5.1.4. Consórcio

Strictly speaking, the word consórcio means union, combination, association or consortium. In the context of Brazilian corporate legislation, however, a consórcio is an association among two or more companies for the purpose of pursuing a specific project. The parties thus preserve their corporate identity, while pooling their efforts to achieve specific objectives.

Although based upon a contract, the resulting consortium does not have corporate standing, since the parties only bind themselves under the terms of the consortium agreement. Each party is liable for its specific obligations as established therein, without presumption of joint liability before third parties, except in regard to labor relations.

If the parties to the consortium are S/As, the consortium agreement must be approved by their general meeting. If they are not S/As, the consortium agreement must be registered before the competent authorities.

The consortium agreement must contain the following items:

-name of the consortium, if any; -objectives of the consortium; -duration, address, and legal venue of the agreement; -determination of the participating companies’ obligations and commitments; -rules for receipt and distribution of profits; -management and accounting policies, shares of each of the participating

companies, and administrative charges, if applicable; -rules for deliberation, and voting rights of each participant; and -dues of each participant towards expenses of the project, if applicable.

The consortium agreement and any subsequent amendments must be filed before the Board of Trade in whose jurisdiction the head office is located. Upon filing of the consortium at the Board of Trade, a certificate must be published in the State or Federal Official Gazette (DOU), and in a newspaper with large circulation.

5.2. Registration Process

In Brazil there are two types of public registry for companies: (i) Commercial Registry, intended for the filing of activities of business companies (including registration of individual companies and the of subordinates of the individual partner and other agents), effected at the State Board of Trade; and (ii) Civil Registry, intended for the registration of the acts ‘simple’ companies (sociedades simples), effected at Civil Registry of Corporate Entities, which have jurisdiction within specific court districts.

5.2.1.Registration of Companies

Commercial Registry is effected by the Boards of Trade in each state, and is compulsory for self-the employed and for business corporations engaged in business activities that entail production or circulation of goods and services

The law defines all S/As as business companies. Aside from these, any general partnership (Sociedade em nome coletivo), limited co-partnership (Sociedade em Comandita Simples), or LTDA (Sociedade Limitada), provided that its purpose is the pursuit of economic activities through production or circulation of goods or services, performed by means of a corporate structure, must register with the Board of Trade in the state where it operates or where it may open branches.

The form chosen, along with a characterization of corporate aims must be clearly and accurately enunciated in the registration of the company with the Board of Trade or Civil Registry of Corporate Entities.

The filing of the Articles of Association of a S/A must be accompanied by the following documents:

-Articles of Incorporation or Minutes of the General Incorporation Meeting, listing the particulars of the subscribers and proof of payment of the entire capital stock;

-Bank deposit slip (from Banco do Brasil S.A.) attesting to deposit in cash of the equivalent to no less than ten percent (10%) of the paid up capital subscribed;

-Bylaws signed by all subscribers;

-Report on the subscribed capital, signed by the founders or by the Secretariat of the General Meeting, containing full name, nationality, marital status, profession, residence and domicile of subscribers, in addition to the number of subscribed shares and the amount paid;

-Power-of-attorney of any foreign resident shareholder, signed before a Public Notary in the country of origin, stamped by the Brazilian Consulate, translated by a public sworn translator in Brazil and registered at the Public Notary Office.

-Documentary proof of partners resident abroad; -Photocopies of Identity cards of elected directors and board members; -Forms duly filled out with data on the company and its shareholders,

accompanied by proof of payment of all charges due for filing.

For all business companies, the filing of incorporation documents and any subsequent amendments must be effected at the Board of Trade in the jurisdiction of the company’s head office, accompanied by a petition signed and dated by a partner, attorney, or other duly authorized person.

A request to file articles of incorporation of a business company with the Board of Trade must be accompanied by the following documents:

-Three original copies of the Articles of Association signed by all the partners and two witnesses; -Tenor or certificate, when the articles of association has been entered into by

a public deed; -Certified photocopy of each partner’s identity card; -Power-of-attorney from partners resident or incorporated abroad, signed

before a public notary in the country of origin, stamped at the Brazilian Consulate, translated by a public sworn translator in Brazil and registered at a Brazilian Deeds and Documents Registry Office;

-Documentary proof of existence of any foreign partner resident abroad;

-Personal declaration signed by each partner or manager of the society that he is not prevented from engaging in commercial activities, which may be made in the articles of association themselves or in a separate document;

-forms with data on the company and its partners, duly filled out, accompanied by proof of payment of filing fees.

5.2.2.The Civil Registry of Legal Entities

A ‘simple’ company (sociedade simples) i.e., one that has not adopted the structure of a S/A or other types that do does not engage in commercial activities, must register at the Civil Registry of Corporate Entities.

To register a ‘simple’ company a petition must be addressed to the Civil Registry, accompanied by the following documents:

-articles of incorporation or corresponding amendments thereto, duly signed

by its partners; -certified photocopies of the identity documents of the partners; -a proxy granted by foreign resident partners, signed before the Public Notary of his country of origin, stamped at the Brazilian Consulate, translated by a public translator in Brazil and registered at the Public Notary’s Office in Brazil.

The Articles of Association of a ‘simple’ company (sociedade simples) may only be filed at the Civil Registry of Corporate Entities after having been duly certified by a lawyer.

. Public Companies

.1. General

Law 6.404/76 (the Brazilian Corporations Law) makes a distinction between private (closed stock) companies and public (open stock) companies. Public companies must necessarily take the form of a corporation and their securities are admitted for trading on the securities market.

Because public companies are permitted to raise funds from the market 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 and Exchange Commission, aimed at protecting the investor. The Brazilian Securities and Exchange Commission (Commissão de Valores Mobiliários -CVM”), created by Law n^o. 6.385/86, is a federal agency linked to the Ministry of Finance, whose purpose is to regulate, develop, control and supervise securities markets in Brazil.

Law 10.303/01 expanded the scope of the CVM’s activities to encompass Commodities and Futures Markets, organized over-the-counter markets, and the clearing and settlement of security transactions. The CVM is an independent agency that operates under a special regime. Though linked to the Ministry of Finance, the has independent administrative authority, its own financial resources and budget. CVM commissioners have a fixed terms of office and security of tenure.

Among the attributions of the CVM’s purposes is protection of investors, and such protection is effected by means of a variety of control and supervisory mechanisms. Ultimately, its aim is to stimulate investment and savings in stocks and the financial markets.

Thus, while in closed stock companies there is great freedom to establish rules for the operation of the company that will best serve the shareholders’ interests, public companies are subject to a number of restrictions that reduce the shareholders’ flexibility in establishing the rules 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 admitted for trading on the stock exchange or on the over-the-counter market.

The CVM may classify public companies in various categories, according to the types and classes of securities issued by the company and admitted for trading in the market. Furthermore, it is the CMV’s prerogative to specify rules that apply to each category, though to date it has not done so.

Only public 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.

.2. Securities Market

The sector of the Brazilian financial system referred to as the ‘Securities Market’ includes a variety of transactions involving securities issued by publicly-traded companies, such as shares, debentures, subscription bonuses and promissory notes for public distribution. Aside from such securities, Law 6.385/76 lists all the types of securities that may be traded on the Securities Market and that are subject to the CVM’s supervision.

Securities issued by publicly-traded companies may be traded on the stock exchanges or in the over-the-counter markets (organized or not), over which CVM maintains regulatory supervision.

Stock exchanges, according to National Monetary Council Resolution 2.690/00, may be formed as associations or corporations. Their obligations include the establishment of a venue or system appropriate for buying and selling bonds and/or securities in a free and open market, organized and supervised by the stock exchange, its members and the regulatory authorities.

The organized over-the-counter market comprises a securities trading system, where securities issued by public companies not registered on the stock exchanges can be traded. The trading system is maintained by a self-regulatory entity responsible for supervising and inspecting participants and trading on the market. Registration of assets for trading on the organized over-the-counter market is simpler than for trading on the stock exchanges and, in practice, stocks traded on the organized over-the-counter market have less liquidity than those traded on the stock exchanges.

When public companies are not registered either with a stock exchange or an organized over-the-counter market, their securities may be traded on the non-organized over-the-counter market, where trades are made directly between securities brokers, without supervision of a self-regulatory entity.

.3. Management

Public stock companies are required to have a two-tiered management structure, composed of a Board of Officers and a Board of Directors. In closed companies, the latter body is optional.

The Board of Directors is a deliberative body, with powers to supervise the company’s business and to establish its internal structure. The Board must have at leastthreedirectors,allelectedatthegeneralannualmeetingoftheshareholders of the company. Directors may be non-residents, but must be shareholders of the company. Under Brazilian corporate legislation, non-resident directors must appoint a representative who is resident in Brazil, to receive service of process in legal proceedings.

Brazilian Corporations Law entitles holders of no less than 15% of the voting shares in a public stock company to elect and/or remove one member (and his substitute) of the Board of Directors, by separate vote at the annual general meeting of shareholders.

Likewise, holders of preferred shares without voting rights or with restricted voting rights in a public stock company that represent no less than 10% of the company’s capital have the right to elect and/or remove one member (and his substitute) of the Board of Directors, in a separate vote at the general meeting of shareholders, provided they have not exercised any right to elect a member of the Board of Directors provided for under the company’s bylaws. In both cases, shareholders must demonstrate that they have held the 15% of the voting capital of the company, or the 10% of the total company capital, uninterruptedly, for no less than three months prior to the general meeting for election of directors.

Furthermore, if the holders of voting shares, and holders of preferred shares without voting rights or with restricted voting rights, are unable to attain the percentages required for a separate vote to elect one member (and his substitute) to the Board of Directors, the two groups may join to elect a single Board member (and his substitute), provided that their aggregate shareholdings represent at least 10% of the capital of the company.

The Board of Officers is an executive body. With powers to conduct the company’s day-to-day business, the Board of Officers has exclusive authority to represent the company before third parties. The Board of Officers is composed of at least two members, elected by the Board of Directors, if the Company has one, or by the general meeting of shareholders. All Officers must be resident in Brazil, though they need not be shareholders. They may comprise up to one-third of the Board of Directors.

In order to have their securities traded in stock exchanges or over-the-counter markets, public companies must have, in addition to a Board of Directors, an investor relations officer, responsible for providing information to members of the public who have invested in the company, to the CVM and, if the company is registered with stock exchanges or organized over-the-counter markets, to those entities, in addition to ensuring that the company’s registration is up to date, in accordance with CVM Instruction 202/93.

Finally, public companies must create a Fiscal Council, to advise on matters related to governance of the company. The Fiscal Council is the means whereby shareholders can supervise management of the company, and it may function permanently or when requested by the shareholders.

.4. Periodic Filing Requirements and Other Information

Public stock companies are required to disclose and/or communicate various types of information related to their business.

In addition to publication requirements established in the Brazilian Corporations Law and applicable to all companies, once a public stock company’s securities have been registered with the CVM, it must provide information on a periodic basis to the CVM, to the stock exchange on which its securities were first admitted for trading, to 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 202/93).

Information that must be submitted on a regular basis, at the times and in the form established by regulation, consists of:

-financial statements and, if applicable, consolidated financial statements, drawn up in accordance with Brazilian Corporations Law and CVM regulations, accompanied by a report from the management of the company and opinion of an independent auditor;

-Standardized Financial Statements (Demonstrações Financeiras Padronizadas

– DFP) form; -notice of the call to the annual general shareholders’ meeting; -Annual Information (Informações Anuais – IAN) form; -summary of decisions taken at the annual general shareholders’ meeting; -minutes of the annual general shareholders’ meeting; -facsimile of the securities certificates issued by the company, whenever a

change is effected; and -Quarterly Information (Informações Trimestrais – ITR) form, accompanied by

a Special Review Report by an independent auditor.

In addition to the information listed above, certain events or facts can trigger a requirement to submit information, again at the times and in the form established by regulation, such as:

-notice of the call to an extraordinary general shareholders’ meeting; -summary of decisions taken at the extraordinary general shareholders’

meeting; -minutes of the extraordinary general shareholders’ meeting; -shareholders’ agreement; -Corporate Group convention (agreement to form a Corporate Group); -statement of a material fact or act; -information regarding any petition for protection from creditors, including

grounds for the petition, financial statements drawn up especially for the purpose of obtaining protection from creditors and, if applicable, the prospects of debenture holders recovering their investment;

-judgment granting protection from creditors; -information on any petition or confession of bankruptcy; -judgment declaring bankruptcy; and -any other information that may be requested by CVM.

With respect to statement of material fact or act, CVM Instruction 358/02 defines as material any or fact related to the business of a company (including any decision by the controlling shareholder and any resolution adopted by the shareholders in general meeting or by any of the management bodies of the company) that could influence (a) the quoted price of securities issued by the company; (b) the decision by investors to trade in the company’s securities or to continue holding them; or (c) the decision by investors to exercise any of the rights pertaining to ownership of the company’s securities.

