Post by Sapphire Capital on Jul 12, 2008 0:08:48 GMT 4
Law number 11,638/2007, enacted on December 28 2007, altered and revoked several provisions of the Brazilian corporate act (law number 6,404/1976) and the regulations about the securities market and the Brazilian securities and exchange commission – CVM (law number 6,385/1976), also introducing new rules to adapt Brazilian accounting practices to international accounting standards. The changes introduced by the new law are effective as of January 1 2008 yet, some provisions are pending further regulation by the CVM. It should be noted that tax specialists are still discussing and analysing the underlying tax implications deriving from these new rules.
The main provisions set forth by the new law can be summarized as follows:
* Large companies (even if not constituted as a corporation, for example Brazilian limited liability companies (limitadas)), which are defined as companies or a group of companies under common control, which had, in the prior fiscal year, total assets higher than R$240 million ($142.8 million) or with annual gross income higher than R$300 million, are now obliged to prepare financial statements in accordance with the provisions of the corporate act and to have these statements audited by independent auditors registered with the CVM;
* Apart from the financial statements already required by the Brazilian legislation, two new documents must be prepared, disclosed and approved at the annual shareholders' meeting: (i) statement of cash flows and (ii) statement of added value, intended to indicate the wealth generated by the company (the statement of changes in financial position is no longer required). It should be noted that closely-held companies with net assets lower than R$2 million are not required to present the statement of cash flows;
* Upon merger, amalgamation and spin-off operations carried out between unrelated parties, and linked to actual transfer of control, the assets and liabilities of the company to be merged or arising from the above-mentioned transactions must now be recorded at market value;
* Premiums arising from the issuance of debentures can no longer be recorded as a capital reserve in shareholders' equity;
* The relevance criterion was excluded in the context of the valuation of investment in related companies and subsidiaries. In this sense, investments in related entities in which the company has a significant influence, or in which its interest is 20% or more of the voting capital of the investee, must be registered under the equity method.
Other important changes in force: (i) creation of two new accounting groups - intangible assets and net equity appraisal adjustments (replacing the revaluation reserves account); (ii) introduction of new definitions/classification of assets accounts; (iii) change in the assets and liabilities valuation criteria (adjustment of long-term assets and liabilities at present value, for instance); (iv) deferred asset accounts now restricted to pre-operating expenses and restructuring expenditures, and (v) introduction of a new tax incentive reserve and new provisions regarding profit reserves.
for more details one possible contact reference is:
Nélio B. Weiss (nelio.weiss@br.pwc.com) &
Philippe Jeffrey (philippe.jeffrey@br.pwc.com),
Price Waterhouse, São Paulo
The main provisions set forth by the new law can be summarized as follows:
* Large companies (even if not constituted as a corporation, for example Brazilian limited liability companies (limitadas)), which are defined as companies or a group of companies under common control, which had, in the prior fiscal year, total assets higher than R$240 million ($142.8 million) or with annual gross income higher than R$300 million, are now obliged to prepare financial statements in accordance with the provisions of the corporate act and to have these statements audited by independent auditors registered with the CVM;
* Apart from the financial statements already required by the Brazilian legislation, two new documents must be prepared, disclosed and approved at the annual shareholders' meeting: (i) statement of cash flows and (ii) statement of added value, intended to indicate the wealth generated by the company (the statement of changes in financial position is no longer required). It should be noted that closely-held companies with net assets lower than R$2 million are not required to present the statement of cash flows;
* Upon merger, amalgamation and spin-off operations carried out between unrelated parties, and linked to actual transfer of control, the assets and liabilities of the company to be merged or arising from the above-mentioned transactions must now be recorded at market value;
* Premiums arising from the issuance of debentures can no longer be recorded as a capital reserve in shareholders' equity;
* The relevance criterion was excluded in the context of the valuation of investment in related companies and subsidiaries. In this sense, investments in related entities in which the company has a significant influence, or in which its interest is 20% or more of the voting capital of the investee, must be registered under the equity method.
Other important changes in force: (i) creation of two new accounting groups - intangible assets and net equity appraisal adjustments (replacing the revaluation reserves account); (ii) introduction of new definitions/classification of assets accounts; (iii) change in the assets and liabilities valuation criteria (adjustment of long-term assets and liabilities at present value, for instance); (iv) deferred asset accounts now restricted to pre-operating expenses and restructuring expenditures, and (v) introduction of a new tax incentive reserve and new provisions regarding profit reserves.
for more details one possible contact reference is:
Nélio B. Weiss (nelio.weiss@br.pwc.com) &
Philippe Jeffrey (philippe.jeffrey@br.pwc.com),
Price Waterhouse, São Paulo