Scope of powers of the Arbitration Tribunals or the ad hoc Committees when deciding annulment requests and other post-award remedies and procedures in ICSID dispute settlements

By DLA Piper on June 18, 2018

Abstract: This paper will address the post–award remedies and procedures against ICSID awards, from a simple request of supplementation or error rectification (which the arbitration tribunal can resolve), through interpretation and revision requests, finally focusing on petitions for annulment that are settled by some ad hoc Committees − which are sometimes criticized for lack of coherence and uniformity. Plenty of debates have taken place regarding the nature of such annulments, even though the ICSID Convention clarifies that annulments are not appeals, and article 52 enshrines specific annulment grounds. This last statement helps qualify the annulment mechanism as an extraordinary remedy, different from the appeal. This does not mean that ad hoc Committees cannot revise—even in a restricted manner—the merits of awards. What they cannot do is modify them; their action must be limited to the declaration of an award’s invalidity or its denial. On the other hand, there cannot be automatic nullities, nor can decisions bear the discretional nature that some ad hoc Committees have held they possess in order to decide. Then, it is necessary to weigh the nullity grounds to avoid excesses and to ensure that decisions on annulments are rendered according to the most modern procedural tendencies. The credibility of the ICSID system could depend greatly on this in the future.

Brazil Fundraising

By DLA Piper on May 30, 2018

By Marcus Bitencourt, Alex Jorge, Renata Amorim, Marcelo Siqueira and Tatiana Pasqualette

i GENERAL OVERVIEW

The Brazilian private equity fundraising sector has consolidated itself over the past decade and has shown significant growth since 2003, even compared with other BRIC countries.

In addition to Brazil’s economic development over this period, such evolution can also be attributed to the improvement of the regulatory structures of our capital market, mainly regarding the main type of investment vehicle for the private equity segment, equity investment funds (FIPs).

As a result of this evolution, the Brazilian Securities Commission (CVM) has been constantly concerned in regulating and updating specific rules for such funds, as per the issuance of CVM Instruction 578/16, on 30 August 2016, which replaced CVM Instruction 391/03 and modernised the rules regarding the formation, operation and management of private equity funds, as will be further explored.

Brazil and Switzerland sign DTT, reflecting Brazil’s effort to expand its network of tax agreements

By DLA Piper on May 30, 2018

By: Renato Lopes da Rocha

Following the execution of an agreement with Switzerland, on May 7, 2018 by virtue of the visit from the Brazilian Minister Aloysio Nunes to Singapore, the Brazilian and Singaporean governments signed the Agreement for Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (DTT). This development reflects Brazil’s continuous efforts to expand its network of tax agreements. The DTT requires approval by the national Congress and ratification by the President to take effect in Brazil. Once in place, which shall facilitate investments and provide more certainty on business transactions between the taxpayers of the two countries.

Among other relevant provisions, the following aspects of DTT are particularly worth noting:

(i) In line with the agreement signed with the Swiss government, the DTT also has a specific article regulating the taxation of technical services, which may indicate a new trend for the treaties entered into by Brazil. Under Article 13 of the DTT fees for technical services will be subject to a maximum 10 percent withholding income rate in case the beneficial owner is a resident of the other contracting state. The definition of technical services is quite broad, as it includes any service of a managerial, technical or consulting nature, with a few exceptions.

Even though Article 13 provides for a 10 percent rate (lower than the statutory rate of 15 percent for non-tax haven jurisdictions), it may be seen as a clear attempt by the Brazilian government to depart from court rulings favorable to taxpayers in which consulting and technical services were considered business profits under Article 7 of other DTTs, taxed only by the contracting state providing such services (no withholding income tax applied). Once the DTT enters into force, it shall lead to interesting discussions between tax authorities and taxpayers in Brazil.

(ii) A robust Limitation of Benefits clause (Article 28) aiming to exclude from the treaty benefits entities operating as holding companies and cash pooling companies.

(iii) A 10 percent royalty rate (except trademarks).

(iv) Reduced rate of 10 percent on interest to banks granting funding for capital investments under certain conditions.

(v) A broader definition of permanent establishment, which includes consultancy services provided in one contracting state by a company of the other contracting state for a period of more than 183 in a 12-month period.

Observers are noting that Singapore had been included in Brazil’s blacklist as a tax haven. It was not until November 2017 that Singapore was removed from the list upon its latest update (Normative Instruction 1,773/2017 issued by the Brazilian federal tax authorities). Certain Singaporean entities remain on the Brazilian grey list as privileged tax regimes subject to transfer pricing rules and stricter deductibility rules.

