Boskage Trade News: European Union Proposes Changes to GSP

Boskage Trade News: European Union Proposes Changes to GSP

Updates from Latin American Law & Business Report

Published by WorldTrade Executive, a Thomson Reuters Brand
for more information see Latin American Law & Business Report

Brazil Moves To Speed Up Resolution of Tax Controversies
Brazilian legal practitioners and the business community have long been critical of the local court system for being incredibly slow. An ordinary lawsuit may require ten years or more of litigation before a final decision is awarded to the parties. One key factor in tying up the courts is that tax inspectors and public attorneys have been required to keep litigating matters even though similar matters had been decided. Now Normative Opinion No. 492/10 has been issued to authorize all federal public attorneys to cease further litigation with respect to matters already decided by the Supreme and Superior Courts by means of the repercussão geral and the recurrssos repetitivos rules. See May 2010 Practical Latin American Tax Strategies p. 1

Recent Developments in Latin American Labor Law
The continuing growth of labor protections in South America raises ongoing challenges to existing businesses and potential buyers. For example, unlike the case in the U.S., it is not possible for a buyer in South American countries to exclude the labor liabilities of the target company in the purchase of substantially all of the assets of a business by using an asset purchase structure. Rather, in general, the buyer will be deemed a successor for labor purposes and shall be held liable for the labor liabilities of the target company.

It is also important for potential buyers to carefully review contracting or other outsourcing agreements, as well as any other agreements that might be construed as outsourcing (even if they are temporary) for purposes of possible joint and several liability of the target company in relation to liabilities of the workers of the outsourcing supplier rendering services at the target company.

See May 2010 Latin American Law and Business Report p. 3 for an analysis of important labor law developments in Chile, Peru, Argentina, and Uruguay.

China and Latin America: The Art of the Deal
With a focus on natural resources, China looks for business and investment opportunities in Latin America. Chinese business entities tend to be very patient negotiators in transactions, with their long-term perspective, unfamiliarity with the region and lack of trust. May 2010 Latin American Law and Business Report p. 12 takes a look at the process of Latin American firms negotiating with Chinese entities.

M&A Highlights

Excerpts from recent issue of Venture Equity Latin America
Published by WorldTrade Executive, Inc.

Brazil M&A Activity Falls 11 Percent in 2008
PricewaterhouseCoopers
In 2008, Brazil registered 639 mergers and acquisitions, down 11 percent from 2007, analyst PricewaterhouseCoopers said in its latest report on the sector. But it said that M&A was still 12 percent above the level in 2006, which indicated a certain maturing in the sector.

Mexico: M&A Roundup 2008
By Merger Market
With nearly 90 deals in 2007 for a value of $27.2bn, the market slowed down in 2008, with only 56 announced deals and a total value of approximately $7.3bn. These figures represented a drop of 37% in deal activity and a 73% decline by overall deal values.

LBO No Longer an Option in Brazil
By Elizabeth Johnson
With the international credit crisis, the brief window during which private equity funds had the option to do leverage buyouts has closed.
With credit market tight, maturities down and borrowing costs on the rise, private equity funds expect acquisition structures to change.
However, there is a consensus that it is a positive moment for funds, especially those that raised capital in 2008.

Hotel Fund of Brazil’s GP Investimentos Buys Invest Tur
LA Hotels LLC, the hotel arm of Latin America’s leading private equity fund GP Investmentos, bought control of troubled Brazilian tourism company Invest Tur, which raised R$945 million on the local São Paulo Stock Exchange in July 2007. The company still has 490 million in cash, of which R$300 million would be returned to investors if LA Hotels closes the deal.

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Is Your Employee Leasing Company at Risk in Mexico?

Excerpt from Mexico Tax, Law and Business Briefing: 2009 by Esteban G. Dalehite, Ph.D.



Recent developments suggest that Mexico’s Federal Government is taking a tougher stance regarding employee leasing companies, a common component of the corporate and tax strategy used by multinational firms doing business in Mexico. In April 2008, Mexico’s House of Representatives approved a bill amending the Social Security Act (Ley del Seguro Social) which places controls on employee leasing. However, this bill is still under discussion in the Senate where it has developed opposition and has not yet been approved. In June 2008, Mexico’s Tax Administration Service (known for its Mexican acronym SAT) announced a joint auditing program with the Mexican Institute of Social Security (known for its Mexican acronym IMSS) and the Institute of the National Worker Housing Fund (known for its Mexican acronym INFONAVIT) to combat tax evasion through employee leasing companies with an initial target of 455 firms.In October 2008, the SAT announced an information exchange agreement with the Mexican Department of Labor and other agencies for the same purpose, and the House of Representatives hosted a congressional hearing where the General Director for the IMSS was repeatedly questioned about tax evasion through employee leasing companies. Finally, in December 2008, the SAT again announced that, at its request, an arrest warrant had been issued against a tax consultant which, according to the SAT, had pioneered aggressive tax schemes in the area of employee leasing.


