outsourcing 2017 - pinheiro neto advogados · 13,303/16 provides the general rules for the...

The International Comparative Legal Guide to:

A practical cross-border insight into outsourcing

Published by Global Legal Group, with contributions from:

ALRUD Law FirmAnderson Mōri & TomotsuneAngara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)Baohua Law Firm Bird & Bird LLPBTS&PartnersCaiado Guerreiro, Sociedade de Advogados, SP, RLCentre for Outsourcing Research and Education (CORE)Dittmar & Indrenius Attorneys Ltd.Hannes Snellman Attorneys LtdKromann ReumertLMBE AVOCATS

Mani Chengappa & MathurNoerr LLPOsler, Hoskin & Harcourt LLPPestalozzi Attorneys at Law LtdPinheiro Neto AdvogadosPortolano Cavallo SAMANIEGO LawSpada PartnersSwitch LegalTAHOTA Law FirmWiggin and Dana LLP

2nd Edition

Outsourcing 2017

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The International Comparative Legal Guide to: Outsourcing 2017

Contributing EditorsSimon Shooter & Mark Leach, Bird & Bird LLP

Sales DirectorFlorjan Osmani

Account DirectorOliver Smith

Sales Support ManagerPaul Mochalski

Senior EditorsSuzie Levy, Rachel Williams

Chief Operating OfficerDror Levy

Group Consulting EditorAlan Falach

PublisherRory Smith

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: [email protected]: www.glgroup.co.uk

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ISBN 978-1-911367-67-3ISSN 2397-6896

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DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

General Chapters:

Country Question and Answer Chapters:

3 Australia Switch Legal: Chris Broadbent & Melanie Noble 11

4 Brazil Pinheiro Neto Advogados: José Mauro Decoussau Machado & Pamela Gabrielle Meneguetti 19

5 Canada Osler, Hoskin & Harcourt LLP: Simon Hodgett & Wendy Gross 28

6 China Baohua Law Firm and TAHOTA Law Firm: Runqing (John) Dong & Richard Xie 35

7 Denmark Kromann Reumert: Jan Ussing Andersen & Christel Teglers 41

8 Finland Dittmar & Indrenius Attorneys Ltd.: Kai Erlund & Kaisa Päivinen 47

9 France LMBE AVOCATS: Raphaël Dana & Martin Leny 54

10 Germany Noerr LLP: Prof. Dr. Joachim Schrey 61

11 India Mani Chengappa & Mathur: Utham Chengappa & Aditi Roy 67

12 Italy Portolano Cavallo and Spada Partners: Marco Blei & Luca Zoani 73

13 Japan Anderson Mōri & Tomotsune: Takashi Nakazaki 82

14 Philippines Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW): Emerico O. de Guzman & Erwin Jay V. Filio 89

15 Portugal Caiado Guerreiro, Sociedade de Advogados, SP, RL: Jorge Ribeiro Mendonça & Cátia Morgado Ascenso 97

16 Russia ALRUD Law Firm: Maria Ostashenko & Ksenia Erokhina 104

17 Spain SAMANIEGO Law: Javier Fernández-Samaniego 111

18 Sweden Hannes Snellman Attorneys Ltd: Elisabeth Vestin 116

19 Switzerland Pestalozzi Attorneys at Law Ltd: Lorenza Ferrari Hofer & Michèle Burnier 122

20 Turkey BTS&Partners: Tuğrul Sevim & Ecem Gündüz 129

21 United Kingdom Bird & Bird LLP: Simon Shooter & Sarah Kilner-Morris 136

22 USA Wiggin and Dana LLP: Mark Heaphy & Tamia Simonis 144

1 Structuring a Multi-Jurisdictional Outsourcing Deal – Mark Leach, Bird & Bird LLP 1

2 CORE: Key Trends and Best Practices Affecting the Outsourcing Industry – Ron Babin & Jim Eckler, Centre for Outsourcing Research and Education (CORE) 5

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Chapter 4

Pinheiro Neto Advogados

José Mauro Decoussau Machado

Pamela Gabrielle Meneguetti

Brazil

types of procurement processes: (i) competitive bidding; (ii) price survey; (iii) invitation; (iv) contest bidding; and (v) auction. Law No. 10,520/02 also created another type of procurement process – the reverse auction, which is very common in Brazil and is carried out by public entities to contract regular goods and services. There is also the electronic reverse auction, regulated by Decree No. 5,450/05.

As for state-owned companies, recently enacted Law No. 13,303/16 provides the general rules for the procurement process to be followed by such entities.

It is important to note that some specific rules apply to the outsourcing of telecommunications and IT services (Decree No. 7,174/2010) in the public sector.

b) Private Sector Transactions: Outsourcing regarding private companies is subject to the Brazilian Federal Constitution, the Consumer Protection Code and labour law (see section 7).

1.3 Are there any further legal or regulatory requirements for outsourcing transactions in any particular industry sector?