CVM Instruction 358/02 provides examples of events that may constitute a material fact:

-signature of agreements for transfer of control of the company, even if subject to conditions; -changes in control of the company, including changes in control resulting from the signing, amendment, or termination of shareholders’ agreements; -signing, amendment or termination of shareholders’ agreements to which the company is party or which have been entered in the company’s books; -entry or exit of a shareholder that has an operational, financial, technological or management agreement or arrangement with the company; -authorization for trading securities issued by the company in any domestic

or foreign market; -decision to apply for cancellation of the company’s registration as a public stock company; -merger, consolidation or spin-off, involving the company itself or related

companies; -transformation or dissolution of the company; -changes in the company’s assets; -changes in accounting criteria; -renegotiations of debt; -approval of stock option plans; -changes in the rights and privileges attached to securities issued by the

company; -share splits and reverse splits and the issue of share dividends; -acquisition of shares to be held in treasury or for cancellation, and the sale of

shares so acquired; -declaration of the profit or loss and the distribution of dividends; -signing or termination of agreements, or failure to close a deal, when the

expectation of closing the deal is public knowledge; -approval, modification or abandonment of a project, and any delay in its implementation; -commencement, recommencement or suspension of the manufacture or sale of products or services; -discovery, change or development in connection with the company’s

technology or resources; -any change in the projections disclosed by the company; -filing for judicial arrangement with creditors, petition or confession of

bankruptcy, or the bringing of any lawsuit that may affect the financial situation of the company.

At its discretion, the CVM may require a public stock company to disclose, correct, amend or republish information related to a material.

Likewise, the CVM, the stock exchange, or over-the-counter market on which the company’s securities are traded may require the company’s investor relations officer to provide further information to clarify communications and/ or disclosures made in connection with a material fact.

Exceptionally, a public stock company may choose to withhold information under periodic filing and other requirements, including material fact disclosure requirements, if the controlling shareholders or management deem that such disclosure could jeopardize legitimate interest of the company, provided that said information is not leaked and so long as there is no unusual variation in quoted price or trading volume of the securities issued. In such cases, the CVM requires that the company submit a statement of the reasons that led it to believe that disclosure would put its legitimate interests at risk.

Basic information contained in the company’s registration must be kept up-todate and the CVM must be informed of any changes.

Such information submitted to the CVM must also be available to securities holders through the company’s investor relations department. The CVM will disclose said information to the public, excepting information classified as confidential.

Reporting requirements of public companies are also regulated. Information must be published in a widely-circulated newspaper in the city where the stock market on which the company’s securities have been most traded in the past two fiscal years, or in the city where the company’s head offices are located. The company must use the same newspaper for all publications.

.5. Public Offers for the Buyback of Shares (POBS)

Under Brazilian Corporations Law and CVM regulations, public companies are required to make a Public Offer for Buyback of Shares (POBS) (Oferta Pública para Acquisição de Ações – OPA), in the following situations:

-POBS for cancellation of registration of a public stock company, by the controlling shareholder or by the company itself, with the aim of acquiring all the shares issued by the company (art. 4 § 4 of the Brazilian Corporations Law and CVM Instruction 361/02);

-POBS to increase holdings when, under CVM regulations, the controlling shareholder’s interest reaches a percentage that undermines the trading value of the remaining shares. The offer must be for all the shares of the affected class or type. (Art. 4 § 6 of Brazilian Corporations Law and CVM Instruction 361/02);

-POBS to transfer of control, as a condition for validating any direct or indirect legal transfer of control of a public stock company. This offer by the shareholder who has acquired control aims to cover all shares that have full and permanent voting rights in the company (art. 254-A of Brazilian Corporations Law and CVM Instruction 361/02).

Generally speaking, the Public Offer for the Acquisition of Shares is addressed to all holders of a single type and class of shares covered by the offer, and must be published at least once in the widely-circulated newspaper normally used by the company to publish notices, in accordance with CVM regulations.

If, at the end of the Public Offer for the Acquisition of Shares, less than 5% of all shares issued by the company remain in the market, the general meeting of shareholders may authorize redemption of the shares for the price established in the Public Offer for the Acquisition of Shares, thereby withdrawing them from circulation.

The Public Offer for the Acquisition of Shares must be effected by auction on the stock exchange or organized over-the-counter market on which the shares covered by the offer are traded; otherwise, the offer may be effected on the stock exchange or organized over-the-counter market at the discretion of the proponent.

. Primary and Secondary Public Offerings

Public stock companies may make public offerings for distribution of securities in the primary and secondary markets, subject to requirements established under applicable legislation, particularly CVM Instruction 400/03.

An offering is said to be primary when the issuing company offers securities for distribution to the public in order to raise funds. A secondary offering is when one or more of the issuer’s shareholders offers to transfer all or part of their holdings or securities to the public. Primary and secondary offerings often occur simultaneously.

Any public offering of securities in Brazil must be submitted for prior registration with the CVM. Among the most pertinent registration requirements established by CVM Instruction 400/03 are those relating to the prospectus, which must contain information on the offer, the securities offered, the issuing company, and its financial status. The prospectus must be written in readily accessible language and the information it contains must be complete, precise, accurate, current, clear, and objective, so to enable investors to make an informed decision regarding the investment.

Any use of advertising materials in connection with the offer requires prior approval by the CVM. Under no circumstances may information that differs or is inconsistent with the prospectus be presented to potential investors.

The CVM may, depending upon the specific characteristics of the offer, waive certain registration requirements, including publication, deadlines, and other procedures foreseen in the regulations.

Public stock companies that have already effected public offerings may file Securities Distribution Programs with the CVM, to facilitate the examination and registration for future offerings. When the company wishes to make a new offering, it must submit to the CVM a supplement to the prospectus, and definitive versions of the draft documents filed under the Securities Distribution Program.

To effect a public offering, the proponent must engage an underwriter to place the securities with the public. The proponent may authorize the underwriter to distribute a supplementary lot of securities, in the event that demand is greater than expected, at the same price as the initial lot of securities. The prospectus must specify limits for the supplementary lot, which can not exceed 15% of the securities initially offered.

Furthermore, at his own discretion, the proponent may increase the offering by up to 20%, without making a new application or modifying the terms of the original registration.

The CVM has the power, at any time, to suspend (for up to 30 days) or to cancel any offering that is contrary to current legislation, or that is noncompliant with its terms of registration. Even after registration has been issued, it may cancel any offering that is deemed illegal, contrary to CVM regulations, or fraudulent.

.7. Differentiated Listing on the São Paulo Stock Exchange (BOVESPA)

BOVESPA’s Differentiated Levels of Corporate Governance are a set of rules of conduct for companies, their management, and their controlling shareholders that BOVESPA deems important for enhancing the value of shares and other assets issued by companies.

Corporate governance consists of a set of principles and practices that seek to minimize potential conflicts of interest among a company’s shareholders and the officers responsible for its management. The efficiency of a corporate governance system is upheld by three pillars: (a) corporate rules of conduct, which may be set by law or by contract (corporate governance in the strict sense); (b) transparency of information disclosed; and (c) means employed to ensure that such rules are effectively enforced.

There are currently four BOVESPA special listing segments for securities issued by public companies. The rating depends on the issuing company’s compliance with BOVESPA’s Differentiated Levels of Corporate Governance: (a) Level 1 of Corporate Governance (Level 1); (b) Level 2 of Corporate Governance (Level 2); (c) BOVESPA’s New Market (New Market); and (d) The Market of Shares of S/As (BOVESPA MAIS).

Voluntary compliance by a company to these rules, and the consequent adoption of corporate governance practices in addition to those applicable to all companies by law, enables a company to be listed on Level 1, Level 2, or the New Market, depending on the degree of commitment to BOVESPA, or BOVESPA MAIS, where the company is listed on the organized over-the-counter market administered by BOVESPA.

Compliance with BOVESPA’s Differentiated Levels of Corporate Governance brings various benefits to all parties. For investors, it allows (a) more accurate pricing of shares; (b) improvement in the process of monitoring and inspecting the company’s business; (c) greater security as to their corporate rights; and (d) reduced risks associated with investment. For companies, it allows: (a) improved institutional image; (b) increased demand for their shares; (c) increased value of their shares; and (d) lower cost of capital.

A public stock company may seek compliance with any of the BOVESPA listing levels by signing a binding contract to abide by the set of corporate governance rules for the respective level. These rules are set by BOVESPA regulations (the Differentiated Levels of Corporate Governance Regulations, in the case of Levels 1 and 2; the New Market Listing Regulations, in the case of the New Market; and the BOVESPA MAIS Listing Regulations, in the case of BOVESPA MAIS).

To attain a listing under Level 1, companies must undertake to comply with a set of rules aimed at improving the information disclosed to the public and dispersion of shares. The main Level 1 practices aim:

-to maintain a minimum number of shares in circulation, representing at least 25% of the company’s capital; -to adopt mechanisms that foster dispersion of the company’s capital through public offerings; -to meet additional requirements when preparing prospectuses for public

offering of securities; -not to issue founder’s shares; -to improve the company’s financial statements, annual and quarterly

information filings, by consolidating financial statements, indicating cash flows and ensuring that quarterly information filings are reviewed by independent auditors;

-to hold an annual public meeting with analysts and other interested parties, to disclose information on the company’s financial status, its projects and prospects;

-to comply with disclosure rules in transactions involving securities issued by the company and held by the controlling shareholders; -to disclose the terms of contracts between the company and related parties; and -to make available an annual calendar of corporate events.

To obtain a Level 2 classification, in addition to adopting the Level 1 practices, the company must comply with a more comprehensive set of corporate governance rules, including additional rights for minority shareholders. Level 2 practices aim:

-to set a unified term of no more than two years for the entire Board of Directors, which must be composed no less than five members, of whom 20% must be independent directors;

-to disclose financial statements in accordance with the international US/ GAAP or IFRS standards;

-to extend to all common shareholders the same price conditions granted to controlling shareholders when negotiating control of the company and no less than 80% of that price to preferred shareholders;

-to extend voting rights to preferred shareholders on some matters, such as transformation, merger, consolidation, or split-up of the company and approval of contracts between the company and other firms in same group;

-to make a Public Offer for the Acquisition of Shares for all shares in circulation, for no less than their economic value, in the event that the company goes private or cancels its registration for trading at Level 2; and

-to submit corporate disputes to the Arbitration Chamber for resolution.

A company’s securities may be listed on the New Market provided the company abides by rules for Levels 1 and 2 and, moreover, undertakes to ensure that its capital stock is composed exclusively of common shares.

BOVESPA MAIS, anew segment of the organized over-the-counter market, was created to expand opportunities for trading on BOVESPA to new public companies. To this end, the company must comply with advanced corporate governance practices, similar to rules applicable to the New Market for ensuring greater transparency and respect for shareholder rights. BOVESPA MAIS aims to assist new entrants by enabling gradual access to capital markets, building up their standing in the market, enhancing transparency, their shareholder base and liquidity.

7. Regulatory Framework of Local Capital Markets

7.1. Relevant Laws Affecting Local Capital Markets

Law 6.385/76 (the Securities Law) is the main law governing securities markets in Brazil, though, Law 6.404/76, and the amendments introduced by Law 10.303/01 (the Corporations Law), also contains relevant provisions for the regulation of the capital markets.

The Securities Law created the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) and regulates overall operation of capital markets, public distribution of securities, listing of securities on exchanges, disclosure requirements, activities of brokers and intermediaries, types of securities negotiated, and the types of companies which may be traded on the capital markets. The Securities Law also invests the CVM with regulatory and enforcement powers.

ImplementationoftheSecuritiesLawiseffectedbymeansofresolutions,circulars, instructions, opinions, deliberations and other administrative mechanisms, issued periodically by the National Monetary Council (CMN), the Central Bank (BACEN), the CVM, the stock exchanges and the organized over-the-counter markets (Organized OTCMs).

7.2. Local Regulatory and Supervisory Authorities

7.2.1. The National Monetary Council

With respect to securities markets, the Securities Law invests the CMN with the following powers: (i) to define general policies relating to the organization and operation of capital markets, (ii) to regulate the granting of credit in the market, and (iii) to establish general rules to be followed by CVM in the performance of its functions; and (iv) to determine which CVM activities must be performed in cooperation with the Central Bank.

7.2.2. The Securities and Exchange Commission (CVM)

The CVM is a governmental agency responsible for regulating and supervising compliance with the Securities Law and all issues relating to local capital markets.

The CVM is governed by a president and four board members, appointed for five-year terms by the President of Brazil, and confirmed by the Senate, each of whom must have renowned expertise in securities markets.

CVM also has authority to regulate the activities of brokers, dealers, financial institutions, stock exchanges, Organized OTCMs, publicly companies, investment funds and firms, investment portfolios and custodians, independent auditors, consultants and market analysts.

The CVM may take action and impose administrative sanctions on any persons and entities that fail to comply with the Securities Law, the Corporations Law, or any other regulations within the CVM’s jurisdiction. The CVM’s primary sanctions may include: (i) warnings; (ii) fines; (iii) suspension or revocation of registration or authorization to participate in the securities market; (iv) temporary suspension, for up to 20 years, from participation in certain activities relating to the securities market; and (v) suspension or removal of directors, officers, and fiscal counsels of public companies, or of companies that participate in the securities distribution system.

Sanctions imposed by the CVM in no way affect any civil or criminal liability of parties found to have breached securities regulations.

The CVM represents Brazil’s securities markets at the Council of Security Regulators of the Americas (COSRA), the International Organization of Securities Commissioners (IOSCO), and at MERCOSUR.

CVM has signed memorandums of understanding for the sharing of information and legal assistance with the securities regulators in the following countries: United States (the Security and Exchange Commission and the Commodities Futures Trading Commission), South Africa, Germany, Argentina, Australia, Bolivia, Canada/Quebec, Chile, China, Equator, Spain, France, Greece, Hong Kong, Italy, Luxembourg, Malaysia, Mexico, Paraguay, Peru, Portugal, Romania, Singapore, Thailand and Taiwan.

