The Technology M&A Review: Brazil


Technology has always brought modernity to businesses, and the covid-19 pandemic has intensified interest in and the adoption of technology. That increased interest can be associated mostly with:

  1. the need to access and connect remotely to the outside world, both in terms of work relations and consumption, in a context of ever-changing paradigms; and
  2. the need to foresee and prepare for disrupting events and market practices, and to access new markets and niches created by such new business structures and systems.

Up to July 2020, Brazil registered 646 M&A transactions in 2020, involving an aggregate amount of 84.5 billion reais, according to the monthly report released by Transactional Track Record.2 This volume represents a notable 21 per cent decrease in the number of transactions and a 47 per cent reduction in the amount flow in comparison with the same period of 2019. There is some indication, however, that the trend is changing, with a only total of 104 transactions registered in July for a total amount of 28.7 billion reais.

According to the same report, tech M&A activity has been the most relevant in Brazil this year, registering 182 transactions until the end of July (7 per cent lower in comparison to the same period of 2019), and the technology sector in Brazil, irrespective of the pandemic scenario, continues to draw the attention of foreign players, as inbound tech acquisitions by foreign companies registered 37 transactions, with funds flowing from 10 different countries, with the US leading with 17 transactions reported, followed by Germany (six) and Spain (five).

Year in review

Over the past year and in 2020, several tech M&A transactions have taken place in Brazil, of which the following can be remarked:

  1. Reclame Aqui and Trustvox: in January 2019, the website Reclame Aqui, a consumer and business relationship platform, acquired the startup of Trustvox, an auditor of sales evaluations and the largest collector of reliable reviews in Brazil. Terms of the transaction were not disclosed.
  2. WDC Networks and Munddo Distribuidora: in January 2019, WDC Networks, a IT and telecommunications and digital infrastructure solutions provider, acquired Munddo Distribuidora, a wireless home and building automation systems trader. Terms of the transaction were not disclosed.
  3. Linx and Hiper: in April 2019, Linx SA, the leading Brazilian provider of management software solutions for retail, announced the acquisition of startup Hiper, a software developer for micro and small retailers. The purchase price disclosed was of a maximum of 50 million reais.
  4. Magazine Luiza and Netshoes: in June 2019, Magazine Luiza (the third-largest e-commerce company in Brazil) acquired Netshoes, and became the leader in online retailing of clothing, footwear and sporting goods. Netshoes had a debt of 330 million reais, and the transaction was closed for an amount of US$115 million.
  5. Nubank and Plataformatec: in January 2020, Nubank acquired Plataformatec, a consulting and training company specialised in software engineering. Terms of the transaction were not disclosed.
  6. B2W and Supermercado Now: in January 2020, B2W, a Brazilian e-commerce company, acquired SuperNow Portal e Serviços de Internet, a company responsible for the Supermercado Now platform, a retail marketplace in the food industry.
  7. Magazine Luiza and Estante Virtual: in February 2020, Magazine Luiza acquired Estante Virtual, a marketplace platform for new and used books previously owned by Livraria Cultura, for 31 million reais. Other terms of the transaction were not disclosed.
  8. In April 2020, Sovos Compliance LLC acquired, through its Brazilian subsidiary Sovos Compliance Desenvolvimento de Sistemas Ltda, 100 per cent of the capital stock of Taxweb Software de Compliance Fiscal SA.

Legal and regulatory framework

In general, M&A transactions, including tech M&A transactions, are regulated by the Brazilian Civil Code,3 the Corporations Law,4 the Capital Markets Law5 and the Brazilian Competition Law.6 Other laws and specific regulations may apply and regulatory agencies may be involved if a transaction involves a regulated sector (e.g., telecom, oil and gas, aviation, mining). The Brazilian Tax Code7 and other tax laws, and the Labour Code,8 may also be of special relevance in the context of tech M&A.

In addition, depending on the size and market share of the parties involved in a transaction, the transaction may be subject to an antitrust filing with and approval from the Brazilian Antitrust Authority (CADE) before the transaction can close. Under the Brazilian Competition Law, an M&A transaction must be submitted to CADE's review and approval if at least one of the economic groups involved in the transaction had gross revenues, in Brazil, of at least 750 million reais in the year preceding the transaction, and at least one other economic group involved in the transaction had gross revenues, in Brazil, of at least 75 million reais in the year preceding the transaction. Furthermore, according to CADE Regulation No. 2/2012, the following entities are considered part of the same economic group: (1) companies that are under common control, internally or externally; and (2) companies in which any company of item (1) holds, directly or indirectly, at least 20 per cent of the participation of the capital stock or voting rights.