With regards to labour and employment relations in outsourcing transactions, there are legal and regulatory requirements. Contracts are governed by the Brazilian Civil Code and the relationship between the service provider and the recipient of the services is governed by the Brazilian Consumer Protection Code. The relationship between the independent contractor, subcontractors and their employees may be subject to Brazilian Consolidated Labour Statutes. In fact, until very recently, in the absence of a statute regulating outsourcing in general, the Superior Labour Court Precedent No. 331 set the standard of a valid outsourcing. Under this precedent, courts recognised valid outsourcing only when related to noncore activities and provided that services were provided independent of any control or management by the recipient of the services. If courts determined that the outsourcing transactions were entered in breach of any of these two standards, the contractors’ or subcontractors’ employees could be reclassified as employees of the recipient of the services.

1.4 Is there a requirement for an outsourcing transaction to be governed by local law? If it is not to be local law, is there any generally accepted norm relating to the choice of governing law?

There are no requirements for an outsourcing transaction to be governed by Brazilian law or any other generally accepted norm. Parties are generally free to choose the governing law of their contracts. However, a dispute with contractors’ and subcontractors’ employees would necessarily be governed by local law.

1 Regulatory Framework

1.1 Arethereanynationallawsthatspecificallyregulateoutsourcing transactions?

There is no national law that specifically regulates outsourcing transactions. However, there are some sectoral regulations for certain types of outsourcing transactions, such as labour law and public sector regulations. Labour LawThere are a few federal statutes regulating labour law outsourcing in Brazil. Federal Law 6,019/1994, as recently amended (by Federal Law 13,429/2017), regulates contingent work and outsourcing in general. Under this statute, businesses may engage a vendor to supply contingent workers for up to 180 days (this term may be renewed for an additional 90 days). These workers can be engaged in the case that permanent staff are on leave or in the case businesses need additional staff for unexpected or seasonal reasons. This law also regulates outsourcing in general, which is defined as an arrangement whereby businesses contract specific and defined services from independent contractors.

1.2 Are there any additional legal or regulatory requirements for certain types of outsourcing transactions, for example: a) public sector transactions; b) business process transactions; c) financialservicestransactions;d)ITtransactions;and e) telecommunications transactions?

Yes. There are some legal requirements concerning labour law and the public sector, which may include the outsourcing of government IT services and telecommunication services – Laws. No. 8,987/95, No. 9,074/95 and No. 8,666/93 (previous bidding process required). In addition, Federal Law 7,012/1983 regulates security and cash in transit services. Federal Law 9,472/1997 provides that telecom carriers can use third-party contractors in the rendering of their services to customers. Similarly, Federal Law 8,987/1995 grants the same authorisation to electric utilities. a) Public Sector Transactions: The rule of thumb in public

sector transactions is for such entities to carry out outsourcing transactions following the procedures set forth in specific laws.

Regarding public entities of the direct administration (Federal Union, States, Municipalities and the Federal District), the general law regulating public tenders and contracts is the Public Procurement Law. Such law sets forth the following

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4 Term of an Outsourcing Agreement

4.1 Does national or local law impose any maximum or minimum term for an outsourcing contract?

There is no term limitation for outsourcing contracts in Brazil, since Brazilian law does not particularly regulate outsourcing. In view of this, the parties are free to establish their own terms of the contract. The practice, however, is to have these contracts entered for a fixed term (varying from two to five years). Most contracts allow renewal.

4.2 Does national or local law regulate the length of the notice period that is required to terminate an outsourcing contract?

There is no specific regulation on the termination of outsourcing agreements, the general rule usually applies, i.e., either party may unilaterally terminate the agreement without cause upon 30–90 days’ prior written notice to the other party, according to article 473 of the Civil Code. Usually, fees are payable until the end of the notice period. If, however, one of the parties has made significant investments to perform the agreement, the termination may only be effective after a period proportional to the nature of the investment required has elapsed. On the other hand, one of the parties may only unilaterally terminate fixed-term agreements without cause, if such possibility is expressly provided for in the agreement and that reasonable prior notice is given in accordance with the term and investments made by the parties. In the absence of a provision of termination without cause in the agreement, the terminating party may face indemnity for losses and damages. According to article 944 of the Civil Code, the amount of compensation shall be determined according to the extension of the damage caused.When it comes to employment agreements, some contracts provide for some additional payments (such as compensation for upfront investments and or severance pay triggered by termination of employees). Contractually provided “just causes”, if not subject to a cure period (sometimes set to be 30 days), usually authorise immediate termination, i.e. without any notice. In this situation, no payment other than normal fees for the services rendered until termination for “just cause” is required.

5 Charging

5.1 What are the most common charging methods used in outsourcing transactions?

There are various different methods based on the nature of the services contracted under an outsourcing transaction. Regarding employment outsourcing transactions, permanent services are usually charged at a fixed fee or at a variable rate based on a cost-plus approach taking into account man-hours, consumption of resources and so on. Certain projects may be contracted for a flat fee paid either upfront or in instalments. For further information on taxation and charging methods, please see question 9.3 below.