7.2.3. The Central Bank

Under the terms of Law 4.595/64, the Central Bank is responsible for implementing CMN policies relating to monetary policy, exchange controls, regulation of financial institutions (including brokers and dealers), control of

foreign investment (including investment in the securities markets) and such other matters relating to securities markets deemed by the CMN to fall under the Central Bank’s regulatory responsibilities.

The Central Bank is governed by a nine-member Board, headed by a Governor, appointed by the President of Brazil for an unlimited term, and subject to confirmation by the Senate.

7.2.4. Self-Regulation

Self-regulatory organizations in the Brazilian securities markets, such as stock exchanges and the Organized OTCMs, act as ancillary institutions to the CVM, and are subject to its supervision. It is incumbent on such entities to inspect their members and to ensure compliance with current rules and regulations. Organizations such as the Brazilian Association of Investment Banks (ANBID) are fully self-regulating, and not subject to CVM supervision.

7.2.4.1. Stock Exchanges

The São Paulo Stock Exchange (BOVESPA) is Brazil’s foremost stock exchange.

Shares, commercial papers, debentures, investment fund quotas and derivatives, are regularly traded on BOVESPA.

Stock exchanges are responsible for organizing, maintaining, registering and supervising the securities trading and, to this end, they are authorized to issue regulations to complement those emanating from the CVM.

The negotiable instruments that may be traded on Brazilian stock exchanges are: (i) securities duly registered with CVM, (ii) rights arising therefrom, (iii) stock indexes, (iv) derivatives, and (v) government bonds, and other negotiable instruments issued by private entities, when authorized by the Central Bank and the CVM.

Recently, BOVESPA implemented the “home-broker” system, whereby investors can deliver orders to their brokers via the internet which, in turn, has links to BOVESPA’s electronic data systems.

On December 11, 2000, BOVESPA launched a new trading market (known as the New Market) designed exclusively for the listing and trading of shares of companies that submit to stricter corporate governance and disclosure standards than those required by Brazilian law.

In order to be traded on the New Market, the company must (i) issue common shares only; (ii) maintain a free float of at least 25% of its outstanding shares; (iii) extend to all shareholders the same terms and conditions enjoyed by controlling shareholders in the event of sale of control (tag along rights); (iv) disclose annual balance sheets in accordance with US/GAAP or IAS/GAAP standards, and (v) disclose any related party transactions.

Settlement and custody of securities transacted are effected by a clearing house controlled by the stock exchanges, generally on the 2^nd and on the 3^rd business days subsequent to the relevant closing date (financial and physical settlement, respectively).

The Brazilian Custody and Settlement Company (CBLC), a private company based in São Paulo, provides custody and settlement services to BOVESPA and SOMA (Sociedade Operadora do Mercado de Ativos) an Organized OTCM body.

7.2.4.2. Organized Over the Counter Markets (OTCMs)³

Organized OTCMs 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 OTCMs: (i) securities registered with CVM for trading on Organized OTCMs; (ii) certificates of investments in audiovisual production; (iii) quotas of closed-end investment funds, subject to a public distribution, e.g., stock mutual funds, real-estate mutual funds, and others); and (iv) other securities expressly authorized by the CVM.

Currently, SOMA and the Custody and Settlement Chamber (CETIP) are the only Organized OTCMs in Brazil.

For a specific security to be admitted for trading on SOMA, a specialized market maker must be appointed.

Non-organized OTCMs, as defined by Article 3 of CVM Instruction 202, comprise all trades conducted outside stock exchanges through intermediation of members of the securities market. Shares traded on a stock exchange cannot be traded over-the-counter, except in case of a public distribution. OTCM transactions are usually executed by telephone by broker/dealers from their offices, and are not coordinated by CVM, though they are subject to its supervision. The price and volume of OTCMs transactions are not regularly published.

7.2.4.3. National Association of Investment Banks (ANBID)

The ANBID Code, approved on September 22, 2005 by the National Association of Investment Banks (ANBID), established self-regulation and set disclosure standards to be followed by ANDIB member institutions when coordinating public offerings of securities on the Brazilian market. The ANBID Code sets operating standards similar to those in effect in countries with highly organized capital markets.

The ANBID Code establishes full disclosure parameters to be observed by Brazilian capital markets. It demands self-regulation and creates uniform rules and standards that are far stricter than the minimum requirements set by law with regard to public distribution of both debt and equity securities in the primary and the secondary markets in Brazil. Under its provisions, financial institutions acting as coordinators of underwriting syndicates (underwriters) are responsible for preparation of prospectuses. They are also required to conduct independent due diligence to verify all material information concerning the issuer’s business, properties and financial status, relevant securities and other material facts which may have a bearing on an investor’s decision with regard to the offered or requested investment funding.

The ANBID Code also establishes comprehensive minimum content rules for prospectuses, which must contain: (i) information regarding risk factors, (ii) description of the issuer’s main sector-related aspects; (iii) description of the issuer’s business and his corporate governance, environmental protection, and social responsibility policies, (iv) management discussion and analysis (MD&A) of issuer’s financial status and results ofoperations, based onthe three preceding fiscal years, (v) information about the issuer’s current outstanding securities, (vi) relevant litigation affecting the issuer, and (vii) operations with related parties and underwriters for issuance of securities.

7.3. Definition of Securities

In Brazil, the concept of securities is formal and defined by law. According to the Securities Law and regulations thereof issued from time to time, the following are deemed as securities: (i) shares, 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; (xi) real estate receivable certificates; (xii) future contracts, options and other derivatives, which underlying assets are securities; and (xiii) any negotiable instruments or collective investment contracts, when publicly offered, which grant participation, partnership or remuneration rights, including those resulting from the provision of services, which income arises from the work of the entrepreneur or third parties.

The Securities Law expressly excludes federal, state and municipal public debt certificates and all negotiable exchange certificates issued by financial institutions excepting debentures, from its definition of securities. Such negotiable instruments are thus subject to control and monitoring of the Central Bank.

7.4. Offer and Distribution of Securities in Brazil

7.4.1. The Concept of Public and Private Offers for Distribution of Securities

Public offering of securities in Brazil are subject to restrictions imposed by the Securities Law require prior registration with CVM.

The Securities Law defines a public offering as one conducted by means of (i) the use of lists or bulletins of sales or subscription, offering circulars, prospectuses or or any form of advertisement to the public; (ii) the full or part-time search for subscribers or buyers for the securities, by means of employees, representatives, agents, or any person, regardless of whether they are part of the securities distribution system; (iii) negotiation in stores, offices, or any other premises; and

(iv) use of marketing, by word or in writing, by letter, announcements, notices, through mass media or via electronic communication.

Registration is intended to provide adequate and accurate disclosure of facts concerning the issuer and the securities he proposes to sell. It does not, however, make judgment of the risk inherent to investing in the securities, nor does it does not preclude sales of securities in poorly managed or unprofitable companies.

CVM Instruction 400/03, which sets forth the new regulations for public offerings of securities, allows public companies which have already made public offers to file with the CVM’s program for distribution of securities, in order to facilitate future offerings. The distribution program has a maximum term of two years. Offers made under registered programs entail a simplified registration procedure.

A further innovation introduced this regulation is exemption of registration and of certain requirements (including publication, deadlines and procedures). When

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granting such exemptions, the CVM takes into consideration: (i) the type of public company; (ii) the unit value of its securities or the value of the offer; (iii) the distribution plan; (iv) rules in force in other jurisdictions where which the offer is to be made; (v) characteristics of the exchange offer; and (vi) the target public.

The issue and distribution of debt securities outside Brazil by Brazilian companies are not subject to registration with CVM.

7.4.2. Registration Process

Public distribution of securities in Brazil may only be effected by companies registered with the CVM as publicly companies. Aside from registration with the CVM prior to distribution to the public, the company’s securities must also be accepted for trading on the stock exchange or on an organized or non-organized OTCMs.

7.4.3. Registration of the Issuer as a Public Company

The documents and information required for the registration with the CVM include: bylaws, minutes of the meeting appointing an investor relations officer, and audited financial statements for the three preceding fiscal years. Registration of a company with the CVM usually takes between 30 to 120 days. Prior to approving the trading of securities on stock exchanges and Organized OTCMs the same documentation submitted to the CVM must be filed.

7.4.4. Requirements for a Public Distribution of Securities

Public offers of securities, either on the primary or on the secondary market, require prior authorization from the CVM. For such purposes, the coordinator of the transaction must file with the CVM the required documentation, which includes: (i) minutes of the meeting of shareholders or board meeting, approving the issuance of the securities; (ii) a copy of the agreement for the distribution and/or underwriting of the securities; (iii) a draft of the agreement 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)copiesoftheprospectus;(vi)announcementsofcommencementand termination of distribution; and (vii) statement of the issuer and the coordinator attesting the correctness of the information contained in the prospectus.

Registration for public distribution is obtained in 20 business days and may be interrupted once in the event that the CVM requires additional information regarding the registration request. The deadline for fulfilling such requirements is 40 business days, and may be extended for an additional 20 days at the request of the parties involved. One all requirements have been fulfilled, the CVM will process the request for registration within 10 days.

7.4.5. Issue of Depositary Receipts: Access to the Foreign Capital Markets

Brazilian companies wishing to access foreign capital markets to raise funds by issuing equity securities must establish a depositary receipts program.

Depositary Receipts (DRs) are certificates evidencing shares or other stock-related securities issued by a Brazilian public company.

The implementation of such a program requires the appointment of a non-Brazilian depositary, to issue the depositary receipts abroad based on shares custodied in its name in Brazil, in another Brazilian custodian designated by the depositary to hold the shares underlying the DRs.

The DR program may or may not be sponsored by the Brazilian issuer of underlying securities. Establishment and operation of a DR program requires prior approval of CVM and the Central Bank. Registration with CVM is required to ensure the same disclosure requirements for all holders of both DRs and 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 the CVM and the Central Bank, shares held by Brazilians or foreigners may, at any time, be deposited with the custodian for issuance of the corresponding DRs abroad. Foreign investors may sell the DRs abroad, or request cancellation of the DR and sell the underlying shares in Brazil.

7.4. Access to the Brazilian Market by Foreign Companies

Through Security Depositary Certificate (BDR) Programs

Foreign corporations may trade their securities on Brazilian stock markets by means of security depositary certificates (BDRs) representing securities issued by public companies incorporated abroad and issued by a depositary institution

in Brazil. Establishment of BDR Programs requires prior approval from the CVM and the Central Bank.

BDRs may be issued either under a three-tiered sponsored program, or under a non-sponsored program. In either case, the issuer of the underlying securities is subject to supervision of a securities and exchange commission in its country of origin, that has signed a cooperation agreement with CVM.

7.5. Tender Offers for Acquisition of Shares of Brazilian Companies

7.5.1. Takeovers by Tender Offer

According to the Corporations Law, acquisition of control of a Brazilian public company by means of a tender offer may be made effected through purchase for cash or through an exchange of shares.

The offer must be attract a sufficient number of voting shares to ensure control of the company, and must effected and guaranteed by a financial institution.

The tender notice must disclose the terms and conditions of the tender offer, including the identity of the purchaser, the number of shares it proposes to acquire, the price and conditions of payment, and the procedure for tendering the shares.

The fact that up to 2/3 of shares in a company may be non-voting works in favor of controllers with over 50% of the voting stock by making takeovers through tender offers less feasible. Thus almost all takeovers are effected through private transactions.

7.5.2. Going Private -Delisting Tender Offer

The controlling shareholder or a public company may, at any time, make a tender offer for acquisition of all voting and non-voting shares held by other shareholders, with the aim of delisting the corporation.

Under a delisting tender offer, shareholders are invited either to sell their shares to the controlling shareholder or the company; or to express their opinion in favor of or against the delisting.

Delisting requires acceptance of the offer or agreement and cancellation of the company’s registration by shareholders representing more than 2/3 of the free floating shares which, for this purpose, are considered the shares which those that have expressly agreed to the cancellation of the company’s public registration, or have qualified to participate in the bidding.

If such delisting requirements are not met, the controlling shareholder may acquire no more than 1/3 of the free floating shares, and may not launch a new tender offer for one year subsequent to settlement of the first offer.

7.5.3. Voluntary Tender Offer

The acquisition of shares by a controlling shareholder of a Brazilian public company without making a tender offer, is limited to 10% of each class or type of shares.

Such a tender offer requires prior CVM approval and may be conditioned to the acceptance of a maximum or minimum number of shares. The tender notice must specify (i) the terms and conditions of the offer, (ii) conditionalities relating to the transfer of control, if that be the case, (iii) justification and goals of the offer and (v) the controlling shareholder’s intention to delist the company.

Furthermore, in the event that the controlling shareholder makes a new purchase offer within two years, at a price higher than paid to those who accepted the initial offer, these earlier sellers must be reimbursed the balance of the two prices.

Lastly, in the event that within one year of the offer an event occurs that leads to exercise of withdrawal rights, shareholders who sold their shares in the tender offer, but would have the right to withdrawal had they not sold their shares, are 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 offer aims to acquire over 1/3 of the free float or results in acquisition of more than 1/3 of the free float, established rules for delisting tender offers must be followed.

7. Investor Protection Rules

7.1. Disclosure by Public Companies

Public companies must publish quarterly financial statements (Informações Trimestrais – ITRs), standardized annual reports (Demonstrações Financeiras Padronizadas – DFP), and Annual Information (Informações Anuais – IAN, equivalent to an SEC F-20 form). They must also publish notices of events that may materially affect trading of their securities.