If a transaction involves an investment fund, the following entities should be considered part of the same economic group for purposes of calculating the group's gross revenues: the economic group of each quota holder that holds, directly or indirectly, 50 per cent or more of the quotas of the fund involved in the transaction by means of an individual participation or of any type of quotaholders' agreement; and the companies controlled by the fund directly involved in the transaction and the companies in which the fund has a direct or indirect participation of 20 per cent or more in their capital stock or voting rights. That information is certainly even more relevant in relation to deals where private funds participate.

Key transactional issues

i Company structures

Two company forms are mostly used in Brazil: the limitada (limited liability company (LLC)), a hybrid between a corporation and a partnership; and the sociedade anônima (S/A), which is the basic corporation form in Brazil.

LLCs are generally governed by the Civil Code and are formed as of the execution of a corporate charter by at least one shareholder, referred to as a quotaholder, which must set out certain basic information on the company, such as:

  1. denomination and seat;
  2. name of quotaholders;
  3. corporate purpose;
  4. corporate capital and quota division structure (the shares of an LLC are denominated quotas);
  5. management structure; and
  6. other provisions that the quotaholders may choose to include.

On the other hand, corporations are governed by the Corporations Law. The management structure, operations and corporate acts of a corporation are, in practice, determined more frequently by statutory law than they are in the case of an LLC. A corporation is formed by at least two shareholders with the adoption of by-laws. Unlike an LLC, a corporation requires that at least 10 per cent of the initial share subscription be paid in at the company's formation.

In general terms, it is simpler to incorporate a company under the form of an LLC, as it has a more flexible structure than a corporation. By using the LLC form, investors could avoid the more complex management structure of a corporation and the formalities associated with the operation (e.g., calling shareholders' meetings, maintaining minutes books) and disclosure rules (publication of financial statements and minutes of shareholders' meetings, etc.).

Within the context of M&A, corporations make more sense for joint ventures and more complex investment arrangements, as they allow for different types of fundraising (e.g., issuance of debt securities, access to capital markets) and for more sophisticated corporate governance structures.

ii Deal structures

Sale processes are usually carried out by means of acquisition agreements, mostly in the form of share deals. Although a possibility, asset deals are less common in Brazil due to risks associated with successor liability that are inherent to businesses rather than to formal entities.

Optionalities have also come to be more frequent, especially due to disruptions caused by the pandemic. It is usual to see earnout provisions or even acquisition of control only (as opposed to 100 per cent) coupled with options and exit mechanisms to be triggered in the future, when a business has consolidated or achieved consistent levels.

Frequently, deals also adopt the usual venture capital financing and investment structures, especially in smaller transactions where a business is at its outset or is in the process of consolidation.

Tender offers and other transaction structures involving the capital markets are more usual in larger deals where the target company is a listed entity, in which case specific minority shareholders rights' may be triggered, such as statutory tag-along provisions.

The role of advisers follows the usual international M&A practices and can be summarised in three main workstreams:

  1. valuation and deal process advice, which is usually performed by investment banks or other financial advisory firms and include a definition of the overall deal strategy, including in the context of competitive bids;
  2. auditors, who will provide insight on the financials of the target and their impact on valuation as well as identify related non-materialised risks, and
  3. legal advisers, who will deal with all the legal matters of the deal, such as legal due diligence, the drafting and negotiation of transaction documents and support to the other workstreams, including a definition of deal strategy along with the financial advisers.

iii Acquisition agreement terms

In Brazil, M&A transactions usually involve the negotiation and execution of a preliminary instrument (non-disclosure agreements, letters of intent (LoI), memoranda of understanding (MOUs), etc.), mostly on a non-binding basis, which will set out the fundamental terms and conditions of a transaction. Due diligence usually starts after such a preliminary instrument is agreed.

Simultaneously with the legal, accounting and operational due diligence, the parties negotiate the final transaction agreements, usually a stock purchase agreement or an asset purchase agreement (less frequent), which will be fundamentally driven by the conditions reflected in the LoI or MoU and adjusted to reflect due diligence findings.

Consideration is usually in cash, but share swaps as well as capital increases with dilution of seller shareholders are also common; the form of consideration will rather depend on the profile of the parties and the purpose to be achieved by means of the transaction. Most recently, consideration in registered intellectual property (IP) rights, such as patents, designs and software, and in non-patented technology, as know-how, have become an option. That will, nonetheless, depend on a careful evaluation of the market value of those assets and registration with the Brazilian Patent Office, where required.

Usual conditions of the final transaction documents include:

  1. conditions precedent, such as the conclusion of due diligence, the absence of a material adverse change, antitrust clearance, where applicable, consent from third parties (e.g., creditors, authorities) for the change of control;
  2. regularisation of IP rights that are deemed relevant to the target's business, especially in tech M&A;
  3. a reasonable set of representations and warranties, especially as regards ownership of IP rights and other aspects that most often lead to contingencies (labour, taxes, social security, compliance with laws, etc.) along with indemnification provisions and limitations (cap, de minimis, tipping or non-tipping basket, guaranteed periods, etc.); and
  4. guarantees from sellers (e.g., holdbacks, escrow and other deferred payment provisions).