2 Legal Structure

2.1 What are the most common types of legal structure used for an outsourcing transaction?

Service Agreements Service agreements are the most common type of legal structure used for an outsourcing transaction. This is the type of agreement used for employment and public sector outsourcing agreements.Joint Venture AgreementsThis type of agreement may also be used for an outsourcing transaction in the case the supplier incorporates a new entity in the form of a joint venture. In this case, the supplier shall contribute with resources such as capital, personnel, equipment, technology and immaterial assets such as intellectual property in order to develop a new entity to their mutual benefit. An advantage of this type of agreement is the shared risk and the possibility of entering a new business with less of a financial commitment. In addition, the customer is able to attend more closely to the provision of services. On the other hand, a disadvantage is the time required to form a successful joint venture and the difficulty in establishing the limits of liability of each contracting party, since both of them share the risk of the business.Employment AgreementsThere are two frequent types of legal structure: a master agreement between the contractor and recipient of the services, where the specific services are governed under schedules; or specific contracts for specific types of services. Note, however, that the recent statute governing outsourcing defines outsourcing as the contracting of defined and specific services. In view of this, specific contracts are preferable.

3 Procurement Process

3.1 What is the most common type of procurement process that is used to select a supplier?

Public companiesIn relation to public entities, apart from the general rules mentioned in question 1.2 point a) above, the Public Procurement Law and Law No. 13,303/16 set forth exceptions to the obligation of holding public tenders, such as waiver and unfeasibility of the tender. One of the cases for a waiver of tender is where the purchase of goods and services is below a certain amount. In these cases, there is no general rule to be followed for the procurement process, as each entity has its own procedure and leeway in order to approach potential suppliers.Private companiesMany Brazilian companies tend to seek proposals from different potential suppliers. Others adopt streamlined bidding processes. Notwithstanding this, the procurement process varies considering the type of service.Nevertheless, concerning the procurement process for private entities, common contractual rules apply, i.e. the parties must observe the provisions of the Civil Code and the Consumer Protection Code, especially regarding the freedom of contract and the good faith principle.

Pinheiro Neto Advogados Brazil


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Licensing of IP rightsAs a rule, it is not required that the licensing contract is registered at the INPI. However, in order to be effective against third parties and allow the remittance of royalties abroad if the licensor is a foreign entity, as well as to enable the deductibility of payments by the licensee for tax purposes, the following agreements must be registered at the INPI: the transfer of technology agreements, trademark, patent, industrial design license agreements, and franchise agreements. d) ContractsThe leasing and licensing of contracts is not possible. The assignment of contracts, on the other hand, must be in writing and, depending on the nature of the contract, the consent of the other party may be required.

6.2 What are the formalities for the transfer of land?

Transfers of land and buildings are comparatively rare in outsourcing transactions. Anyhow, pursuant to Brazilian law, immovable property comprises any piece of land, along with its surface, all things attached thereto, or forming part of the land, the air space above, as well as the subsoil. Everything that a person incorporates permanently to the ground (whether as a seed sown or a building constructed in such a way that it cannot be removed without destruction, modification or damage) becomes immovable property. The ownership title to the land also comprises the property of the whole built-up area, irrespective of the person or entity who built such, given that they are permanently attached to the soil.There are four methods of acquiring immovable property: by registering a deed of transfer in the appropriate land registry; by accession; by adverse possession (usucapião); and by inheritance. The ownership title to an immovable property is acquired through an acquisitive title (i.e. purchase and sale, payment in kind, paying up of corporate capital and others) registered before the competent Real Estate Registry in the record of the respective real estate. Each real estate property has its own record.The ownership of real estate is usually transferred by means of a transfer deed executed in the form of a public instrument, and subsequently registered with the appropriate Real Estate Registry Office under the corresponding real property record. Title to a real estate is only obtained upon registration of the deed by means of which the title is acquired, on the property’s record of the applicable real estate registry office. The real estate record is used to register title over the property, title transfers and certain rights and obligations relating to the property, such as leases, mortgages and other liens.The real estate registry record is the main certificate relating to a real estate property. The record for each real estate shall contain: (i) the corresponding description, characterisation and identification of the land, including the built-up area; (ii) the number of municipal taxpayers; (iii) the name and identification of the first proprietor, successors and the current holder of ownership title; and (iv) encumbrances and liens, with the specifications and nature of each. The certificate may also state: (a) a real estate or personal possessory action involving the property; (b) the existing built-up area; and (c) lease registrations, among other matters.

6.3 What post-completion matters must be attended to?

Initially, the operations are transferred to the supplier, in general in accordance with a detailed transaction plan. For IP rights and

5.2 What other key terms are used in relation to costs in outsourcing transactions?

The parties may use auditing and benchmarking mechanisms to agree on the charging of fees in relation to the outsourcing transaction. The agreement may also provide for a lump sum payment to the supplier regarding the costs for implementing the transaction. Generally, outsourcing contracts regulate which costs and expenses are covered, or not, by the fees payable to the independent contractor. If not covered, the independent contract may claim reimbursement thereof. Outsourcing contracts usually also provide certain situations where fee terms can be subject to review or increase such as in the case of changes outside parties’ control, e.g. an act of god, changes to law or technology.See section 9 for more information on applicable taxes regarding outsourcing transactions.

