Labor productivity stagnates in Brazil, raising inflation concerns

Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year

03/17/2025

Although Brazil’s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. In 2024, productivity per effectively worked hour increased by just 0.1%, compared to a 2.3% rise in 2023, when it grew above the country’s historical average. The data, obtained in advance by Valor, comes from the Regis Bonelli Productivity Observatory at the Brazilian Institute of Economics (FGV Ibre).

For 2025, researchers at the observatory do not expect significant productivity gains, warning that it may even decline. They caution that an economy growing above its potential without productivity gains fuels inflationary pressure.

Productivity is measured by comparing the added value—a variable similar to gross domestic product (GDP) but excluding taxes and subsidies—with labor factor indicators. In 2024, the economy’s aggregate added value rose 3.1%, while effective hours worked increased by 3%. This resulted in a productivity variation of just 0.1%. “Virtually all GDP growth came from employment and working hours,” said Fernando Veloso, who co-leads the observatory alongside Silvia Matos.

Effective working hours account for reductions due to illness, holidays, or shorter work shifts—such as those implemented during the COVID-19 crisis—as well as increases driven by production peaks and overtime compensation.

Considering other labor factors, the number of hours usually worked grew 3% in 2024, while the employed population increased by 2.8%. As a result, productivity measures registered increases of 0.1% and 0.3%, respectively.

The COVID-19 pandemic disrupted the labor market in 2020, keeping the most qualified and potentially most productive workers employed. This led to a 12.7% surge in productivity per effective hour that year. In 2021 and 2022, as this “composition effect” faded, annual productivity dropped by 8.1% and 4.4%, respectively.

Mr. Veloso noted that 2023 was the first “normal” year, and productivity initially showed an unexpected increase. “In Brazil, any increase, even a small one, is always surprising. It appeared in the first quarter of 2023, breaking the pattern seen in 2022, and again in the second quarter, but then gradually slowed down until disappearing—depending on the metric—by the fourth quarter of 2024. It was truly a temporary phenomenon,” he said.

In the fourth quarter of 2024 alone, productivity per effective hour worked fell 0.5% compared to the same period in 2023 and declined 0.9% from the previous quarter. As a result, it now stands just 0.9% above pre-pandemic levels. Compared to the expected trend before the COVID-19 shock, productivity is running slightly above that level but continues to follow a very similar trajectory, Mr. Veloso said.

“All of this increase came from just one or two quarters at the beginning of 2023 and then stopped. There has been absolutely no productivity growth momentum since the second quarter of 2023,” he said.

Record harvest

Mr. Veloso emphasized the significance of productivity growth, as it helps contain inflation and enables lower interest rates. “GDP growth with rising productivity is not inflationary. But if it’s only a temporary increase, even if it has a positive effect on inflation, it’s not something the Central Bank can rely on for monetary policy,” he noted.

As in 2023, the agricultural sector was the key driver preventing an even worse productivity performance in Brazil last year. While the sector’s added value dropped by 3.2%, effective hours worked fell even further, by 4.8%. This resulted in a 1.6% increase in agricultural productivity in 2024, following a 22.3% surge in 2023 due to a record harvest.

“Agriculture performed much worse than in 2023, which made all the difference for 2024. But even when production declines, the sector remains a success story—fewer workers still lead to higher productivity,” Mr. Veloso said.

Meanwhile, productivity per effective hour worked in the industrial sector fell 0.5% in 2024, while the services sector remained flat after rising 2.1% and 0.5%, respectively, in 2023. “Services are the main sector of Brazil’s economy, both in GDP share and employment. It had a tiny increase in 2023 and zero growth in 2024. When the services sector lacks momentum, any productivity gains depend entirely on agriculture,” Mr. Veloso said.

For Paulo Peruchetti, an economist at FGV Ibre, the historical data compiled by the observatory from 1995 to 2024 shows that agricultural productivity per effective hour has grown at an average annual rate of 5.8%, far outpacing aggregate productivity, which has risen just 0.8% per year. Over the same period, services sector productivity has averaged only 0.2% growth, while industrial productivity has declined by 0.3% annually.

“Agriculture’s productivity growth is continuous, and without it, there is no aggregate productivity growth,” Mr. Veloso concluded.

Total factor productivity (TFP) per effective hour worked, which measures how efficiently capital and labor are transformed into production, fell by 0.8% in 2024 after rising by 1% in 2023. By the end of 2024, TFP remained 5.8% below its pre-pandemic level. “It’s a bleak picture,” Mr. Veloso said.

Since 2021, job creation in Brazil has been predominantly in the formal sector, which typically has a positive effect on productivity, according to researchers at FGV Ibre. However, this impact has yet to materialize. “And now, at the margin, there already seems to be a slowdown in employment in 2025,” Mr. Peruchetti noted.

With economic activity still strong but productivity gains absent, the adjustment to inflation will have to come from a slowdown in employment, Mr. Veloso said. This trend is beginning to appear in official data on formal employment from the General Register of Employed and Unemployed Workers (CAGED). “At the start of last year, the labor market seemed set to follow a trajectory similar to 2022, but in the second half of 2024, formal job creation began to lose momentum,” he said.