Termination provisions are frequently limited to uncured default and the impossibility of the parties to satisfy conditions precedent (e.g., antitrust clearance), with termination for convenience being rather the odd case. It is therefore uncommon to see break-up fees or reverse break-up fees reflected in M&A transactions in Brazil, albeit we have seen substantial penalties being imposed on one party in the event of the blocking of a transaction by the antitrust authorities; however, this is the exception rather than the rule.

With specific regards to tech M&A, IP ownership, data protection and privacy measures, integrity and security of online platforms and electronic systems, cybersecurity and other technology-related topics are especially important, not only in terms of the usual risks and contingencies, but also in relation to any potential impact these matters may have on the existence and continuation of the target's business and operations. Buyers are advised to dedicate special attention to these potential impacts, especially where a business is based on new or early technology that is still to be tested by the industry and the market.

iv Financing

M&A transactions in Brazil are typically financed by means of equity or debt. It is not uncommon for domestic transactions to have a mix between equity and debt and for transactions involving a foreign purchaser to be financed through equity alone, at least locally. Convertible debt is also usual, whether by issuance of convertible debt securities (e.g., debentures) or by entering into simple convertible loans (especially in early venture capital investments), which, upon conversion, may lead to a change or sharing of control of the target.

v Tax and accounting

Tax aspects that are relevant for cross-border M&A refer mainly to taxation of funds flow, such as, inter alia, equity injections, the payment of the purchase price, repatriation of capital or distribution of dividends. These can be summarised as follows.

Remittance of the purchase price (equity investment) from a foreign purchaser

Flows of funds are subject to 0.38 per cent IOF tax (tax on certain financial transactions such as foreign exchange), but this is a cost of the party receiving the funds. The IOF tax is collected by the financial institution responsible for the foreign exchange transaction. The price paid would be the cost of the foreign investor in a future investment sale (for the calculation of taxable capital gains).

Repatriation of the equity investment

The return of the capital invested up to the amount injected by a foreign shareholder in a Brazilian target can in principle be made without any tax impacts.

Distributions of profits and dividends

Distributions of profits and dividends currently enjoy a zero per cent withholding income tax (WHT).

One of the particularities of the Brazilian tax system is that the economic double taxation over dividends paid by domestic companies is fully avoided via a full exemption applicable to all recipients. Since the enactment of Law No. 9,249 in 1995, any dividends flow after-tax profits9 distributed by a Brazilian legal entity is not subject to any further income taxation at the level of the shareholders (not even via WHT), regardless of their status as residents or non-residents, and individuals or legal entities.

Payment of interest on equity: JCP

Payment of interest on equity is subject to WHT at a rate of 15 per cent, provided that the beneficiary of such payment is not located in a low tax jurisdiction (LTJ).10 A beneficiary located in an LTJ will be subject to 25 per cent WHT.

JCP is a hybrid form of profit distribution that corresponds to interest calculated on equity accounts of the taxpayer (based on a local long-term interest rate, the TJLP). Under certain conditions, payment of JCP is deductible for corporate income tax purposes. WHT paid in Brazil may be creditable, depending on the rules of the country where the relevant shareholder is located and on the rules of any applicable treaty to avoid double taxation.11

Capital gains

In the case of a disposition of direct investment in a Brazilian entity,12 as a rule WHT will be levied on any capital gains at progressive rates ranging from 15 to 22.2 per cent. If the foreign investor is domiciled in an LTJ, a fixed 25 per cent WHT rate will apply. In the case where a foreign investor qualifies as a portfolio investor and, for instance, the local entity is a publicly traded company, the WHT over the gain would be reduced to zero.13

If a foreign investor is located in a jurisdiction with which Brazil maintains a double tax treaty, the WHT over the capital gains derived from the disposition of shares may in some cases be limited to a fixed rate (i.e., progressive rates do not apply and a fixed rate is settled), and a corresponding credit in the jurisdiction where the beneficiary is located is granted (this credit mechanism applies to all treaties). The tax treaty with Japan is the only one that fully restricts Brazil from imposing WHT over gains recognised by Japanese investors derived from the sale of a corporate participation in Brazil.

vi Cross-border issues

Although Brazil imposes a few foreign investment restrictions with respect to certain sectors (e.g., rural land, media and the press), none of them seems to represent a concern for foreign acquirers of tech businesses. Although some jurisdictions have started to implement measures to prevent foreign investments in key sectors and sensitive technologies, that trend has not yet flourished in Brazil.

