Posted in M&A Tax VAT

US House Tax Bill Proposal – LatAm M&A Implications

At the risk of oversimplification, the purchase price on an asset purchase agreement allocable to certain intangibles or goodwill is generally amortized over 15 years.  The House tax bill proposes to allow the full purchase price (allocable to intangibles/goodwill) to be recovered immediately.  Assuming the House version on “tax expensing” passes, the effective date of the legislation will be a critical factor in timing your M&A closings. For example, the effective date might be (i) the date the legislation is signed into law by the President-elect, (ii) retroactive to an earlier date, or (iii) a future date (e.g., all deals closed after 12/31/17).  And although LatAm deals–commonly subject to local value added tax (VAT)–make asset purchases the exception, there is still the opportunity for a US buyer to plan carefully for the immediate recovery of the goodwill/intangible purchase price. For example, US tax law permits certain stock deals to be treated as asset deals permitting depreciation/amortization of the acquired assets, so please stayed tuned on further developments of the House tax proposals.

 

If passed into law, this expending provision will be a key driver in accelerating asset purchase deals of targets having significant intangibles or goodwill.

Contact the author for more information

Michael A. Silva

Partner

Posted in Financial Services Puerto Rico Regulatory Tax

House passes pro-growth bill, HR 6427, 391 – 2: top points

HR 6427, a potentially important piece of financial services related legislation, has been passed by the US House of Representatives by a vote of 391-2. Entitled “The Creating Financial Prosperity for Businesses and Investors Act,” the bill aggregates six House Financial Services Committee measures that each previously passed the House with bipartisan support.

The bill is seen as a move by Republican leadership, particularly newly re-elected Financial Services Committee Chairman Jeb Hensarling (R- TX), to promote capital formation and remove barriers to growth faced by small businesses and startups.  While there is no guarantee the Senate will approve the Bill, the House would not  be trying to get something to the Senate unless there was at least some chance for it to get through.  Observers have even suggested that individual pieces of HR 6427 – which is more or less a compilation of prior bills approved by the House – may get through the Senate in the wake of the House’s recent and overwhelmingly bi-partisan approval.

Of particular relevance to financial services industry practitioners are the following portions of the bill:

  • New SEC office and committee focused on small business: Title II would establish the Office for Small Business Capital Formation within the SEC to assist small businesses and their investors to resolve significant problems with the SEC or self-regulatory organizations and identify issues and propose changes to statutes, regulations, and rules to benefit small businesses and their investors and facilitate capital formation. It would also establish the SEC Small Business Advisory Committee to provide the SEC with advice on capital formation, securities trading, public reporting, and corporate governance for emerging, privately held businesses and smaller public companies.
  • Increase in investor limit for qualifying venture capital funds: Title III of the bill would amend the Investment Company Act of 1940 (1940 Act), to allow “qualifying venture capital funds” to avoid registration under the Act until they amass 250 investors.  A QVCF, as defined, would not be able to purchase more than $10 million in securities in any one issuer, adjusted for inflation.
  • Amendments to crowdfunding law:  Title IV of the bill would amend aspects of the “crowdfunding” provisions  contained in the Jumpstart Our Business Startups Act (known as the JOBS Act).  It would amend the 1940 Act as well as the Securities Act of 1933, to permit special purpose vehicles to acquire securities of qualifying issuers, and raise the threshold for registering the securities of crowdfunding issuers under the Securities Exchange Act of 1934 to $75 million ($50 million for issuers that have previously not reported any revenues).
  • Expansion of the definition of “accredited investor”: Title V of the bill would amend the definition of “accredited investor” found in Regulation D adopted under the 1933 Act to add inflation adjustment provisions to the current $1 million net worth and $200,000 ($300,000 jointly), income requirements, and to add two new categories of accredited investors: (i) persons with a current securities-related license; and (ii) persons whom the SEC determines by rulemaking to have demonstrable education or job experience to qualify as having professional subject-matter knowledge related to a particular investment.  Notably, the Financial Industry Regulatory Authority (FINRA) or another self-regulatory organization would be required to verify the person’s education or job experience.
  • Elimination of the 1940 Act exemption for funds located in Puerto Rico, the Virgin Islands and other US territories and possessions: Title VI of the bill would amend the 1940 Act to terminate an exemption for investment companies located in Puerto Rico, the Virgin Islands and any other possession of the United States that sell their shares only to the residents of the territory or possession in which they operate.  The bill would establish a three-year safe harbor for funds that currently enjoy this exemption.  Furthermore, the bill would authorize the SEC to further delay the effective date of this change for specific funds for up to three additional years.

