BRAZIL Law and Practice Contributed by: Rodrigo Casarotti, Alexandre David, Ricardo Melaré and Gabriela Claro, /asbz
Tax authorities expect genuine economic substance and a legitimate business purpose; purely formal restructurings aimed mainly at tax efficiency risk challenge. Contractual impacts must also be evalu- ated (change of control, assignment or early termi- nation provisions). Depending on the structure and the company type, dissenting shareholders may have withdrawal rights, and listed companies may need appraisal reports to support exchange ratios or fair value. Creditor protection is central where a reorgani- sation reallocates assets and liabilities. 5.2 Tax Consequences Spin-offs ( cisões ) can, in principle, be structured on a tax-neutral basis at corporate and shareholder level if certain conditions are met. In broad terms, this requires genuine economic substance and business purpose, and transfers at book value. Typical tax-efficient sce- narios include intragroup reorganisations to separate business lines or risks within the same shareholder base, or the carve-out of non-core activities from a core technology platform ahead of a sale or listing. Brazilian tax authorities scrutinise “tax free” charac- terisation in the absence of a substantive rationale and may recharacterise transactions and assess tax. As a result, any tax-neutral spin-off structure must be care- fully designed and reviewed on a case-by-case basis. 5.3 Spin-Off Followed by a Business Combination A spin-off followed by a business combination (eg, merger, incorporation or sale of the spun-off company) is permissible, and this is a structure occasionally used in technology deals to isolate the business that will be combined or sold. The key constraint is the need for a genuine business purpose and economic substance. If the sequence primarily aims to reduce tax without a coherent corporate or commercial rationale (eg, risk segregation, regulatory alignment, integration plan- ning), the tax authorities may challenge it and rechar- acterise it. Clear valuation support and a documented rationale are essential. 5.4 Timing and Tax Authority Ruling Spin-offs of privately held and listed companies do not require prior tax rulings or regulatory clearances as a condition to completion. There is no mandatory advance ruling from the Federal Revenue Service,
though non-binding consultations may be used in complex cases. Timetables typically include (i) preparation and approval (supporting documentation, convening meetings and passing resolutions – weeks to a cou- ple of months for private companies; longer for listed companies), and (ii) post-implementation waiting peri- ods for creditor opposition and, where applicable, dissenting shareholder withdrawal. A three-to-four- month timetable is common for private companies and four to six months for listed companies, depend- ing on complexity. 6. Acquisitions of Public (Exchange- Listed) Technology Companies 6.1 Stakebuilding Stakebuilding is permitted but not especially com- mon. Under the CVM rules, any person (alone or in concert) who reaches or exceeds 5% of a given type or class of shares or relevant securities of a publicly held company must promptly notify the issuer (and the issuer shall issue a notice to the market), and do so on each subsequent 5-percentage-point change. The disclosure must state the purpose of the holding and any plans regarding control, management or capital structure, including the target stake. Crossing 5 percentage points does not, by itself, impose a “put up or shut up” requirement in Brazil. Separate mandatory tender offer obligations may arise in other circumstances (eg, acquisition of con- trol, delisting, free-float triggers or poison-pill thresh- olds in by-laws). 6.2 Mandatory Offer Brazilian rules provide for mandatory offers in speci- fied cases. In a sale of control, the purchaser of the controlling stake must extend tag-along rights to minority holders of voting shares at not less than 80% of the price per voting share paid to the controller (or 100% where the company’s by-laws or premium gov- ernance segments, such as Novo Mercado or Level 2, so require). Mandatory tender offers are also required in delisting/cancellation of registration scenarios and in cases where additional acquisitions would reduce
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