One bureaucratic hurdle that affects most first-time foreign investors is the need to appoint local attorneys-in-fact (resident in Brazil) to represent them and receive service of process in connection with matters related to the Brazilian invested company. In addition, appointing senior management (e.g., statutory officers) of the investee may be a challenge, as those need to be residents of Brazil in order to be able to take office (the same rule does not apply to members of the board of directors of corporations, who can reside abroad).

From a tax perspective, other important tax considerations (in addition to those mentioned above) may apply, depending on the existence of other income flows from Brazil. For instance, payments from Brazil to a foreign entity of amounts as compensation for services (import of services) or royalties may be subject to a significant tax burden.14

IP protection

The Brazilian Patent and Trademark Office (INPI) is the government body responsible for the registration of industrial property rights, as well as for the formal examination of applications for patents and trademarks and for the scrutiny and recording of technology transfers and IP licence agreements.

The Brazilian Industrial Property Law15 provides for crimes against industrial property, unfair competition, and the protection of inventions, utility models, industrial designs and trademarks.

Internationally, Brazil is a signatory of the Stockholm Convention (1967), which established the goals of the World Intellectual Property Organization (WIPO). Brazil has been a member of the WIPO since 1975. It is also a signatory of the Paris Convention for the protection of industrial property, including The Hague (1935) and Stockholm revisions (1967). Brazil is also a signatory of the Strasbourg Agreement (1971) on International Patent Classification and the Berne Convention for the Protection of Literary and Artistic Works. Further, Brazil is a member country of the Patent Cooperation Treaty (PCT) and the Agreement on Trade Related Aspects of Intellectual Property Rights. Brazil has recently ratified the Madrid Protocol on international trademarks' registration through Decree No. 10,033/2019.

i Copyright

In Brazil, copyright is regulated by the Copyright Law.16 The Copyright Law was inspired by the Berne Convention, and follows most of the principles adopted by civil law countries.

Therefore, there is more emphasis on the moral rights of the authors as opposed to the American and British approaches. The Copyright Law protects economic rights, but also ensures great recognition of the authors themselves by listing their moral rights, which should be respected. Copyright can be exercised in Brazil regardless of registration, and the Copyright Law expressly states that ideas are not entitled to protection, but rather, protection is provided in relation to how ideas are expressed; therefore, originality is an important requirement to secure protection.

The assignment or licensing of copyrights will be interpreted restrictively in Brazil. Therefore, an assignment document, or licence agreement, must provide clear and complete information in relation to the authorised uses, term and any conditions.

Although not mandatory, copyrights can be registered, depending on the type, with the following entities:

  1. the National Library;
  2. the National Agency of Cinema;
  3. the National Council of Engineering and Agronomy; and
  4. the National School of Fine Arts of the Federal University of Rio de Janeiro.

ii Patents

According to the Brazilian Industrial Property Law, the following are patentable:

  1. an invention that meets the requirements of novelty, inventive activity and industrial application; and
  2. a utility model: an object of practical use, or part of it, with potential industrial application, which presents a new shape or arrangement and involves an inventive act that results in functional improvement in its use or manufacture.

A patent of invention is valid for 20 years and a utility model patent is valid for 15 years counted from the date of filing with the INPI, subject to a minimum of 10 years from the date of grant of a patent of an invention and seven years from the date of grant with respect to a utility model.

The applicant for a patent of invention or utility model in Brazil has the right to claim priority over an international application according to the Paris Convention. The priority established by the Convention must be proven by an authenticated document of origin, which contains the number, date, title, specification, claims and, where appropriate, drawings, and must be accompanied by a simple translation of the certificate requesting registration (or an equivalent document with data that identifies the content). Failure to provide the supporting documents within 180 days from the date of filing will result in a loss of priority. It is also possible to apply in Brazil for an international patent under the PCT, provided that there is national processing.

Amendments have been introduced to the Brazilian Industrial Property Law to protect chemicals and pharmaceuticals and their manufacturing processes.

In the biotechnology field, all or part of natural living beings and biological materials found in nature are not patentable, but organisms created in a laboratory are entitled to protection, provided they are novel, comprise an inventive step and are capable of industrial application. Although Brazilian law does not allow patent protection for plants or animals, some specific processes for the production of transgenic organisms may be subject to patent protection.

Another important innovation established by the new patent law was the grace period, which states that any public disclosure of an invention or utility model during the 12 months preceding the date of filing or priority of the patent application will not be considered as part of the state of the art.

iii Registration of industrial designs

An industrial design is considered to be an ornamental plastic form of an object or an ornamental arrangement of lines and colours that may be applied to a product, providing a new and original visual result in its external configuration and that may serve as a model for industrial manufacture.

