Tax | 3 Important Tax Due Diligence Aspects in Equity Investments in Brazil

Tax Due Diligence is a key part of equity investments in Brazil, such as M&A, Venture Capital and Private Equity.  

Recently the law is improving by providing specific new rules for various sectors, and, thus, open new venues for investment, such as, among others, the legal framework for investing in startups, fintechs, railroads, sanitation, among others. 

See below 3 aspects that are important to consider regarding tax issues:

1. Existing Tax Lawsuits by the Target: 2 different kinds of lawsuits must be carefully analyzed. First, the ones who can generate future loss. Usually are those that the company is charged for a tax not paid. Second, the ones that can generate future gain. They are found when the company is seeking in court the right to reduce its tax burden based on specific legal grounds.   

2. Tax Review: It is essential to assess in detail every possible tax that could be levied on the company’s operation, and the tax compliance with the current legislation.   

3. Legal Opinions: The investor must review all tax legal opinions that the target relies its busines on.  Sometimes, the legal opinions that companies use are no longer valid, given the fast change in the tax legislation and court orientations in Brazil. For example, the Supreme Court judged in 2021 more than 30 major tax cases that impact several sectors. 

The aspects above should be observed by investors when considering equity investments in a Brazilian company, and should help to reduce risk involved with this type of complex and long term transactions, and maximize the gains.


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