6 Transfer of Assets

6.1 What formalities are required to transfer, lease or license assets on an outsourcing transaction?

The customer can both retain the ownership of its assets on an outsourcing transaction or transfer, lease and license them during the period of the contract. In order to transfer, lease or license the assets, the customer and the supplier must establish an agreement providing the conditions of the use and re-purchase of the asset at the end of the agreement. Please find below more information on the formalities to transfer, lease or license assets on an outsourcing transaction:a) Immovable propertyThe transfer or lease of immovable property must be contractually provided, in writing, executed before a notary public as a public deed and registered with the respective registry office in order to be effective against third parties. b) Movable propertyThere is no specific requirement or formality required to transfer, lease or license a movable asset, but in order to become effective against third parties, it is recommended that the transaction is made through a written and formal agreement.c) Intellectual property rightsAs a rule, the transfer or license of IP rights must be contractually provided in writing. Depending on the nature of the IP right and the transaction involved, specific rules may apply, as follows: Transfer of IP rightsNotwithstanding the contract by which the parties set forth the terms of the transfer, the parties must register the transfer towards the respective administrative entities:a) trademarks, patents, industrial designs and geographical

indications at the Brazilian Institute of Industrial Property – INPI;

b) domain names at the Registro.br (Centre for Information and Coordination of Ponto BR domains – NIC); and

c) cultivated plant varieties at the National Registry of Cultivated Plant Varieties of the Ministry of Agriculture.

It is important to note that although the registration of software and copyright is not mandatory to secure its ownership, if they are already registered at the competent bodies, the transfer of such IP rights must also be duly registered.



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i.e. the independent contractor, is empowered to terminate its employees. The recipient of the services has no such authority. Under the outsourcing contract, it is advisable to add a provision whereby the recipient of the services can direct the independent contractor to replace the employees engaged in services under the outsourcing transaction. The ultimate decision to terminate or not to terminate the employment of such individual whose replacement was determined is on the independent contractor.

7.5 Is a supplier allowed to harmonise the employment terms of a transferring employee with those of its existing workforce?

As there is no transfer by operation of law applicable in an outsourcing transaction, an employee has to first be terminated before being hired by an independent contractor. In view of this, an independent contractor can harmonise terms and conditions to match the terms of its original workforce. Notwithstanding the above, it is common to see labour claims which challenge operations where the employee is terminated by his employer and is automatically hired via an independent contractor. Expert advice is often required in situations like this.

7.6 Are there any pensions considerations?

All employees (from the recipient of the services or from the independent contractor) are beneficiaries of Brazilian public pension scheme and, in view of this, their salaries and most of their benefits will be subject to social security contributions. These are set at 11% (currently capped at R$608.44) and in a range between 27% and 29% for most businesses. From a pension plan viewpoint, withdrawals and rollover terms following a termination of employment are subject to specific regulations and plan terms and conditions, and expert advice must be sought.

7.7 Are there any offshore outsourcing considerations?

There is no specific rule limiting Brazilian businesses from having outsourced services performed outside Brazil. However, transfer pricing rules and border taxes may apply and it is advisable to seek tax advice before outsourcing services offshore.

8 Data Protection Issues

8.1 What are the most material legal or regulatory requirements and issues concerning data security and data protection that may arise on an outsourcing transaction?

There is no specific data protection law in Brazil. The collection, storage, use, disclosure and processing of personal data are subject, however, to a set of rules provided by general legal statutes, such as the Federal Constitution, the Civil Code (Law No. 10,406/2002), the Consumer Protection Code (Law No. 8,078/1990), the Civil Rights Framework for the Internet (Law No. 12,965/2014), Decree No. 8,771/2016, which regulates the Civil Rights Framework for the Internet, Law No. 12,527/2011 and Decree No. 7,724/2012, which regulate the treatment of personal information under the control of government bodies, government-controlled companies, and private non-profit entities receiving public funds to perform actions in the public interest.

movable properties, on the other hand, the matters are completed after the signing and commencement of service by the supplier, as is the transfer of immovable properties such as lands or buildings.

6.4 How is the transfer registered?

Please see questions 6.1 and 6.2.

7 Employment Law

7.1 When are employees transferred by operation of law?

In Brazil, employees can be transferred by operation of law under two specific situations: a change to the employer deriving from a corporate reorganisation (merger, acquisition, incorporation, etc.); or between two companies belonging to the same economic group (when two or more companies are held, managed or controlled by the same parent). In view of this, outsourcing transactions do not trigger any transfer by operation of law.

7.2 On what terms would a transfer by operation of law take place?

Terms and conditions of employment are protected from adverse changes if a transfer by operation of law takes place. This means that the same terms and conditions applicable before the transfer should remain applicable afterwards.

7.3 What employee information should the parties provide to each other?

Brazilian law governing outsourcing transactions imposes secondary liability on the recipient of the services. This means that if the independent contractor or subcontractor fails to pay employees engaged in services under outsourcing transactions, the recipient of the services may be required to pay their salaries, benefits and severance amounts. As a consequence, outsourcing contracts should require independent contractors to show (and cause their subcontractors to show) that their employees’ salaries and benefits are timely paid. This may cause personal information to be disclosed. It is also common practice to ask for personal information of outsourced employees, including their names and ID numbers, in order to grant them access to company facilities. In view of these two facts, the outsourcing contract should ideally cause the independent contractor to obtain employee consents.