There is no examination of the merits of the request before granting a registration of industrial designs. In other words, compliance with legal requirements of novelty, originality and industrial application will be considered exclusively only upon the establishment of a legal, administrative repeal process by a third party or by the INPI, on their own initiative.

An industrial design registration will be valid for 10 years from the date of filing, renewable for three successive periods of five years each. The extension request must be made during the last year of the term, along with proof of payment of the associated fee.

iv Trademarks

Any person – whether an individual or a corporate entity under public or private law, Brazilian or foreign – can apply for registration of a trademark in Brazil, according to the provisions of the Brazilian Industrial Property Law. It is only possible to apply for trademark registration with respect to the activity the applicant is engaged in in an effective and lawful manner.

Before filing a trademark application with the INPI, it is advisable to carry out a prior trademark search to determine whether there is a previously filed or registered mark identifying products or services that might be identical or similar.

Marks filed in Brazil with a priority claim under the Paris Convention must be filed within six months from the date of filing in the country of origin. During this period, the owner may make an application to register its trademark in other countries that are signatories of the Convention, but if the foreign owner does not claim the priority, the benefit of priority provided in the Convention will not be granted.

Based on Brazilian laws and regulations, royalties are not payable for licence agreements of trademarks in the following cases:

  1. the mark is not duly registered in Brazil;
  2. the trademark registration is not renewed; and
  3. the trademark registration has been extinguished or is in the process of revocation or cancellation.

The mark must be used within five years of the date of the grant. The effective use of a trademark is compulsory for it to remain in force and cannot be interrupted for more than five (consecutive years. Therefore, in the case of a forfeiture request, it will be necessary to prove use of the mark as found on the certificate of registration (if a word mark, the INPI accepts the use as a composite mark), which can either be done by the holder in Brazil, or by a licensee.

The use of a mark must cover products or services included on the certificate, under penalty of partial forfeit of the registration in relation to those that are not similar or akin to those for which the mark was proven to have been used (Article 144 of the Brazilian IP Law).

The registration of a mark shall be valid for a term of duration of 10 years counting from the granting date of the registration. The renewal of a registration, for another identical period of 10 years, must be applied within the last year of its validity.

A person domiciled abroad must constitute and maintain a duly-qualified attorney-in-fact in Brazil with powers to represent it administratively and judicially, including the power to receive service of process.17

Brazil recently enacted Decree No. 10,033/2019, which formalises the entry into force of the Madrid Protocol. With the Protocol now in effect in Brazil, trademark owners who wish to register their trademarks in any of the other 120 countries that are part of the agreement may do so directly with the INPI through the filing of a single international application and by paying solely one fee.

The INPI may also receive trademark applications from trademark owners that enter the Protocol and choose Brazil as their designated country. The INPI, as designated office, will have up to 18 months to make a first analysis of an application, under penalty of automatic allowance. This first review can result in an office action or abeyance (which interrupts the 18-month review period) or a final decision (allowance or rejection of the application).

v Technology transfer

A technology transfer is formalised by means of agreements involving the transfer or licensing of IP rights, such as:

  1. exploitation of a patent or industrial design;
  2. use of trademarks;
  3. supply of technology or know-how;
  4. technical and scientific assistance or service; and
  5. franchise.

These agreements must contain the following information:

    1. Object:
      • the licence of the patent, industrial design or trademark: their corresponding particulars; whether or not they are exclusive; and whether or not they are sub-licensable;
      • transfer of technology or know-how: a clear definition of the products or processes to be developed and an indication of the area or industrial sector in which the technology will be applied; and
      • technical and scientific assistance or service: a clear description of the services to be rendered and an estimate of the total amount for these services.
    2. Remuneration:
      • the licence of the patent, industrial design or trademark: usually a fixed fee for a sold unit of the licensed product or service or a percentage royalty rate over the net sales or revenue. Note that remuneration is admissible only in relation to granted patents, industrial designs and registered trademarks, so pending applications do not entail the payment of a fee or royalty;
      • transfer of technology or know-how: usually a fixed fee for a sold unit of the licensed product or service or a percentage royalty rate over the net sales or revenue; and
      • technical and scientific assistance or service: cost of a person per day or person per hour based on the category of the technicians involved.
    3. Term:
      • the licence of the patent, industrial design or trademark: up to the period of validity of the corresponding right, renewable for indefinite terms provided that the related right is valid;
      • transfer of technology or know-how: up to five years, renewable for an additional five-year period upon justification of the need to continue the agreement; and
      • technical and scientific assistance or service: up to five years, renewable for an additional five-year period upon justification.

Transfer or licence agreements related to the IP rights of or to Brazilian companies must be recorded with the INPI in order to be binding upon third parties, enable the remittance of fee or royalty payments abroad and allow the tax deduction of such payments by the local company (under the terms of the applicable tax legislation). Once recorded with the INPI, the relevant agreement must also be registered with the Brazilian Central Bank for the purpose of remittance of payments abroad.

