Apresentação sobre aspectos legais do agronegócio no Brasil.

1. © 2015 Trench, Rossi e Watanabe Advogados
ACQUISITION OF RURAL LAND IN BRAZIL BY FOREIGNERS
LEGAL ENVIRONMENT AND BARRIERS, AND OPPORTUNITIES
Alvaro Schmidt Gallo Neto
Ricardo Barcellos
June, 2016

2. © 2015 Trench, Rossi e Watanabe Advogados 2
CONSTITUTIONAL BASIS
‒ Brazilian Federal Constitution of 1988 – Art. 190: The law will regulate
and limit the acquisition or leasing of rural land by a foreign individual or a
foreign legal entity and establish the cases that will depend on the
authorization of the National Congress
‒ Art. 171 (original text) considered “Brazilian”, the company incorporated
under the Brazilian laws and with head office and management in Brazil
(art. 171, I)
‒ Article revoked by the Constitutional Amendment 6/95

3. © 2015 Trench, Rossi e Watanabe Advogados
The Law No. 5,709/71 and the Decree No. 74,965/74
 Law No. 5,709/71
“Art. 1 – The foreigner resident in Brazil and the foreign legal entity authorized to
operate in Brazil shall only acquire rural land in the form provided in this law.
First Paragraph - It is, however, subject to the regime established in this Law the
Brazilian legal entity in which participate, in any way, foreign individuals or legal
entities who have the majority of its capital and resides or has its head office
abroad”.
 Decree No. 74,965/74
“Art. 1 – The foreign resident in the country (Brazil) and the foreigner legal entity
authorized to operate in Brazil shall only acquire rural land in the form provided in
this regulation.
§ 1 – It is also subject to the regime established by this regulation the Brazilian
legal entity in which participate, in any way, foreign individuals or legal entities who
have the majority of its capital and resides or has its head office abroad”.
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Legal Restriction

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LEGAL OPINIONS OF THE AGU (Attorney General’s
Office of Brazil)
 By virtue of the law, these AGU opinions bind and are enforceable against
federal bodies or agencies
 History of the Opinions
 First Legal Opinion of the AGU (April/1994):
Understood, that, with the Federal Constitution of 1988, it was revoked the
First Paragraph of art. 1 of the Law No. 5.709/71, that matched or equated to
a foreigner, for purpose of such law, a Brazilian company with majority of
foreign capital, due to the terms of art. 171 of the Federal Constitution, which
defined “Brazilian company” as those incorporated under the Brazilian laws
and with head office and administration in Brazil, no matter the origin of the
capital.
 Consequences: Brazilian companies may acquire a rural land without
observing the restrictions and the requirements of the Law No. 5.709/71, no
matter the origin of its capital.
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5. © 2015 Trench, Rossi e Watanabe Advogados
- Second Legal Opinion of the AGU (1998)
 The Constitutional Amendment No. 06/95 revoked the article 171 of the
Federal Constitution, resulting in doubts as to whether this fact would
have reinstated the effectiveness of First Paragraph of the art. 1, of
Law No. 5.709/71.
 Second Opinion (under reference) maintained the previous legal
opinion in the sense that the restriction of the Law No. 5.709/71 was
revoked: “The Constitutional Amendment No. 6, of August 15, 1995, in
its art. 3, revoked the art. 171 of the Constitution. This simple
revocation does not have the power to reinstate the rule that was
understood as revoked. In this way, remains revoked the first
paragraph of art. 1 of the Law No. 5.709/71, remaining unchanged the
conclusion of the referred Legal Opinion No. AGU/LA-04/94.”
 Consequence: Maintained opened the possibility of acquisition of rural
land by Brazilian companies with majority of or controlled by foreign
capital.
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6. © 2015 Trench, Rossi e Watanabe Advogados
- Third Legal Opinion of the AGU (2010)
 In 2010, the AGU issued the Legal Opinion No. LA-01/2010 that changed
the understandings fixed in the previous Legal Opinions, concluding that:
“the First Paragraph of the art. 1 of the Law No. 5,709/71, was
admitted by the Federal Constitution of 1988, both in the original text
(i.e., art. 171), or after the promulgation of the Constitutional
Amendment No. 06/95”.
 Legal Opinion approved by the President and published in the Official
Gazette of the Union on August 23, 2010.
 Consequence: Brazilian companies with majority of foreign capital, or (in
fact) controlled by foreigners, are subject to restrictions provided by Law
No. 5,709/71 for the acquisition of rural land.
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7. © 2015 Trench, Rossi e Watanabe Advogados
Current Scenario – Judicial Discussion
Leading Case: Decision of the t of São Paulo Court of Appeals, in an injunction
presented by our Firm, understanding that the art. 1, and its First Paragraph, of the
Law No. 5,709/71, was not received and admitted by the Constitution of 1988,
which makes it unenforceable in relation to Brazilian companies that have foreign
capital, and not having it being being reinstated (TJSP, Órgão Especial, MS nº.
0058947- 33.2012.8.26.0000, Des. Relator GUERRIERI REZENDE, j. 12.09.2012)
Legal Opinion 461-12-E: from the Judge in charge of Administrative matters of the
State of São Paulo (“Corregedor Geral”)
“RURAL LAND – Acquisition by Brazilian legal entity with majority of its capital
held by foreign individuals residing abroad or by legal entities with head office
abroad – Equalization or comparison with foreign company, for purpose being
the Brazilian company subject to the regime established by the Law No.
5,709/71 – First Paragraph of article 1 of the Law No. 5,709/71 – Not received or
admitted by the Federal Constitution of 1988 – Subjective enlargement of the limits
to the private appropriation of rural land unauthorized by the article 190 of the Federal
Constitution of 1988 – Original wording from article 171 of the Federal Constitution of
1988 reinforces the revocation.”
Consequence: in the State of São Paulo, notaries and registry officers are authorized to
register acquisitions of rural land by Brazilian companies controlled by foreign capital.
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8. © 2015 Trench, Rossi e Watanabe Advogados
Original civil action No. 2.463-DF in the Federal Supreme
Court
 June, 2014: Federal Government and the National Institute of Rural
Settlement and Agrarian Reform – INCRA filed before the Federal
Supreme Court civil action against the State of São Paulo, requesting the
nullity of the Legal Opinion No. 461/12-E, of the Judge in Charge of
Administrative Matters’ Office of the State of São Paulo, that dismissed the
notaries and registry officers of observing the provisions of the Law No.
5,709/71 and of the Decree No. 74,965/74.
 July 9, 2014: Reporting Minister Marco Aurélio refused the injunction.
 Waiting for a decision since May, 2016.
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Pending actions with the Federal Supreme Court
(STF) :