Find out more about these aspects of the bill by contacting the author.

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Posted in Brazil Tax transfer pricing

Public Consultation RFB No. 011/2016 – BEPS’ Country-by-Country Report

By Alex Jorge, tax partner, and Marcelo Siqueira, senior tax associate, of Campos Mello Advogados in Brazil (in cooperation with DLA Piper)

On November 7, 2016, the Brazilian Federal Revenue (“RFB”) released the draft of a proposed Normative Rule (Public Consultation RFB No. 11/2016 – click here) regulating the implementation of Country-by-Country Report (“CbC Report”) in accordance with BEPS[1] Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting (“Proposed Draft”).

RFB indicated that CbC Report is an important instrument to gather information from multinational groups (“MNG”)[2] in order to proceed with the analysis and identification of tax risks related to international taxation and as a statistical data-base, enabling the RFB to assess abusive structures. Continue Reading

Posted in Tax uruguay

Uruguay’s Territorial Tax System and Residency Rules − Planning Opportunities in the Era of Tax Amnesties

Guest Post: Jonás Bergstein and Guzmán Ramírez are partners in Bergstein Abogados, based in Montevideo, Uruguay

Recent voluntary-disclosure programs in Latin America (most notably in Argentina, Brazil, Chile, and Colombia) have cast light on Uruguay as a suitable jurisdiction for Latin America business persons seeking to establish tax residence.

Uruguay’s historical political stability, democratic traditions, low corruption levels, and independent judiciary all contribute to this increased interest. Also contributing to the boom in interest is Uruguay’s attractive tax system.

This note briefly discusses the characteristics Uruguay offers for personal income tax planning purposes, with a special emphasis on the standards which trigger tax residence in Uruguay. Continue Reading

Posted in Colombia Labor

Challenges for Labor Outsourcing in Colombia || DESAFÍOS Y RETOS PARA EL OUTSOURCING LABORAL

There has been a lot of speculation lately regarding potentially improper use of outsourcing companies in labor and employment issues. Media reports on the use of outsourcing by certain businesses have alleged that such improper use is a workaround to labor statutes.

Mucho se ha especulado últimamente respecto a la tercerización laboral a través de compañías de outsourcing, por cuanto indebidas prácticas del sector empresarial al momento de emplear esta figura, han generado una distorsión respecto a su correcta forma de utilización y han creado en el imaginario colectivo la sensación de que estos servicios son simplemente una forma de disfrazar prácticas de indebida intermediación laboral.


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Posted in Brazil Real Estate

Brazil: Supreme Court suspends acquisition of rural land in São Paulo by Brazilian companies controlled by foreign entities

The Brazilian Supreme Court recently suspended the permission granted by Normative Opinion No. 461/12E, issued by the General Internal Affairs of State of São Paulo (Corregedoria-Geral de Justiça de São Paulo) in December 2012, which had recently permitted the acquisition of rural properties in the State of São Paulo by Brazilian companies controlled by foreign entities. This Normative Opinion stated that article 1 §1° of Federal No. 5.709/1971 is contrary to the Constitution. As a result, companies controlled by foreign entities (either an individual or a corporation) should be allowed to purchase rural properties without special restrictions. Continue Reading

Posted in Brazil Intellectual Property IP

Changes on the analysis and recognition of so-called “highly renowned” trademarks in Brazil by the INPI || Alterações com relação à análise e reconhecimento das marcas de alto renome no Brasil pelo INPI

On October 18th, the National Industrial Property Institute (INPI) published Resolution INPI/PR 172/2016, to improve the analysis and recognition of so-called “highly renowned” trademarks in Brazil. The alterations brought by the new resolution were formulated based on the suggestions of associations involved in the industrial property area, such as the Working Group on Trademarks of the Brazilian Association of Industrial Property Agents (ABAPI).