The INPI does not accept the concept of the licensing of technology or know-how as a temporary provision of rights to return to their owner, but exclusively determines their transfer resulting in a permanent condition according to which the recipient company will absorb or incorporate the technology or know-how and become a new owner.

As regards recent cases or rulings that affect the ownership or validity of IP, currently disputes involving pharmaceutical patents are the most significant. Historically, there was a discussion between the INPI and the Health Surveillance Agency (ANVISA) on jurisdiction to examine patentability requirements, which led to many lawsuits. An agreement was recently executed whereby it has been clarified that ANVISA will only analyse aspects related to public health, and the INPI will examine the technical aspects for patent granting. The expectation is that this will reduce the number of lawsuits.

Owing to the INPI's backlog, litigation involving patents covering electronic devices such as mobile phones is not frequent in Brazil. Ericsson recently filed an action in Brazil against Chinese TCT for violation of its 3G technology. In another lawsuit, Vringo, a patent holder of 3G and 4G-related technologies, also filed a patent infringement action against ZTE, a mobile phone manufacturer. These were the first cases in Brazil involving standard-essential patents, and the granting of licences under the concept of fair, reasonable and non-discriminatory terms. Both of them were settled, but the jurisprudence is not yet formed in this matter.

Trademark disputes are more frequent in the country, and the most common cause of action would be someone using a mark that is identical or similar to a senior registered mark for similar goods. The same is applicable to a confusingly identical or similar junior company name or trade name in respect of an earlier registered mark for similar activities. If the junior sign (mark or company, trade or domain name) is capable of creating confusion, it would amount to an infringement of the senior registered mark. An earlier registered company name can also serve as grounds for having a confusingly similar trademark refused or invalidated.18

In NBA Properties v. NBA Gestão,19 the Federal Court of Appeals of the Second Circuit invalidated the registration of the mark 'NBA' based on NBA's company name,20 which is registered only in the United States. There is no official test used by the courts to assess trademark infringement. They usually try to take into account as many factual aspects as possible.

There are also some disputes involving software rights and the ownership of online platforms, especially in view of the limitations on transferring moral rights of the author as set out in the Brazilian Copyright Law, and the lack of formalities in the technology sector, where it is common for software developers not to sign agreements with their contractors, which can pose risks in future technology-related transactions. Those disputes are normally settled prior to the courts issuing final decisions; thus, there is not much case law on the matter.

Employment issues

There is not much flexibility for employment in Brazil, and labour courts are still very employee-protective. That is why many small businesses usually outsource various services such as IT, payroll, accounting, cleaning services, security and so forth.

The basic principles concerning labour relations in Brazil are contained in the Labour Code. In 2017, the National Congress approved a labour reform allowing firm-level agreements to take prevalence over the law, which provides a legal basis for longstanding practice and reduces legal uncertainties; however, at the same time, essential employee rights have remained non-negotiable.

Some basic principles implicitly or expressly provided by law will govern any employment relationship in Brazil. The most relevant principles are:

      1. prevalence of facts: in the determination of labour consequences, the relevant facts surrounding an employment relationship will prevail over formal documents;
      2. a prohibition on detrimental changes: employers are prevented from making changes to employment terms and conditions that are detrimental to employees, whether or not an employee has previously consented to a change; and
      3. joint liability (group of companies): companies belonging to a group of legal entities under the same control, direction or management are jointly liable for the obligations of any company belonging to such group with respect to employment relationships.

Collective bargaining agreements apply to employment relationships and prevail over contractual arrangements, as long as the collective bargaining terms are more beneficial to the employee than the employment agreement. Nevertheless, the law provides for an exception when conditions are individually negotiated by employees that hold a college degree and who earn a monthly salary amounting to at least two times the maximum benefit granted by social security in 2020. There are also very strict rules for the termination of agreements.

No-competition agreements are valid for a limited period of time and are usually compensated.

Certain IP created by an employee is assumed to belong to his or her employer whenever it is an invention or a utility model arising from the performance of an employment agreement, that occurred in Brazil, the scope of which is research and development (R&D) or an inventive activity, or if it results from the nature of the services rendered.21 Software rights are detailed in the Brazilian Software Law,22 and software will automatically belong to the employer whenever developed under an employment agreement or if it results from the nature of the services rendered (e.g., R&D).23

Litigation with former employees is frequent in Brazil, although not much in relation to challenges of ownership of IP rights.

Data protection

On 14 August 2018, Brazil approved its first specific legislation on the subject of data protection: the General Data Protection Law (LGPD).24 The text follows the worldwide trend of strengthening personal data protection and guaranteeing a series of rights of data subjects, as well as imposing important obligations on processing agents, including the necessity to abide with the LGPD's principles and support any processing activity on a lawful basis. The purpose of this legislation is to boost economic and technological development in Brazil, providing greater legal certainty to operations involving the processing of personal data.

