Increased government spending and decreased tax revenues during the covid-19 crisis will probably further negatively influence the tax administrations’ attitudes and practices in the near future. The Peruvian National Superintendency of Tax Administration, for instance, is generally honest, but very aggressive and extremely formalistic. Latin America has an unfortunate track record of abusive and formalistic tax administrations. However, for these purposes, one should not assume that the tax administration will necessarily act reasonably. A lax regulator or agency may turn into a stringent or even hostile supervisor upon a change of ownership. Past government attitudes towards a company are not necessarily a useful tool for predicting future conduct, particularly when a change in ownership is involved. In general, cosy relationships between the target and government officials or regulators should be thoroughly scrutinised, since they could be a consequence of favours or irregular, non-transparent relationships. Compliance protocols when contacting or dealing with government officials should not be taken lightly, but rather strictly adhered to. While dissimilar in nature, they all share to some degree the unfortunate common strand of corruption and privileges.ĭue diligence to determine the personal connections and networks in the political environment may help identify regulatory risks for foreign investments.
Latin America offers a broad business–politics spectrum, from state capitalist systems, to populist interventionist state systems, to open economy democracies.
It not only varies depending on the political and economic climate of a country but also affects the various industries in multiple ways. The nexus between business and politics is an axiomatic reality. In many smaller markets, the most valuable intangible is a solid reputation and good standing among the local business community, which tends to be a close-knit group. Typical red flags such as bribery, corruption, fraud and links to money laundering may be insufficient to identify a potentially toxic counterpart. For instance, civil or commercial matters, even if contractually submitted to foreign law, can be criminalised before local courts by unscrupulous attorneys. No contractual structure, remedy, choice of law or sophisticated dispute-resolution mechanism will protect an investor from a noxious counterparty or beneficial owner.Īlthough contractual provisions may afford a certain level of comfort, a foreign investor should always keep in mind that a home-field advantage can be heavily leveraged by a shady counterparty. The most relevant aspect of diligence when looking into a transaction is by far the screening of the counterparty and its beneficial owners. In this chapter, we discuss challenges investors are likely to face in Latin America in the different phases of an M&A transaction and how they may be mitigated, with a particular focus on Peru.
In this context, often the key to preventing a crisis and successfully managing one if it were to arise resides in retaining proper local counsel and consultants with a proven track record for integrity and experience in dealing with the complexities of the domestic markets. The Lava Jato corruption scandal and its implications throughout Latin America and the still unknown long-term effects of the covid-19 crisis further muddy these already murky waters. Uncertainty and information asymmetries may limit the effectiveness of standard crisis prevention and management protocols. Objectives can often be derailed by differences in business practices and customer preferences, ill-advised regulations, an uncooperative bureaucratic system and hidden forces, such as incumbent competitors or corruption-driven interests operating from the shadows.Ĭrises, of course, can surface at any time and anywhere, but businesses are most vulnerable when operating in unfamiliar and thus unpredictable foreign environments. For unexperienced foreign investors, entering Latin American markets like Peru can at times feel like entering a parallel reality. Who represents Latin America’s biggest banks?Ĭross-border mergers and acquisitions often present challenges for investors entering new markets and unfamiliar legal, cultural and political environments. Who represents Latin America’s biggest companies?
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