The Legal Nature and Tax Effects of the Drop Down

Abstract

The purpose of this article is to analyze in detail the drop down, going through an investigation into its legal nature in light of the Brazilian legal system and possible restrictions on the practice of this operation. This article also aims to demonstrate potential approximations with other figures typified in the Brazilian legal system, seeking to demonstrate, at the end of this analysis, that this figure should not be mistaken with other forms of corporate restructuring typified in Brazilian law. Furthermore, this work intends to analyze the subject in light of administrative and judicial decisions, even though, as this work will show, the case law on this topic is still underdeveloped. Finally, the article also aims to deal with the tax consequences that result from the drop down, with the intent to demonstrate on which specific instances a drop down may give rise to tax incidence.