7.2.Disclosure by Shareholders of Public Companies

Controlling shareholders, officers, and managers of a publicly-traded company must notify the CVM and the stock exchange or organized OTCMs where their securities 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 paid for them, the reasons and the objectives related to the acquisition, and a statement by the purchaser as to any agreement relating to the exercise of voting right or the transfer of securities issued by the company.

Non-controlling shareholders are required to inform the CVM and notify the market whenever their direct or indirect participation in the voting capital of public companies increases by 10%. Such information must include the identity of the acquirer, the purpose of the acquisition(s), the number of shares acquired, the total holdings in the voting capital of the company, information on any debentures convertible into voting shares that the shareholder may possess, and any agreement related to the exercise of voting rights or to the transfer of securities issued by the company. Thereafter, any 5% increase in his voting capital must likewise be informed and disclosed.

7.3. Market Manipulation and Other Fraudulent Practices in the Securities Market

CVM rules also encompass (i) market manipulation, (ii) creation of artificial demand, supply or price conditions, (iii) adoption of unfair practices and (iv) fraudulent transactions.

Price manipulation in the securities market implies use of any process or means with the aim of directly or indirectly, increasing, maintaining or lowering the prices of securities, so as to induce third parties to buy or sell such securities.

Artificialdemand,supply,orpriceconditionsinthesecuritiesmarketimpliesthose created by transactions whose participants or brokers, by willful misconduct or omission, directly or indirectly alter the flow of purchase and sales orders. Fraudulent transactions in the securities market are those which use mechanism or devices intended to mislead third parties, with the aim of obtaining illicit economicadvantagesforthepartiesinvolvedinthetransaction,forintermediaries, or for any other party.

Unfair practices in the securities market are those which result in one party obtaining an unfair dominant position vis-à-vis other market participants in the trading with securities.

Breach of such rules is deemed a serious offense under CVM regulations, and may result in administrative sanctions. Furthermore, an investor damaged by such unlawful conduct may claim compensation for losses and damages suffered.

Since few such cases have been brought before the courts it is not possible to observe a definite trend with regard to judicial interpretation in relation to market manipulation.

7.4. Insider Trading

Insiders are defined as controlling shareholders and managers (directors and officers) of a company. CVM rules forbid insiders to use information, relating to material facts to which they have privileged access due to their position, to obtain for themselves or other persons any advantage through trading of securities.

Although not defined as insiders, the following persons are likewise subject to restrictions: brokers, dealers, and other members of the distribution system, and anyone who, in view of a position or function or for any other reason, has material knowledge or information prior to its disclosure to the market. Family relationships are also taken into account in determining insider status.

Insider trading is regarded as a serious offense under CVM regulations, and perpetrators are subject to severe penalties. Furthermore, an investor damaged by insider trading in the purchase or sale of securities may claim compensation.

7.7. The Money Laundering Law

Law 9.613/98 (the Money Laundering Law) makes money laundering or concealment of assets, rights and valuables criminal offenses.

The Money Laundering Law places a series of obligations upon Corporate Entities in the securities industry, including stock and commodities exchanges, organized OTCMs, banks, brokers, dealers, asset management companies, and the branches and representatives of foreign financial institutions.

Such obligations include: (i) identification and maintenance of records on all clients; (ii) keeping on file, for a 5-year period, all transactions performed for such clients which exceed certain established limits; (iii) compliance with all requests from the Council for Financial Activities Control (COAF), as determined by the courts; and (iv) development and implementation of internal control systems to monitor and detect transactions that may constitute money laundering, such as business involving sums not consistent with the financial status of the parties, trades which repeatedly cause losses or profits to one of the parties, and business involving substantially higher sums than are normal in market transactions.

7.8. Civil Remedies

7.8.1. Securities Sold in Violation of Registration and/or Prospectus Requirements

Where an investor has purchased a security sold in violation of registration and/ or prospectus requirements under the Securities Law, the following remedies are available: (i) action for the recovery of damages based on Law 7.193/89 which may be brought ex officio by the Office of the Public Prosecutor (Ministério Público) or by request of the CVM; and (ii) action for recovery of damages based on Article 186 of the Brazilian Civil Code, which may be brought by a party injured by any action or omission on the part of an individual or corporate entity.

Investors may also claim damages against anyone engaged in fraudulent transactionsorthoseinvolvingartificialconditionsofdemand,pricemanipulation, or other unfair practices.

Derivative action for misleading information or omissions may be brought against the managers (directors and officers) of the issuer, 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 meeting of shareholders. Shareholders representing 5% or more of thecompany’scapitalmayinitiateaderivativeaction,regardlessof any contrary decision on the part of the meeting of shareholders.

Moreover, any investor may sue issuers, underwriters, and intermediaries, provided that their collusion in the act which caused damage can be proven.

7.8.2. Insider Trading

Where an investor has been injured by insider trading in the purchase or sale of securities, remedy is available through action based on CVM Instruction 8, and Articles 147, 182 and 186 of the Civil Code.

7.8.3. Fraudulent Brokerage Activities and Handling of Brokerage Accounts

7.8.3.1. Excessive or Unfair Profits or Commissions

Where an investor has been injured by fraudulent brokerage practices in the purchase or sale of securities, by excessive or unfair profits or commissions, the remedies available include action for injuries based on Article 186 of the Civil Code, or Articles 18 et. seq. of the Brazilian Consumer Protection Code.

7.8.3.2. Operating while Insolvent or Financially Unsound and Other Losses Caused by Intermediaries

In the event that an investor is injured by a broker operating while insolvent or otherwise financially unsound, remedies available include ordinary action under Article 186 of the Civil Code.

7.8.4. Class Actions

Class actions in Brazil are restricted to environmental and certain other specific issues, and do not extend to issues relating to securities. However, the Office of the Public Prosecutor (Ministério Público) may bring action on behalf of investors under Law 7.913/89.

7.8.5. Waiver of Rights

Investors acquiring a security may, in principle, waive their rights under the Securities Laws,rules, and regulations. However, suchwaivers may be disregarded by a judge if not duly communicated to investors or if deemed to be in breach of

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fundamental investor protection principles. Consumer protection provisions are considered a matter of public order and, accordingly, may not be waived. For the same reasons, private agreements do not preclude action brought by the CVM or by any stock exchange.

7.8. Procedural Requirements

7.8.1. Jurisdiction

State courts generally have jurisdiction over civil suits and thus over remedy for securities violations. The statutory basis for such jurisdiction resides in the Brazilian Code of Civil Procedure.

7.8.2. Venue

Except when otherwise acknowledged by the parties, according to the Securities Law, courts with jurisdiction in the domicile of the defendant are competent to hear any case.

7.8.3. Statute of Limitations

Under Article 205 of the Brazilian Civil Code, action is subject to a 10 year statute of limitations. There are, however, exceptions to the above rules.

8. Tax System

8.1. General Features

The Brazilian Federal Constitution, promulgated on October 5, 1988, confers upon the Federal Union, the States, and the Municipalities power to levy taxation.

In Brazil taxation may take the form of taxes, fees, betterment fees, other contributions, and compulsory loans.

Taxation may be instituted byany ofthethreelevels of government, in accordance with specific powers conferred under the Constitution.

Feescollected atthethreelevels, are usedto fund servicessuch as law enforcement, and other collective public services delivered or provided to the taxpayer.

Betterment fees (though as yet not commonly levied) may be collected from the property owners that benefit from execution of public works.

Contributions can only be levied by the Federal Government. There are (a) social contributions (payroll charges); (b) contributions to intervene in the economic domain, (c) contributions in the interest of professional or economic categories, and (d) contributions to finance social security.

Compulsory loans can be instituted only by the Federal Government, to defray urgent public investment of relevant national interest, or extraordinary expenses resulting from public calamity or foreign wars.

Unless otherwise expressly stated in the Constitution, the imposition and collection of taxation must comply with certain fundamental constitutional rules, including:

-the principle of legality (whereby taxation may only be levied or increased by

enacted law); -the rule of equality (whereby taxpayers in equivalent situations must receive

identical tax treatment); -the principle of non-retroactivity (whereby taxation cannot be levied on

events that occurred prior to entering into force of the law that created a new

tax or which increased rates or the base of computation of existing ones); -the principle of precedence (whereby taxes cannot be collected in the same

fiscal year in which the law that created them or increased their rates was published, nor prior to ninety days of said publication. Contributions, on

the other hand, can be collected in the same fiscal year, but must respect the

ninety-day deadline); -the principle of non-confiscation (whereby taxation cannot be

confiscatory).

8.2. Federal Taxes

Only the Federal Government may levy the following taxes: Import Duties (II); Export Duties (EI); Income and Capital Gains Tax (IR); Tax on Industrialized Goods (IPI); Tax on Credit, Exchange and Insurance, or on Securities Transactions (IOF); Tax on Rural Land (ITR), and Tax on Large Fortunes (IGR).

8.2.1. Income Tax

Income tax (Imposto de Renda – IR) is assessed on income and wealth increases of resident individuals from domestic or foreign sources at rates of 15% and 27.5% (depending on the income bracket), and on capital gains of corporate entities at the rate of 15%;

Corporate income tax is assessed on profits and capital gains generated by operations in Brazil or abroad. It is normally assessed on net profits of the company (other applicable basis are assumed profit and arbitrated profit). Taxable income is equal to net profits (ascertained in quarterly or annual balance sheets) adjusted for additions and deductions set forth in income tax legislation.

Corporations taxed on the basis of net profit may choose to pay tax in monthly installments, on the basis of estimates, provided they observe certain conditions established in income tax legislation.

The current corporate income tax rate is 15%, whether calculated on net profit, assumed profit, or arbitrated profit, whatever the company’s business. A 10% supplementary tax is applicable to the portion of net profits which exceeds R$ 20,000 per month.

Profits or dividends assessed as of January 1, 1996, paid out or credited to individuals or corporations domiciled in Brazil or abroad, are no longer subject to income tax (either withheld at source or due on taxpayer’s return) regardless of whether assessed on the basis of net profit, assumed profit, or arbitrated profit.

Withheld income tax (Imposto de Renda na Fonte – IRF) is due on income paid, credited, remitted, or delivered to non-residents, at the rate of 15% or 25% depending upon the beneficiary’s country of residence and the nature of the income. As of January 1, 2001, a ‘Contribution of Intervention in the Economic Domain’ is due, at the rate of 10%, upon remittances of royalties or compensation deriving from technology transfers, in cases where the withheld income tax rate is 15%. This does not apply to profits and dividends, which are exempt from withheld income tax.

As of January 1, 1997 new rules were introduced in income tax law to regulate transfer pricing in business transacted by resident individuals or corporations with non-resident parties for import and export, and interest payments abroad. These rules apply in the following situations: (i) when a corporation domiciled in Brazil conducts business with non-domiciled related parties; (ii) when a domiciled individual or corporation carries out business with a related or unrelated party domiciled in a country where income tax is not charged or is assessed at a rate lower than 20%, or where the domestic legislation maintains secrecy with regard to equity participation or corporate ownership.

8.2.2. Tax on Industrialized Goods

The tax on industrialized goods (Imposto sobre Produtos Industrializados – IPI) is levied on output and on the importation of industrialized goods. IPI is noncumulative; and thus tax due may be offset by credits arising from the purchase of raw materials, intermediary products, and packaging materials. However, no credits are granted for goods that become fixed assets. The rates at which IPI is charged on the value of industrialized goods, as they are imported or dispatched from domestic plants, varies in accordance with the nature of the goods. The average rate is 10%. Export goods are exempted from IPI.

8.2.3. Tax on Credit and Exchange Transactions

The tax on credit and exchange transactions, insurance and securities (Imposto sobre Operações Financeiras – IOF) is due on bank loans and similar transactions, on foreign currency transactions, on insurance premiums, and on securities traded. The rate varies depending on the type of operation.

8.2.4. Tax on Large Fortunes

The tax on large fortunes (Imposto sobre Grandes Fortunas – IGF) has not yet been instituted.

8.3. State (and Federal District) Taxes

The States and the Federal District are empowered to levy the following taxes:

-inheritance and gift tax (ITD); -tax on circulation of goods, interstate and inter-municipal transport, and

communications (ICMS); -tax on ownership of motor vehicles (IPVA).

The Tax on Circulation of Goods and Services (ICMS) is the main State tax, and is due on operations involving circulation of goods (including manufacturing, marketing, and imports) and on interstate and inter-municipal transport and communications services. ICMS is non-cumulative, and thus tax due may be offset by credits arising from the purchase of raw materials, intermediary products, and packaging materials. which allows the taxpayer to record input tax credits from the ICMS paid on the purchase of raw materials, intermediary products, packaging materials. Tax credits for goods destined to become fixed assets may be accepted, subject to certain restrictions. Intrastate rates normally vary from 7% to 25% (the average rate in the states of RJ, SP, MG and RS is 18%, whereas for other states and the DF it is 17%). Rates applied to interstate commerce are 7% or 12%, depending on the destination. Export goods are exempted from ICMS.

8.4. Municipal Taxes

Municipalities and the Federal District are empowered to levy the following taxes:

-urban property tax (IPTU); -tax on real estate transfers (ITBI); -services tax (ISS).

Services tax (Imposto sobre Serviços -ISS) is levied on certain services listed in federal law, and the average rate is 5%.

8.5. Social Charges

The Federal Government may levy the following charges (or social contributions) to fund social programs:

-Social contribution on corporate profits (CSL): levied on pre-tax profits, assessed in accordance with commercial law, with adjustments and exceptions set forth in law. The current rate is 9%;

-Social contribution for funding Social Security (COFINS): levied monthly on the gross income. Current rates are 3% and 7.6%, the former being cumulative and the latter non-cumulative, in accordance with criteria set forth in law. Export goods are exempted from COFINS.