Posted in Arbitration Mexico NAFTA

Mexico showcases its commitment to investment protection in general – whether through arbitration or not

By DLA Piper on May 22, 2018

By: Andrea Lapunzina Veronelli & Paola Aldrete

Mexico has been a long-time player in the investment arbitration system. At this writing, Mexico is party to 30 bilateral investment treaties (BITs) in force and is signatory to three other BITs that are not yet in force. It is also party to a number of treaties with investment provisions, of which the best-known example is the North America Free Trade Agreement (NAFTA). (SEE BELOW FOR SPANISH AND FRENCH VERSIONS). Continue Reading

Posted in Brazil International Trade Tax tax exemptions Trade transfer pricing

Brazil and Switzerland sign Convention for Elimination of Double Taxation – highlights

By jtopper on May 15, 2018

The Governments of Brazil and Switzerland have signed the Convention for Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (DTT). In line with Brazil’s commitments under the G20, the DTT, signed on May 3, 2018, incorporates certain minimum standards of the Organization for Economic Cooperation and Development (OECD) Project on Tax Erosion and Transfer of Profits (BEPS Project). It also includes an anti-abuse clause as well as an administrative assistance clause in accordance with the current international standard for exchange of information. Continue Reading

Posted in Puerto Rico

Puerto Rico’s Dealers Act: what every principal should know before selling products or services in Puerto Rico

By DLA Piper on May 2, 2018

By Nikos Buxeda and Camille Álvarez

Puerto Rico’s Act 75 of June 24, 1964 was enacted to protect Puerto Rican distributors or dealers from arbitrary terminations to a distribution agreement. It essentially provides that, regardless of any contractual provision to the contrary, a dealer or distribution agreement may not be terminated, impaired or not renewed by the principal, unless there is “just cause” (as defined in Act 75) for such termination.

Moreover, if the distribution agreement is terminated without “just cause,” the principal is liable for damages pursuant to a statutory formula that includes five years of profits and the goodwill of the distributor.

As a result, distribution agreements in Puerto Rico are evergreen. In addition, the distributor can allege constructive termination (impairment) if it believes the principal is treating it unfairly and seek damages.

Act 75 provides Puerto Rican distributors with powerful protections and has been the source of substantial litigation over the years.

Find out more about the implications of Act 75.

Posted in Mexico Trade

EU/Mexico trade deal to promote foreign investment

By DLA Piper on May 2, 2018

By: Andrea Lapunzina Veronelli and Ben Sanderson

On 21 April 2018, the European Union and Mexico reached a deal on a novel trade agreement the “EU-Mexico FTA”. While the agreement keeps with its traditional role by removing remaining customs duties and reducing formalities for trade, the EU-Mexico FTA incorporates innovative elements, such as binding commitments to protect workers’ right and the environment, with an express reference to the Paris Agreement.

TAX ALERT – INFORMATION ABOUT TAX BENEFITS – SEFAZ/RJ

By DLA Piper on April 30, 2018

Rio de Janeiro State Resolution n° 231, from March 23, 2018, establishes certain obligations for taxpayers who enjoy tax benefits for the provision of data to the National Tax Transparency website (CONFAZ), in which shall be publicized all the information and legislation regarding tax benefits.

The deadline to present all the data required is April 30, 2018.

Taxpayers benefiting from tax benefits granted by the State of Rio de Janeiro, such as exemptions, incentives and tax or financial or fiscal benefits related to ICMS (a sort of State VAT in Brazil)shall provide all the required data , per legislation publicized until August 8, 2017.

All the data and information required shall be presented in compliance with the spreadsheets attached to Resolution n° 231/2018. The first spreadsheet must be completed with information regarding each taxpayer facility in the State of Rio de Janeiro and the corresponding legislation that granted the incentives and fiscal or financial benefits related to ICMS.

The second spreadsheet must contain detailed information regarding the incentives and fiscal or financial benefits related to ICMS granted to each facility.

Taxpayers who fail to comply with Resolution n° 231/2018 will have their incentives and fiscal or financial benefits related to ICMS cancelled by the State of Rio de Janeiro.

We are at your entire disposal to clarify any doubts you may have.