Looking ahead, in a simplified projection, if FGV Ibre expects Brazil’s economy to grow by 1.7% in 2025 while the employed population increases by 2%, productivity would decline by about 0.3% this year, Mr. Peruchetti noted. “There is still a lot of data to come,” he cautioned. “But productivity was stronger in 2023, slowed in 2024, and will likely remain stable or see a slight decline in 2025. This follows the pre-pandemic pattern.”

Mr. Peruchetti pointed out that in 2017, productivity per effective hour increased by 2.1%, also driven by an exceptional agricultural harvest. In 2018, it slowed to 0.5%, and in 2019, it fell by 1.5%. “At that time, however, we had a functioning spending cap. Now, we have a fiscal framework that has proven very weak. In some ways, we are in an even worse situation,” Mr. Veloso said.

Economist Vitor Vidal from consulting firm VVC also highlighted the similarity between current productivity levels and those seen just before the pandemic. However, he pointed out other key differences. “Today, unemployment is much lower than it was back then, when the economy was growing at 1.5% and the unemployment rate was in the double digits,” he said.

According to his calculations, productivity fell by 0.3% in 2024, with a 0.5% drop in the fourth quarter. However, he said some recovery might occur in the first quarter of this year, given expectations of another record harvest.

Taking a longer-term view, a study by Santander found that Brazil’s productivity metrics have followed a cyclical pattern over the past 12 years without showing sustainable growth. This has constrained the country’s potential GDP expansion, particularly amid declining population growth and investment restrictions, according to the bank’s economists.

Even if TFP returns to positive levels, they said, achieving potential GDP growth above 2% per year will be difficult. “Even under the relatively optimistic assumption that productivity will not decline in the coming quarters, the long-term trend points to lower potential GDP growth stabilizing at around 1.5%,” wrote Santander economists Henrique Danyi, Gabriel Couto, and Felipe Kotinda in their report.

*By Anaïs Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Saudi poultry giant Al Watania draws acquisition bids, including from JBS

Brazil’s JBS and Saudi competitors express interest, but deal remains uncertain

03/11/2025

The Middle East is becoming an increasingly strategic market for the global meat industry. This time, Saudi Arabia’s Al Watania, the region’s largest poultry producer, has attracted takeover bids from interested buyers, including Brazilian food giant JBS, according to sources. The information was first reported by Bloomberg, citing individuals familiar with the matter.

A source told Valor that JBS’s bid was more conservative, while Saudi competitor Almarai submitted a more aggressive proposal. Another source mentioned that JBS had shown interest, but the negotiations did not progress further.

When contacted, JBS declined to comment, while Almarai did not respond to requests for statements.

Other potential buyers include Saudi firm Tanmiah Food and a consortium led by Ukraine-based agribusiness technology company MHP, according to Bloomberg. However, buyers may still withdraw, or Al Watania could ultimately decide not to proceed with the sale.

If the deal moves forward—regardless of the buyer—it is expected to be a challenging transaction. “Al Watania is a complex asset, with significant inefficiencies,” a source told Valor.

Last week, Al Watania announced a strategic partnership with the Halal Products Development Company (Halal Devco), aiming to accelerate the adoption of sustainable and innovative practices in the halal food industry—where production follows Islamic slaughtering guidelines.

These improvements are part of an effort to make the company more competitive and expand its poultry exports to new markets, catering to the growing demand for halal-certified products.

According to Al Watania’s official statement last week, the goal of this partnership is to position Saudi Arabia as a leading global hub for halal products.

“By prioritizing innovation and market needs, we remain committed to delivering high-quality halal products that support national food security goals and enhance Saudi Arabia’s local and global competitiveness,” said Mohammed bin Hamad Al Shaya, Al Watania’s acting CEO, in the statement.

Founded in 1977, Al Watania processes over 1 million chickens and 1.5 million eggs per day.

A potential bid for Al Watania would represent another step in JBS’s strategy to expand its global footprint, despite the company already having a presence in the Middle East.

“The Brazilian market has become too big on its own,” said a meat industry source, explaining that Brazilian companies have the financial resources to compete for strategic assets worldwide.

The Saudi government’s Vision 2030 program is another key factor driving interest in the country’s meat industry. The initiative aims to achieve self-sufficiency in food production while positioning Saudi Arabia as a major player in global food exports.

*By Nayara Figueiredo, Globo Rural — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Brazil considers lowering price ceiling on medicines

Proposal sparks debate amid inflation concerns, raising risks for small pharmacies

03/11/2025

The Brazilian federal government is set to discuss a proposal in the coming weeks to lower the maximum price of medicines, currently regulated by the Drug Market Regulation Chamber (CMED) under ANVISA, the country’s health surveillance agency. The move aims to narrow the gap between the price ceiling and actual retail prices, as pharmacies typically offer an average 30% discount off the government-set maximum.

Pharmaceutical retailers and manufacturers argue that the measure could discourage competition and harm small and regional pharmacies. Independent and small-chain drugstores, which make up 80% of the sector, tend to charge full price to maximize revenue and could be disproportionately affected.