-Contribution toward the Social Integration Program (PIS): levied monthly on the gross income of corporate entities. Current rates are 0.65% and 1.65%, the former being cumulative and the latter non-cumulative, in accordance with criteria set forth in law; Export goods are exempted from PIS.

-Contribution toward the Social Integration Program (PIS) and Social contribution for funding Social Security (COFINS), levied on imports, assessed on the customs value of goods or the price paid for services, including applicable taxes. The general rates are 1.65% for PIS/PASEP, and 7.6% for COFINS, aside from other specific rates;

-Payroll charges for Social security contributions (CINSS): employers must withhold this charge on behalf of their employees, at the rate of 11%, whereas self-employed workers pay 20%. In both cases, the basis for calculation of this charge is limited to R$ 2.400,00 (adjusted monthly as of January 2004). Corporations pay CINSS at the rate of 20% on payments to individuals for services performed, with no ceiling;

-Provisional Contribution on Financial Operations (CPMF): established by Constitutional Amendment 3/93, this charge, instituted in January 1997, was extended to December 2007 by Constitutional Amendment 42/03. The rate is 0.38%;

-Contribution to intervene in the economic domain (CIDE): (i) CIDE/Fuel is due at specific rates on import and trade in the domestic fuel market; and (ii) CIDE/Remittances is due on remittances to foreign individuals for royalties or technology transfers. The rate is 10%.

9. Anti-Trust Legislation

Law 4.137, of September 10, 1962, introduced antitrust legislation based upon the U.S. regulatory model. However, owing to lack of interest on the part of the Government and of the authorities responsible for instituting and enforcing the law, for almost 30 years Brazil’s antitrust system was virtually inoperative.

In the early 1990s, with the passage of Law 8.002 and Law 8.158, new impetus was given to combating crimes against the economic order, the protection of free competition, and defense of consumers’ rights. This renewed interest in ensuring fair market conditions culminated in the enactment of Law 8.884, of June 11, 1994, which effectively brought Brazil’s antitrust legislation into force.

Brazil’s antitrust authority, the Administrative Council for Economic Defense (CADE), established in 1962, operates as an independent agency linked to the Ministry of Justice, and has broad enforcement powers to protect the public and the constitutional order. CADE retains title to juridical goods under its protection, exercised on behalf of the community, and in this it is assisted by the Secretariat for Economic Law (SDE) and the Secretariat for Economic Monitoring (SEAE). Its jurisdiction may extend to acts performed abroad which may have consequences in Brazil. The law regards as a domestic company, any foreign corporation which has a subsidiary, branch, agency, office, representative or the like in Brazil (article 2, § 1st, modified by Law 10.149, of December 21, 2000). Moreover, under § 2nd of the same article, the foreign company shall receive notification and summonses pertaining to all procedural acts, regardless of any power of attorney, contractual or statutory provisions, in the name of the person responsible for its branch, agency, subsidiary, or other establishment in Brazil.

Prior to stipulating offenses against the current economic order, Law 8.884/94 clearly states the authorities’ jurisdiction over any and all individuals and corporate entities, public or private companies, organizations and joint ventures, including those of a temporary nature, or without legal personality. The antitrust law also specifies the individual liability of corporate officers and managers, severally or jointly with the company itself. Moreover, Section 18 specifies, under limited circumstances, conditions in which stockholders can be held personally responsible for corporate liabilities.

Among the acts considered breaches of the economic order prohibited by antitrust law are efforts: to limit or impair free competition; to control any relevant market for goods and services; to increase profits arbitrarily; or abusive exercise of economic power. Furthermore, also forbidden under the rules currently in force are: any price fixing agreements among competitors; market sharing covenants; imposition of obstacles to market entry; dumping; withholding of goods with a view to forcing up prices; and fixing of excessive prices.

The law lists no less than twenty-four different infractions to be carefully considered. Penalties can be severe, depending upon the gravity of the offence, the number of times it has occurred, and the economic status of perpetrator. Penalties may be of the order of 30% of the company’s total gross sales in the preceding fiscal year, and may also entail a fine to be paid by the manager as an individual, ranging from 10% to 50% of that sum which, in the event of recurrence, may be doubled. Furthermore, there are other penalties foreseen, such as prohibition on conducting business, contracting, or obtaining benefits from government bodies.

Unjustified failure of a defendant or third party to comply with a summons to provide oral testimony, in the course of preliminary investigations or administrative proceedings, may result in a fine ranging from R$ 500,00 (five hundred reais) to R$ 10.700,00, (ten thousand, seven hundred reais), taking into consideration his financial status (article 26, § 5, of Law 10.149/2000). Moreover, the defendant may be subject to a penalty ranging from R$ 21.200,00 (twentyone thousand, two hundred reais) to R$ 425.700,00 (four hundred and twenty five thousand, seven hundred reais), taking into consideration his financial status, in the event that he impedes, obstructs, or in any other way hampers any investigation, be it under administrative proceedings or the preliminary phase thereof (article 26-A, Law 10.149/2000).

Under an innovation introduced by Law 10.149/2000 (article 35-B) relating to the abovementioned penalties, there is a possibility of plea bargain with the authorities, in the event that individuals or corporations involved in violations against the economic order resolve to collaborate with investigators in the administrative proceedings, in which case they may be spared punitive action by the public authorities, or obtain a lesser penalty, ranging from one to two-thirds of the applicable fine.

CADE, SDE and SEAE proceedings may be opened based on third-party claims. There is no appeal against CADE rulings in the administrative sphere, and any party that feels aggrieved can only seek redress in the courts.

Under Law 8.884/94 parties are obliged to seek prior CADE approval for agreements that may hinder free competition or result in market dominance. In such cases (in accordance with article 54) requests must be submitted prior to completion of the transaction, or within 15 business days thereof. As of January 1, 2001, the fee for filing such requests is R$ 45.000,00 (forty-five thousand reais).

Prior approval from CADE is usually preferable, given that the complexities and untoward consequences of an unfavorable a posteriori ruling may even invalidate the agreement or actions already implemented thereunder.

According to article 54, acts that may damage free competition or result in market dominance, and thus require CADE approval include: mergers of companies or groups of companies, resulting in a market share of over twenty percent, or in which any of the participants has reported annual gross billings of R$ 400.000.000,00 (four hundred million reais). However, CADE Digest 1, published in the Official Gazette (DOU) on October 18, 2005, finds that the criteria established in the aforementioned article 54 apply only to annual gross billings in Brazil, of the parties involved in the operation submitted for approval. This finding is important, in that it has significantly reduced the number of submissions to CADE relating to companies whose foreign annual gross billings amount to more than R$ 400.000.000,00 (four hundred million reais).

Article 54 clearly states that mergers may be approved, provided they meet certain objective and legal criteria (productivity, quality, and technology gains, no direct damage to current competition and, above all, clear benefits for consumers resulting from lower prices). In certain cases, CADE may condition its approval of a merger to the signing of a “performance commitment” by the parties for the fulfillment of certain goals, on pain of penalties for non-compliance.

CADE Resolution 15, of August 19, 1998, provides a list of the information and documents that must be attached to applications submitted under the terms of article 54. The list is extensive and may include documentation from abroad, that some parties have difficulty in obtaining levels.

Lastly, the final section of Law 8.884/94 foresees circumstances in which state intervention may be imposed, under a court appointed interventor.

10. Brazilian Labor Law

Labor Law in Brazil was strongly influenced by developments and trends in Europe, the efforts of various countries to codify laws for the protection of workers and, particularly, by Brazil’s commitments to the International Labour Organization. These influences, alongside significant domestic factors, including burgeoning industrialization and the labor policies of the Brazilian Government, were instrumental in the formulation of a body of national labor laws.

The Consolidated Brazilian Labor Laws (Consolidação das Leis do Trabalho – CLT) came into effect in 1943, as a consequence of efforts by legal scholars to harmonize existing laws and develop an institutional framework.

ThustheCLT, whichcontains over 900 articles, provideslegalstandards governing labor relations in Brazil.

Chapters of the CLT encompass:

-Safety in the workplace; -Working hours, the minimum wage, and vacations; -Workers health; -Labor tutelage; -Nationalization of labor; -Protection for women and child workers; -Individual employment contracts; -Trades union organizations; -Union fees.

The CLT also provides the framework for the Brazilian labor courts system and related agencies, and establishes rules for labor proceedings.

Since 1943, the Brazilian legal system has undergone further developments, and various laws relating to important issues such as the right to strike have been approved, and new wording has been introduced into certain articles of the CLT.

The promulgation of the Federal Constitution of 1988 introduced new labor rights and enhancements to the standards provided in the CLT.

The basic labor rights provided for in the Federal Constitution, the CLT, and specific labor laws are as follows:

-minimum wage;

-44-hour work week;

-irreducibility of wages;

-unemployment insurance;

-13th salary (Christmas bonus);

-profit sharing;

-overtime pay;

-annual vacations;

-maternity leave;

-paternity leave;

-prior notice of dismissal;

-retirement benefits;

-approval of collective standards;

-industrial accident insurance;

-Time of Service Guarantee Fund (FGTS);

-right to strike;

-provisional job security for members of Accident Prevention Committees, employees that are pregnant or suffering from work-related injuries;

-tips;

-commissions;

-family allowances;

-education allowances;

-transport passes;

-food vouchers;

-daycare benefits;

-unhealthy working-conditions premium;

-risk premium;

-night-shift premium;

-transfer premium;

-funeral assistance;

-paid weekly rest;

-unemployment insurance;

-signed Work Document (CTPS).

Other sources of law observed by the Brazilian Labor Courts include:

-Collective Bargaining and Labor Agreements; -High Labor Court (TST) Jurisprudence Statements; -Standards issued by the Ministry of Labor; -Certain Conventions of the International Labour Organization.

Labor rights may entail heavy costs for companies and, consequently, many have adopted outsourcing or sought more flexible labor arrangements (often referred

to as flexibilization) through Collective Bargaining or Labor Agreements.

Recent decisions of the High Labor Court (TST) have tended to accept flexibilization as a necessary development in labor relations.

Brazil is undergoing significant and historic changes in the field of labor relations. One such change was Constitutional Amendment 45, approved in 2004, which expanded the competence of the Brazilian Labor Courts. Prior to this amendment, the court’s powers were limited to conflicts between employers and employees. Now, the Labor Courts have jurisdiction over a broader range of disputes, including disputes stemming from services provided by self-employed workers.

11. Foreign Workers in Brazil

According to Law 6.815 of August 19, 1980, authority to grant work permits to foreign nationals in Brazil is the exclusive competence of the Ministry of Labor’s Immigration Coordination Unit (CGIg).

The authorities have a considerable degree of discretionary power when dealing with issues relating to immigration, which are regarded as maters of national sovereignty, and are often a reflection of national foreign policies and reciprocity of treatment.

Visa applications do not necessarily imply that a visa will be granted and, in themselves, do not signify that any right has been acknowledged.

There are various types of visa defined by the Brazilian law, and eligibility depends essentially on the specific purpose of travel to Brazil. Not all visas allow foreigners to work in Brazil. Generally, criteria for obtaining a visa are not influenced by the nationality of the applicant or whether he/she has a spouse or children under 18 years of age.

The law establishes seven categories of visa:

-Transit -Tourist -Temporary -Permanent -Courtesy -Official -Diplomatic

The most common categories of visa sought by those wishing to immigrate to Brazil are Tourist, Temporary and Permanent visas.

11.1. Short-term Business and Tourist Visas

Visas are required for nationals of certain countries traveling to Brazil on short-term business or as tourists. Holders of such visas may not work, perform technical assistance services, nor receive payment for services from any source in Brazil.

A Business visa may be obtained at the Brazilian Consulate in the jurisdiction of residence of the applicant. Generally, an application for a Business visa should be supported by a letter from either a foreign or Brazilian company requesting the business trip, stating the following:

-the purpose of the trip and the activities the foreigner will perform while in

Brazil; -names, addresses, and telephone numbers of business contacts in Brazil; -arrival and proposed departure dates; -guarantee of financial and moral responsibility for the applicant for the

duration of the visit.

A Business visa allows the foreigner to participate in meetings, conferences, fairs, and seminars, to visit potential clients, to conduct market research, and perform similar activities. A foreigner holding a Business visa may not work in Brazil, and any company employing such a foreigner is subject to a fine, and the foreigner to deportation.

A Tourist visa can usually be obtained by shoring a round-trip airline ticket and proof of financial support capacity during the visit in Brazil. A Tourist visa is valid only for tourism purposes, and any company that employs foreigners hold such a visa is subject to penalties stipulated in the previous paragraph.

If the applicant for a Tourist visa requires a visa to enter a country he/she proposes to visit upon leaving Brazil, that visa should be stamped on the passport, prior to requesting the Brazilian visa.

It generally takes only 24 hours to obtain a Tourist visa. Such visas are generally valid for a period 90 days, counting as of the first arrival in Brazil, and allow multiple entries during that period. An extension for a further period up to 90 days may be obtained from immigration authorities in Brazil, prior expiration of the visa. A foreigner on a Tourist visa may remain in Brazil for no longer than 180 days within a given 365-day period.

