Issues relating to withholding tax have long plagued the Brazilian airline sector. When the special rates of 0% and 1.5% for aircraft rents became ineffective in 2021, the rate soared to 15%, which is the general rate applicable to cross-border leases of any equipment. The latest developments have resulted in confusion, widespread lease defaults and erratic payments from Brazil's airlines.
In June 2020 the Global Aircraft Trading System (GATS) was launched to facilitate aircraft trading and financing by reducing the burden on industry participants – in particular, airlines. Since the GATS relies on the use of trusts, a traditional common law concept, a question arises as to whether the GATS can be used in jurisdictions such as Brazil that are not based on common law.
The COVID-19 crisis has brusquely forced businesses and professionals to close offices and work from home. Luckily, the Brazilian government began implementing measures relating to electronic filings and electronic signatures approximately 20 years ago, all of which have made closing aircraft deals from home offices relatively easy. The Brazilian Aeronautical Registry has adjusted some of its requirements on an interim basis to serve the aviation community by facilitating compliance with necessary formalities and filings.
Brazil's airlines are now being subjected to a withholding tax that has not been charged on most leases for more than three decades. Airlines may be able to successfully challenge the legality of the withholding tax; however, this will require dedication of legal and administrative resources that might have been used elsewhere to fortify the airlines. In any event, under the final text of the law, the likelihood of lessors being liable for withholding tax has been reduced significantly.
A draft law providing emergency relief due to the COVID-19 pandemic has been submitted to the lower house of Congress. The impact of the draft law on the rights of aircraft lessors would be significant and would place into question Brazil's compliance with the Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on Matters Specific to Aircraft Equipment.
Equity crowdfunding is a form of online fundraising conducted via an electronic platform for participatory investment which can help to boost business. Unlike regular crowdfunding, parties which participate in equity crowdfunding expect a financial return on their investment. In view of the characterisation of this form of investment as a public offering, the Brazil Securities and Exchange Commission recently commenced a public consultation in order to review Brazil's equity crowdfunding rules.
In light of the growing popularity of crowdfunding as a means of financing and maintaining small businesses' operations, it has remained on the Brazilian Securities and Exchange Commission's (CVM's) agenda, leading to discussions as to how the existing regulation can be improved. Thus, in August 2020, in the context of the COVID-19 pandemic, the CVM published a new resolution which has made temporary changes, on an experimental basis, to the existing regulatory requirements.
A recently issued presidential decree has authorised the Central Bank of Brazil to recognise the government's interest in establishing branches of foreign financial institutions in Brazil and increasing foreign equity participation in Brazilian financial institutions without the need for further presidential authorisation. Prior to the decree's enactment, these matters required the express approval of international treaties or presidential decrees recognising that investments were in the government's interest.
State-owned oil and gas company Petrobras recently reached two settlements with the Administrative Council for Economic Defence to close five investigations into alleged abuses of dominance in the oil refining and domestic natural gas markets. The settlements have drawn significant attention, as they constitute the first time that divestment commitments have been adopted as a remedy in a dominance case.
The Administrative Council for Economic Defence recently issued a decision on the definition of 'de facto control' under Brazilian competition law. While the decision establishes certain criteria that companies should consider when determining whether their contractual relationships with close partners may confer de facto control, these criteria are somewhat unclear and do not allow companies to assess, with sufficient certainty, whether an agreement should be subject to mandatory review.
The COVID-19 pandemic has led to considerable financial and operational losses in several economic sectors. In this context, it is easy to imagine dispute scenarios involving manager liability – for example, with respect to their adoption of loss-mitigation measures which later result in a loss of revenue. In such situations, it would be difficult to ascertain which losses were actually attributable to the company's managers and which were exclusively a result of the COVID-19 pandemic.
Simple legal transactions and contracts can often be completed at the click of a button. However, there are a growing number of investment rounds in start-ups based on Brazilian versions of Silicon Valley contracts that unfortunately have not benefited from the critical eye and practical expertise of experienced lawyers who can examine the contracts under Brazilian law.
A commonly negotiated rule in M&A transactions is the clause that provides for the buyer's indemnity right. This clause aims to limit the liability of the parties involved in the transaction for losses relating to the company or the asset traded and can be structured in several ways. The Sao Paulo Court of Justice recently highlighted the importance of expressly regulating this type of clause in M&A contracts.
The recent dispute between StoneCo Ltd and TOTVS SA over the acquisition of Linx SA has brought to light many important matters, especially directors' responsibility for damages caused to a company or its shareholders. TOTVS presented a hostile takeover offer, something which the Brazilian market is not used to since most companies have a controller group which owns 50% or more of the voting shares.