Highlights of Brazil

Author: Claudia Barmann Bernard
Prado Garcia Advogados

16.1. Introduction

E-commerce has grown significantly in the last years and it continues growing. In 2007, Brazil accounted for 45 % of all transaction in Latin America. In 2008, sales were up to R$ 8.2 billion, representing a growth of over 30 % compared to the year 2007. Sales for the first semester of 2009 are expected to grow by 20 % compared to the first six months of 2008, reaching R$ 4.5 billion. The total amount of sales estimated for the year 2009 will exceed R$ 10 billion.

E-commerce by definition includes all activities and transactions using the internet comprising besides selling and purchasing any other activity such as services, propaganda, information etc., including business-to-business, business-to-consumer and business between consumers.

It is important to note that the internet first started in Brazil in the 1990s and only in 1995 was opened for use to the private sector. Since then it has been an important part in the dayto-day activities of businesses, public administration, professionals and consumers such as home banking, tax declarations, online sales, communication, to name a few.

The most popular items sold over the internet in Brazil are books and magazine subscriptions, home appliances, beauty and health products and IT-products.3

16.2. Legislation

Currently, there is no specific legislation regulating e-commerce. There are, however, several bills being discussed by the legislator.

Bill no. 4.906/01 on e-commerce incorporated Bill no. 672/99 and furthermore integrated Bills no. 1.483/99 and no. 1.589/99. The bill was drafted based on the 1996 UNCITRAL Model Law on Electronic Commerce.

In addition, there are several bills aiming to regulate specific aspects of electronic commerce such as tax regulations and consumer protection. These initiatives include obligations for goods or service providers to make their contact information available on their websites and to provide an option for consumers to canceling orders online.

Further initiatives aim to prohibit the commercialization of certain products like pharmaceuticals over the internet. The Provisional Measure 2200-2 issued on August 24, 2001 established the Brazilian Public Key Infrastructure "ICP Brasil" with the authorization to set up digital certificates
services destined to guarantee authenticity, integrity and legal validity to electronic data messages and documents which use digital certificates as well as to ensure the security of electronic transactions.

16.3. Applicability of General Rules and Principles

Despite the lack of specific regulation, electronic commerce cannot be considered a lawless space. In the absence of specific laws, e-commerce transactions will be governed by the general rules and principles of the Brazilian legal system giving security and legal stability to all parties involved. Especially the provisions of the Civil Code and the Code of Civil Procedure apply as well as the Introductory Law to the Civil Code in international transactions and the Consumer Protection Law if electronic commerce involves consumers.

16.3.1. Electronic Contracts

Electronic contracts have to be considered a simple variation of a classic contract with the distinctive characteristic of being formed via an electronic medium. Like any other type of contract they represent the consent of two or more parties to form, regulate or extinguish specific rights.

Consequently, electronic contracts have to follow all basic requirements of contract formation and validity. According to Article 104 of the Civil Code, legal capacity of the parties, a legitimate object of the agreement and fulfillment of all formal requirements are essential provisions of contract formation. Following the general rule of freedom of form, the validity of a contract generally does not depend on any special formality unless determined explicitly by law.

In general, contracts are formed through offer and acceptance which are communicated between the parties. However, the use of the electronic medium has created specific characteristics of the electronic contract regarding the moment of contract formation, authenticity of the signature as well as admissibility and evidential weight. On one side, a contract between present parties, where negotiations happen face to face, is formed immediately. On the other hand, acceptance for contracts between absent parties is deemed to be communicated at the time of dispatch, for example upon sending an email.

Most electronic contracts will be considered contracts between absent parties with the exception of real time transactions.

Among the several electronic options, electronic contracts are most commonly formed via email or online over the internet. This last option is usually used for the sale of goods on the internet or to hire services like cable or satellite TV, telephone etc. These contracts are standardized, unilateral and destined for an unspecified large number of customers, without the possibility to negotiate the contents of the contract, amend certain clauses or bargain.

The buyer solely has the option to agree or not to agree to the contract. Said contracts are called adhesion contracts. Because of their specific characteristics they are subject to more restrictive rules regarding the interpretation and validity of vague, ambiguous, or abusive clauses.