7.4 Is a customer/supplier allowed to dismiss an employee for a reason connected to the outsourcing?

As a norm, employees can be terminated in Brazil at any time without cause, provided that a legally mandated severance package is paid to them. This package includes all outstanding compensation, payment in lieu of notice of 30 days, plus three extra days of salary per year of work, accrued benefits up to the end of the notice period (including all fully and partially vested but unused vacation and the 13th month salary payment) and a penalty of 50% on the employee’s FGTS. FGTS is a severance fund of employer contributions with 8% of all salaries paid to that employee. Certain actions or conducts listed under Brazilian law also authorise immediate termination for just cause. Termination with just cause triggers payment of accrued compensation and vested benefits. However, only the employer,



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Therefore, although not subject to specific provisions such as those set forth by the Civil Rights Framework for the Internet, the processing of personal data of consumers that are not using internet applications still requires, as a consequence of the rules provided by the Federal Constitution, the Civil Code and the Consumer Protection Code, the express and informed consent of the holder (consumer), who has the prima facie right to control information about him- or herself.Brazilian law does not provide any requirement (nor prohibition) of anonymisation of personal data or appointment of officers.Restrictions on cross-border transfer of dataBrazilian law does not set forth data localisation obligations, cross-border transfer restrictions or specific procedures applicable to personal or non-personal data collected, stored, used or processed by private entities in general. As a rule, private entities are not required by Brazilian law to locate their databases or process personal or non-personal data of consumers within the Brazilian territory, and there is no specific procedure applicable to cross-border transfers.As an exception to such rule, financial institutions and other entities supervised by the Brazilian Central Bank operating in Brazil are required to store within the Brazilian territory the scanned versions of documents concerning their transactions, including those containing clients’ personal data (Resolution No. 4,474/2016, art. 5, § 3). This rule does not apply, however, to any private entities other than financial institutions and companies operating under the authorisation of the Brazilian Central Bank.

9 Tax Issues

9.1 What are the tax issues on transferring the outsourced business – either on entering into or terminating the contract?

There are two main tax issues related to the transfer of outsourced business. The first one is the transfer of assets to the supplier. In this case, where the customer transfers assets to the supplier, the applicable law considers that the supplier received income equal to the assets’ fair value, taking into account that the supplier does not pay fair consideration. Likewise, the customer is subject to income tax over any received capital gain. It is worth mentioning that in Brazil the transfer of assets from a customer to a supplier is rare in outsourcing transactions and it is more common that the parties enter into a free lease or a loan in this case.The second main tax issue is the transfer of employees to the supplier. In this situation, the supplier is responsible for withholding payroll taxes and social security contributions. Please note that in this case, the supplier and the customer are jointly liable for outstanding labour and social security debts.

9.2 Is there any VAT leakage on the supply of services under the outsourcing contract? Yes.

In Brazil, VAT levies in two different ways: (i) tax on the manufacture of products – Imposto sobre Produtos Industrializados (IPI); and (ii) tax on the circulation of goods – Imposto sobre Circulação de Mercadorias e Serviços (ICMS). In this way, IPI is charged over industrial products the moment they leave a company’s plant of manufacture and/or over imported industrial products on their import or resale by the importer.

Restrictions on collection, usage, process and storage of personal dataAs a rule, internet application access logs and users’ personal data can only be disclosed by the supplier to third parties upon free, prior and informed consent from the users (Civil Rights Framework for the Internet, art. 7, VII) or in compliance with court orders rendered in civil or criminal cases (Civil Rights Framework for the Internet, art. 10, § 1º).The supplier must, in any safekeeping, storage, and treatment of personal data, observe the following guidelines on security standards: (i) establishment of strict control over data access by defining the responsibilities of the persons that will have the possibility of accessing such data, as well as the privileges of exclusive access for certain users; (ii) establishment of authentication mechanisms for access to logs, using, for example, dual authentication systems to ensure individual identification of the party responsible for handling the logs; (iii) creation of a detailed inventory of access to the data, including time, duration, identity of the employee or of the party responsible for the access designated by the company and the file accessed; and (iv) use of log management solutions through techniques that guarantee the inviolability of personal data, such as encryption technologies or equivalent protective measures (Decree No. 8,771/2016, art. 13). The supplier must retain the least possible amount of personal data and access logs of users, which must be deleted (i) at users’ requests and upon termination of the relationship between the parties, except for the events of compulsory retention of logs, or (ii) regardless of users’ requests, when the purpose of its use has been achieved, or when the deadline established by law has expired (Civil Rights Framework for the Internet, art. 7, X, and Decree No. 8,771/2016, art. 13, § 2). The supplier is obliged to collect and keep internet application access logs (IP address, date and time of registration) of users confidential, within a controlled and safe environment, for a period of six (6) months (Civil Rights Framework for the Internet, art. 15).Personal data collected by suppliers from consumers that are not using internet applications are not subject to the abovementioned specific provisions. Note, however, that legal relationships between suppliers of services or products and their consumers, not embodied by the Civil Rights Framework for the Internet, do not translate into a legal loophole or gap, as they are still governed by the Federal Constitution, the Civil Code and the Consumer Protection Code.The Federal Constitution sets forth such principles as the inviolable right to intimacy and privacy, and the inviolable right to confidentiality of correspondence and telegraphic communications, data and telephone communications (art. 5, X and XII). In addition, the Civil Code warrants the right to claim compensation for moral and/or property damages on the grounds of violation of privacy (art. 12).The Consumer Protection Code establishes consumer (basic) rights to adequate and clear information on products and services, with correct specification as to quantity, characteristics, composition, quality, price and risks (art. 6, III), and expressly provides that when not requested by the consumer, he/she shall be informed in writing by the supplier about the creation of credit records, cards, registers, personal data and consumer data (art. 43, § 2). The Consumer Protection Code also provides that consumer records and data shall be objective, clear, true and easily understood, and may not contain any negative information going back more than five (5) years (art. 43, § 1). Suppliers of services and products are forbidden to pass on disparaging information regarding acts performed by the consumer when exercising his/her rights (art. 39, VII).



