to which they may
compromise.
The legal rules governing
arbitration may be freely established. They may include general
principles of law, custom, usage and international
trade
rules. The parties may subject arbitration to the rules of a given institutional arbitration organization or specialized entity. Once a provision has been included in a contract to the effect that any disputes thereunder will be resolved through arbitration (arbitration clause), an interested party may demand in court institution of arbitration, should the other party resist such course of action. 29.2. Arbitration Proceedings
The parties may by mutual
agreement define the procedure for selection of arbitrators. In
this regard, the rules of an institutional arbitration
organization or specialized entity may also be adopted. An
arbitrator is the counterpart of a court, as matter of fact and of
law. His or her decision is not subject to appeal to or validation
by the judiciary.
Arbitration is deemed to
have been instituted when a sole arbitrator accepts his or her
appointment, or when all arbitrators accept their appointments.
The parties may put forward their claims through their attorneys
but will be at liberty to designate other persons to represent or
assist them in the arbitration proceedings.
As between the parties and
their successors, an arbitration award will produce the same
effect as a decision rendered by a judicial body. Therefore, an
award entered against a party constitutes a legal basis for the
filing of summary executive proceedings. An arbitration award must
include the following requirements:
I. a report, containing
the names of the parties and a summary of the dispute; II. the grounds for the decision, which will review the questions of fact and of law involved and will expressly indicate that the arbitrators have ruled based on equity, should this be the case;
III. the ruling, where
the arbitrators will dispose of the issues submitted to them and
will fix a time limit for compliance with their decision, if
applicable; and IV. the date and place at which the award is issued. 29.3. Recognition and Enforcement of Foreign Arbitration Awards
Brazil
is not a party to the New York Convention but has ratified the
Panama Convention of 1975. Nonetheless, the Brazilian Arbitration
Law (Law No. 9,307/96, dated September 23, 1996), includes a
specific article addressing the recognition and enforceability of
foreign arbitration decisions.
In order to be recognized
or enforced in
Brazil,
a foreign arbitration award will be subject to the provisions set
forth by the international treaty executed with the interested
country, with due regard for the Brazilian legislation. In the
absence of such a treaty, however, a foreign arbitration award
will only be subject to confirmation by the Federal Supreme Court.
Confirmation of a foreign arbitration award with a view to its
recognition or enforcement is basically governed by the same rules
prescribed by the Code of Civil Procedure for recognition of
foreign court decisions.
Confirmation of such
awards may only be denied where defendant shows that:
I. the parties to the
arbitration agreement were incompetent;
II. the arbitration
agreement was not valid under the laws elected by the parties
or, in the absence thereof, the laws of the country where the
arbitration award was rendered;
III. defendant received
no notice of the appointment of the arbitrator or of the
arbitration proceedings; the adversary system was contravened in
that defendant was not given an opportunity for full defense;
IV. the award was
rendered beyond the scope of the arbitration agreement, and the
excess portion is not severable from the portion subject to
arbitration;
V. institution of the
arbitration did not abide by the arbitration clause or by the
agreement to institute arbitration;
VI. the award is not yet
binding on the parties, has been rendered void or else has been
suspended by a judicial body of the country where the award was
issued; VII. if the Federal Supreme Court finds that, under Brazilian law, the subject matter of the dispute may not be resolved through arbitration; VIII. the award is offensive to Brazilian public policy. 29.4. Foreign Judgements
Foreign judgements may be
recognized and enforced in
Brazil,
irrespective of the existence of reciprocity from the part of the
country from which such judgement is originated or a specific
international treaty or convention between the country of origin
of the judgement and
Brazil.
In order to be enforceable in
Brazil,
however, a judicial award rendered in other country shall depend
on confirmation by the Brazilian Judiciary.
Pursuant to the Federal
Constitution of 1988, Section 102, (h), the federal organ
responsible for the analysis and decision as to the confirmation
of foreign judgements is the Federal Supreme Court (STF). The
matter is governed by the provisions of Introductory Law to the
Civil Code, which contains private international law
interpretation rules, by the Brazilian Code of Civil Procedure and
by the Internal Statute of STF.
In the process of
confirmation of a foreign judgement, STF shall verify whether the
formal procedural requisites have been fully complied with, in all
instances until final judgement.
For purposes of Brazilian
Law, judgement is the decision of a civil, commercial or criminal
nature rendered by a judge or a court, abiding by the due process
of law, and which is not subject to any further appeal.
Provided that these basic
conditions have been fulfilled, STF shall verify the compliance by
the foreign judgement with the following requisites, in pursuance
of Section 217 of the Internal Statute of STF, ultimately based on
the provisions of article 15 of Introductory Law to the Civil
Code:
the foreign decision shall
be rendered by a competent judge.
STF will not check the
foreign judge's jurisdiction on the matter; this could result in
the determination of other judge in the same country, what would
mean improper interference in the country's sovereignty.
In fact, what shall be
examined by STF is whether the case, in view of Brazilian Law,
falls within the exclusive jurisdiction of the Brazilian Courts.
By way of example, confirmation of a judgement regarding a real
property located in the Brazilian Territory would not be
admissible, since Section 12, paragraph 1, of Introductory Law to
the Civil Code, provides that "only the courts of
Brazil"
shall have jurisdiction over such matters. the parties must have been served proper notice of process.
Service of process is the
act whereby a party is called to respond to a legal suit filed
against it. It is fundamental for the guaranty of the right of
full defense, and shall have been made in accordance with the
guidelines set forth by the laws of the place in which the
judgement was rendered. Should the defendant be domiciled in
Brazil,
service of process shall have been made by means of a rogatory
letter.
the judgement must be
final, and in proper form for its execution at the place where it
was rendered.
For the purposes of
expediting enforcement proceedings it is advisable, insofar as
possible, to produce evidence that the decision is final, by means
of a certification by the relevant judge, stating that no further
appeal is admissible in any degree of jurisdiction.
the foreign judgement must
be authenticated by the nearest Brazilian consulate and must be
submitted to STF with a sworn translation thereof.
Furthermore, the foreign
judgement will not be eligible for confirmation if it is contrary
to national sovereignty, public policy or good custom, in
accordance with article 17 of Introductory Law to the Civil Code.
This is the only aspect concerning the essence of the foreign
judgement which is controlled by STF.
Confirmation is obtained
by means of a legal proceeding instituted by the foreign plaintiff
before STF. STF shall then issue an order directing notice of
process to be served on defendant, who will be entitled to
challenge the request of confirmation. STF shall only acknowledge challenges by defendant if the same are in respect of the authenticity of the documents produced by the plaintiff, the construction of the foreign judgement, or the pertinent compliance with the statutory requirements regarding confirmation or relative to the filing of the request, in accordance with Section 221 of the Internal Statute of STF. Once confirmation of the judgement is obtained, the foreign judgement may be enforced before the relevant Brazilian lower court, pursuant to Section 584, IV, of the Brazilian Civil Procedure Code. The opinions expresed in the articles published in this book are under the sole responsibility of their authors. CESA - Centro de Estudos das Sociedades de Advogados, 2001. All rights reserved. |