11.2. Temporary Work Visas

For individuals coming to Brazil on a temporary basis for work purposes, several types of visas may be applicable depending upon the specific situation or circumstance. There follows a list of categories of workers eligible for Temporary Work Visas:

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Professionals employed by brazilian companies

Individuals with specialized skills or knowledge (unavailable in Brazil) coming to Brazil to work for a short period as employees of a Brazilian company are eligible for this type of visa. Such visas may initially be issued for a period of up to two years, and may be renewed for an additional two-year period. Proof is required of at least one year of experience in the activity the candidate is to perform in Brazil in the case of a university graduate, or two-year experience in the case of a non-graduate. The foreign national is expected to provide proof of specialized knowledge or skills, professional experience, or management skills that are not readily available on the Brazilian domestic labor market. The Brazilian company is required to meet the “2/3 rule”, whereby 2/3 of its employees and of those on its payroll should be Brazilian citizens. The company must also provide information regarding its corporate wage structure, and on wages to be paid to the candidate both in Brazil and abroad. The portion paid in Brazil must be approximately 25% higher than the portion paid abroad.

Technical personnel with no employment contract

Foreign individuals coming to Brazil to provide technical services or technology transfers, under a Technical Assistance or Technology Transfer Agreement singed by a Brazilian and a foreign company. Such visas are not appropriate for foreign nationals coming to the country to perform managing, administrative, or financial activities. Except when the companies belong to the same group, such Agreements must be registered with Brazilian Patent and Trademark Office (INPI) prior to the visa application. In the latter case, the technician is not an employee of the Brazilian company and any remuneration should be paid exclusively from a source abroad. The sponsoring company is responsible for the candidate’s medical expenses and for those of his/her dependants while the candidate is working in Brazil. This type of visa may be granted for one year, with the possibility of an extension for an additional year, provided all requirements are met. In cases of emergency, such a visa may be issued by the Brazilian Consulate in the jurisdiction of the applicants residence, for a non-extendable period of 30 days. An emergency is defined as an unforeseen situation that places in jeopardy life, the environment, or the assets and capacity of operation of a Brazilian company.

Artist and athletes

Applications for this category of visa in should be submitted to the Brazilian Labor Ministry by the Brazilian organization sponsoring the event for which the individual’s services are required. Information about the event and respective contract must be submitted along with the application.

Foreign journalists

A foreign journalist working on a temporary basis in Brazil as correspondent of a foreign media company should apply for this type of visa with the sponsorship of the company. The wages of such journalists may not be paid in Brazil. The visa application should be requested directly at the Brazilian Consulate abroad with jurisdiction over the individual’s place of residence.

Crew of chartered vessels under contract or lease agreements

Such visa applications must be accompanied by authorization for the vessel to operate in Brazilian waters, a report from the Navy, and a copy of the respective contract. Part of the crew must be comprised of Brazilian nationals.

Research scientists

Such visas are designed for foreign professors, technicians, scientists, and researchers propose to work in Brazilian public or private schools or universities or research institutions. A letter and employment contract from the institution sponsoring the visa application.

Social welfare

A temporary visa may be granted up to two years for a foreign volunteer wishing to perform religious or social welfare services in a Brazilian institution. Such foreigners may not receive remuneration for temporary volunteer work performed in Brazil.

With the exception of foreign journalists and Social welfare workers, all applicants for these types of visa must first obtain a Work Permit from the Brazilian authorities. Such Permits are issued by the Ministry of Labor and, prior to granting a permanent or temporary visa to any person wishing to work in Brazil, Brazilian Consular Authorities are required by Brazilian law demand that applicants obtain a work permits. When the permit is issued, a notice is published in the Federal Official Gazette (DOU) and the Consulate is notified, and the foreign national may be granted the visa.

11.3. Other Temporary Visas

Other types of visas may be issued to foreigners coming to Brazil for purposes other than work. It should be observed that the visas listed below do not entitle the bearer to work in Brazil or receive any remuneration from a Brazilian source. Visas in this category are listed below:

Religious missions and studies

Such a visa may be granted to clergy on specific missions in Brazil, for up to one year.

Student visas

Student visas may obtained the Brazilian Consulate with jurisdiction over the applicant’s place of residence. Foreign students in exchange programs are required to furnish documents from the school and exchange program.

Trainees

Such a visa is required of foreign graduates wishing to attend a trainee program in Brazil for a 12 month period, with no employment relationship to a Brazilian entity. The visa application requires proof of graduation within the previous 12 months, and a declaration that any remuneration shall be paid exclusively from abroad. Such a visa is valid for no more than one year.

Internships

Such a visa is required of foreign individuals attending internship programs in Brazil, including employees of foreign companies with a Brazilian subsidiary, that have no employment links to any Brazilian entity. Such a visa application requires Commitment Term between the intern, the Brazilian institution and internship program coordinators. Such a visa is valid for no more than one year.

Health treatment

Such a visa is required of foreign individuals intend who come to Brazil for health treatment. The visa application should be accompanied by a doctor’s recommendation and proof of capacity to pay for health treatment.

11.4. Permanent Employment Visa

A Permanent visa may be issued under four circumstances:

Family ties

If the applicant is married to a Brazilian citizen or has a Brazilian child he/she shall be eligible for a permanent visa, than can be issued by a Brazilian Consulate abroad, prior to arrival in Brazil, or by the Ministry of Justice if the candidate is already in Brazil. In this case, the applicant is allowed to work in Brazil.

Retirement

If the applicant is retired in his/her home country of origin and intends to transfer permanent residence to Brazil. The individual must provide proof that he/she can transfer no less than USD 2.000,00 (two thousand US dollars) to Brazil on a monthly basis.

Foreign corporate officers

An officer of a foreign company that has a branch or subsidiary in Brazil that wishes to transfer residence to Brazil is eligible for this category of visa. Individuals who are to be permanently transferred to Brazil to work for a subsidiary or branch of a foreign-owned company in the capacity of officer may also apply for a permanent visa with the right to work. To be eligible to apply for a permanent visa for one of its officers, the foreign company must have invested no less than US$ 200,000 in Brazil, for each foreign officer, and such investment must be registered with the Central Bank; or at least US$ 50,000.00 (fifty thousand American dollars) and the commitment to hire, within the two following years, at least 10 new Brazilian employees for the Brazilian company. Moreover, the name of the officer must figure in the Brazilian Company’s by laws, conditioned to approval of the visa, and confirmed in the position once he/she is granted the visa. If this foreigner is appointed an officer in more than one company of the same group or conglomerate, the Ministry of Labor must issue prior authorization.

Individual foreign investor

A permanent visa may be granted to an individual who invests no less than US$ 50,000.00 (fifty thousand US dollars) in a new or existing Brazilian company. Exceptionally, the Ministry of Labor may grant a permanent visa to an individual who invests less than US$ 50,000.00 (fifty thousand US dollars) provided that he/she presents a business plan committing the Brazilian company to create no less than ten new jobs for Brazilian nationals in the following five years,.

Furthermore 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 for permanent resident status. To obtain a permanent work permit an individual who has worked in Brazil on a temporary basis for four years, must submit an application to the Ministry of Justice no less than 30 days prior to expiry of the four-year deadline.

11.5. Registration Upon Entry Into Brazil

Foreigners, upon entering Brazil with 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 days of arrival. This rule applies only to alien residents in Brazil, immigrants, and temporary residents with the right to work. Artists, athletes, tourists, and businesspersons on short visits are not required to register.

Holders of Temporary work visa and Permanent visas must also register with the Federal Revenue Service (SRF/MF), and their earnings are subject to taxation under Brazilian tax law.

Employees of Brazilian companies must obtain a Work Document (CTPS), in compliance with Brazilian labor legislation. For its part, the Brazilian company must sign the work document and notify the Ministry of Labor, within 90 days of the foreigner’s arrival in Brazil.

Foreign holding a Permanent or Temporary work visa and employed by a Brazilian organization are subject to Brazilian taxation as of the date of entry into Brazil. Holders of all other types of Temporary visas are considered residents for tax purposes as of their 183rd day in Brazil.

Work visas entail an employment link with the sponsor organization. Any change of employer is subject to prior approval by the Ministry of Justice and the Ministry of Labor.

Upon finally leaving Brazil, the foreigner must submit a “Declaration of Final Departure” to the Federal Revenue Service (SRF/MF) and request cancellation of his/her taxpayer registration and tax liability. The sponsoring company must inform the Ministry of Labor when the foreigner’s employment contract is terminated, so that the visa and registration may be canceled.

11. Travel in Advance of Permanent or Temporary Employment

Individuals traveling to Brazil on business, prior to obtaining a work permit and appropriate visa, may obtain a short-term business visa. Such a visa does not entitle them to work in Brazil or to receive payment from local sources, until the work permit and visa have been issued. Such individuals should obtain a Permanent or Temporary visas at the Brazilian Consulate with jurisdiction over the individual’s residence.

11.7. Employment of Spouses/Offspring

Accompanying spouses and offspring may remain in Brazil as dependents of the visa holder for as long as the visa is valid. However, such dependants are not permitted to engage in employment or any paid activity while residing temporarily in Brazil, without first converting their visa to resident status.

12. Acquisition of Real Estate in Brazil

12.1. Introduction

Under Brazilian law, issues relating to property are subject to the law of the country where such property is located (lex rei sitae). Essentially, issues relating to real estate property in Brazil are governed by the Brazilian Civil Code (CCB).

The Brazilian Civil Code classifies assets by physical criteria, whereby they can be divided into two broad categories: movable assets and immovable assets. Movable assets are those that can be removed by external forces or by themselves, without causing their own destruction or devaluation.

Immovable assets (land and buildings) are, by nature, immobile or fixed to the soil, and cannot be partially or totally removed without causing their own destruction or devaluation, i.e., without substantially altering or destroying them. Immovable property encompasses land, and anything that has been naturally or artificially incorporated thereto.

Brazilian law further confers certain rights with the status of immovable assets for legal purposes. This is the case with deeds to immovable property, government stock incorporating an inalienability clause, and inheritance right to property though succession, even when inheritance is comprised only of movable assets.

As a general rule, the owner of land also owns the subsoil. Therefore, a landowner may excavatetoareasonabledepth for construction of basements or subterranean garages. The landowner cannot, however, prevent third parties from engaging in activities at depths that do not put his property at risk, provided that such activities are carried out in the public interest (e.g., excavation of subway lines, passages for conduits, etc.)

Land ownership rights, according to the Brazilian Civil Code do not encompass mineral deposits, mines and mineral resources, potential hydroelectric power sources, archeological sites, or other assets referred to in specific legislation. It thus makes a clear distinction between land ownership and rights to such elements of the subsoil as mineral and hydroelectric resources, which are considered Federal Government property. Thus, federal authorization or a license is required for exploitation of mineral and hydroelectric resources.

Air space is subject to similar rules. A landowner may build vertically on his land, provided he observes limitations foreseen in law (e.g., zoning rules). He may refuse construction by third parties on his land, or block the building of structures that may place him in jeopardy. He may not, however, interfere with activities taking place above a certain height, and that pose no risk (aircraft routes, installation of power lines at a safe height, etc.).

Foreign individuals or foreign-owned companies may acquire real estate in Brazil under the same conditions as Brazilian individuals or companies. However, according to Internal Revenue Service Order (IN) 200, non-resident individuals or organizations must be registered with the General Register of Corporate or Individual Taxpayers (CNPJ or CPF) prior to purchasing any real estate in Brazil. Furthermore, special conditions apply to ownership by foreign individuals or companies of property located in coastal or frontier zones, and in certain specifically designated national security areas.

Conditions relating to the purchase of rural land by foreign individuals or foreign-owned companies are discussed in greater detail in item 12.3.3. Moreover, foreign individuals or foreign-owned companies may acquire rights in rem relating to immovable property.

12.2. Possession and Ownership

The two most significant concepts relating to real estate are the right of possession and the right of ownership:

Right of Possession

The right of possession stems from use of the land by an agent as if he were its owner. When said agent acting on his own behalf behaves as if he were the owner, he becomes assumes the right of possession. Possession thus implies the right to exercise certain powers typical of ownership, such as: the right to claim, maintain, or recover the possession of property, the right to its fruits (including rents and other incomes therefrom), the right to be compensated for necessary improvements effected, and the right to retain possession.

Possession ceases when, by voluntary or involuntary means, power is no longer exercised over the asset. This may occur when the property is forfeited by abandonment, by transference, by loss or destruction; if it becomes ineligible for purchase or sale, if possession is lost to third party, in the event of failure to maintain a claim or reinstate possession, or when the party legitimately in possession transfers his right to another, maintaining the asset in his power in the name of the acquirer (constituto possessorio).

Right of Ownership

The most relevant of all property rights, rights of ownership are defined by the Civil Code as the right of an individual to use, enjoy, and dispose of his goods, and to recover them from whoever may unlawfully have taken possession of them. It is an absolute and exclusive right.

Full right of ownership implies that all the legal powers (to use, enjoy, dispose of the asset and to recover it from whoever unlawfully possesses it) are concentrated in the same hands. Limited right of ownership implies that some such powers are in the hands of, and may be exercised by, another person. It should be noted, however, that in cases of joint ownership, or condominium, in principle, full ownership rights, rather than limited ownership, applies. Under a condominium, each co-owner has rights to an undivided fraction of the asset. As a rule, powers deriving from the ownership can be exercised simultaneously by all co-owners.

Ownership rights may be restricted in the public interest, or in respect for the property rights of third parties, in the following situations:

-expropriation of real estate properties by the government (ownership of private property is transferred to the expropriating authority upon payment of fair compensation);

-restrictions on urban land use or zoning, including building codes, limitations on the location of industrial plants, established by a municipality master plan;

-restrictions imposed in the interests of national security, including limitations on the sale of private land in coast areas or within 150 kilometers of national borders

-the restrictions to the right of the proprietor to freely dispose of his goods, arising from insolvency, bankruptcy, or composition with creditors, with a view to protecting creditor’s rights.