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reclassified as employees of the recipient of the services, service levels and service credits are not very customary in Brazil. Quality, frequency and performance of the services are usually measured under different methods (both formal and informal) and may result in notices to cure and/or terminate the outsourcing transaction.

11 Customer Remedies

11.1 What remedies are available to the customer under general law if the supplier breaches the contract?

Breach of contract gives rise to the suspension of compliance to the obligations set forth in the agreement, as well as monetary damages and/or “just cause” to termination of the outsourcing transaction if not rectified during the cure period (in the case the breach can be cured). Specific performance and injunctions are also available as a remedy, but are exceptional and apply only when damages are not the adequate remedy and other criteria under Brazilian procedural rules are met.

11.2 What additional protections could be included in the contract documentation to protect the customer?

The following terms could be included in the contract in order to protect the customer against breach of contract by the supplier:a) right to audit the obligations’ compliance and, in the case

of labour agreements, the right to carry out due diligence to determine timely payment of employees’ salaries and benefits is an important protection, because of the secondary liability imposed on the recipient of outsourced services;

b) obligation to provide periodic detailed reports about the execution of the agreement;

c) step-in rights for the customer to temporarily take over the outsourced services in the event of severe breaches by the supplier; and

d) minimum insurance coverage.

11.3 What are the typical warranties and/or indemnities that are included in an outsourcing contract?

It is customary to add a general indemnity and hold harmless provisions where the independent contractor must keep the recipient of the services harmless from any liability imposed by labour, social security and tax courts and authorities.

12 Insurance

12.1 What types of insurance should be considered in order to cover the risks involved in an outsourcing transaction?

Generally, the parties obtain insurances to cover potential liabilities and predetermined risks arising from the execution of the agreement, although there is no specific regulation on insurances related to outsourcing transactions. Regarding labour agreements, civil liability insurance (covering occasional damages caused by employees) and life/accident insurance (covering workplace injuries to employees engaged in services to third parties) are frequently purchased by independent contractors.

According to IPI legislation, the amount paid over previous transactions in a given product is allowed to be offset against future charges. Moreover, if an outsourcing transaction is characterised as a tolling arrangement (the customer purchases only raw materials, sends them to the supplier for manufacturing and the final product is sent back to the customer), IPI rules establish the suspension of the tax on inputs sent by the customer to the supplier as long as the industrial products return to the customer after they have been manufactured. In this scenario, there is no IPI credit to be offset by the customer, and so the tax levies on the sale of the manufactured product by the customer. Finally, IPI rates may vary according not only to its legislation and to the harmonised system established by the Mercosul Common Nomenclature (NCM), but also it depends on how essential the product is (for consumers and for the development of the country). Regarding ICMS, it is charged over the importation of products, the sale or transfer of products in Brazil, the communication services and the intra- and inter-state transportation services. It is a state tax and its regulation varies from state to state within Brazil.ICMS legislation also establishes the possibility of offsetting tax previously paid against future charges. In addition, in outsourcing transactions characterised as tolling arrangements, it is common that the states suspend the collection of ICMS on goods sent by the customer to the supplier, as long as the products return to the customer. In this case, there is the possibility of offsetting ICMS credits, so that the tax is levied only on the additional values of the goods and services added by the supplier. The remaining ICMS is then charged over the customer’s sale of the manufactured product.It is important to mention that in the case of imported products, the tax rate regarding products that have more than 40% of imported content is 4% regardless of the state of entrance in Brazil. The tax base, in this case, is the CIF value (Cost, Insurance & Freight), plus the amounts paid as Import Tax, IPI, PIS-Import, COFINS import and customs expenses, such as the Additional Freight Charge for the Renewal of the Merchant Navy (AFRMM).Furthermore, please note that in internal operations, ICMS is due at rates that vary from 12% to 19%, depending on the state (in Rio de Janeiro the rate is 19%; in São Paulo, Minas Gerais and Paraná, 18%; and in other states, 17%).On the other hand, in interstate operations, the ICMS tax rate is: (i) 4% if the product is not referred to industrialisation after the importation; (ii) 4% if the product is submitted to industrialisation after the importation but the imported content continues to be more than 40%; and (iii) 12% or 17% when the product does not have a similar national product.

9.3 What other tax issues may arise?

Tax on the rendering of services (Imposto sobre Serviços – ISS). It is worth mentioning that services provided by a supplier to a customer under an outsourcing agreement may be subject to municipal services tax whose rates can vary between 2% to 5%, depending on the nature of the service and the municipality in which the taxpayer is located.