____________________________________________________________________________________________

ALERTA TRIBUTÁRIO – INFORMAÇÕES SOBRE BENEFÍCIOS FISCAIS – SEFAZ/RJ

A Resolução SEFAZ nº 231, de 23 de março de 2018, estabeleceu algumas obrigações para os contribuintes fluminenses que usufruem de benefícios fiscais para o fornecimento de dados ao Portal Nacional da Transparência Tributária, disponibilizado no sítio eletrônico do CONFAZ, onde devem ser publicadas as informações e a documentação comprobatória dos atos normativos e dos atos concessivos relativos aos benefícios fiscais.

O prazo para prestar as informações expira no dia 30 de abril.

Devem prestar informações os contribuintes que usufruem de benefícios fiscais concedidos pelo Estado do Rio de Janeiro, considerados como isenções, incentivos e benefícios fiscais ou financeiro-fiscais relativos ao ICMS, que tenham sido instituídos por atos publicados até 8 de agosto de 2017.

As informações devem ser preenchidas de acordo com as planilhas anexas a Resolução SEFAZ nº 231/2018, sendo que a primeira planilha contém informações relativas a cada estabelecimento do contribuinte beneficiário e aos atos concessivos originais de cada estabelecimento e suas alterações, e os correspondentes atos normativos nos quais os atos concessivos se basearam.

Na segunda planilha devem ser apresentadas informações relativas a cada estabelecimento do contribuinte beneficiário com o respectivo registro do benefício ou incentivo concedido e a natureza do benefício concedido (o que inclui dilação do prazo de pagamento, isenção, redução de base de cálculo, manutenção de crédito, crédito outorgado ou presumido, dedução do imposto apurado, crédito para pagamento, remissão, anistia, moratória, transação etc.).

Os contribuintes que não cumprirem o disposto na Resolução SEFAZ nº 231/2018 perderão os benefícios fiscais concedidos pelo Estado do Rio de Janeiro nos termos da Lei Complementar nº 160/2017.

No caso de dúvidas, por favor, não hesitem em nos contatar.

informativotributario@cmalaw.com

Posted in Brazil Real Estate

Co-working: the collaborative economy and the Brazilian real estate market

By DLA Piper on April 4, 2018

By Rafael Jordão Bussière
Partner, Campos Mello Advogados in Cooperation with DLA Piper

A long-term effect of the 2008 financial crisis is that markets have innovated to focus more on sustainability, cost mitigation and collaborative business structures.

In this changing world, asset-sharing was a natural development for the real estate business.

Complex collaborative work spaces remedy an array of vacancy problems, such as empty desks, underused meeting rooms and substantial maintenance costs. In addition, co-working spaces with aggregated ancillary service packages help smaller companies and freelancers to focus on their main business activities, while scaling up the administrative office services they are able to enjoy. Such spaces also create an environment of business development and cooperation among users.

The first shared workspace appeared in New York during the 90s; collaborative spaces quickly became a here-to-stay trend. An independent survey[1] indicates that, as of December 2017, 18,900 co-working spaces, with an average of 130 members per workspace. were operating worldwide. While the shared co-working market is still largely dominated by specialized companies[2], it is now engaging traditional real estate players.[3]

In Brazil, co-working represents a disruption to the customary use of real estate property. Currently, there are over 1,000 co-working generating more than 5,000 direct jobs and over 1 million indirect jobs[4] in Brazilian territory. These numbers evidence the importance of such activity in our challenging market.

In Brazil, shared office services with tailored short-term contracts have benefited individuals, startups, small companies and even incubator affiliates of larger corporations. As this trend grows, one consequence being observed in Brazil is that long-term engagements (eg, lease agreements) are being replaced by flexible legal ties.

The current challenge in Brazil is to define the legal framework applicable to such collaborative work spaces, which combine concepts of short-term commercial lease with service rendering − a hybrid form of contract that so far is pending any supporting legal framework.

A federal collaborative workspace bill, # 8.300/2017, now moving through the House of Representatives,[5] aims to oversee such co-working activity.

The bill has not yet undergone formal review and rewording, but in its current form, it would set out that a manager of a co-working spaces is a service renderer and not a lessor.

The existence of this bill is a sign that Brazilian law is considering the co-working industry in much the same way that it regards the hospitality sector: that is, such business activity is mainly a service rather than a lease relationship. One consequence of this approach is an impact on taxation.

With regard to tax levying and related fiscal duties repercussions, it is important to highlight that service providers in Brazil are subject to a municipal service tax.

In addition, a recent São Paulo Municipality Law 16.757/2017, intending to tighten the tax control on emerging business, established that co-working providers are deemed jointly and severally liable for the payment of services tax with regards to the users of shared spaces that are not duly registered with the São Paulo municipal authority.[6]

The latter law generated significant opposition considering that the co-working service providers would assume a supervisory role with regard to the respective user as well as a potential liability before the tax authorities.[7] The debate around taxation of the co-working industry is ongoing.