Given the extent of employee outsourcing strategies implemented by multi-national firms in Mexico, this recent string of developments raises concern and questions about the scope of the Mexican Government’s program, its definition of the line between tax evasion, avoidance and planning in this area, and the legal powers that it may have to combat what it perceives as evasion through employee leasing.



Read More on Examining Your Employee Leasing Program

Using a Spanish Holding Company for Latin American Investments

By Victor Cabrera, Antonio Lobon and Marc Skaletsky (KPMG LLP)

Excerpt from Practical Latin American Tax Strategies published by WorldTrade Executive.

Spain has emerged as one of the most attractive jurisdictions for multinational corporations (MNCs), including U.S. MNCs, to establish a holding company for Latin American operations. In 1996, Spain enacted into law its holding company regime (Entidad de Tenencia de Valores Extranjero, or "ETVE").

Key factors in the attractiveness of an ETVE having business substance include (i) Spain's extensive tax and investment treaty network with various Latin American countries, and (ii) Spain’s European Union (EU) membership and the resulting coverage by the EU Parent-Subsidiary and Merger Directives.

Because of Spain’s treaty network and the European character of the ETVE, it has become an interesting vehicle for channeling capital investments into Latin America as well as a tax efficient repatriation route for EU capital investments by non-EU companies. Additional benefits include Spain’s cultural, linguistic, and historical business ties with the region.

For more information on Practical Latin American Tax Strategies

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Latin American Private Equity Activity: Midyear Report

Venture Equity Latin America, a WorldTrade Executive publication, recently published its mid year report for 2008. The following are some highlights.

The first half of 2008 witnessed private equity investments in Latin America ranging from power distribution to agriculture. Investments made during this period did not match last year’s high levels as around $1.7 billion was invested in the first half of 2008 compared to roughly $2.3 billion in the first half of 2007. The level of investment recorded during the first half of this year came closer to the investment level seen in the first half of 2006, which was roughly $1.6 billion.

After significant investment activity last year, which amounted to around $7.5 billion and which was already high during the first half of 2007, it does not look as though investments this year will exceed last year’s hugely successful levels, unless there are sizeable investments made in the latter half of this year. Of course, investments during the first half of 2008 have been made against an uncertain international finance backdrop, which has witnessed and is experiencing the repercussions of the global credit crunch, the impacts of the Bear Stearns collapse, and ongoing issues with subprime mortgages and associated lenders.

Despite the lower levels of investment seen so far in Latin America, it is worth noting that demand for larger assets has continued to increase as illustrated in part by the $870 million investment in the SAESA Group of Companies (SAESA Group) by the Morgan Stanley Infrastructure consortium.

So far in 2008, 3 private equity investments of over $50 million have been made and the following 4 deals registered at $100 million or more.

• Morgan Stanley Infrastructure consortium, which includes the Ontario Teachers’ Pension Plan led an $870 million investment in the SAESA Group of Companies (SAESA Group), which handle power distribution in Chile.
• GP Investimentos invested in energy in Brazil through its investment of $112 million in Sociedade Tecnica de Perfuacao (SOTEP) and the investment was made through its fund, San Antonio Global.
• GP Investments made an education related investment in Brazil when it invested $163 million for a 20% stake in Estacio Participacoes.
• GP Investments acquired Laticinios Morrinho’s, a dairy products company in Brazil, for $189 million.

Fundraising so far in 2008 helped to offset the lower investment levels in the first half of 2008 as fundraising during this period surpassed the fundraising level seen in the first half of 2007. During the first half of 2008, fundraising totaled around $1.981 billion and there were 17 funds with closings. This can be compared to the first half of 2007, which saw around $1.5 billion in fundraising and at that point, there were 20 funds with closings.

Like last year, much of the fundraising activity was again centered in Brazil but there was also strong fundraising regionally too. There was limited fundraising in Mexico and Argentina during this period but Peru found itself the focus of multiple funds. The increased interest in Peru could be explained by insights shared in the Venture Equity Latin America 2007 Mid-Year Report, which stated that due to ongoing competition for assets, especially energy assets, some funds would probably look for assets in less-heavily cultivated areas, such as Peru.

For more information on Venture Equity Latin America Midyear Report

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Upcoming Investment Opportunities in Brazilian Infrastructure

Excerpt from Venture Equity Latin America
published by WorldTrade Executive, Inc.

By María Fernanda Farall (Jones Day)

The Brazilian government is in the process of implementing a new set of infrastructure projects pursuant to its Programa de Aceleração do Crescimento (Growth Acceleration Program), which is commonly referred to as PAC. In 2007, President Silva’s administration created this program to promote the growth of the Brazilian economy through a series of infrastructure projects pertaining to logistics (e.g., railroads, roads, and ports), energy, water, and housing.

Timing for the launching and promotion of these new projects by the Brazilian government could not be better –with its long-term credit recently being upgraded by Standard and Poor’s Rating Service to investment grade status, Brazil is being perceived as a safe place for foreign investment. These projects offer many investment opportunities to foreign investors.

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