Pharmaceutical companies warn that reducing the price ceiling could result in the withdrawal of lower-cost medicines from the market, as some drugs are already sold with tight profit margins.

While CMED is exploring ways to bring the ceiling closer to market prices, officials suggest that any reduction will be moderate to preserve the current system of retail discounts.

This debate is not new. In 2020, Senator Fabiano Contarato (Sustainability Network Party, Espírito Santo) introduced a bill on the issue after the Brazilian Institute for Consumer Protection (IDEC) raised concerns that the gap between the price ceiling and actual market prices allows for sudden price hikes during supply shortages.

With inflation control a priority for the federal government, the issue has resurfaced as part of the regulatory framework for medicines, which was listed in January as one of 25 key initiatives for the Finance Ministry. Some industry representatives believe that proposing a drug price cut now is a political move, aimed at offsetting the government’s image damage caused by rising food inflation.

During an event held by the National Association of Private Hospitals (ANAHP) last month, CMED Executive Secretary Daniela Marreco confirmed that the topic is under discussion. “We have debated this extensively, and there is even a bill from 2020 suggesting that CMED should bring the actual market price closer to the ceiling due to the discounts commonly observed,” she said.

However, Nelson Mussolini, president of Sindusfarma, Brazil’s pharmaceutical industry association, said that the sector has not been consulted by the government on this issue and firmly opposes the proposal, warning of potential disruptions to market competition.

“In my view, if the price drops, profit margins shrink in absolute terms. There will be pressure to maintain profitability. Initially, smaller companies will feel the impact, but ultimately, the cost will be passed on to consumers,” he said.

Mr. Mussolini also warned that lowering the price ceiling could make it unviable to manufacture certain low-cost medicines, as production costs might exceed government-imposed prices.

When asked whether the proposal is linked to the broader economic landscape, Mr. Mussolini dismissed the idea. “It doesn’t make sense for the government to lower medicine prices to fight inflation, because pharmaceutical inflation is low and not a major factor. This year, we are already seeing the smallest price adjustment in years,” he said. At 3.8%*, the increase is set to fall below inflation for the first time in seven years.

Ms. Marreco, from CMED, acknowledged that a sudden policy shift could create market risks. “One concern we need to consider is that in countries that have adopted similar measures—aligning the price ceiling with actual market prices—over time, we’ve seen a reduction in the discounts offered by manufacturers and retailers,” she noted during the event.

She also pointed out that in some cases, aligning the price ceiling with market prices has led to price increases for certain medicines whose prices were previously lagging behind inflation.

The public consultation on the new regulatory framework, which addresses various issues, including high-cost medicines, is expected mid-year. Any changes could be implemented through an interministerial decree, involving the Health, Finance, Chief of Staff Office, and Justice Ministries, as well as ANVISA.

Ms. Marreco clarified that the ongoing discussions do not impact the annual price adjustment mechanism, which is determined in March and governed by Law 10.742 of 2003.

In a statement, Interfarma, which represents the pharmaceutical industry, said it was unaware of any formal government discussions on altering the price ceiling. “Poorly structured pricing policies could lead companies to withhold product launches or even cause supply shortages,” the group warned.

In the retail sector, the biggest risk of lowering the price ceiling for medicines would fall on small, independent pharmacies, which serve remote areas far from urban centers. These businesses operate with higher costs and limited scale, making it difficult for them to sell medicines at lower prices.

Impact on small pharmacies

Many of these small pharmacies remain profitable not through high sales volumes but by selling at full list prices or operating in the informal market. Given their role in providing essential medications to low-income populations, these businesses are critical to the government’s efforts to expand the Farmácia Popular program, which subsidizes medicines for low-income Brazilians.

“It’s important to recognize that business models in this industry vary significantly. The market is not uniform, and companies are not all the same,” said a representative from the pharmacy sector.

According to the executive, lowering the price ceiling could force 50,000 to 60,000 pharmacies out of business, as these stores rely on pricing flexibility to stay afloat. “Many small drugstores survive by selling at full price and only offering discounts when absolutely necessary—often when a customer is about to walk out without making a purchase. Selling at consistently lower prices would be unsustainable for them.”

Brazil has approximately 90,000 pharmacies, according to the Federal Pharmacy Council (CFF), with 80% classified as micro or small businesses. Many are family-run operations or sole proprietorships, generating an average monthly revenue of around R$60,000, based on industry association data.

Two major pharmacy chains interviewed said they do not expect negative impacts from the potential policy change. These companies already operate with highly competitive pricing, often below the market average, which is not expected to be directly affected.

The debate over the medicine price ceiling comes just weeks after the government announced changes to the Farmácia Popular program, a move that drew criticism from small pharmacies.

The Health Ministry recently expanded the list of subsidized products to include adult diapers and dapagliflozin, a medication used to treat diabetes associated with cardiovascular disease. However, independent pharmacies have voiced frustration over delayed government reimbursements for these subsidized sales. With the program’s expansion, more products will be subject to this payment system, further complicating cash flow for smaller businesses.

These payment delays disrupt financial operations for small pharmacies, which often have limited access to working capital. The problem is particularly acute in low-income regions, where demand for subsidized products is highest, making small drugstores increasingly dependent on government reimbursements to stay in business.

