Presentation made by Jose Rubens Scharlack at WBI's Corporate Counsel Innovation Programme 2013, London, November 7th, 2013.

1. Brazil and Latin America:
relevant economic, political
and legal aspects an
organization needs to know
José Rubens V. Scharlack
Founding-Partner of Rodante & Scharlack Advogados
Legal Director of the Belgian-Luxembourgish-Brazilian
Chamber of Commerce and Industry in Brazil
(BELGALUX)
Vice-President of the Tax Law Commission of the
International Association of Young Lawyers (AIJA)
Professor at FGV (2008) and FAAP (2010-2012)

2. Paradigm Shift
“2013 will be the year when we start to see how the
world economy will look for the rest of the century. It
will be the year when businesses recognize that,
without doubt, global growth and commodity
prices are now driven primarily by developments
in Emerging Economies, like China, India and Brazil
(which, together, will account for nearly half of world
GDP growth in 2013), not the US and Europe.
In 2013, expansion in the emerging markets will no
longer be viewed as a speculative investment, but core
to business growth.”
http://www.pwc.com.br/pt_BR/br/publicacoes/assets/doing-deals-13.pdf

3. This is a good time to invest in
emerging markets, says UBS
Valor, 10/23/2013
Invest in
Invest in
shares and
shares and
fasten your
fasten your
seat belts!
seat belts!

4. Latin America - Overview
• 20 countries
• 581.4 million people
• 79% of urban population
• US$ 5.343 trillion of GDP
• Imported 25.5% of its GDP in
goods and services in 2012

5. Rise of the Middle Class
Event held in
10/10/2013,
at the World Bank
“In the last decade, 43% of Latin
Americans changed social classes
between the mid-1990’s and the end of
the 2000’s and most of this movement
was upwards.”
“The number of poor people in Latin
America dropped from 44% (2003) to
27% (2011).”
“For the first time in history, the number
of people in the middle class (32%)
surpassed the number of poor (27%).”
“Cause: growth and social politics.”
http://live.worldbank.org/rise-of-middle-class-latin-america-2013

6. Political Stability
• Protests in Brazil, Peru and Chile reflect demand for
better public services and less corruption, not for
changes in the political or economic systems.
• “In sum, when it comes to shock-absorption capacity visà-vis the souring of the external environment, pessimism
does not seem warranted. Rather, a cautious optimism
appears more appropriate, based on the obvious
improvements in much of the region`s macro-financial
immune system.”
http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

7. Recent Countercyclical
Monetary Policy
• “(…) the depreciations of LAC currencies should no
longer be interpreted as a sign of financial distress
and harbinger of a crisis. They should rather be seen, at least
for the inflation targeting LAC countries, as a salutary part of
a more efficient and employment-friendly process of
macroeconomic adjustment to a downturn induced by adverse
external developments.”
• “To be sure, inflation targeting LAC countries are, in some
sense, the region`s backbone – they include at least Brazil,
Chile, Colombia, Mexico and Peru, which jointly account for
70-80 percent of LAC`s population and GDP.”
http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

8. Latin America – Trade
Evolution
(SAM includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru,
Uruguay and Venezuela)
http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pd

9. Latin America – Economic
Growth
http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

10. Latin America – Local Growth
Residuals
http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

11. Brazil - Overview
• Federative Republic of Brazil
• Population: 194 million
• 26 states and 1 federal district (Brasília)
• 2012 GDP: US$ 2.3 trillion
• Currency: Real (rate of US$ 1 to R$ 2.19 as at 10/31/2013)
• Language: Portuguese
• Presidential and state elections were last held in October
2010 (for a four year term)
• Current president Mrs. Dilma Rousseff (Workers Party) is
set to run for re-election in 2014, supported by former
president Mr. Luiz Inácio Lula da Silva

12. Brazil – Facts and Figures
• Largest economy in Latin America, 7 th largest in the
world and expected to improve in the ranking over the
next years;
• GDP per capita of approximately US$ 12,000 (2012);
• Largest population in Latin America and 5 th largest in
the world;
• Approximately 70% of the population are concentrated
in the southeast and northeast;
• Country highly urbanized: only 14% of the population
lives in rural areas;
• Main ports: Tubarão, Itaqui, Santos, Itaguaí, São
Sebastião, Paranaguá, Aratu, Rio Grande and Belém.