10 Service Levels

10.1 What is the usual approach with regard to service levels and service credits?

Because of the risk of the independent contractors’ employees being



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shall receive the full ownership of its IP rights back, but may also allow customers to continue using their intellectual property, subject to certain conditions and the payment of fees, to the extent their IP is incorporated in new developments created and brought by the customer itself, but only in connection to such use. The parties may also regulate the ownership of IP created during the outsourcing relationship.

14.2 Are know-how, trade secrets and other business criticalconfidentialinformationprotectedbylocallaw?

As know-how, trade secrets and other business critical confidential information are often not registered at the competent bodies, which could assure their ownership and protection against the use by others, they are protected by local law only when such information is either obtained (i) by means of a contractual or employment relationship, even after the termination of the contract, or (ii) directly or indirectly by illicit means or to which he has had access by fraud. In those cases, the attainment of such information is considered a crime of unfair competition, punishable by law with the penalty of detention that may vary from 3 (three) months to 1 (one) year, or a fine (Industrial Property Law – Law No. 9279/96). It is important to note that such provisions also apply to the employer, partner or administrator of an undertaking that commits an act falling within the types of the above-mentioned crimes.

14.3 Are there any implied rights for the supplier to continue to use licensed IP rights post-termination and can these be excluded from the agreement?

No. Usually, supplier’s rights to use the customer’s licensed IP rights end at the termination of the contract. The parties may, however, regulate this aspect differently, establishing, e.g., that the supplier will receive a licence for a certain period.

14.4 To what extent can the customer gain access to the supplier’s know-how post-termination and what use can it make of it?

The customer often gains access to the supplier’s know-how during an outsourcing agreement. However, the customer cannot make use of such rights after the termination of the agreement and end of the licence granted by supplier, under the risk of IP rights infringement and unfair competition. The parties may regulate this differently in the agreement.

15 Liability

15.1 To what extent can a party limit or exclude liability under national law?

Parties are generally free to contract liquidated damages, compensatory or non-compensatory penalties (the former would count towards additional damages) and to cap or limit certain types of damages. Certain situations of liability, however, cannot be excluded under Brazilian law, such as in cases of fraud, harassment, discrimination, torts, environmental risks, consumer contracts, and shall be subject to civil (and sometimes criminal) charges. It is important to note that in IT contracts, contractual provisions are deemed void if its provisions intend to exempt either party from liability arising from

13 Termination

13.1 How can a party to an outsourcing agreement terminate the agreement without giving rise to a claim for damages from the terminated party?

To mitigate the risk of a claim for damages because of the termination of an outsourcing arrangement, the terminating party must (i) if terminating without cause, make sure that notice and outstanding payment requirements, if any, are met, and (ii) if terminating with just cause, make sure there is material evidence of the cause, and that the occasional cure period has passed. If there are competing claims for damages or if parties wish to prevent a dispute, parties can enter into a settlement agreement to govern the terms of the termination. More often than not, when an outsourcing transaction is terminated, the independent contractors’ employees are usually dismissed and tend to direct or redirect their occasional labour claims against the former recipient of their services. Parties must clearly set forth how to govern this situation post-termination.

13.2 Can the parties exclude or agree additional termination rights?

Yes, parties are free to negotiate and contract what terms will apply to the termination of an outsourcing transaction and may enter into an out-of-court settlement agreement.However, one must note that (i) the parties cannot be forced to remain in a contract indefinitely, i.e. if there is no provision of termination in the agreement, any of the parties may seek on court termination of contract, (ii) prior written notice must be given accordingly to the investments made by the parties and the nature of the contract (see question 4.2), and (iii) the agreement cannot be abusive in a manner to prevent one of the parties from terminating the agreement.

13.3 Are there any mandatory local laws that might override the termination rights that one might expect to see in an outsourcing contract?

No, there are no mandatory local laws that might override the termination rights that one might expect to see in an outsourcing contract.

14 Intellectual Property

14.1 How are the intellectual property rights of each party protected in an outsourcing transaction?

As a rule, the intellectual property rights’ ownership of each party is guaranteed in an outsourcing transaction, and the respective party is entitled to indemnities in the case of infringement of its IP rights by the other party. However, the parties may agree on specific arrangements according to the function outsourced and to the extent to which the execution of the agreement depends on the use of any of the IP rights of the other party. Each party may: (i) license its intellectual property to the other only to the extent necessary to perform the services outlined in the agreement, but shall maintain the ownership of its IP rights, making any improvements and changes it deems useful and necessary; or (ii) transfer some of its IP rights if provided in the object of the agreement. Following the termination of the contract, the supplier



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17 Good Faith

17.1 Is there any overriding requirement for a customer and supplier to act in good faith and to act fairly according to some objective test of fairness or reasonableness under general law?

Yes. The Brazilian Civil Code provides a general principle of good faith applicable to both sides to a contract or transaction, which must be observed at all times during the negotiations, the execution and after the termination of the contract.

