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  • STJ ruling upholds TJLP as the cap for deduction of Interest on Equity (JCP)

    Ruling on the calculation of JCP

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    Brazil’s Superior Court of Justice (STJ) has issued a decision upholding the Long-Term Interest Rate (TJLP) as the valid ceiling for the deduction of Interest on Equity (JCP). JCP is a form of remuneration paid to shareholders that allows the company to deduct the amount distributed from its corporate tax base.

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    Rejection of alternative methodology

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    In the case reviewed, a panel of the court evaluated a request from companies seeking to apply the original calculation methodology of the rate. The companies aimed to expand the deduction margin for interest on equity, which would result in a greater tax benefit for their operations.

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    However, the request was rejected. The decision reinforces the established position that the ceiling for this tax deduction must adhere to the TJLP, excluding the use of alternative methodologies that broaden the deduction limit sought by taxpayers.

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    Impact on businesses

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    Clarifications on deduction ceilings are an important consideration for foreign investors and executives structuring capital distribution in Brazilian entities. Upholding the TJLP as the cap confirms the calculation standard accepted by the courts for corporate financial planning.

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    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • ANEEL Approves Brazil’s First Battery Storage Auctions

    ANEEL (National Electric Energy Agency, Brazil’s power regulator) has approved the tender documents for the country’s first battery energy storage auctions. This measure marks the beginning of the commercial framework for this technology in the Brazilian energy market.

    Auction Details

    According to the approved guidelines, the auctions are scheduled to take place on December 2 and 4. Under the established model, winning projects will sign 15-year contracts.

    Timeline and Implementation

    The contracts are scheduled to take effect on August 1, 2028. This timeline establishes the period required for investors and power sector companies to plan and execute the installation of storage infrastructure.

    Outlook for Investors

    The approval of the tender documents creates a new business segment within national energy infrastructure. Companies and investors monitoring the Brazilian market should analyze the auction rules to assess the feasibility of participating in these pioneering projects.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • STF Rules Out V.tal’s Liability for Oi’s Debts

    STF Rules Out V.tal’s Liability for Oi’s Debts

    Justice Cármen Lúcia of the STF (Brazil’s Supreme Federal Court) overturned a decision issued by the TST (Brazil’s Superior Labor Court) that held the company V.tal liable for debts belonging to Oi. The decision eliminates the requirement to pay liabilities that had previously been imposed on the company.

    Divergence between judicial instances

    The case illustrates a common divergence between different spheres of the Brazilian Judiciary. The TST had consolidated the position that V.tal should assume liability for Oi’s debts. However, upon reviewing the matter, the STF reversed that determination.

    Holding third parties liable for an original company’s debts generally occurs when courts identify an economic group or business succession. When the STF overturns this type of decision, the court signals limits on the automatic transfer of such liabilities.

    Relevance for corporate transactions

    For executives, investors, and managers involved in mergers, acquisitions, and restructurings, liability for corporate debt is a central point of concern. An unforeseen transfer of liabilities can drastically alter the financial viability of a transaction.

    The STF’s decision in this specific case reinforces the importance of legal predictability. By preventing V.tal from being held liable for Oi’s debts under the TST’s previous interpretation, the Supreme Court reinforces the separation of assets between companies involved in complex corporate restructurings, such as those in the telecommunications sector.

    Practical considerations

    This scenario highlights the necessity of thorough due diligence in any corporate transaction. Monitoring STF decisions is essential to understand how the court interprets the boundaries of corporate liability, providing clearer guidance for the market.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • Earnouts in M&A: Delaware Court Rules Against Founder

    Earnouts in M&A: Delaware Court Rules Against Founder

    In mergers and acquisitions (M&A) transactions, parties frequently use mechanisms to bridge valuation gaps. One of the most common is the earnout, a contractual provision that conditions payment of part of the purchase price on the acquired company meeting future financial targets. However, when the founder remains in management after the sale, this structure can create misaligned incentives.

    A recent decision by the Delaware Court of Chancery in In re Saama Technologies Litigation illustrates the practical risks of this dynamic. The court determined that a private equity fund (the buyer) did not owe a US$ 67.5 million earnout payment to the founder and former CEO of the acquired company. Moreover, the court ordered the executive to pay US$ 7.3 million in damages to the company for breaching his fiduciary duty of loyalty.