Another important aspect of electronic contracts is the determination of the place where the contract was formed concerning not only questions of applicable laws and jurisdiction of courts but also conflict of law resolution through international law when the parties are situated in different countries.

As set forth in Article 435 of the Civil Code and Article 9 of the Introductory Law to the Civil Code, the contract is deemed to be formed where the offeror is domiciled - where the offer was made - resulting in the applicability of that respective jurisdiction. Notwithstanding, the parties may include Choice of Law and Forum clauses unless prohibited by Law. They may furthermore include an arbitration clause and choose arbitration to resolve any conflicts.

16.3.2. Digital Signature and Evidential Value of Electronic Documents

As established above, electronic contracts have a few specific characteristics due to the use of an electronic medium. Thus, the parties will not sign the contract themselves by hand on paper. Consequently, the assent of the parties will have to be expressed in a different way, by electronic signature. The electronic signature will provide authenticity and integrity to the author and the electronic document.

Certificate Authorities were created in Brazil to guarantee authenticity and integrity of electronic documents. They issue Digital Certificates which guarantee confidentiality and secrecy of documents and ensure privacy of communication between businesses, individuals and governments as well as inviolability and integrity of those documents on the internet. Digital certificates may be used in a variety of situations. E-CPF and e-CNPJ , for example, may be utilized with the Brazilian revenue authority in relation to tax issues, import and export proceedings, among many more.

Electronic documents are admissible as evidence in legal proceedings in Brazil considering that Article 332 of the Code of Civil Procedures declares all legal and morally legitimate means admissible to prove the veracity of facts. The general rule is the liberty in the use of means and methods of evidence. In addition, Article 225 of the Civil Code states that generally, any mechanical or electronic reproductions of facts or objects have evidential value and provide proof if their accuracy remains uncontested by the party against whom they were invoked.

16.3.3. Consumer Protection

Online electronic commerce transactions will be subject to the provisions of the Consumer Protection Code when the parties involved are a consumer on one side and a supplier of goods or services on the other side. A consumer is thereby defined as an individual or legal entity that acquires or uses products or services and an end user. As set forth in Article 3 of the Consumer Protection Code, a supplier of goods and service is defined as an individual, legal entity, public or private, whether domestic or foreign , as well as unincorporated entities which conduct business of manufacturing, assembly, creation, construction, transformation, import and export, distribution or commerce of goods or providing services.

Among the several rights set forth in the Consumer Protection Code, it is important to emphasize the provisions of legal warranty as a consumer's statutory right as well as the right to repudiation and revocation.

In addition, regulations regarding the offer and presentation of goods and services sold on the internet apply. They must contain correct, clear, accurate information about characteristics, quality, quantity, composition, price, warranty, expiration date and origin, as well as disclose potential health and safety risks to consumers, all provided in Portuguese language.

Any false, misleading, deceptive or abusive advertisement is prohibited.

16.3.4. Taxes and E-commerce

There is no specific tax legislation regarding electronic commerce in effect in Brazil.

Therefore, taxation of electronic commerce is based on the rules and provisions of the existing tax law. For that reason and considering the particular characteristics of ecommerce, its constant development and the diversity of products and services, its taxation has been under debate in jurisprudence and science. Especially the question whether ICMS (Merchandise and Service Circulation Tax), a state Value Added Tax, or ISS, a municipal tax on services, apply on electronic commerce transactions has been subject to controversy.

The commerce of tangible goods via electronic means compares to traditional commerce by phone, catalogue, etc., and ICMS applies. However, applicability of ICMS and ISS to the commerce of intangible goods like software depends on several factors such as the classification of software as a service or goods. It is also necessary to differentiate between off-the-shelf software and customized software.

In addition, it is necessary to distinguish between selling software by traditional methods, via stores, catalogues, etc, and downloading software using the internet. Further controversy exists regarding the applicability of ICMS or ISS to the services of internet access providers which is underlined by conflicting decisions of the Superior Court of Justice in favor and against applicability of those taxes.