When contacted for comment on concerns raised by the retail and pharmaceutical sectors, CMED did not respond before publication. The Brazilian Pharmacy Retail Association (ABRAFARMA) also declined to comment.

*By Beth Koike e Adriana Mattos— São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Brazil, U.S. reignite critical mineral exploration efforts

Research to focus on rare earths, lithium, cassiterite, and tin in three mining regions

03/11/2025

Brazil and the United States are set to resume joint research to identify areas rich in critical minerals within Brazilian territory. Signed last year, the agreement initially planned studies in four states: Minas Gerais, Goiás, and a region spanning Rio Grande do Norte and Paraíba.

Rare earth elements, lithium, tin, and cassiterite were among the key minerals targeted in the partnership, with initial sample collection already underway last year.

In January, Brazilian authorities were informed by the U.S. Department of State that President Donald Trump’s administration had decided to suspend the cooperation. However, in early March, the U.S. government reversed course.

“We received a delegation from the U.S. government, which informed us that all aspects of our agreement would be honored because the U.S. Supreme Court ruled that agreements already in progress must be completed,” said Francisco Valdir Silveira, director of Geology and Mineral Resources at the Geological Survey of Brazil (SGB), which operates under the Ministry of Mines and Energy.

“The decision to move forward was made because the agreement had already been signed, funding had been allocated, and Deloitte had been contracted for consulting services,” Mr. Silveira added.

Brazil was notified of the cooperation’s resumption during a meeting between Brazilian and American representatives at the Prospectors & Developers Association of Canada (PDAC 2025) Annual Convention, one of the world’s leading mining industry events, held from March 2 to 5 in Toronto.

Strategic interest

Critical minerals, also known as strategic minerals, are essential for the production of electric vehicle batteries, mobile phones, solar panels, semiconductors, and military technologies.

Mr. Silveira highlighted Brazil’s significant potential to become a major global producer of rare earth elements, a market currently dominated by China.

Since the administration of then-President Joe Biden (2021-2025), the United States has sought agreements to secure access to critical mineral deposits in other countries, aiming to reduce its dependence on China. Mr. Trump has reinforced the strategic importance of securing these resources, making them a key point of negotiations between the U.S. and Ukraine. The U.S. president has also focused on deposits in Canada and Greenland.

In Brazil, the cooperation agreement remains a limited-scale initiative, operating as a pilot project involving U.S. and Brazilian teams in the search for mineral deposits.

The agreement established three regions for the initial phase of joint research, carried out by specialists from both the SGB and the U.S. Geological Survey.

The first is the Seridó/Borborema region, which spans Rio Grande do Norte and Paraíba.

“Last year, we conducted fieldwork there, including sample collection, geophysical surveys, and geological mapping. The final step was sending the samples for analysis,” Mr. Silveira said. The main focus in this region is lithium, with tantalum and niobium also drawing interest. Additional field activities were planned for April and May 2025.

The Alto Paranaíba region in Minas Gerais is another target area, where the focus is on rare earth element deposits.

The third area designated for joint exploration is the tin province of Goiás, where researchers aim to gather data on reserves of rare earths, tin, and cassiterite.

Beyond field research, the agreement includes specialized training for three SGB geophysicists by the U.S. Geological Survey. Additionally, the U.S. government is funding five scholarships for Brazilian researchers to visit mineral deposits in Finland that share geological similarities with Brazil.

The partnership was developed following a visit to Brazil last year by Geoffrey Pyatt, then U.S. Assistant Secretary for Energy Resources at the State Department.

Mr. Silveira noted that while U.S. financial contributions to the project amount to less than $1 million, the primary benefit of the agreement lies in scientific collaboration and laying the groundwork for larger-scale projects.

“The focus was more on scientific cooperation and establishing an initial partnership to advance toward bigger projects,” he said.

Before the Toronto event, Valor contacted the U.S. State Department’s press office, which declined to comment. Following Mr. Silveira’s remarks on the agreement’s reinstatement, Valor reached out again via email but received no response.

*By Marcos de Moura Souza — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Taxation on foreign profits could cost taxpayers R$142bn

The issue is on the Supreme Court’s agenda; score so far is in favor of the National Treasury

03/07/2025

The ongoing debate at Brazil’s Federal Supreme Court (STF) regarding the taxation of profits from foreign subsidiary and affiliate companies could potentially result in a R$142.5 billion impact on Brazil’s federal government if the ruling goes against it. This estimate, outlined in a technical note from the Brazilian Revenue Service, pertains to the reimbursement or loss of Business Income Tax (IRPJ) and Social Contribution over Net Profit (CSLL) revenues from 2017 to 2021. Additionally, the decision could reduce the National Treasury’s annual revenue by R$28.5 billion moving forward.

This calculation—part of the Federal Revenue note (“Nota Cetad/Coest No. 14 of 2023”)—was prepared at the request of the Attorney General’s Office of the National Treasury (PGFN) and is based on data from the Central Bank concerning profits and dividends received abroad from direct investments between 2017 and 2021. The document notes that this estimate does not account for all affected taxpayers but rather a subset assumed to share a similar taxable situation.