First and foremost, it is important to point out that the Brazilian National Data Protection Authority (ANPD), whose attributions are similar to those of the European Data Protection Board, while created through Decree No. 10,474/2020, is not yet operational. Therefore, guidelines and jurisprudence on the subject are still scarce in Brazil.

The LGPD is expected to enter into force soon, but fines and other sanctions for companies that are not compliant with the LGPD will only be applied as of 1 August 2021.

While the LGPD is not in force, the data protection legal framework in Brazil encompasses sparse laws consisting of more than 40 legally binding norms that directly and indirectly deal with the protection of privacy and personal data in a sector-based system that is sometimes conflicting and that does not provide players in Brazil with an adequate level of legal certainty.

The LGPD replicates key points of the General Data Protection Regulation (GDPR), although compliance with the GDPR does not guarantee compliance with the Brazilian regulation: for example, the LGPD imposes shorter deadlines for controllers to comply with data subject access requests (15 days instead of 30 days under the GDPR).

In a transaction, parties shall be able to process personal data under one of the 10 legal bases established by the law. That does not mean that consent is always required, and even legitimate interest grounds can be used, but the parties shall make sure they are using the data for a sole purpose, respecting the principles of transparency, adequacy, necessity (data minimisation is advisable), security and accountability. Measures should be adopted for data anonymisation, if at all possible, in a transaction. Employee information could be used on these same grounds, if essential to a transaction. It is also a precautionary measure to not collect sensitive personal data, as legitimate interest grounds cannot be used.


Brazil historically grants tax incentives to promote the development of specific regions and activities. In general, the beneficial tax regimes are related to export promotion, sectoral incentives and regional incentives.

At the federal level, some incentives may be interesting for the technology sector, especially the ones brought about by Law No. 11,196/2006, which relates to R&D. In summary, the incentives involve:

      1. a corporate income tax deduction for R&D expenses and, on top of the deduction, an additional exclusion from a taxable basis of 60 to 80 per cent of the expenses incurred during R&D;
      2. accelerated depreciation and amortisation (in specific cases);
      3. a reduction of 50 per cent of the federal excise tax (IPI) imposed on goods used for R&D purposes; and
      4. a WHT exemption on remittances made abroad relating to registration and maintenance of trademarks and patents, among others.

Other important incentives that may be interesting to tech companies are:

      1. a special IPI reduction valid until 2029, which is granted to IT companies performing R&D activities (under Law No. 8,248/1991, as amended); and
      2. the REPES regime,25 under which software development and IT companies that commit to export at least 60 per cent of their production or services (based on their total annual gross revenue) are entitled to:
        • a suspension26 of PIS/COFINS contributions (see footnote 14) due on (x) import of new capital assets and services destined to software development and IT activities, and (y) revenues derived from services rendered to entities entitled to REPES; and
        • suspension of IPI over the import of capital goods without equivalent in Brazil.27

Some other incentives may also apply in connection with export and industrialisation activities, but they would depend on the detailed analysis of the intended technology activity.

Additionally, it is also relatively common that state and municipal tax authorities (especially smaller states and municipalities) grant special tax regimes or incentives to local companies, according to their local legislation and subject to the compliance of certain terms and conditions, if the nature and operational aspects of a business meet the requirements imposed by the local authorities.

Due diligence

Tech M&A due diligence practice in Brazil has traditionally relied on information from the INPI as regards the registration of IP rights, analysis of IP agreements and other information available publicly (e.g., related to IP disputes, unfair competition). More recent trends, however, indicate a deepening in the level of diligence in relation to IP matters. The most important ones are the following:

      1. Trademarks and patents: in addition to records of patent and trademark registries, buyers should look into agreements and transactions involving industrial property rights that may not have yet been recorded at said offices in order to fully ensure, inter alia, title and ownership rights, and the validity and effectiveness of licensing arrangements. An analysis of financing agreements that are guaranteed by IP rights is also advisable.
      2. Software: legal due diligence must contemplate all aspects related to development and ownership of software and related rights, including individuals involved in the software development and the existence of supporting documentation (e.g., access to source codes and algorithms). Careful analysis of employment agreements is also key to ensure that the target is properly protected against any potential claims for authorship and other claims from employees. A technical review of the source code and interactions with other software and IP is recommended.
      3. Interaction with other platforms: ideally, the legal and technical due diligence exercise should determine to what extent a given technology relies on third-party software or platforms so as to ensure the absence of disruption caused by other tech players, especially tech giants that may implement hard-to-change commercial policies. That should help in identifying and avoiding any potential impact that those players may have on the business and operations of the target.

