BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa and Urick Soares, William Freire Advogados
supplement or, in the event of a divergence, take precedence over written documents (primacy of economic substance over legal form). • Of the functions performed by the parties to the transaction (functional analysis), consid - ering the assets used, which can be known from the analysis. • Of the economically significant risks assumed (risk assessment), a task that requires the fol - lowing analyses: (a) the specific identification of economically significant risks for the transaction; (b) the identification of how economically significant risks are contractually as - sumed by the parties to the controlled transaction; (c) the identification of how related parties operate in relation to the assumption and management of economically significant risks; and (d) the specific characteristics of the goods, rights or services that are the subject of the controlled transaction and in the com - parability analysis are those that may lead to differences in their value. • The economic circumstances of the parties and the market in which they operate: (a) the geographic location and the existence of regional markets; (b) the size of markets and other charac - teristics, including those that give rise to locational advantages or disadvantages (location savings) and potential cost sav - ings; (c) competitiveness in markets and the rela - tive position of buyers and sellers; (d) the availability of substitute goods and services; (e) the levels of supply and demand in the market as a whole and in particular re - gions;
(f) the purchasing power of consumers; (g) the nature and extent of government regulation of the market, including gov - ernment policies; (h) production costs, including land, labour and capital costs; (i) transport costs; (j) the market level (retail or wholesale); and (k) the existence of an economic, business or production cycle. • The business strategies pursued by the par - ties to achieve their commercial objectives that may be considered relevant may include, as appropriate and by way of example: (a) innovation and development of new products; (b) degree of diversification and risk aver - sion; (c) adaptation to political and economic changes; and (d) duration of contracts and other factors that influence the daily condition of the business. In the process of outlining the economic content of transactions, which must be based on the cri - teria described above, the options realistically available to each party to the controlled transac - tion must be considered. This task aims to assess whether in a market transaction there would be more advantageous conditions for one of the contracting parties, which would show that the arm’s length princi - ple was despised. When analysis of the transaction leads to the conclusion that unrelated parties, acting in comparable circumstances and behaving in a commercially rational manner, considering the options realistically available to each party, would not have realised controlled transaction
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