13. Brazil – Geography
• Main economic regions: São Paulo, Rio de Janeiro, Minas
Gerais (southeast), Paraná and Rio Grande do Sul (south);
• São Paulo is one of the fastest-growing cities in the world
and the state that most receives foreign investment (
http://www.saopauloglobal.sp.gov.br/eng-index.aspx);
• 20 other metropolitan areas with more than 1 million people.
São Paulo (12 million people)
Rio (7 million people)

14. Economic Policy
• In 2012: a shift from the traditional macroeconomic tripod
(inflation targets, a floating exchange rate and fiscal
responsibility) to the “New Economic Matrix” (low interest
rates, a devalued exchange rate, more expansionary fiscal
policy and industry specific incentives).
• Countercyclical move in order to stimulate the economy
in times of external adversity.
• The benchmark interest rate (SELIC) was reduced from 12.50%
to 7.25%, thus declining, in real terms (net of inflation), from
4.2% at the end of 2011 to 1.5% at the end of 2012.
• Brazilian Central Bank is focusing more on growth than on
inflation. The goal is no longer to steer inflation towards the
target (4.5%), but preventing it from exceeding the ceiling (6.5%)

15. Economic Policy
• In 2012, among the fifteen most important currencies in
the world, the Brazilian Real was the second most
devaluated one (minus 10.8%), just behind the Japanese
yen (minus 11.5%).
• The current account deficit was US$ 54 billion (2.4% of
the GDP), which could be financed by the FDI flow that
amounted to US$ 65 billion.
•Tax incentives to specific industries: IPI (federal VAT)
reduction on purchases of vehicles and household
appliances; some payroll taxes were replaced by a new
sales tax (to reduce production costs) in many industry
sectors.

16. Environment for Investment
“Brazil has withstood the international economic crisis
and emerged as a stronger and more attractive global
player. A high degree of economic diversification, combined
with a strong domestic consumer market and a broad
selection of trading partners, further coupled with a well
regulated financial system, have been key to successfully
mitigating the worst effects of the crisis. The long period of
domestic economic instability in Brazil has been overcome.
Both politically and economically, Brazil is now a
mature country and one of the most attractive
markets in the world for foreign investment.”
http://www.pwc.com.br/pt_BR/br/publicacoes/assets/doing-deals-13.pdf

17. World Events in 2014 and 2016
“As the World Cup and the Olympic Games are
world events, the expected gains in terms of
visibility for Brazil are huge. Therefore, these are
considered great opportunities for the country to
improve its international image. An increase of
about 1 percent in Brazil`s GDP is expected
in the year of each event.”
http://www.pwc.com.br/pt_BR/br/publicacoes/assets/doing-deals-13.pdf

18. M&A Activity in Brazil
http://www.pwc.com.br/pt_BR/br/publicacoes/assets/doing-deals-13.pdf
• In 2012, the leading sectors in growth were also leaders in
deal volume: IT, Retail, Consumer Products (including
Food/Agribusiness & Beverages, Healthcare and Cleaning
products), Mining, Services (Healthcare, Education and
general services) and Chemicals/Oil & Gas;
• Foreign investors took part in 41% of all business deals, a
record breaker.

19. Brazilian Legal System
• Civil Law Country;
• Federal Constitution of 1988;
• Civil and Criminal State Courts;
• Specialized Federal and Labor Courts;
• 3 High Courts: Superior Court of Labor (TST), Superior
Court of Justice (STJ) and Supreme Federal Court (STF);
• Arbitration Law of 1996;
• Civil Code of 2003;
• Special legislation for SME’s;
• New Commercial Code under
construction.
(Supreme Federal Court – STF)

20. IP Protection
• Brazil has been one of the first countries in the world to
sign international agreements for the protection of IP rights
and one of the first members of WIPO.
• Copyrights: Berna Convention (1886), Rome Convention
(1961), WIPO Treaties (1996), Phonograms Convention (1971),
Satellites Convention (1974);
• Industrial Property: Paris Convention (1883), Madrid
Agreement (1891), Hague Treaty (1925), Nice Agreement (1957),
Lisbon Treaty (1958), Locarno Agreement (1968), Strasburg
Agreement (1971), Vienna Agreement (1973), Budapest Treaty
(1977), Patent Cooperation Treaty – PCT (1978), Trademark Law
Treaty (1996) and the TRIPS Agreement.

21. Tax Scenario
• Heavily regulated, highly complex and frequently
updated environment;
• 3 levels of taxation: federal, state and municipal;
• 3 Systems of federal taxation: Pretax Profit, Presumed Profit
and Simples;
• Import/Export taxation x free trade zones and special
customs regimes;
• Payments Offshore (TP, thin cap and tax haven rules);
• Harmonization with IAS and IFRS (RTT);
• Progressive influence of IT;
• Tax incentives for innovation, projects in
infra-structure and others.

22. Thank You
E-mail: jr@rsch.com.br
Skype: jose.scharlack
Twitter: @rschlaw
This presentation is also available at:
www.direitoemvoga.com
Rua Dr. Bacelar, 187, São Paulo / SP/ Brasil
(55 11) 5083-3108
www.rsch.com.br