Dispute resolution

The rules, terms and conditions governing disputes between buyers and sellers are typically a topic of discussion during the negotiation of the transaction agreements. In Brazil, parties usually opt for arbitration from the outset of negotiations, including in, inter alia, their LoI and MoUs.

The main reason for choosing arbitration is that, although expensive, arbitrators tend to be considerably more sophisticated and technically knowledgeable in the analysis of conflicts typically resulting from M&A transactions, and the overall dispute timeline tends to be considerably faster when comparted to regular courts. The fact that most arbitration chambers allow for hearings to take place at different places and in different languages also makes arbitration more attractive, especially to international players.

As for the governing law, Brazilian law is most usually adopted when the target is located in Brazil, but nothing prevents a choice of foreign law whenever foreign parties are involved.

In any event, note that whenever foreign courts or arbitration abroad are chosen, final decisions and awards will need to undergo a homologation process in Brazil before they can be enforced locally.


One of the most important topics that has been discussed recently and that is of crucial importance for all sorts of equity investment is the tentative abolishment of the WHT exemption on distributions of dividends. Despite such discussion, there is, so far, no clear definition (or final bill of law) on the matter.

Another important development is the imminent entry into force of the LGPD and the establishment of the ANPD, which will oversee compliance with the data protection laws, apply sanctions and issue rules and guidelines to the general public concerning data protection.

As previously mentioned, Brazil has ratified the Madrid Protocol, which should expedite the registration, transfer and management of trademarks in Brazil.

Finally, a law allowing companies to use client financial data for positive credit ratings was passed in 2019 (the Positive Credit Rating Law). The Law provides that, in general, only information regarding the regular payment of financial operations and certain commercial transactions that may entail financial risk may be used, which includes data arising from utility services. The Law sets out several obligations for controllers, as now defined in the LGPD, as well as terms and conditions for the collection of data from data subjects.



1 Augusto Cesar Barbosa de Souza and Fábio Pereira are partners at Veirano Advogados.

2 Transactional Track Record Brazil Monthly Report July 2020.

3 Brazilian Civil Code (Law No. 10,406/2002).

4 Corporations Law (Law No. 6,406/1976).

5 Capital Markets Law (Law No. 6,385/1976).

6 Brazilian Competition Law (Law No. 12,529/2011).

7 Brazilian Tax Code (Law No. 5,172/1966).

8 Consolidação das Leis do Trabalho (Law No. 5,452/1943).

9 The actual existence of corporate profits (or profits reserve) evidenced by financial and corporate statements is the only requirement for the payment of tax-free dividends. No level of participation or holding period requirements apply.

10 Brazil tax regulations contain a list of the jurisdictions that are deemed LTJ. That list includes, for instance, the British Virgin Islands, the Cayman Islands, Barbados and Bermuda.

11 Brazil has a limited tax treaty network. Currently, as of July, 2020, only 33 tax treaties are in force with South Africa, Argentina, Austria, Belgium, Canada, Chile, China, South Korea, Denmark, Ecuador, Slovakia, the Czech Republic, Spain, the Philippines, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Norway, the Netherlands, Peru, Portugal, Russia, Sweden, Trinidad and Tobago, Turkey, Ukraine and Venezuela.

12 Brazil imposes WHT over gains derived from sales of Brazilian located assets, regardless of whether the seller or both the seller and acquirer are non-residents.

13 If a portfolio investor is located in an LTJ, a 15 per cent WHT rate would apply instead of a rate of zero per cent.

14 For instance, taxes such as the CIDE (economic intervention) contribution, PIS/COFINS (system of social security) contributions and tax on services (ISS) can become due over such remittances, which can represent a nominal impact of roughly 40 per cent.

15 Brazilian Industrial Property Law (Law No. 9,279/1996).

16 Copyright Law (Law No. 9,610/1998).

17 Brazilian Industrial Property Law (Law No. 9,279/1996, Article 217).

18 Law Business Research Ltd: The Trademarks Law Review, Brazil chapter, 2019.

19 NBA Properties Inc v. NBA Gestão Ltda and the INPI. Appeal No. 0537431-03.2004.4.02.5101 (TRF2 2004.51.01.537431-5), Judge André Fontes, 28 August 2007.

20 Applying Article 124, Paragraph V in conjunction with Article 8 bis of the Paris Convention.

21 Brazilian Industrial Property Law (Law No. 9,279/1996, Article 88).

22 Brazilian Software Law (Law No. 9,609/1998) .

23 Brazilian Software Law (Law No. 9,609/98, Article 4).

24 General Data Protection Law, Federal Law No. 13,709/2018.

25 A special taxation regime for technology information services.

26 The suspension is converted into a zero per cent rate after a period of three or four years.

27 The suspension is converted into an exemption after a period of three to four years.

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