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COVID-19 - Details of government measures and their practical implications in businesses Brazil

KPMG in Brazil

03 June 2020




OPENING AND INTRODUCTION

Mauricio EndoHead of Government in Brazil and South America

KPMG in Brazil

[email protected]

Webinar COVID-19, details of government measures and their practical implications in businesses Focus on Brazil – 03 June 2020




You can contact our speakers after the Webinar to continue the discussion

Valter ShimiduPartner of Labour Tax

KPMG in Brazil

[email protected]

Luciana LorentiHead of Legal

Attorney at Ferraz de

Camargo e Matsunaga

Advogados - FCAM

[email protected]

Ericson AmaralHead of International and M&A Tax

KPMG in Brazil

[email protected]

Marco André AlmeidaHead of Deal Advisory in Brazil

and South America

KPMG in Brazil

[email protected]



Speakers





Agenda

OPENING and INTRODUCTION ON THE BRAZILIAN CONTEXT


1 TAX MEASURES – Ericson Amaral

2 LABOUR MEASURES – Valter Shimidu

3 LEGAL MEASURES – Luciana Lorenti

4 FINANCIAL MEASURES – Marco André Almeida

5 Q&A





A global spread with Brazil among the most

impacted countries in the world

Of which

approx. 530.000in Brazil

Approx. 6.mconfirmed cases

around the world

Of which

approx. 30.000in Brazil

Approx.

370.000 deaths

around the world






A significant impact on the Brazilian

economy

Brazil 2020 GDP expected

down by 5.3%

Retail sales

decreased by

28% in April

A loss of 1,4%

(R$80 billion) in

annual GDP per

month of

containment

Brazil to remain

on Social

Distancing until

mid-June or

early July

Brazilian

economy

operating at

about 40 to 60%

Precautionary

savings up by

R$12 billion in

March 20

IBOVESPA

(Brazilian Stock

Market) down by

36%

Air transportation, hospitality, vehicle sales as

well as public transport among the most

impacted segments od the economy


23%

18%

8%

3%

2%

-2%

-4%

-28%

-30%

-39%

-44%

-50%

-75%

-92%

-93%

-120%-100%-80% -60% -40% -20% 0% 20% 40%

Supermarket Sales (Cielo)

e-Commerce (ABComm)

Electronic Industry Growth (ABINEE)

IT & Telecom Services (IBGE)

Agribusiness GDP (CNA)

Construction GDP (CBIC)

Capital Goods Industrial Production (IBGE)

Retail Sales (Cielo)

Healthcare Revenues (ANHAP)

Tourism Revenues (FGV)

Highways Vehicles Traffic (ABCR)

Public Transportation Demand – (NTU)

Vehicles Sales (FENABRAVE)

Hospitality Occupancy – (ABIH)

Air Transport Demand – (ABEAR)

COVID-19 Economic Impact(Apr/20 vs. Apr/19)




1. TAX MEASURES


Ericson AmaralPartner, KPMG in Brazil

Head of International and M&A Tax

[email protected]




1. TAX

TAX KEY MEASURES

Key measures

❑ Exemption of import taxes (II and IPI) on

imported items used for COVID19 treatment

(e.g. medicine, equipment, goods, etc.);

❑ Deferral of payment dates of Gross Revenue

Contribution Taxes (PIS and COFINS).

❑ IOF (financial transactions taxes) on loans and

credits was zeroed.

❑ Extended deadlines for filing tax returns in

order to provide more time for the companies

to adapt to the remote work reality

❑ Suspension of administrative procedures,

statute of limitation in tax litigations and court

sessions

❑ New Law setting up the “Tax Settlement”

procedure


Tax litigation is increasing

❑ There have been several lawsuits arising from

the COVID-19 crisis and put forth by taxpayers

requesting the temporary suspension of tax

payments, or the release or replacement of

judicial deposits connected with tax litigations.

Risk of populist agenda and

political exploit of COVID19

❑ Several bills were put in place to implement

taxation on net wealth for large fortunes and

compulsory loans from individuals and

companies.




1. TAX

TAX KEY MEASURES

Possible “Low Hanging Fruits”

❑ Review of Tax Credits Policy → Corporate

Income Taxes, as well as Gross Revenue

Contributions (PIS/COFINS) considering the

prevailing position of the Brazilian tax

authorities and courts.

❑ Quick assessment of overall internal tax

procedures and policies aiming at

identifying sustainable “tax upsides” that

have been overlooked so far.


Tax Value Creation

❑ Well structured and methodologically sound

assessment of company’s tax procedures,

operations, footprint, and business model

seeking to identify sustainable avenues for

Value Creation in Tax. Examples:

▪ Tax Supply Chain Redesigning

▪ Tax & Corporate Restructuring

▪ Debt Restructuring

▪ Etc.




2. LABOUR



KPMG in Brazil

[email protected]




2. HUMAN RESSOURCES

HR KEY MEASURES

Unemployment

rate expected

at 13% in FY20

vs. 11.9% in

FY19

Unemploymet

insurance

claims

increased 10%

during the

pandemic

period

Pitfall and reputational risk

Key measures

❑ Emergency measures in relation to

anticipation of holidays, vacations

and bank hours, allowing a company

to impose the taking.

❑ Simplification of home office

regulation.