While the debate over the applicability of ICMS or ISS represents a conflict between states that have the competence on ICMS and municipalities competent to collect ISS, there is another dispute between the states regarding the apportionment of ICMS between the state of origin and the state of destination of goods with regard to interstate transactions.

Considering the rapid and constant changes of virtual reality as well as the controversies demonstrated above, taxation of electronic commerce and applicability of different taxes should be verified separately for each activity.

16.4. Establishing an "e-commerce" / "e-business" in Brazil

16.4.1. Domain Name Registration

The Internet Management Committee of Brazil - CGI.br is responsible for the registration of domain names with the extension .br.

The committee was created by Portaria Interministerial no. 147 on May 31, 1995, later amended by Presidential Decree no. 4.829, on September 3, 2003, with the purpose of coordinating and integrating all internet service activities in Brazil. The committee is formed by members of government, the private business sector, representatives of nonprofit organizations and the academic community.

The Internet Management Committee of Brazil is responsible for the proposal of rules and proceedings regarding the regulation of internet activities and recommendation of standards and operational procedures concerning internet in Brazil as well as coordinating the assignment of IP addresses and registration of domain names with the extension .br. In order to carry out its activities, the committee established a nonprofit organization called "Núcleo de Informação e Coordenação do Ponto BR" - NIC.br.

Since 1995, "Registro.br" - as part of NIC.br - has been conducting some of the Committees functions such as domain name registration and DNS administration for domain names with the extension.br.

The TLDs .com.br and .net.br are now generic TLDs and may be registered by individuals and legal entities. Currently, there is an R$ 30 charge for registering a domain name with registro.br.

A foreign company may also register a domain name with the country code .br if they have appointed a representative who is legally established in Brazil and are registered with registro.br.
Registration of an available domain name in Brazil follows the principle of "first come, first served" and will be granted to the first applicant that fulfills all requirements for registration.

Domain names will not be registered if they are in contradiction to the law or misleading, interfere with or infringe the rights of any third party or represent famous marks - unless the registration is requested by the owner of the famous mark.

In addition, domain names cannot be registered if they are slanderous, obscene or abusive, or a registered name by the Internet Management Committee of Brazil or represent any state or government symbols.

16.4.2. Domain Name Protection

Domain names enable consumers to identify and quickly connect to a person or company.
Domain names may further promote and emphasize products and services and help forming a company's image.

As part of a company's assets domain names also need to be protected. Although, there is currently no specific legislation in Brazil regarding the protection of domain names, the rules and provisions of commercial law and Intellectual Property Law may establish and provide protection for domain names.

Based on the principles of unfair competition, trademark and name protection complainants may seek assignment, cease and desist to use, suspension or cancellation of a domain name.

16.4.3. Electronic Invoice - NF-e

Gradually since 2008 several industries have to substitute paper invoices and start emitting electronic invoices, called "nota fiscal eletrônica" or "NF-e".

The electronic invoice is a digital document emitted and stored electronically with the intention of documenting the movement of goods or service transactions provided between parties for fiscal purposes. Its legal validity and integrity is ensured by the seller's digital signature and receipt of the electronic document by the revenue authority before the actual shipment of goods or delivery of services.

Thus, the system will verify all data available and in case of any irregularities on the seller or the buyer side, the electronic invoice may not be issued. And without an invoice, goods may not circulate legally.

However, the parties may, of course, question the alleged motive of any irregularity via administrative proceedings or in court.

In addition to giving electronic commerce and the use of new technologies an incentive, the transition of all accounting and fiscal documents into electronic documents aims primarily to improve fiscal auditing, to reduce tax evasion and increase tax revenue without raising taxes.

Further, it should add to the reliability of the invoice (nota fiscal) and also contribute to reducing the use of paper with positive impacts on the environment.

Currently, Brazilian legislation only allows the electronic invoice NF-e to substitute the so called invoice model 1/1A which is in general only used to document commercial transactions of goods between legal entities. It is not intended to replace the other existing invoice models like the invoice (nota fiscal) for a consumer or the so called "cupom fiscal".