On the other hand, it is interesting to note that the interpretation stated in bill 8.300/2017 − which treats co-working as a service − also aligns the co-working providers’ interests: the Brazilian Lease Law, 8.245/1991, is quite protective to lessees.

In a high-level analysis of the Lease Law, while lessees usually are allowed to terminate a lease without cause during the lease term −- as long as a non-substantial penalty is paid − termination by a lessor requires specific conditions, such as (a) a contractual breach by the lessee; (b) lack of guarantee; (c) government determination of urgent need for works; or (d) specific circumstances, in the case of a sale of the real estate asset.

There are also certain conditions in which a lessee has the right to require the automatic renewal of the commercial lease in order to protect the goodwill of the business.

Therefore, the categorization of co-working as a service in the bill is interesting, from both the tax control and property management perspectives; but − again − this bill is not yet formally a law.

While the formal approval of other laws is pending, the definition of the co-working legal structure depends on the contract structure and the normative documents covering the use of the facilities and the interrelationship of the users.

Considering the lack of legislation on the matter, prudent businesses operating in Brazil are seeking to ensure that relevant contracts are well designed, including a detailed scope of services (if any) and use conditions, to help ensure that multi-users may operate in appropriate work conditions and to avoid disputes concerning each user’s licensing, labor and tax regimes.

It is widely understood in Brazil that because the concept of co-working itself is constantly expanding, the need for further directives is growing.

Meanwhile, co-living projects in Brazil are taking baby steps. A project in São Paulo is integrating collaborative co-working spaces and temporary residences, mostly for freelancers and startup entrepreneurs willing to have an establishment and network in the Brazilian financial capital.[8]

Although the collaborative economy is a reality in Brazil, discussions about its impact and effects will not cease as long as the relevant tax treatment and legal framework remain uncertain.

[1] 2018 Global Coworking Survey, Article By Carsten Foertsch referring to 2018 Global Coworking Survey supported by Nexudus, Essensys & WUN Systems – Access on 03/26/18 http://www.deskmag.com/en/1-7-million-members-will-work-in-coworking-spaces-by-the-end-of-2018-survey

[2] 5 Minute Guide: The Impact of Coworking Spaces on Real Estate, by Profimex. Access on 03/26/18 https://www.profimex.com/wp-content/uploads/2017/08/5MinuteGuide-TheImpactofCoworkingSpacesonRealEstateFV.pdf

[3] As an example, the French hospitality group AccorHotels has recently entered into an association with NextDoor, the co-working branch of Bouygues Immobilier. Access on 03/26/18 https://www.lopinion.fr/edition/economie/geants-l-immobilier-se-mettent-coworking-133291

[4] As per the rational for the Deputy bill # 8.300/2017 and research by the national co-working association ANCEV – Associação Nacional dos Coworkings e Escritórios Virtuais. Access on 03/26/18 http://www.camara.gov.br/proposicoesWeb/fichadetramitacao?idProposicao=2147960

[5] Deputy bill # 8.300/2017 – Access on 03/25/2018 http://www.camara.gov.br/proposicoesWeb/fichadetramitacao?idProposicao=2147960

[6] Access on 03/26/2018 http://www.ibet.com.br/wp-content/uploads/2017/11/LEI-16757.2017.pdf

[7] Access on 03/26/2018 http://www.coad.com.br/home/noticias-detalhe/84422/coworking-e-iss-a-economia-compartilhada-na-mira-do-municipio-de-sp

[8]See http://www.startupsstars.com/2015/05/co-living-em-sao-paulo-uma-nova-experiencia-empreendedora/ Access on 03/26/18.

Posted in Hedge Funds Private Equity Puerto Rico Tax

Private equity and hedge funds in Puerto Rico – a welcoming environment in the Caribbean

By DLA Piper on March 14, 2018

Written by: Nikos Buxeda, Manuel López-Zambrana, Camille Alvarez and Juan Carlos Feliciano

Ten years ago, private equity funds and hedge funds were practically nonexistent in Puerto Rico. This has changed dramatically as the result of two main developments: the enactment of Act 185-2014, known as the Private Equity Funds Act and (ii) the influx of financial industry professionals moving to the island to take advantage of the tax benefits available under Acts 20 and 22 (for a more detailed discussion of those benefits, please see Puerto Rico’s Act 20 and Act 22 – key tax benefits).

Find out more here.