AcknowlegmentThe authors would like to acknowledge their colleages for their invaluable assistance during the preparation of this chapter: Ana Carolina Fernandes Carpinetti, senior associate in Pinheiro Neto Advogados’s Tax department ([email protected]). Maurício Fróes Guidi, senior associate in Pinheiro Neto Advogados’s Labour department ([email protected]).Heloisa Figueiredo Ferraz de Andrade Vianna, associate in Pinheiro Neto Advogados’s Infrastructure and Public and Administrative Law department ([email protected]).Beatriz Antunes Piazza, legal assistant at Pinheiro Neto Advogados.Tally Smitas, legal aide at Pinheiro Neto Advogados.

claims brought by third parties in view of software imperfections, defects or copyright infringement, as provided in the Brazilian Software Act (Law No. 9,606/1998).

15.2 Arethepartiesfreetoagreeafinancialcaponliability?

There is no such restriction under Brazilian law on the agreement of a financial cap on liability by the contracting parties. However, it is advisable to set certain caveats to this cap on liability, since the liability provisions must be reasonable and justifiable. For instance, employment disputes with independent contractors’ employees may become a sizable exposure and, in view of this, a recipient of the services may prefer to carve this situation out of a cap on liability. In general, the courts do not uphold a limitation of liability provisions and define whether the limitation is reasonable or not on a case-by-case basis, considering the nature of the contract, the damages that it may cause and whether the limitation violates Brazilian public policy rules.

16 Dispute Resolution

16.1 What are the main methods of dispute resolution used?

There are two methods frequently adopted in Brazil: adjudication of disputes by the courts; or arbitration. Arbitration tends to be faster but more expensive and is usually more frequently adopted in larger transactions. Court jurisdiction is the default method, and may be preferable in smaller transactions. Brazilian law provides rules on jurisdiction, usually the courts sitting where the defendant is located or where the services are rendered are the ones to adjudicate these disputes.



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José Mauro Decoussau MachadoPinheiro Neto AdvogadosRua Hungria, 1100 Sao Paulo – SP, 01455-906Brazil

Tel: +55 11 3247 8729Email: [email protected]: www.pinheironeto.com.br

Pamela Gabrielle MeneguettiPinheiro Neto AdvogadosRua Hungria, 1100 Sao Paulo – SP, 01455-906Brazil

Tel: +55 11 3247 6290Email: [email protected] URL: www.pinheironeto.com.br

José Mauro Decoussau Machado is partner in the Intellectual Property (IP) department of Pinheiro Neto Advogados. He focuses on litigation and transactional work related to technology, privacy, trademarks, patents, industrial designs, copyright and unfair competition, as well as advertising.

He earned his LL.M. in Law, Science and Technology from Stanford Law School (2009) and holds a Master’s degree (2004) in Civil Procedure and a LL.B. degree (1999) from PUC/SP (Brazil).

José Mauro is also author of the book “Preliminary injunctions in Intellectual Property cases” and is a Professor in the LL.M. course provided by the Brazilian Bar Association (Escola Superior de Advogados – ESA).

He is also recognised as a leading counsel in the IP area by Chambers Global, Chambers Latin America, Latin Lawyer 250, The Legal 500 and World Trademark Review.

Pinheiro Neto Advogados is a Brazilian, independent, full-service firm specialising in multi-disciplinary deals, and in translating the Brazilian legal environment for the benefit of foreign clients.

Pinheiro Neto Advogados was one of the first Brazilian law firms to serve foreign clients and to specialise in corporate clients.

With clients in almost 60 countries, the firm was recognised in 2014 by the Brazilian government as the number one exporter of legal services from Brazil.

Pinheiro Neto Advogados is the Brazilian institutional partner of Harvard Law School’s Center for the Legal Profession GLEE (Globalization, Lawyers and Emerging Economies) programme and of Stanford Law School’s Law, Science and Technology programme.

Pinheiro Neto Advogados is one of only a handful of firms partnering worldwide with Thomson Reuters and Samsung’s legal technology innovation research project.

The firm has grown organically, and developed a distinctive, tight-knit culture, with a low associate-to-partner ratio.

The firm advises and represents both local and international clients in a broad range of sectors, including automotive, banking and financial services, construction and materials, energy and natural resources, environment and waste management, health care, oil and gas, real estate and technology.

The firm has correspondents throughout Brazil, and has developed close and solid working relationships with first-tier law firms around the world.

As a result of its full range of practices and the excellence of its practitioners, the firm advises clients in any industry on issues involving any practice area, developing deep knowledge of their business and close ties to their people, not only on a day-to-day basis, but also when they are faced with strategic decisions involving sophisticated, complex, or technically challenging legal problems.

Pamela Gabrielle Meneguetti is a senior associate at Pinheiro Neto Advogados in the Intellectual Property department, with focus on litigation and consulting matters involving technology, privacy, data protection, law enforcement, consumer, elections, freedom of expression and intellectual property rights in general. Pamela holds a specialisation degree in Intellectual Property and Civil Liability of Internet Service Providers by Fundação Getúlio Vargas (2009/2010). She obtained the Master’s degree in Constitutional Law by PUC/SP (2014) on her work “The Web search mechanisms and the collisions between the right to information and the personality rights” and attended the 2nd Annual International Summer Program – Understanding US Intellectual Property at Stanford Law School (2016).


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