    The Transaction Context and the Earnout’s Origin

    In the summer of 2021, the buyer approached the founder to acquire control of Saama Technologies. Negotiations initially centered on an enterprise value of US$ 505 million. During due diligence, the buyer identified accounting anomalies and reduced the valuation to US$ 435 million.

    To bridge the valuation gap, the buyer proposed an earnout. The merger agreement provided that the buyer would acquire 62% of the company, a co-investor syndicate would hold 13%, and the selling shareholders, including the founder, would retain 25%. The earnout of up to US$ 67.5 million would be paid if, by the end of 2021, company revenue reached US$ 72 million and annual recurring revenue bookings for signed contracts reached US$ 27 million.

    Conflict of Interest and Breach of Fiduciary Duty

    The founder continued to serve as CEO during the earnout period. According to court records, he aggressively directed the company’s focus toward meeting the short-term targets required to secure the additional payout. At the end of 2021, the founder submitted a statement indicating that the targets had been met.

    An accounting expert hired by the buyer reviewed the statement and challenged the revenue recognition practices. The buyer refused payment, contending that the founder’s actions prioritized short-term financial metrics to the detriment of the company’s long-term financial health and growth. The fiduciary duty of loyalty requires corporate officers to act in the company’s best interest, rather than for personal benefit.

    The court agreed with the buyer. The decision emphasized that the executive’s actions crossed the line of permissible aggressive business strategy, amounting to bad faith driven by self-interest. Due to the post-closing deterioration of the business, the founder was terminated in June 2022 and subsequently ordered to indemnify the company for the resulting damages.

    The Efficacy of Arbitration Clauses

    The case also provides lessons regarding dispute resolution. The merger agreement established an expert arbitration procedure to resolve earnout disputes through an independent accountant. The founder initially sought judicial enforcement of the arbitration provision and prevailed. However, he subsequently changed strategy and amended his complaint to include breach of contract and fiduciary duty claims in court, seeking a declaratory judgment that the earnout was due.

    Shifting the strategy toward traditional litigation backfired, resulting not only in the forfeiture of the earnout, but also in liability under the counterclaims asserted by the buyer.

    Practical Lessons for M&A Transactions

    The Delaware decision underscores the need for diligence when structuring and monitoring earnout provisions. Several practical measures can help mitigate similar risks:

    • Active monitoring: The buyer should actively supervise the acquired business during the earnout period to ensure operations adhere to the standards and covenants set out in the agreement.
    • Attention to anomalous results: If the target company abruptly exceeds performance expectations, buyers should examine sales processes to verify whether management is manipulating metrics.
    • Contractual specificity: Earnout clauses should be detailed and well-defined. While Saama’s contract required good-faith operations, the parties would have benefited from explicit terms governing discounting, bundled or free services, the distinction between bookings and recognized revenue, and revenue allocation across multi-year subscriptions.

    Although the buyer prevailed in the dispute, the outcome followed years of litigation and significant value destruction within the acquired company. Contractual precision and rigorous post-closing governance remain critical to preserving investment value.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • STF ruling on ITBI property transfer tax impacts over 6,000 lawsuits

    STF ruling on ITBI property transfer tax impacts over 6,000 lawsuits

    The Impact of the STF Ruling

    The STF (Brazil’s Supreme Federal Court) issued a relevant decision regarding the ITBI, a municipal tax levied on real estate transfers. According to case data, this precedent has the potential to impact more than 6,000 lawsuits currently pending in state courts across the country.

    Tax Immunity and Its Exceptions

    The core of the ruling addresses the application of tax immunity. Immunity is a legal protection that prevents tax collection in specific scenarios. In the context of ITBI, this rule is frequently applied to corporate restructurings and real estate structuring operations.

    The STF decision, however, established a clear caveat: tax immunity does not apply if a sham transaction or fraud is identified. The objective of this exception is to prevent the improper use of the tax benefit by parties involved in the transaction.

    Practical Considerations

    For executives, founders, and foreign investors, this ruling reinforces the necessity of compliance and transparency in corporate operations. The exception regarding sham transactions indicates that structures utilized for transferring property must have valid business substance and accurate documentation, avoiding scrutiny that could disregard the tax immunity.