A survey by the law firm Trench Rossi Watanabe reveals that in addition to Vale—which is involved in the STF case—Petrobras, JBS, Ambev, and CSN are embroiled in similar multi-billion disputes. Collectively, these five multinational companies are challenging R$64.1 billion in assessments from the Brazilian Revenue Service: R$22.2 billion from Vale, R$20.6 billion from Petrobras, R$11.3 billion from JBS, R$5.8 billion from CSN, and R$4.4 billion from Ambev. The survey was based on the most recent reference forms disclosed by these companies.

The issue resurfaced on the STF’s agenda in early February, but the analysis was postponed following Justice Nunes Marques’s request for more time. It may resume in May, with a new opinion expected within 90 days. The justices are evaluating the validity of applying IRPJ and CSLL on domestic companies’ profits from affiliates in countries with treaties with Brazil to avoid double taxation. Currently, 38 such agreements are in place.

Lawyers indicate that the Superior Court of Justice (STJ) precedent is more favorable to taxpayers, recognizing the supremacy of international treaties over Brazilian domestic law. However, at the STF, the government currently leads two votes to one. According to Lana Borges, Deputy Attorney General for Court Representation of the PGFN, the STJ did not adhere to STF precedents on this matter.

Most multinational companies’ cases remain in the administrative phase, and their liabilities are not provisioned since losses are deemed possible, based on STJ precedents. The issue is contentious and typically resolved by the tiebreaking vote of the president of the Administrative Council of Tax Appeals (CARF), who represents the National Treasury.

The tax authority argues it is not taxing the profits of the foreign subsidiaries but rather those of the Brazilian parent company, which reflect the foreign entities’ accounting results via the equity method (MEP).

The method aims to assess the value of an investment when a company holds a stake in another. Through it, the investment is initially recognized at cost and then adjusted to reflect the invested company’s results, proportionate to the investing company’s stake.

This methodology is outlined in the Brazilian Corporate Law (No. 6.404/76) and was later incorporated into tax law by Article 74 of the provisional presidential decree No. 2158/2001. The provision states that “profits obtained by a foreign subsidiary or affiliate will be considered available to the Brazilian parent or affiliate company on the date of the financial statements in which they were accounted for, as per regulations.”

Petrobras faces the most cases on the matter, with five in court. Four have already resulted in unfavorable decisions. In the remaining case, Petrobras won at the appellate level, but the PGFN’s appeal is pending. Ambev has four cases, but only one is in court, still in the expert phase.

CSN is contesting four cases before the Administrative Council of Tax Appeals (CARF), with no victories, and one in court. A favorable ruling was made, but the PGFN appealed to the Federal Regional Court of the 6th Region (TRF-6). JBS has faced several tax deficiency notices between 2006 and 2018, and all discussions remain in the administrative realm.

In its explanatory notes, Vale states it has faced multiple deficiency notices for years 1996 to 2008. The dispute for 1996 to 2002 had a R$2.3 billion impact, but it received a final favorable decision. From 2003 to 2012, the impact stands at R$22.2 billion. The company also reports it has entered a payment plan, with a remaining balance of R$10 billion to be paid in 58 installments.

While Vale’s case does not have general repercussions, it will serve as a significant precedent—being the first and only case to reach the STF. The court has not yet thoroughly analyzed the matter concerning treaty precedence. A key precedent dates back to 2013 when Article 74 of presidential decree 2158/2001 was validated for affiliate companies in tax havens or favorable tax regimes (ADI 2588).

The current judgment will determine whether the rule applies to foreign companies in countries with which Brazil has a double taxation treaty. Vale is challenging the “automatic taxation” of IRPJ and CSLL on profits earned by subsidiaries in Belgium, Denmark, Luxembourg, and Bermuda.

So far, Justices Gilmar Mendes and Alexandre de Moraes have sided with the PGFN, contending that treaties do not preclude taxation in Brazil. The rapporteur, Justice André Mendonça, deemed the issue non-constitutional but stated he would support Vale if overruled on that point.

Initial and appellate court rulings favored the federal government, but the STJ partially reversed this, maintaining the charge only for Bermuda, as there is no bilateral agreement with Brazil and it is considered a tax haven.

Simone Dias Musa, a partner at Trench Rossi Watanabe, believes there are chances for a taxpayer victory. She argues that the Treasury’s stance that the equity method inherently presents an economic or legal availability for taxpayers is flawed. “The equity method thesis claims that the profit accounted for in Brazil from foreign affiliates allows for taxation. However, treaties to prevent double taxation should preclude Brazil’s jurisdiction from taxing profit earned by a foreign-based company,” she states.

The equity method, she explains, is an accounting method to prevent a Brazilian parent company’s balance sheet from reflecting the group’s profit. “It does not represent standalone profit,” she says. “It is an accounting reflection of a profit generated by a foreign company, so the double taxation treaty is perfectly suited to prevent taxation in Brazil until it is distributed.”

However, Deputy Attorney General Lana Borges asserts that the profit does not have to be repatriated to be taxed. “It is already within the parent company’s assets,” she claims. Ms. Borges views it as a matter of fiscal fairness. “A Brazilian company with no foreign affiliates pays taxes once its profits are accounted for, not when they are distributed. Should a parent company with foreign subsidiaries not pay taxes?”

