Valuation Issues in Brazil

By: William Hughes

Valuation Issues in Brazil

This is a high-level summary of issues likely to be relevant to international groups with operations in Brazil or that are considering transactions in Brazil. The following overview was prepared by VRG member firm Grupo SETAPE.

Valuations in Brazil are generally required around a transaction and can be grouped into advice on mergers and acquisitions, financial reporting, and tax or legal purposes. There are also several instances where valuations are required for compliance or regulatory purposes (some on a recurring basis), outside of a current transaction. Real estate and personal assets may require a valuation for various reasons such as financial reporting, collateral, insurance, or asset reorganization and control.

When Are Valuations Needed in Brazil for Mergers, Acquisitions, and Divestitures?

Mergers, acquisitions, and divestitures often require sound valuation analysis and advice from specialist teams. Independent valuation analysis may also be performed as a starting point for price negotiation in a business acquisition.

When Are Valuations Required in Brazil for Financial Reporting?

Brazilian financial reporting is based on IFRS. The Comitê de Pronunciamentos Contábeis (CPC) has issued standards
mirroring IFRS, with a few very minor changes.

Business Combinations/Asset Acquisitions. Brazilian standards require the determination of the fair value of assets acquired and liabilities assumed in a business combination at their acquisition date. Assets commonly valued at fair value include inventory, PP&E and intangible assets. Liabilities commonly adjusted to fair value include deferred revenue and contingent consideration. According to RFB’s1 directive #1700, business combinations also require the production and filing of a report up to 13 months after the acquisition date.

Asset Impairment. Companies are required to test assets for impairment at least on an annual basis.

When Are Valuations Required in Brazil for Tax or Statutory Purposes?

Valuation of Stock Issued as Compensation. Management is often given stock or options as part of their compensation package. An analysis must be completed to value these stocks/options at fair market value.

Transfer Pricing, Valuation of Intangibles, Value of Debt. Tax authorities and the Organization for Economic Cooperation and Development (OECD) have recently revised their guidelines to address concerns, particularly with respect to intellectual property (IP) valuations in a transfer pricing context where companies in the same share the costs and risks of developing, producing, or obtaining assets.

When Are Valuations Required in Brazil for Purposes of Fiduciary Duty?

Fairness Opinions. These are generally not mandated by law or contract but desired to help boards of directors
fulfill fiduciary duties of loyalty and care by acting on an informed basis and also to provide liability protection to board of directors’ members, independent committees. Fairness opinions are typically completed on a fair value or fair market value standard, although the standard of value is likely defined differently than it is for financial reporting or tax purposes.

Solvency Opinions. A solvency opinion is a document stating the borrower is, and will remain, solvent, under the burden of additional debt and is usually provided to protect the security position of senior lenders and to protect the selling shareholders, the board of directors, and transaction advisors. Solvency tests involve demonstrating that assets exceed liabilities, ability to pay debts and adequacy of capital.

When Are Valuations Needed in Brazil for Real Estate and Personal Property Valuation?

Real estate and personal property valuations are necessary when dealing with issues such as loan collateral, financial reporting, insurance, and asset reorganization and control.

To learn more about how VRG and Grupo SETAPE can work with your company, we welcome you to visit us online or contact Roberto Zuanella at or Luis de Carvalho at

For more information about VRG’s full scope of international valuation and value-related services, contact Bill Hughes.

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