    As this topic impacts thousands of state proceedings, the legal environment requires strict attention to the practices adopted in transactions involving real property.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • Domain and Trademark Registration Scams in China

    Domain and Trademark Registration Scams in China

    Companies with international operations frequently receive emails from China warning that third parties are about to register their corporate name. These messages typically come from purported domain registrars or Chinese intellectual property firms, stating that another company wishes to use your name in local domain extensions or as a trademark.

    While some trademark notices do identify real filings with authentic deadlines, the vast majority of these communications are fraudulent pitches or aggressive sales tactics. Understanding the mechanics of these emails is crucial to protecting company assets without incurring unnecessary costs.

    How the Scheme Works

    The domain-focused model has circulated for more than two decades. The sender usually claims that a company has applied to register your corporate name, product name, or brand under Chinese domain extensions, such as .cn or .中国. In some versions, the emails also include additional Asian domains, such as .hk.

    The purported registrar claims to have uncovered a conflict with your existing name and asks whether the applicant is a distributor, business partner, or authorized representative of your company. The message suggests that there is only a brief window to block the registration. If the foreign company objects, the sender offers to register the domains on its behalf, often quoting inflated prices or demanding multi-year financial commitments.

    Other versions of the message claim that the domains have already been registered and offer to transfer ownership for a fee. Historically, a pattern emerged where some of these emails arrived one or two weeks after executives returned from business trips to China, suggesting potential targeted distribution of the messages.

    The Reality of Domain Registrations in China

    These emails are essentially commercial sales pitches disguised as brand-protection warnings. Standard domain registration is not a trademark clearance process in which the registrar must obtain permission from all companies that might hold rights to a similar name.

    The China Internet Network Information Center (CNNIC), the responsible governing body, generally operates .cn registrations on a first-come, first-served basis, subject to applicable registration requirements and restrictions. An unknown entity’s claim that it must consult your company before processing a third party’s application is not standard procedure, which undercuts the credibility of the alleged inquiry.

    Furthermore, bundling multiple extensions in the same message is typically a tactic to heighten perceived urgency. The .cn extension belongs to mainland China’s domain system, whereas .hk is Hong Kong’s country-code domain, operating under entirely separate rules. Listing them together does not establish a genuine application.

    Risks and Financial Consequences

    Companies that chose to pay the senders of these messages reported expenses ranging from US$ 500 to US$ 3,500. The outcomes of these payments illustrate the risks involved:

    • Approximately one-third of the companies were simply ignored after payment, with no service provided.
    • Another third was initially ignored and, a few weeks later, faced extortion attempts where third parties demanded ransoms to release the trademark, typically in amounts of US$ 10,000 or more.
    • Only the final third paid an actual law firm or trademark agency, which opposed the filing as promised and then submitted a formal trademark application on behalf of the company.

    Practical Recommendations

    Upon receiving emails warning about domain or trademark registrations in China, the primary recommendation is not to reply to the sender and not to make any payment. Companies should adopt an analytical approach and independently verify the veracity of the claim.

    It is possible to verify domain registration status or have the trademark claim reviewed by trusted professionals. Above all, the situation should serve as a reminder for the company to proactively assess whether its business operations require formal intellectual property protection in the Chinese market, anticipating real issues.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • STJ Sets Criteria for Compensation in Property Expropriations

    STJ Sets Criteria for Compensation in Property Expropriations

    The First Section of the Superior Court of Justice (STJ, Brazil’s highest appellate court for federal non-constitutional matters) established new criteria to determine the baseline reference date for compensation values in property expropriation proceedings. Decided under the constitutional relevance filter for federal questions, the ruling seeks to balance fair compensation to the owner and protection of the public treasury, preventing unjust enrichment for either party.

    The matter has a substantial impact on the country’s legal and economic environment. According to National Council of Justice (CNJ) data cited by the reporting Justice Afrânio Vilela, there are over 90,000 ongoing expropriation lawsuits in Brazil. Of this total, approximately 75,000 are pending before state courts. The average duration of these proceedings is roughly six years, with land reform cases typically taking somewhat longer and being concentrated in the Federal Courts. In 2025 alone, the volume of judgments rendered in these actions reached the 25,000 mark.