Ms. Borges also argues that there is no reason to invoke treaty-based double taxation relief, as there is no tax on profits generated abroad. “Typically, the parent company pays the tax. Being in Brazil, the Brazilian law applies, so there is no double taxation,” she explains.

She notes that Brazilian legislation provides mechanisms for the parent company to deduct any taxes paid on the same profits abroad by the subsidiary—such as Article 26 of Law No. 9.249/1995 and, later, Article 87 of Law No. 12.973/2014.

Tax lawyer Telírio Saraiva, also a partner at Trench law firm, emphasizes that the STJ has ruled in favor of treaty precedence. “Brazil must honor its commitments with other nations,” he states. He disagrees with the votes of Justices Mendes and Moraes, who argue that Brazilian taxation aligns with OECD principles. “OECD only permits double taxation in cases of abusive tax planning,” he argues, noting the significant impact of the thesis on multinationals—34% on profits from foreign subsidiaries.

Tax attorney Eduardo Pugliese, a partner at Schneider Pugliese Advogados, claims that the Revenue Service seeks to tax foreign subsidiaries’ profits automatically. “It won’t wait for a foreign company to remit the funds to Brazil and intends to tax the profit as soon as it is realized abroad as if it were an automatic availability,” he says.

In a statement, CSN asserts that international treaty rules hierarchically supersede domestic universal taxation rules. “Therefore, international tax law rules prevail over ordinary domestic legislation,” the company states, citing STJ rulings.

Vale, JBS, and Ambev declined to comment on the matter. Petrobras did not respond immediately.

*By Marcela Villar — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Itaipu decree expected to raise power bills for low-income consumers

Change to help manage exchange-rate fluctuations reduces bonus that would go toward offsetting electricity increases for residential and rural consumers

03/07/2025

Decree 12,390/2025, published in the Diário Oficial da União (DOU) on February 5, may impose additional costs on low-income consumers, experts told Valor. They discussed the government’s decision to redirect part of the so-called “Itaipu bonus” commonly used to reduce electricity bills for poorer customers. With this decree, a portion of these funds will now be allocated to cover the deficit of the Itaipu Commercialization Account.

The Itaipu Account comprises various revenue sources, primarily from payments made by distributors in the South, Southeast, and Central-West regions, which share the cost of power generation from the binational plant. After covering the hydroelectric plant’s expenses, any remaining balance is returned to consumers.

Following Wednesday’s decree, Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar)–the state company overseeing Brazil’s stake in Itaipu–is authorized to establish a financial reserve, directing up to 5% of the positive balance from the Itaipu Account to manage fluctuations in the plant’s power cost. These fluctuations occur because the cost is booked in U.S. dollars and subject to currency variations throughout the year. Currently, the hydroelectric plant’s power cost is $17.66/kW, effective until the end of March.

Although the government argues that the measure prevents a 5.99% increase in average costs, experts warn that, in practice, using the “bonus” will result in disadvantages for lower-income consumers. Since up to 5% of these resources might be used to reduce the tariff deficit, the financial amount available for consumers will decrease. This amount is credited as a discount on the bills of residential and rural classes in Brazil with consumption billed below 350 kilowatt-hours per month.

The decree was issued after the Brazilian Electricity Regulatory Agency (Aneel) identified a calculation error in the price agreement between Brazil and Paraguay in 2024, resulting in a $120.9 million deficit (approximately R$700 million) in Itaipu’s accounts. Former Aneel director Edvaldo Santana notes that the Itaipu Account balance is not a real bonus but rather a refund of overpaid amounts by consumers.

The National Front of Energy Consumers had already warned that redirecting the bonus balance would increase electricity bills: “This is happening due to the poor agreement signede last April by Minister Alexandre Silveira and the successive increases in Itaipu’s socio-environmental expenses with funds that should have ensured tariff moderation,” said the front’s president, Luiz Eduardo Barata.

The Ministry of Mines and Energy stated that the decree “refers to a complementary strategy to the annual contribution already made by Itaipu.” According to the ministry, it is “a structural solution used to cover remaining balances of the commercialization account over time.”

For former Aneel general director Jerson Kelman, the decree resolves the calculation error in the negotiation between Brazil and Paraguay regarding power costs in 2024. However, a technical note from the National Academy of Engineering indicates that the $301 million cashback was insufficient to ensure cost stability in power bills.

“Like a magician, the government put money in the consumer’s left pocket, taking it from their right pocket. If the government had adhered to the treaty, refraining from inventing socio-environmental sponsorships in Brazil and Paraguay unrelated to the plant’s funding, Brazilian consumers would be paying about half of what they currently pay for Itaipu’s power,” he asserts.Decree 12,390/2025, published in the Diário Oficial da União (DOU) on Wednesday (5), may impose additional costs on low-income consumers, experts told Valor. They discussed the government’s decision to redirect part of the “Itaipu bonus” used to reduce electricity bills for poorer customers. With this decree, a portion of these funds will now be allocated to cover the deficit of the Itaipu Commercialization Account.