❑ Reduction and suspension of work

time

❑ Deferral of Brazilian Pension Fund

payments. Partial reduction of Social

Security Contribution rate.

❑ Line of Credits to cover payroll

costs.

❑ Emergency Aid to informal workers.

❑ Implementation of reduction and

suspension of work tie should be

monitored carefully from an

operational standpoint (no work to

be carried on by employees during

unemployment period) to avoid

financial risks in case of social audit

Webinar Covid-19, details of government measures and their practical implications in businesses Focus on Brazil - 25 May 2020




2. HUMAN RESSOURCES

HR KEY MEASURES

Key measures – Pos-COVID

Webinar Covid-19, details of government measures and their practical implications in businesses Focus on Brazil - 25 May 2020

❑ Expansion of Payroll Tax Relieving.

❑ Special Program Small/Middle -Sized

Companies. Grant payroll tax exemption

until April 2021.





Attorney at Law

Ferraz de Camargo e Matsunaga

Advogados - FCAM

[email protected]

3. LEGAL




3. LEGAL

LEGAL KEY MEASURESInformation

Transparency

Flexibility

Attractive to foreign

investors

Key Measures

❑ Extension of the legal term to approve

company´s accounts and financial statements:

up to July/2020 – October/2020;

❑ Extension of the Term of Offices of the

officers;

❑ Extension of the term to prepare Financial

Statements;

❑ Possibility to hold virtual shareholder´s

meetings, especially for public companies.

Regulation from Brazilian Securities Exchange

Commission “CVM”.

❑ Process for accounting regularly

executed and implemented;

❑ Information made available to the

public.




3. LEGAL

LEGAL KEY MEASURESInnovation

Debureacratization

Flexibility

❑ Digital Signatures:

Documents archived under digital or

microfilm means should have the

same legal effects as physical

documents and serve as proof of any

direct public act, provided that the

requirements regulating such

procedures were duly observed.

❑ Electronic filings before the Board of

Trade

❑ Boost on Economic Freedom Law -

simplification and facilitation of

economic activities to foreign

companies – Brazil jumped from

the 109th to 50th in the world

bureaucracy ranking

➢ Easement of foreign entities to

be enrolled before SICAF;

➢ Less steps to start business in

Brazil;

Attractive to foreign

investors

Key Measures




4. FINANCIAL MEASURES


Marco AndreHead of Deal Advisory in Brazil and South America

KPMG in Brazil

[email protected]




4. FINANCING

LIQUIDITY KEY MEASURES

BRL 1.2 tri for

potential

expansion in

the liquidity

system, 16.7%

of Brazil's GDP

Other measures enhancing

Liquidity

Stability and liquidity of the

financial system

❑ Central Bank liquidity package for banks,

including reduction of compulsory loans

(BRL203 bn), Financial Letters guaranteed by

credit operations (BRL 670 bn) or securities

(BRL 91 bn)), New Term Deposit Special

Guarantees – NDPGE (BRL 200 bn) and others.

❑ Expansion of asset limits for banks, by

reducing the Additional Principal Capital factor

from 2.5% to 1.25% and non-deduction on

equity of taxes on FX overhead, estimated at

BRL 637 bn and BRL 520 bn respectively.

❑ Banks are not required to adjust loan losses

reserves for renegotiations for a period of six

months

❑ Benchmark interest rates (SELIC)

successive cuts from 4.25% to 3.75%

and then to 3.00% per annum.

❑ Congress approval of the “War

budget“ on May 7th, allowing several

Fiscal incentives (currently

estimated at around 4.6% of GDP) ,

and authorizing the Central Bank to

acquire corporate securities in the

secondary market.





4. FINANCING

OTHER FINANCIAL MEASURES

Other relevant topicsRelief to Companies’ cash flow

❑ Temporary deferral of tax and labor

payments and exemption of IOF (credit

tax)

❑ Temporary suspensions of loan

payments to CEF, BNDES and BNB

❑ Credit lines under special conditions at

BB, CEF and BNDES

❑ Payroll credit line for SMEs up to R$40

billion

❑ Union guarantee funds FGI-BNDES /

FGO-BB (BRL 20 bn and BRL 15.9bn

respectively)


❑ Devaluation of the Brazilian Real – positive

effects on exports and foreign investments

❑ Capital structure is key to post-crisis

consolidation. Private credit, private

equity and capital markets alternatives

❑ Water treatment reform shall provide

relevant investment opportunities

❑ New “chapter 11” legislation project

❑ The Federal Government reported full or

partial implementation of more than 1,000

measures required by specific sectors




You can contact our speakers after the Webinar to continue the discussion

Q&A

Webinar COVID-19, details of government measures and their practical implications in businesses Focus on Brazil - 25 May 2020

Our speakers:


KPMG in Brazil

[email protected]


Attorney at Ferraz de

Camargo e Matsunaga

Advogados - FCAM

[email protected]

Ericson AmaralHead of International and

M&A Tax

KPMG in Brazil

[email protected]

Marco André AlmeidaHead of Deal Advisory in Brazil

and South America

KPMG in Brazil

[email protected]

Mauricio EndoHead of Government in Brazil

and South America

KPMG in Brazil

[email protected]




Thank you!

Webinar COVID-19, details of government measures and their practical implications in businesses Focus on Brazil - 25 May 2020

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Mauricio EndoHead of Government in Brazil and South America

KPMG in Brazil

[email protected]