    Time Limits for Court Appraisals

    The central point of the STJ decision is defining the baseline moment for technical property valuation, seeking to reconcile litigation duration with fair compensation. The general rule establishes that contemporaneous valuation corresponds to the asset’s market price at the time the court-ordered appraisal is conducted. However, the court established specific time limits based on the type of expropriation:

    • Public utility or social interest: The baseline appraisal date cannot exceed a time limit of one year from the filing of the lawsuit.
    • Agrarian reform: The deadline for determining the value cannot exceed 90 days following the filing of the lawsuit.
    • Indirect expropriation (de facto taking): The reference moment corresponds to the date of administrative possession. The expert appraisal must reconstruct the exact market price as of that date, without prejudice to statutory inflation adjustments and compensatory interest.

    Handling of Delays and Property Appreciation

    The STJ also defined clear rules for situations where the court appraisal exceeds the established deadlines. In these instances, the valuation must retroactively determine the market price as of the cut-off baseline date, utilizing scientifically accepted appraisal methodologies for this reconstruction.

    When the expropriating authority is responsible for the delay in conducting the initial appraisal—due to an act attributable to it and formally recognized in a reasoned court decision—the time limit is extended only by the exact period of delay attributable to it. Conversely, delays attributable to the property owner, the court administration, or third parties do not suspend or extend the established limits.

    Another key aspect addressed by the First Section concerns property appreciation resulting directly from State intervention, such as the construction of public works or regional infrastructure improvements. Justice Afrânio Vilela underscored that private parties cannot exploit procedural delays or engage in land speculation to obtain windfalls they would not have achieved through a standard market sale. Consequently, any price fluctuations generated by public intervention must be identified separately by the court expert and deducted from the final compensation awarded by the court.

    Modulation of Effects and Legal Framework

    To ensure legal certainty in the application of the new precedents, the STJ panel modulated the temporal effects of the ruling. The rules will apply exclusively to cases in which the court appraisal is ordered after the publication of the appellate decision. This means that the new criteria apply to experts appointed from that point forward, regardless of the appeal stage or whether a final, unappealable judgment (res judicata) has already been reached in the case.

    The dispute was initially submitted under the repetitive appeals procedure (Topic 1,432), but the panel opted to establish binding precedents under the constitutional relevance regime for federal questions, grounded in Article 9, sole paragraph, of Internal Regimental Amendment 55/2026. The legal foundation was also based on Articles 26 of Decree-Law 3,365/1941 and 12, paragraph 2, of Supplementary Law 76/1993, which establish appraisal as the benchmark for determining compensation amounts.

    Practical Considerations

    The establishment of these criteria by the Superior Court of Justice brings greater predictability to investors, companies, and property owners managing real estate assets exposed to expropriation proceedings. The strict time boundaries for judicial appraisals mitigate risks associated with prolonged litigation, preventing real estate inflation or appreciation resulting from public works from distorting the value of fair compensation, thereby safeguarding both private property and public funds.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • Rehiring a Hypersufficient Employee as a Legal Entity Constitutes Labor Fraud

    Rehiring a Hypersufficient Employee as a Legal Entity Constitutes Labor Fraud

    The Dynamics of Hiring Professionals in Brazil

    Workforce structuring and the selection of hiring models are constant challenges for companies, founders, and foreign investors operating in the Brazilian market. A frequently debated practice is replacing a traditional employment relationship with service providers established as legal entities (known locally as PJ, or pessoa jurídica). Recently, the legal news outlet Consultor Jurídico reported on a specific development regarding this issue: rehiring a hypersufficient employee as a legal entity constitutes fraud.

    The Concept of a Hypersufficient Employee

    To understand the impact of this report, one must understand what the term “hypersufficient” means under Brazilian labor law. It refers to a worker who, possessing a higher degree of education and substantial compensation, is recognized by statute as having greater bargaining power with the employer. Unlike the general rule, this professional is presumed capable of freely negotiating employment contract terms on a more equal footing with the employer.

    Rehiring as a Legal Entity and the Characterization of Fraud

    Despite the broader flexibility granted to hypersufficient workers, rehiring the same professional as an entity, shortly after or to replace a formal employment contract, faces strict scrutiny. The published report indicates that this maneuver constitutes labor fraud.