12.3. Acquisition and Loss of Ownership

12.3.1. General Provisions

Under Brazilian law, ownership of real estate property is constituted upon the registration of the public or private instrument (deed) whereby the sale was accomplished at a Real Estate Registry in the jurisdiction where the property is located.

Any instrument involving real estate property that has not been duly registered at the respective Real Estate Registry is only binding only between the parties to the purchase/sale agreement and, thus, is not be enforceable against third parties.

Real estate property is acquired upon registration of the deed of transfer, which may be: (i) by the sale agreement signed by the parties; (ii) by accession (i.e., expansion of a property as a consequence); (iii) squatters rights (i.e., acquisition of ownership rights by occupation and possession over a certain period of time, in law); and (iv) by inheritance.

One of the principles that govern the real estate registration system the principle of priority, whereby the person who first registers a real estate property or presents deeds for registration has priority.

Any action which modifies, extinguishes, transmits or creates rights relating immovable properties must be registered with the competent Real Estate Registry. These include: (i) court decisions enabling undivided land to be divided among various owners; (ii) court orders winding-up the estate of a deceased person or division of property for composition with creditors; (iii) public auctions or adjudications; and (iv) rulings on separation, divorce, and annulment of marriage, when settlement rights in rem to immovable properties is involved.

The main grounds for extinguishing real estate ownership rights are:

-expropriation, i.e., a unilateral act of public law whereby individual ownership

is transferred to a government authority, upon prior payment of fair and

compensation, in the public interest;

-transfer, meaning transmission to a third party, by a transaction inter vivos or as a legacy, for a payment or gratis;

-waiver (in the case of an heir renounces his inheritance rights); and

-neglect or destruction of the property.

12.3.2. General Considerations and Requirements Upon Purchase

Acquisition by inter vivos transaction of real estate property in Brazil entails a formal sales agreement between the purchaser and the seller.

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If said property is acquired by an individual purchaser (as apposed to a condominium) then he/she has absolute title thereto. In the cases of multiple ownership (i.e., a condominium), each owner can exercise any rights of ownership not compromised by the indivisibility of the property (i.e., one party to the condominium can not sell the property without consent of all the other owners, and any revenues from sale of the property must be divided among them).

Prior to promulgation of the New Brazilian Civil Code, Law 4.591/64 provided for condominiums of apartments and/or offices, being an autonomous and independent unit of property, on a single piece of land. In this case, the indivisibility mentioned in the previous paragraph does not apply. Significant changes to Law 4.591/64 were introduced by the New Civil Code, including the introduction of fines on co-owners who fail to comply with their duties (i.e., paying condominium fees, not effecting construction work that might jeopardize the safety of the property, not to use the property in a manner that disturbs the peace, etc.)

Aside from specific requirements relating to the transfer of immovable property, Brazilian law requires for all types of contract, that parties to a sale agreement be capable of fulfilling the transaction. They must be of full legal age, in sound mental health, or duly represented.

12.3.3. Acquisition of Rural Land by Foreigners

Under Brazilian law, rural property ranges from rustic buildings to continuous areas, regardless of location, devoted to farming, agro-industry, or stock raising, whether in the hands of the private sector or under public land tenure policies.

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 5.709/71.

This law stipulates that foreign individuals with residence in Brazil cannot acquire more than the equivalent of 50 units of rural land known as “módulos rurais”. The size of the “módulo rural” varies, according to the economic and environmental characteristics of the region in which the property is located, and the type of agricultural activity to be carried out.

Foreign individuals whose permanent residence is outside Brazil cannot acquire rural land in Brazil, except if acquisition is due to inheritance rights. On the other hand, restrictions to the acquisition of rural land by Brazilian companies under foreign equity control are now being challenged, since a 1995 Constitutional Amendment eliminated the distinction between Brazilian companies and Brazilian companies under foreign equity control. However, restrictions on foreign individuals and foreign corporate entities authorized to operate in Brazil remain in force.

According to Law 5.709/71 foreign companies can only acquire rural land for the purposes of farming, cattle-raising, and industrial or settlement projects, and such projects must be specified in the company’s by-laws. 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, by specific decree, authorize the acquisition of rural land beyond the provisions of the current law, in cases in which such property contributes toward priority projects under national development plans.

12.4. Taxation

Property Transfer Tax (Imposto sobre a Transmissão de Bens Imóveis – ITBI) is a tax assessed by municipalities, payable when real estate property or rights in rem to any real estate property (except those in guarantee) are transferred, or upon assignment of rights to acquisition of property, for any reason whatsoever, and in exchange for payment. For example, the rate assessed by the Municipality of São Paulo, under São Paulo Municipal Law 11.154, varies between 2% and 6%, depending on the value of the property.

ITBI is not assessed when the transfer of real estate property or of rights to any such property is used pay up capital of a company, results from any merger, consolidation, spin-off, or liquidation of the corporate entity, except when the purchasing company’s main activity is the buying and selling of such assets and rights.

12.5. Real Estate Investment Funds

Real Estate Investment Funds were established to provide funding for real estate development ventures, for subsequent sale, letting, or leasing. The Brazilian Securities and Exchange Commission (CVM) is responsible for authorizing, regulating and inspecting Real Estate Investment Fund operations and management.

Real Estate investment funds are currently engaged in raising funds for construction of shopping centers throughout Brazil. Previously, Pension Funds were the major investors in real estate projects, but currently they are investing indirectly, through the purchase of shares in real estate investment funds.

Foreign individuals and corporations may acquire shares in such undertakings. Provided the foreign investment is duly registered with the Central Bank, remittance of gains and profits from the respective investment can be sent abroad. Capital gains resulting from such investments are subject to income tax (IR) at a rate of up to 20%, assessed upon disposal or withdrawing of Real Estate Investment Fund quotas.

13. Environmental Legislation

Brazilian environmental legislation can be broken down into two distinct phases: before and after 1981.

Prior to 1981, “pollution” was defined as industrial emissions that did not conform to the standards set by law and technical standards. At that time, on the premise that any and all production activities cause some impact on the environment, polluting emissions were tolerated, provided they remained within certain limits.

This early system was quite coherent, and prescribed: (i) industrial zoning, confining more polluting industries to areas capable of absorbing significant volumes of pollutants; (ii) industrial licensing, to locate industrial plants geographically in keeping with industrial zoning; and (iii) guidelines for polluting emissions, drawn up to ensure that industrial zones would not rapidly deplete their capacity to absorb and metabolize pollution.

13.1. Brazilian Environmental Policy

Law 6.938 of August 31, 1981, known as the Brazilian Environmental Policy, marked the introduction of introduced an entirely new approach to the environmental. No environmental damage is exempted from the responsibility effect repair and, strictly speaking, no pollutant emissions are tolerated. The legislation takes the view that pollution tolerated under the established standards may cause environmental damage, and that the polluter should be held liable for compensation. It encompasses a concept of strict liability, which holds that damages ought not to be born by the community.

The subtle difference is that even if a company fulfills abides by all standards of legal pollution standards, it may nonetheless be held liable for any residual damages. All that need by proven is causal relationship between the company’s activities and specific environmental damage suffered. This, in essence, is the concept of objective liability: it is no longer acceptable to evade the obligation to remedy environmental damage by claiming that all activities were carried out in compliance with current pollution standards (i.e., within acceptable pollution limits, relating to concentration or intensity of pollutants) since objective liability does necessarily stem commission of an illegal act. It is thus sufficient that the source of damage be identified, regardless of whether pollution standards were met.

Law 6.938/81, considering that environmental protection is of collective or “diffuse” interest, rather than individual interest, invested the Office of the Public Prosecutor (Ministério Público) with powers to act in defense of the environment. Law 7.347 of July 24, 1985 acknowledged the role of non government organizations (NGOs) in environmental protection activities and opened up access to the courts by means of civil public action (ação civil pública).

13.2. The Federal Constitution

The 1988 Federal Constitution, devotes an entire chapter to protection of the environment (Title VIII The Social Order, Chapter VI – The Environment;) and contains 37 articles relating to environmental law and 5 concerning urban law.

The Constitution established a series of obligations upon the public authorities, including (i) preservation and recovery of species and ecosystems; (ii) preservation of the variety and integrity of genetic heritage, and the supervision of entities engaged in genetic research and manipulation; (iii) environmental education at all levels of schooling and public guidance as to the need to preserve the environment; (iv) definition of areas for special protection; and (v) requirements for the environmental impact studies for any activities that may cause significant degradation or upset the ecological balance.

Another feature of the Constitution that drawn special attention concerns legislative competence of the Federal Government, the states and municipalities with regard to environmental issues. Both the Federal Government and the States have powers to legislate on environmental protection issues; and whereas the Federal Government is responsible for laying down general environmental rules, the States approve supplementary rules.

13.3. Criminal Sanctions

To bring into effect the environmental protection provisions of the 1988 Federal Constitution, Law 9.605, of February 12, 1998, establishes criminal sanctions applicable in cases of activities damage the environment, thus unifying and replacing those laid down in the Forest Code, the Hunting Code, the Fishing Code, and Law 6.938 of August 31, 1981 (article 15).

The overall objective of Law 9.605 is was to establish criteria for criminal liability applicable to parties that have polluted or degraded the environment. It does not repeal Law 6.938/81, which provides for civil responsibility in cases of environmentally damaging acts. Article 2 of Law 9.605 clearly stipulates criminal liability to be a function of the degree of responsibility of the agent, thereby disregarding the eventuality that objective liability could also be imputed in cases of criminal behavior. The same article ascribes criminal liability not only to parties directly responsible for environmental damage, but also to who, aware of such criminal conduct, fail to impede its practice when in their power to do so. The law specifies that such parties may include directors, officers, board members and technical staff, auditors, managers, legal representatives or proxies of a corporate entity. Under a strict interpretation of this precept, technical advisors, auditors and lawyers of companies may be held criminally liable for damages caused to the environment, provided they are cognizant of this damage, if it was within their power to avoid such damages, of if they failed to take measures to do so.

Article 3 ascribes criminal liability to a corporate entity, without excluding the liability of individuals who may be considered responsible or co-responsible of the same damage to the environment. Article 4 pursues the concept of “piercing of the corporate veil”, when assessing civil liability for damages caused to the environment, by invalidating corporate schemes and formal obstacles to gaining full redress of such damage. One of the devices targeted by this law is transfer of ownership to a corporate entity that most certainly incapable of bearing the cost of redressing environmental damage caused.

The law foresees penalties for individuals, including not only restriction of freedom (imprisonment or confinement) but also restriction of rights, though it also expressly states that the latter shall take precedence over the former, provided the criteria set out in article 7 are met. The first such criterion is the presumption that the crime was not intentional, or one for which the penalty foreseen is imprisonment for less than four years. The second criterion is contingent upon subjective conditions of the agent and characteristics of the damaging act and, at the discretion of the courts, imprisonment may be waived in favor of restriction of rights, this sufficing to punish the perpetrator while at the same time deterring other such crimes. Restriction of rights may entail: performing community service; temporary interdiction of rights; partial or total suspension of activities; a fine, or house arrest.

Sanctions applicable specifically to corporate entities, according to article 21, are: fines, restriction of rights, and community service. For corporate entities, restriction of rights may entail: partial or total suspension of activities; temporary interdiction of the establishment, works, or activities; and a ban on business with the public authorities, including ineligibility for subsidies, grants, or credits. Corporate entities should take note that the Law expressly foresees suspension of activities in cases of non-compliance with legal environmental-protection standards or rules, whereas the penalty of interdiction is applied when an establishment, work, or activity has been carried out without the appropriate authorization, i.e., without the necessary installation permits and operating licenses specified in environmental law, or in violation of licensing conditions, laws, or regulations.

Under the terms of article 26, environmental crimes are liable to prosecution by the public authorities, irrespective of a formal complaint by a plaintiff. The law maintains, with minor alterations, the system established by the Law of Special Courts (Law 9.099 of September 26, 1995) which permits alternative penalties and conditional suspension of proceeding, provided two basic conditions are met: that the penalty of deprivation of freedom established for the damaging act does not exceed three years; and that the environmental damage has been redressed (articles 27 and 28 of Law 9.605/98; articles 76 and 89 of Law 9.099/95).

The Law encompasses various forms of environmental degradation caused by pollution, including the damages caused by mining activities (Section III). Administrative irregularities (such as lack of the necessary environmental licensing) and chronic urban land use problems (affecting water sources) do not escape the purview of the law, which also foresees the imposition of fines, ranging from a minimum of R$ 50,00 to a maximum R$ 50 million.

13.4. Administrative Sanctions

Decree 3.179 of September 21, 1999 regulates Law 9.605 of February 12, 1998, updating the list of administrative sanctions applying to activities and conduct that is detrimental to the environment.

Under article 2 of said Decree, the following penalties are foreseen for corporate offenders: warning; one-time or daily fine ranging between R$ 50.00 and R$ 50 million; seizure, destruction or spoiling of products and disruption of sales; embargo, suspension or demolition of irregular works or activities; reparation of damage; and penalties of restriction of rights. The penalties of restriction of rights entail: suspension or cancellation of registration, license, permit or authorization of the corporate offender; loss, restriction or suspension of tax benefits and incentives or credit from official institutions; and prohibition of nay contracting with government authorities for a period up to three years.