The Itaipu Account comprises various revenue sources, primarily from payments made by distributors in the South, Southeast, and Midwest regions, which share the cost of energy generation from the binational plant. After covering the hydroelectric plant’s expenses, any remaining positive balance is returned to consumers.

Following Wednesday’s decree, the Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar) – the state company overseeing Brazil’s stake in Itaipu – is authorized to establish a financial reserve, directing up to 5% of the positive balance from the Itaipu Account to manage fluctuations in the plant’s tariff. These fluctuations occur because the Itaipu tariff is denominated in U.S. dollars and is subject to currency variations throughout the year. Currently, the hydroelectric plant’s tariff is US$17.66/kW, effective until the end of March.

Although the government argues that the measure prevents a 5.99% increase in average tariffs, experts warn that, in practice, using the “bonus” will result in disadvantages for lower-income consumers. Since up to 5% of these resources might be used to reduce the tariff deficit, the financial amount available for consumers will decrease. This amount is credited as a discount on the bills of residential and rural classes in Brazil with consumption billed below 350 kilowatt-hours per month.

The decree was issued after Aneel identified a calculation error in the tariff agreement between Brazil and Paraguay in 2024, resulting in a US$120.9 million deficit (approximately R$700 million) in Itaipu’s accounts. Former Aneel director Edvaldo Santana notes that the Itaipu Account balance is not a real bonus but rather a refund of overpaid amounts by consumers.

The National Front of Energy Consumers had already warned that redirecting the bonus resources would increase electricity bills: “This is happening due to the poor agreement made last April by Minister Alexandre Silveira and the successive increases in Itaipu’s socio-environmental expenses with funds that should have ensured tariff moderation,” said the front’s president, Luiz Eduardo Barata.

When contacted, the Ministry of Mines and Energy stated that the decree “refers to a complementary strategy to the annual contribution already made by Itaipu.” According to the ministry, it is “a structural solution used to cover remaining balances of the commercialization account over time.”

For former Aneel General Director Jerson Kelman, the decree resolves the calculation error in the negotiation between Brazil and Paraguay regarding the Itaipu tariff in 2024. However, a technical note from the National Academy of Engineering indicates that the US$301 million “cashback” was insufficient to ensure electricity bill stability.

“Like a magician, the government put money in the consumer’s left pocket, taking it from their right pocket. If the government had adhered to the Treaty, refraining from inventing socio-environmental sponsorships in Brazil and Paraguay unrelated to the plant’s funding, Brazilian consumers would be paying about half of what they currently pay for Itaipu energy,” he asserts.

*By Robson Rodrigues And Fábio Couto — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
/by

Government cuts import tariffs on food items to fight inflation

Executive package eliminates tariffs on products such as meat and sugar, includes regulatory measures and incentives to boost staple food production in the next Plano Safra

03/07/2025

Amid mounting pressure and declining approval ratings, President Lula’s administration announced on Thursday (6) a package of measures aimed at reducing food prices in Brazil.

Import tariffs on several items, including coffee, sugar, and meat, will be eliminated. The package also includes regulatory initiatives and incentives to encourage the production of staple foods under the next Plano Safra, Brazil’s main agricultural financing program. The government will also ask state administrations to remove ICMS, a state-level tax, on these essential food products.

The announcement was made by Vice President Geraldo Alckmin after an afternoon of meetings with ministers and private-sector representatives at the Planalto Palace. Mr. Lula did not take part in the discussions, despite the meeting being scheduled on his official agenda. Mr. Alckmin said the president had approved the initiatives. The government has yet to calculate the impact of these measures on tax revenue.

Vice President Alckmin said the import tariffs to be eliminated include those on meat, currently at 10.8%, coffee at 9%, sugar at 14%, corn at 7.2%, sunflower oil at 9%, olive oil at 9%, sardines at 32%, biscuits at 16.2%, and pasta at 14.4%.

Regarding corn, Mr. Alckmin said the exemption would have “significant effects on the cost of eggs and animal proteins, such as meat.” Inflation in these food categories has been cited in surveys as a key factor in public dissatisfaction with the president.

Mr. Alckmin also announced an increase in the duty-free import quota for palm oil from 65,000 tonnes to 150,000 tonnes.

The tax reduction measures still need approval from the Executive Management Committee (GECEX) of CAMEX, Brazil’s Foreign Trade Chamber, with no set timeline for review. The exemptions will not have a predetermined expiration date.

“It’s hard to set a date, but it’s a matter of days. Once we receive the technical notes from the ministries, the new tariffs will take effect within a few days,” Mr. Alckmin said. He added that while specific impact estimates for each product were not yet available, the goal is to lower consumer prices.

Mr. Alckmin also said the government and supermarket sector are studying ways to publicize the best prices as a means to “stimulate competition and benefit consumers.” However, he did not provide details on how this would be implemented.

Staple food

Another initiative will be to ask state governors to eliminate state taxes on staple food products. The vice president noted that federal taxes on these items have already been removed, but some states still apply ICMS to essential food goods.

He added that this is the “first set of measures” agreed upon with the private sector. He also clarified that discussions did not include an export tax on Brazilian agricultural products, an idea that had been previously considered by the government.