    Fraud, in this context, occurs when changing the contractual model (from individual employee to corporate entity) happens merely on paper, without a genuine shift in daily operations. If the professional continues performing the same duties, remains subordinated to company directives, observes fixed hours, and cannot delegate the tasks to a substitute, the essence of an employment relationship persists. The professional’s high hierarchical rank or salary does not validate artificially reshaping the relationship to circumvent statutory obligations.

    Implications for Corporate Governance

    Decisions to restructure a workforce must involve a rigorous assessment of factual realities. In the business environment, particularly in transactions involving foreign direct investment, transparency and compliance with local rules are essential to prevent hidden liabilities.

    Attempting to optimize costs through pejotização (misclassifying employees as corporate entities), even those with high bargaining power, exposes companies to legal risks. Brazilian Labor Courts prioritize the factual reality of daily work routines, which consistently prevails over signed documents.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • New Transparency Rules for Digital Advertising

    New Transparency Rules for Digital Advertising

    The online business environment is undergoing transformations focused on the clarity of information provided to consumers. The debate over new transparency rules for digital advertising has gained prominence, raising a central question for companies, investors, and communications agencies: after all, who is behind the ad?

    The requirement for clarity in campaign authorship

    Digital advertising enables large-scale reach and precise targeting, but it also brings the challenge of maintaining clarity regarding the origin and authorship of published messages. The new transparency rules aim to ensure that the public knows exactly which company, brand, or individual is financially and creatively responsible for a given internet campaign.

    This identification requirement is rooted in creating a safer and more reliable business environment. By determining that the origin of a digital ad must be public, direct, and easy to understand, the new transparency guidelines aim to discourage practices that conceal the actual sponsors of a commercial or institutional message.

    Impact on the routine of companies and agencies

    For companies that consistently invest in digital marketing and for the agencies that develop and operate these campaigns, adapting to these new transparency rules is an essential step in corporate governance. Designing a digital advertisement must now consider, from its inception, not only the persuasive message and target audience definition, but also the exact way the ad’s authorship will be communicated to the end user.

    Ensuring that it is clear who is behind the ad has become a basic, non-negotiable guideline in drafting digital media strategies. This requires executives and communications managers to review internal approval, production, and distribution processes for campaigns, ensuring all materials align with the transparency requirements demanded by today’s advertising market.

    Practical considerations for the market

    Transparency in digital advertising is no longer merely a best-practice recommendation; it has become the central focus of new industry rules. Organizations must pay close attention to the clear identification of their advertisements, integrating this responsibility into the strategic planning of their media campaigns.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.

  • STF Excludes ISS from the PIS and Cofins Calculation Base

    STF Excludes ISS from the PIS and Cofins Calculation Base

    The Supreme Federal Court (STF), Brazil’s highest constitutional court, decided to exclude the Tax on Services (ISS, a municipal tax) from the calculation base of PIS and Cofins (federal gross revenue contributions). In a case noted for its significant financial impact, the vote of Justice Luiz Fux was decisive in ruling against the federal government, consolidating the Court’s position.

    The impact of the ISS exclusion

    The core dispute centered on levying federal contributions (PIS and Cofins) on amounts that are ultimately transferred to municipal governments as local tax (ISS). Following the ruling, the STF determined that municipal tax does not constitute gross revenue or turnover for service providers, and therefore must not be included in the calculation base for these federal contributions.

    Discussion on the modulation of effects

    Despite the decision on the exclusion of the tax, the Court has yet to define the effective date from which the ruling applies. This mechanism, known as the “modulation of effects,” can limit taxpayers’ ability to recover amounts paid in prior years.

    During the session, the Justices accepted the suggestion presented by Justice Edson Fachin. It was established that any potential modulation of the ruling’s effects will only be evaluated during the judgment of motions for clarification (embargos de declaração), which are procedural appeals used to clarify or address specific points of a court decision.

    Outlook for the services sector

    The exclusion of ISS from the PIS and Cofins base alters how service sector companies calculate their tax liabilities. The final ruling on the motions for clarification will be the decisive moment for businesses to understand the temporal reach of the judgment and its impact on the sector’s tax environment.

    This content is for informational purposes only and does not constitute legal advice. For guidance on specific matters, consult a qualified lawyer.