Mexico Enacts Important Commercial Litigation Reform

Excerpt from Latin American Law & Business Report
published by WorldTrade Executive, Inc.

By Oliver J. Armas, Luis Enrique Graham and Salvador Fonseca
(Chadbourne & Parke LLP)

A new system of "preventive" appeals, contained in the recently enacted reforms to the Mexican Code of Commerce, is designed to substantially reduce the complexities that currently tend to complicate commercial proceedings in Mexico.

The current system of appeals in commercial proceedings in Mexico is rather complicated. There are, for instance, intermediate and final appeals; the type of appeal depends on whether the challenge is directed against a resolution issued by the judge during the proceedings (intermediate appeal) or against the final resolution on the merits of the case (final appeal).

Currently, when filing an intermediate appeal, parties have to put forward all of their arguments and allegations before the court of appeals, even though there is the possibility that the issues discussed in the intermediate appeal will become moot once a resolution on the merits is rendered by the court of first instance. The reforms intend to remedy that.

The reforms, which will become effective July 16, 2008, primarily concern the appeals process. A new system of “preventive” appeals aims at substantially reducing the complexities that currently tend to complicate commercial proceedings in Mexico. The reforms also include new rules regarding documentary evidence and testimony from fact and expert witnesses; grant more time (15 instead of 9 business days) to file an answer, and harmonize default rules.

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Mexico's Dictamen Fiscal Is Similar to New Fin 48 in the US

Excerpt from Practical Mexican Tax Strategies
Published by WorldTrade Executive, Inc.

By Steve Axler & Dinorah Gonzalez
(Halliburton)

One of the concerns resulting from the introduction of FIN 48 for many in-house tax practitioners, especially for US based multinational companies, is that the US Internal Revenue Service would now essentially have a road map to various tax positions taken by the taxpayer. However, the disclosure of tax positions to the tax authorities is not a new or unusual event in Mexico. In fact, for large taxpayers in Mexico this is an annual occurrence. known in Spanish as the Dictamen Fiscal.

Often simply referred to just as “the Dictamen”, this a tax audit of a Mexican legal entity or person that carries out business activities or any foreign residents with a permanent establishment in Mexico. The Dictamen Fiscal can only be performed by a registered and certified Mexican public accountant. Upon completion of the Dictamen, the accountant will issue a report which will be filed with the Mexican tax authorities (Servicio Administración Tributaria or “SAT”) stating whether, according to the applicable tax regulations and audit standards, the taxpayer has complied with its obligations. The public accountant is required to sign the Dictamen under penalty of perjury.

It cannot be emphasized enough the influence that a Mexican statutory auditor has regarding the tax positions taken by a taxpayer in Mexico. A trap for a new or unsophisticated investor in Mexico is to execute a reorganization or to take an uncertain tax position without first discussing this with the auditor. In the best circumstances, if the taxpayer has not discussed the transaction with the auditor before the Dictamen review begins, much time, effort, expense and stress will be incurred in getting the auditor comfortable with the transaction given the limited time frame the auditor has to understand the transaction and complete the Dictamen.

In the very worst scenario, the auditor may not agree with a position taken by the taxpayer and may not be willing to sign the Dictamen or will give a negative opinion. The taxpayer is then faced with the decision to unwind the transaction, find another auditor, or in the worst situation face a tax audit from the SAT. Consequently, the taxpayer will be in the difficult position to explain why there is a negative opinion or no Dictamen at all.

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Brazil PE Fund Raising Continues Despite Global Crisis

From 4/30/08 Venture Equity Latin America
Published by WorldTrade Executive, Inc.

Brazilian private equity and venture capital fund raising has continued strong in 2008, despite the global impact prompted by the US subprime crisis. For the year, Brazilian fundraising is expected to surpass the $4 billion raised in 2007. The continued interest in Brazil is a result of a series of factors, including economic stability, low inflation, a consumer credit spending boom resulting from lower unemployment and higher income levels, particularly among lower income groups. In April alone, local and international funds raised over $1 billion. Standard & Poor’s recent decision to raise Brazil to investment grade will also have an impact on fund raising, because it will allow a broader range of investors to back Brazilian funds.

AIG Raises Nearly $700 Million for Brazil Investments
The highlight of April’s fund-raising activities was the final close of AIG Capital Partners’ Brazil Special Situations Fund II, L.P. (“BSSF II”). The fund received commitments of $691.9 million, surpassing its initial fundraising target.

AIG has a superb track record of investments in Brazil and has been a leader in IPO exits. In February of 2003, AIG invested $26 million to acquire a 17% share of Brazilian low-cost, low-fare airline Gol. AIG sold its share for $220.6 million in share offerings in 2004 and 2005. In July of 2003, the fund also invested $11.6 million in Intelsat, which it later sold to Brazilian long-distance company Embratel. The fund also owns a share of Brazilian supermarket chain Sendas, which was sold to leading supermarket chain Pão de Acuçar.

Vision, Moore to Close $300 Million
Brazil Real Estate Fund
Vision, a Sao Paulo-based asset management firm, together with New York-based and Moore Capital, will hold a first close on a $300 million real estate private equity fund which will invest exclusively in Brazil. A second close on the fund is expected to occur within the next few months, according to Ken Wainer, one of Vision’s founding partners and the head of its real estate investment division.

The fund will focus on three areas, including brown-field office development, which entails the construction of new Class A, Leeds green seal certified office buildings on sites previously used for industrial or residential purposes.Vision will also be acquiring existing office buildings, which will then be retrofitted to improve infrastructure and then rented or sold. The fund will also invest in Brazil’s expanding affordable housing sector.

FAMA Holds First Close on R$250 Million Fund
São Paulo-based investment firm FAMA held the first close on its first private equity fund, the FAMA Private Equity I FIP. The final fund raising target is R$400 million, with fund raising activities taking place both in Brazil and abroad. Credit Suisse Hedging-Griffo is involved in the fund raising process.

Fama, which is best known for private investments in public shares (PIPE) investments, decided to enter the private equity market in an effort to capitalize on its experience managing companies, according to André Burger, a partner at FAMA who joined the firm after over a decade ago at Rio Grande do Sul-based fund manager CRP.

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