The government also plans to strengthen food stockpiles and provide incentives in the next Plano Safra to boost staple food production. Mr. Alckmin did not confirm whether additional budget resources would be allocated for food stockpiling by CONAB, the National Food Supply Company, but assured that the state-owned entity would have the “necessary resources.” The proposed budget for this year, still pending congressional approval, includes only R$189 million for purchasing rice, beans, and corn.

For the Plano Safra, the aim is to extend low-interest financing to medium-sized farmers growing key crops, as previously reported by Valor. “The PRONAF, National Program for Strengthening Family Farming, already prioritizes lower interest rates to support staple food production. The idea now is to extend these subsidies to PRONAMP, which supports medium-sized farmers,” said Agrarian Development Minister Paulo Teixeira. “This will allow for a broader range of subsidized products focused on the staple food basket. We will extend these subsidies to medium-sized producers.”

Agriculture Minister Carlos Fávaro announced that for one year, the Brazilian Animal Product Inspection System (SISBI) will recognize products inspected under municipal oversight (SIM), allowing them to be sold nationwide. This policy will apply to milk, honey, and eggs, which were previously restricted to local markets.

“For one year, we will grant nationwide validity to SIM certifications. Products that pose no sanitary risks—such as fluid milk, honey, and eggs—can now be sold across Brazil without compromising food safety,” Mr. Fávaro said during the announcement.

People familiar with the matter told Valor that the meeting included heated debates and disagreements.

One key dispute arose when the government suggested indefinitely maintaining biofuel blending mandates for diesel and gasoline. The proposal upset producers, despite government officials arguing that higher blending levels—particularly for biodiesel and corn ethanol—increase animal feed costs. Industry representatives disagreed, asserting that greater biofuel production actually increases the availability of soybean meal and corn distillers’ grains (DDG), which are essential for animal feed.

Another contentious issue was the government’s proposal to create an app to display which supermarkets offer the lowest prices for certain products. Business associations argued that this could unfairly pressure small and medium-sized retailers, as large chains with greater scale could afford deeper discounts and promotions.

Industry representatives also urged the government to reconsider the recent increase in import taxes on plastic packaging, citing concerns over cost pressures on food producers.

*By Fabio Murakawa e Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/
/by

Circuit court reinstates antitrust ruling against Apple

Federal Regional Court of 1st Region gives company 90 days to implement app market changes ordered by CADE

03/06/2025

The Federal Regional Court of the 1st Region (TRF-1) has overturned a trial ruling and reinstated an injunction imposed by the Administrative Council for Economic Defense (Cade) on Apple, as part of an investigation into alleged abuse of dominant position in the app distribution market for iOS devices. According to the ruling, the company will have 90 days to implement the changes mandated by the antitrust authority.

At the end of November, Cade’s General Superintendence launched an administrative proceeding against Apple to investigate suspicions of dominant position abuse and issued a series of injunctions to allow, for example, apps to inform users about alternative means of purchasing the products they offer.

Apple subsequently won a ruling from the Federal Court of the Federal District to overturn the injunctions. However, Second Judge Pablo Zuniga of TRF-1 reversed that ruling on the afternoon of February 5.

According to the federal judge, Apple’s argument that there is no urgency in implementing the changes imposed by Cade’s technical department is unfounded. “The closed structure of iOS and the restrictions imposed on third-party app sales are precisely the factors that justify the preventive action of the antitrust authority, as maintaining them without any intervention may hinder the entry of new competitors and impede the restoration of competition in the sector,” the judge noted.

However, Judge Zuniga granted Apple more time to implement the changes. Now, the company will have 90 days to adopt the procedures mandated by Cade, compared to the initially stipulated 20 days.

The magistrate also noted that the injunction “does not hinder Apple’s business model but only imposes adjustments that can be reversed if the final decision in the administrative process is favorable to the aggrieved party.”

“Apple has already complied with similar obligations in other countries without demonstrating significant impact or irreparable harm to its economic model,” the judge pointed out. “The implementation of structural changes in operating systems, indeed, requires some planning and technical development, which may demand more time than stipulated in the administrative decision,” he considered in the ruling.

Furthermore, he wrote that regarding the urgency of the injunction, “it arises from the fast-paced dynamic of the technology market, in which the duration of an anticompetitive practice can determine its irreversibility, even if later deemed illicit.”

The case reached Cade in 2022 following a complaint by marketplace Mercado Livre. The company alleged that Apple was abusing its dominant position in the app distribution market for iOS devices.

The antitrust body argues that big tech companies impose a series of restrictions on app developers of digital goods and services regarding in-app purchases, configuring a dominant position.

In a statement to Valor, Apple said that the preventive measures imposed by the Administrative Council for Economic Defense (Cade), now reinstated by the Federal Regional Court of the 1st Region, may “compromise the privacy and security of our users,” and vowed to appeal the decision.

“Apple believes in vibrant and competitive markets where innovation can flourish. We face competition in every segment and jurisdiction where we operate, and our focus is always the trust of our users,” the statement reads.

*By Guilherme Pimenta, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/
/by