O Instituto Nacional de Propriedade Industrial (INPI) publicou, no dia 18 de outubro, a Resolução INPI/PR No. 172/2016, objetivando aprimorar a forma de análise e reconhecimento das marcas de alto renome no Brasil. As alterações trazidas pela nova Resolução foram feitas com base nas sugestões trazidas por membros da área, como o Grupo de Trabalho de Marcas da Associação Brasileira dos Agentes da Propriedade Industrial (ABAPI).

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Posted in Arbitration

The ICC modifies its Note on the Conduct of Arbitration under the ICC Rules

The Secretariat of the International Court of Arbitration of the International Chambers of Commerce (ICC) periodically issues documents for the information of parties and arbitrators and to aid the conduct of the proceedings.  These documents include notes dealing with various aspects of practice and procedure.  One of the most widely referred practice notes is the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration.

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Posted in Incentives Mexico Tax

Mexican Government Proposes Tax Incentives on IT Services and R&D Activities for 2017

As part of the 2017 economic budget and proposed tax reform, the Mexican government intends to incentivize a couple of activities that may be intertwined: first, by allowing information technology (IT) services to qualify as an export subject to 0 percent value added tax (VAT), as opposed to the 16 percent general VAT rate; and second, by reintroducing a tax credit for research and development (R&D) activities carried out in the country.

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Posted in Brazil franchise

STJ Strikes Down Validity Of Arbitration Clause In Franchise Agreement Based On The Rules On Specific Acceptance In Adhesion Contracts

In a decision issued in September 2016, the Superior Tribunal of Justice (STJ) – the highest court for non-constitutional matters, with responsibility for harmonizing interpretation of federal laws by the state and regional federal courts of appeal – analyzed (among other matters) the validity of arbitration clauses in franchise agreements in Brazil, in Special Appeal no. 1.602.076-SP.

In the original suit, the franchisee sued to terminate the franchise agreement and to obtain refund of the payments made to the franchisor, plus application of a fine.

In its preliminary (procedural) arguments, the franchisor argued the incompetence of the judiciary to hear the case because of the arbitration clause included in the agreement. The lower court rejected this argument, and the franchisor submitted an interlocutory appeal to the state appellate court, which overturned that decision and held the arbitration clause to be valid, with consequent dismissal of the case without prejudice, due to absolute incompetence of the state courts.

The plaintiff/franchisee then filed a special appeal to the STJ, which decided the arbitration clause is null due to absence of the legal requirements for validity established in Article 4, § 2, of Law 9,307/1996 (Arbitration Law). That article establishes that arbitration clauses in adhesion contracts are only effective if the adherent takes the initiative to file for arbitration, or expressly consents to participate.

Although the majority doctrine from legal scholars and jurisprudence from the courts take the position that franchise agreements, by their nature, are not subject to the Consumer Defense Code (Law 8,078/990), which was corroborated in the decision in question, the appellate panel’s holding was based on subjection of franchise agreements to the Arbitration Law, because they are adhesion contracts. In other words, their texts are determined unilaterally by the franchisor, with no possibility of negotiation between the parties. In this respect, the decision followed the position that all adhesion contracts, even those that do not involve relations between consumers and suppliers, must observe the provision of the Arbitration Law, including franchise agreements, since the function of that article is to benefit the economically weaker party, to avoid imposition of arbitration as a mechanism to resolve disputes.

In her voting opinion, the reporting judge observed the priority of the arbitral tribunal to decide on its own competence, including the validity of the arbitration clause. However, she stressed that this rule has exceptions, to better fit situations in gray areas. Hence, the decision held that the courts can nullify arbitration clauses when this involves a perceived disadvantage for the weaker party to an adhesion contract.

The STJ’s decision is important by corroborating the position that franchise agreements under Brazilian law are not subject to the rules governing consumer relations, but are still considered to be adhesion contracts, and as such are subject to the limits of the Arbitration Law regarding validity of arbitration clauses.

For further information, contact the author:

Paula Mena Barreto
Sócia
T: +55 21 3262 3028
E-mail: paula.menabarreto@cmalaw.com

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