Unlike the other penalties prescribed in the Decree, reparation of damage as an administrative sanction should not be regarded as a sanction imposed by federal, state or municipal penalties inspection agencies, since the obligation to effect full reparation of damage stems from civil liability set out in Law 6.938/81, that can be imposed independently of administrative and/or criminal sanctions.

Thus, administrative sanctions under Decree 3.179/99 can complemented by actions determined by the Office of the Public Prosecutor (Ministério Público), with the aim of effecting reparation of environmental damage, and criminal liability of the offender under the terms of Laws 6.938/81 and 9.605/98. It is worth noting that, though administrative offenses and criminal liability are subject to the rules to appraise subjective liability, which in turn require evidence of malice or negligence on the part of the offender, the obligation to repair the damage does not require evidence of guilt, but only demonstration of a causal relationship betweentheoffender’sactionoromission,onthe onehand,andthe damage caused (strict liability).

13.5. The Brazilian Environmental System

A number of federal agencies comprise a system for enforcing environmental legislation in Brazil. The Brazilian Environmental System (SISNAMA) is comprised of the Brazilian Environmental Council (CONAMA) a normative, consultative and decision-making agency; the Ministry of the Environment responsible for coordination, supervision and control of Brazilian Environmental Policy; and the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA), its executive agency.

SISNAMA also includes other federal agencies, public foundations that work with environmental protection, and state and municipal bodies (secretariats of environment etc., including CETESB/FEEMA/COPAM/IAP/CRA) in their respective jurisdictions.

14. Privatization, Concessions and Partnerships

This section, addresses means whereby the private sector has is becoming increasingly involved in activities previously performed exclusively by Government, and examines privatization, concession of public services, and other forms of partnership between governmental and private entities.

Privatization is generally defined as the transfer by the State to the private entity of the control of state-owned companies, usually by means of the sale of shares by means of a public tender. As a Privatization generally results in the transfer of majority ownership and of the responsibility for provision of utility services, by means of the signing of public concession agreement.

A concession agreement is the instrument whereby the State transfers to a private organization the responsibility for providing a public service on behalf of the State, at its own expense and risk. The concession holder is entitled to charge tariffs from users of services. The selection of the concessionaire entails a public tender.

Partnership is a broad term used to describe association between the Public Authorities and private-sector agents in pursuit of a specific goal of public interest, such as execution of public works, provision of public services, or both. Essentially, partnerships differ from concessions in their approach to remuneration of the private agent: whereas concessionaires receive tariffs paid by users of the service, companies engaged in partnerships may be remunerated by tariffs, direct payment from the State, or a combination of the two.

Thus, concessions are operated under a free enterprise system, i.e., at the risk of the concessionaire, whose profitability depends exclusively on efficiency. Partnerships, on the other hand, can not operate on a free enterprise model, since the private partner is (either partially or fully) remunerated may by the State, and thereby enjoys a higher degree of security.

14.1. The National Privatization Program

Law 8.031, of April 12, 1990, later replaced by Law 9.491 of September 9, 1997, provides for Brazil’s National Privatization Program, subsequently regulated by Decree 2.594, of May 15, 1998. The Program foresees the transfer to the private sector of State-owned companies and banks, by means of public tenders, and authorizes provision of public services, formerly provided by public utility companies, by private concession holders.

The National Privatization Board (Conselho Nacional de Desestatização – CND), whose members are Ministers of State, reports directly to the President of the Republic, is the authority responsible for conducting the privatization process.

The National Economic and Social Development Bank (BNDES) is the manager of the National Privatization Fund, and provides administrative and operational support to the CND, through the contracting of consultants and specialists in support of privatization, and coordinating the distribution of securities through stock exchanges, etc..

Most of the privatizations carried out to date have been through auctions at Brazilian stock exchanges. Law 8.666, of June 21, 1993, which brings into effect Article 37, XXI, of the Federal Constitution establishes rules for public tenders. Subsequently, this Law was amended by Law 8.883, of June 8, 1994, by Law 9.648, of May 27, 1998, and by Law nº 11.196, of November 21, 2005, which established requirements for calls for proposals, tender proceedings, forms of payment, and acceptable guarantee. A Bill which proposes to alter public tender procedures is currently being examined by Congress.

An important development for the Brazilian Privatization Program was the General Telecommunication Law (Law 9.472, of July 16, 1997), which regulates Constitutional Amendment 8, of August 15, 1995, and allows the provision of telecommunication services by the private sector. Earlier, Congress had approved Law 9.295/96,whichallowedgranting ofconcessionstoprovidemobile telephony services to Brazilian private-sector companies (i.e., companies with no less than 51% of voting capital controlled, directly or indirectly, by Brazilian nationals).

Not only has the Privatization Program enabled the transfer of companies subordinated to the Federal Government, it has also led to the transfer companies controlled by states and municipalities to private management. However, privatization of state and municipality companies and the issuing of concessions at these levels is subject to local rules. The State of São Paulo has carried out one of the most successful privatization programs in Brazil. Since publication of the São Paulo State Privatization Law, the State has transferred to the private sectort companies in the fields of: piped gas distribution services (both in metropolitan areas (COMGÁS) and in rural areas (Gas Brasiliano and Gas Natural); electric-power generation (from plants on the Paranapanema and Tietê rivers belonging to CESP); and distribution of electricity (CPFL and Eletropaulo, two of Brazil’s largest distribution companies).

14.2. Public Service Concessions

Law 8.987, of February 13, 1995 (Concession Law), brings into effect Article 175 of the Federal Constitution and establishes rules for all public services concessions, excepting only radio and TV broadcasting services. This statute was later amended by Law 9.074, of July 7, 1995, and by Law nº 11.196, of November 21, 2005, and brought into force by Decree 2003, of September 10, 1996, and Decree 1.717, of November 24, 1995, which established new rules for the approval and extension of public services concessions, including electric-power concessions. The Concession Law expressly requires that all concessions be the result of public tenders.

14.3. Major Industries privatized or undergoing privatization

Among the principal industries privatized to date or currently undergoing privatization in Brazil, are:

-electric power generation, transmission and distribution; -gas distribution; -petrochemicals; -municipal bus services; -highways, railroads, waterway and air transportation; -telecommunications; -ports, airports, aerospace infrastructure, road construction, dams, canal

locks, dry docks and containers; -financial institutions; -sanitation, water treatment and supply, waste treatment; and -mining and metallurgy.

14.4. Developments and Results of the Privatization Program

Since the enactment of Law 8.031, in 1990, hundreds companies formerly owned by the Federal and state governments have been privatized, bringing in revenues of over US$ 100 billion. Such companies include CSN (a steel mill); CVRD (Brazil’s largest mining company); Mafersa (a manufacturer railroad equipment); Escelsa, Light, CERJ, CEEE (partially privatized), CPFL, Eletropaulo, Gerasul, COELBA, CESP (partially) (electrical utilities); the TELEBRÁS System (virtually all telephony companies); COMGÁS and CEG (gas distribution companies); RFFSA (a railroad); Usiminas, Cosipa, Acesita and CST (steel), Poliotelinas (petrochemicals) companies; Ultrafertil (fertilizers), Embraer (the world’s fourth largest aircraft manufacturer), and Banespa and Meridional (banks). Despite inevitable delays and obstacles, the National Privatization Program implemented on the 1990’s resulted on considerable gains for Public Administration. Between 1997 and 2000, the privatization of the companies in the electricity and telecommunications sectors brought in revenues of approximately US$ 70 billion for the Federal Government alone, and foreign capital investment in these sectors has risen to about 40% of that amount.

Twp of the largest privatizations ever held in Latin America, of CVRD, the mining and transportation giant, and of TELEBRAS, the holding company for the telecommunications system, attracted worldwide interest and greatly increased foreign investment in Brazil.

On 2006, further auctions are due to be held under the National Privatization Program, including concessions for portions of the highway network.

14.5. Public-Private Partnerships

Law 11.079 of December 31, 2004, set rules for Public-Private Partnerships (PPP). Under these new rules the Government aims to attract local and foreign private investment of roughly approximately US$ 13 billion for basic infrastructure projects, particularly in the fields of transport and sanitation.

These new rules enable the transfer of responsibility for execution of public works and delivery of public services to the private sector, and may be applied by all executive-branch agencies, special funds, governmental agencies, foundations, state-owned companies and other entities controlled by the Federal Government, States and Municipalities.

Furthermore, common public service concessions (described in the previous section and governed by Public Services Concession Law – Law 8.987/95), two new modalities of public services concessions were created. The first of these is the sponsored concession (Concessão Patrocinada) whereby the private concessionaire is remunerated not only by tariffs paid by users of the services, but also transfers of funding from the public partner. The second is the administrative concession (Concessão Administrativa), undertaken by means of a service provision cont, undertaken by means of a service provision contact, when the Public Administration is the direct or indirect beneficiary of the service (as in the case of construction and management of public buildings), operation of), even if it involves execution of works or supply and installation of goods.

The difference between these new modalities of concession and the common concession (alluded to earlier) is the possibility of direct payments to the private partner by the Public Administration, and if the concession does not foresee such payments by the Public Administration, it is not a PPP contract, but rather a common concession.

Under the requirements set by the law for the contracting of PPPs, such contracts are not allowed in cases where (i) where the value of contracted amounts to less than R$ 20 million; (ii) where the term of concession is shorter than 5 years; and

(iii) when the purpose of the contract is solely supply of labor, or the supply and installation of equipment or execution of public construction works.

Administrative contracts under the rules established by the PPP Law foresee periods for return of capital compatible with that of investments in the private sector; never less than five and more than thirty-five years, including any possible extensions. For the signing of a PPP contract it is necessary to establish Specific Purpose Company, for the sole purpose of implementing and managing the PPP project.

A highly significant innovation introduced under the PPP law was the creation of a 2 billion dollar Guarantee Fund (comprised of shares of state-owned companies, real estate properties, liquid assets, etc.). This fund underwrites financial obligations of the public-sector partner assumed under contract to the private partner, and its assets serve as collateral against any possible claims filed against the Public Partner.

The law also innovates by foreseeing the possibility of arbitration in disputes arising under a PPP contract. Previously the law had not allowed the Public Administration participate in arbitration procedures.

The government’s aim in introducing the framework for PPPs was to streamline procedures for timely execution of infrastructure works that are needed to enhance and sustain development and introduce mechanisms to speed up public tender procedures.

In addition to Federal Legislation, the Brazilian states, within their jurisdictional sphere, have also enacted laws to facilitate implementation of local projects. They also have introduced new forms of guarantees, including the founding of new state-owned companies responsible for signing and management of PPP contracts. The States of São Paulo, Minas Gerais, Santa Catarina, Bahia and Rio Grande do Sul have published laws governing PPPs.

15. Public Tenders – Contracting of Works, Services, Procurement and Transfers by the Public Administration

15.1. Introduction

Public tenders are the formal procedure whereby government bodies select the best contractor for execution of works, service provider, or source of procurement. Their purpose is to ensure that the Public Administration selects the most advantageous proposal for contracts in the public interest.

Public managers are obliged to abide by tender procedures. The 1988 Constitution article 37, inset XXI, establishes in, that works, services, purchases and transferences may be contracted by direct and indirect public administration of any of the Executive Powers, of the States, the Federal District and the Municipalities, by means of public bidding, observing the legal exceptions in specific legislation, when direct contracts may take place.

Article 175 of the 1988 Constitution, requires tenders for concession and licenses to provide public services, and Law 8.987/95, with alterations introduced by Law 9.648/98 provide the applicable standards. Prior to the new standards introduced by the 1988 Constitution, licenses were granted and revoked at the discretion of the administration and were not subject to tenders. For this reason Law 8.987/95, requires formal licensing by means of a contract, while maintaining the unilateral revocability on the part of the conceding power.

Law 8.666, of June 21, 1993 and subsequent alterations, implements provisions of the aforementioned article 37, inset XXI of the 1988 Constitution, and establishes general norms public tenders and the awarding of contracts for the Public Administration.

There are various modalities of public tender that may be used in accordance with criteria defined by law. The main factor to be considered in choosing the modality tender is the estimated value of the contract to be signed. There are, however, situations in which the complexity services or works being tendered lead to other considerations prevailing over the contracting value. Regardless of the modality of tender selected, maintaining the supremacy of the public interest must always prevail. The procedure must always seek to obtain the most efficient result for the Public Administration and preserve of its economical-financial balance, by preserving the initially-agreed relationship between the parties, ensuring fulfillment of the contractor’s obligations and fair remuneration by the Public Administration for contracted work or service.

15.2. Procurement Modalities

Modalities tender are stated in art. 22 of Law 8.666 of June 21, 1993. These are call of bids (concorrência); price consultations (tomada de preços); letter of invitation (convite); contests (concurso); and public auction (leilão); and the creation of new modalities or combination of those then contracted is forbidden. However, Law

10.502 of July 17, 2002 introduced procurement auctions (pregão).

Call of bids (concorrência) is used for procurement or transfer of fixed assets, concessions for use and provision of services or construction of public works, when values exceed R$ 1.500.000,00 (one million and five hundred thousand reais), and for engineering works and services valued at over R$ 650.000,00 (six hundred and fifty thousand reais). This is the modality of tender used in international tenders, when the procuring body does not have short list of international suppliers that would enable price consultations. Call for bids is the most complex modality of tender procedure and entails proof of capacity to fulfill minimum requisites called for the call for proposal and a so-called the pre-qualification phase, when the commercial proposals have already been received.