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In-house Access Insight & Commentary for In-House Counsel Worldwide

The New “Brazilian Way”: Doing Business in Brazil

Posted in ACC Annual Meeting

Guest Blogger: Tiffani Alexander is managing editor of the ACC Docket, the award-winning journal of the Association of Corporate Counsel (ACC). She earned her BA in Journalism from the University of Maryland, College Park, and has a MA in Arts, Entertainment & Media Management from Columbia College Chicago. Tiffani can be contacted at Alexander@acc.com.

As the sixth largest economy in the world, Brazil has become an attractive country to many businesses. At this year’s Annual Meeting in Orlando, Fla., an esteemed panel of experts on the country –– including Marco Antonio de Gregorio, legal director for Latin America, Reckitt Benckiser; Alexandre D’Ambrosio, general counsel and executive director, Votorantim Group; Eduardo Loyo, chief economist, BTG Pactual; Jose Diaz, partner, Demarest e Almeida; and Celso Xavier, partner, Demarest e Almeida ––presented on doing business in Brazil. The panel discussed Brazil’s legal landscape, delving into its legal structure, tax and anti-trust scenarios. They spoke about societal norms and how things have changed in the region over the years, including the nature of litigation, arbitration and restructuring, stronger laws focused on compliance, business entry and why it’s become important for companies to enter and invest in the country.

Loyo gave an economist’s overview of Brazil, discussing everything from trends in retail and industrial production, to income, inflation, public debt, and interest and unemployment rates. This led to a discussion of Brazil’s high growth rate — a contributing factor to the country’s attractiveness. In the early 1980s to 2000s, the rate of growth was less than 2 percent, but it more than doubled between 2003 and 2010, coming in at 4 percent. According to the panel, this growth acceleration caused consumers to spend too fast, “over-heating” the economy, which caused interest rates to stay higher than those in other places in the world. Further, Xavier pointed out that currency strengthening (another byproduct of the growth) could actually cause issues like heavy taxation and limited physical space for public spending on investment.

In the past year, the economy in Brazil has slowed down, returning to an approximate 2 percent growth rate. Further, according to the panel, interest rates have decreased from as high as 10 percent to a much more desirable approximant of 2 percent. They predicted that growth in the future will not be as fast or as slow as in the past, and said they expect “permanently lower interest rates with sufficient growth” moving forward.

Naturally, in-house counsel are most interested in the legal landscape of a country their company is contemplating entering into. According to de Gregorio, Brazil is “a country full of lawyers,” with statistics indicating that one in every 265 people in Brazil practice law. But it doesn’t stop there: “Every year, more lawyers enter the market, and there are 1,240 law schools,” said de Gregorio. He went on to discuss the 24.3 million new lawsuits filed in 2010, the approximately 84 million ongoing lawsuits in the country during any given year, as well as the four million laws implemented in the country since the 1988 Federal Constitution. Apparently, it is very cheap to file a lawsuit in Brazil, a civil law country, which accounts for the large number of suits filed.

Xavier discussed litigation in the country, stating that “the US way of drafting agreements does not work in Brazil –– we are a civil law country.” He went on to explain a few reasons why: There are no juries in Brazil, except in the case of murders; there is no discovery during trial; no punitive damages; and as Brazil is a large country, litigation will vary from place to place.

In addition to large number of “new” laws being implemented in the country, Brazil has also seen great tax reform, with 85 different taxes (73 federal, 6 state, and 5 municipal), 28.591 federal tax acts, 83.516 state tax acts, and 137.017 municipal tax acts. Again, understanding, or at least being aware of these taxes, is critical for foreign companies contemplating doing business in Brazil.

“The Brazilian Way” was sometimes used as a derogatory term in the past, according to D’Ambrosio, often describing a “way” to get around the laws. However, this is “quickly becoming a thing of the past” as companies strive to be compliant. Take, for example, Brazil’s tough anti-trust laws, focused on the investigation of illegal practices. “Brazil has the most aggressive anti-trust laws in the world and decided to pose the most aggressive fines in world,” said D’Ambrosio, adding that, “It’s a wonderful time for lawyers to make money.”

The Brazilian Way also encompasses a culture that values the diversity of its people and places a high value on personal relationships. This is important to remember as the in-house counsel assisting your company in gaining entrance into the country. According to Diaz, companies tend to enter Brazil through M&A, and that activity remains “strong” throughout industries. Areas of opportunity identified by Diaz included infrastructure (airports, roads, energy), oil and gas (biofuels, civil construction), and rural land. “Brazil requires infrastructure growth investment,” said Diaz.

Panelists offered the audience a few things to remember when forming a new company in Brazil: 1) The corporate structure options are Limitada (in pyramid form: partners up top, officers directly under) and S.A. (shareholders up top, with a board of directors directly under and the officers at the bottom), and there is no minimum capital requirement; 2) The rules for acquisition are different than in the United States; and 3) Liquidating a company there can prove difficult (if the company wants to divest it is better to do a merger).

The panel agreed that doing business or starting a business in the country can prove difficult due to its legal environment being in transformation, the complex tax system, its not-so-easy entry, and the new laws that must be complied with and understood. However, they also echoed the popular quote, “Brazil is the country of the future and always will be.” They called attention to the upcoming World Cup, saying that the country will see a “boom” over the next few years in every industry, and added that the substantial growth of the middle class makes it a good time to “get into the country.”