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Antonio Mazzuco, Byung Soo Hong and Nathalie Cortes of Madrona Hong Mazzuco (MHM) outline recent changes to Brazilian competition law, accounting rules and fund remittance.
Competition within the financial system
On April 27 2012 the
Central Bank of Brazil issued Circular 3.590, establishing that the Central
Bank will examine the competition among financial institutions and impose
conditions in order to increase competition. This new regulation, issued
shortly before the new Brazilian Antitrust Law was issued, is one more step in
the dispute over years of which government agency should be responsible for
reviewing mergers and acquisitions within the financial system. In general, the
Central Bank must approve any transaction, except for transactions with equity
investment portfolios, which do not need the Central Bank´s approval.
The Brazilian Competition Agency (Cade), on the other hand, establishes a
minimum annual revenue for the parties in transactions that must be approved by
the Agency.
Improper accounting results in bailout and
intervention of financial institution
Resolution 3.533 of the
Central Bank of Brazil was issued in 2008 and since then its date of
enforcement has been extended. It finally became effective in January 2011. In
summary, the Resolution modifies the accounting rules applied to assignment of
receivables, which were until January of this year, excluded from the financial
statements of the banks upon assignment. According to the new rule, in case the
assignment is done with joint liability, not only the cash resulting from the
assignment but the obligation to the assignee must be reflected in the
financial statements.
In the
beginning of June, the Central Bank of Brazil took control along with the
privately supported Bailout and Deposit Guarantee Fund of mid-sized bank Banco Cruzeiro do Sul, which had been manipulating its financial statements that did not show billions of Reals in obligations to
assignees
Alternative to remit funds to Brazil
Brazilian companies have
a new alternative to remit funds to Brazil arising from the issue of bonds
abroad, after Law No. 12.431 of 2011, which established tax benefits to
debentures related to infrastructure and investment projects, such as zero rate
of income tax (IR) and financial operations tax (IOF) for foreign investors.
Prior to the existence of the debentures with tax benefits, the funds could be
remitted through pre-payment exports (Central Bank´s Circular 3.580/2012), or
intercompany loans. The first alternative became unfeasible after the decision
of the Government to limit the maturity of the pre-payment, which is tax free,
up to one year and loans, on the other hand, are subject to 15% of IR on
interest payments and in case the company decides to pay bonuses before five
years, has yet to collect 6% of IOF.