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Lawsuit “Argumentation of Breach of Fundamental
Precept – ADPF 342”
 April, 2015: Brazilian Rural Society (“SRB”) filed the referred ADPF to (i)
demonstrate the breach of fundamental precepts by the different treatment
brought by art. 1, First Paragraph of the Law 5,709/71 to Brazilian
companies with foreign capital and, thus, (ii) require to be fixed the
understanding that such treatment/regime was not encompassed by the
Federal Constitution of 1988, and shall be revoked.
 SRB required to be granted the injunction to suspend the effectiveness of
art. 1, First Paragraph of the Law 5,709/71 and the AGU Legal Opinion No.
LA-01/2010. The Reporting Minister Marco Aurélio did not examined the
injunction pleading and determined to be obtained information from the
Attorney General’s Office and from the Attorney-General.
 November, 2015: Attorney-General presented a legal opinion unfavorable
to the grant of the injunction.
 Waiting a decision over the injunction since November 16, 2015.
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10. © 2015 Trench, Rossi e Watanabe Advogados 10
Legal Structure - Perspective of changes and
improvement
 Bill of Law 2,289/07 and other related bills (“Land Bill”) – regulate acquisition and
lease of rural land by foreing individuals and foreign entiities authorized to operate
in Brazil.
 Current status (June/2016) – Text/draft of Land Bill approved, leaving Brazilian
companies out of any restrictions, regardless of origin of their capital. Much more
flexible and aligned with investors’ expectations.
 Long-term review and approval procedure; pending approval by other Congress
commissions, including (i) Finances and Taxation (Finanças e Tributação - CFT)
and the Constitution, Justice and Citizenship Commission (Comissão de
Constituição e Justiça e de Cidadania - CCJ).
 Recent changes in Federal Government - Positive perpective, although still a bit
uncertain; indications and signs towards a flexibilization as essencial, mainly
considering recessive economic environment and necessity to attract investment.
 Brazilian Confederation of Agriculture and Livestock (CNA) - estimates that more
than BRL 60bi will not be directed to investiments in the agribusiness up to 2017
given current restructions, despite agri sctor currently responsible for (i) 22.4% of
Brazilian GDP, (ii) 37% of exports and (iii) 1/3 of all jobs.

11. © 2015 Trench, Rossi e Watanabe Advogados
 Devaluation of Brazilian currency;
 Devaluation trend involving rural properties, as result of economic and political
crisis, related uncertainty, and also as result of recent falling prices of certain
agribusiness commodities prices, and impacts from the restrictions imposed by the
Law 5,709/71.
 Financial distress involving agribusiness companies, and necessity of cash and/or
investments (cheap assets). Consequent increase of bargaining power of investors.
 At the same time, opportunities involving companies with modern industrial facilities
with high level of technology, more professionalized management structure and
good corporate governance rules, regularity and leval compliance involving assets
and operations – increase of attractiveness in relation to potential foreign investor.
 Positive perspective in the increase of demand involving agribusiness products
associated with the necessity of related investments to be made, both regarding
agribusiness products, as well as related transport, logistic and storage structure.
 Example: world demand of grains will require Brazil to increase its production in
more than 60 mi of tons for 2026. In 2015, production was of 209 mi tons.
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Attracting factors and appetite for foreign investors to
invest in Brazilian agribusiness

12. © 2015 Trench, Rossi e Watanabe Advogados
 Corporate structures with minority foreign capital participation, but securing legal
protection mechanisms through shareholders’ agreement; veto powers aiming to
protect interests of minority shareholder, taking care not characterize corporate
control.
 Majority of corporate capital vs. corporate control.
 Segregation of real estate assets in separate entity ("LandCo"), in which foreign
investor would be minority shareholder, and majority of capital and corporate
control by foreign shareholder in company that will conduct agribusiness
operation ("OpCo"); consider possibility of financial structure that results in funds
from OpCo to LandCo (i.e., intercompany loans), with guaranties constituted
over real property owned by LandCo.
 Rural Partnership (Parceria agrícola) – extra care not to characterize lease
(arrendamento), as rural partnership agreements are characterized by the
transfer of possession and sharing the risks of the exploitation of the land.
 Concession of Surface Rights (Concessão de Direito Real de Superfície):
purpose of transferring the right of building or planting on the land for certain
period, being formalized through public deed and registration with the Real
Estate Registry Office.
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Are there alternative structures for foreign investment in
the agribusiness involving rural land? How to mitigate
related risks?