Annual Report on Form 20-F 2008 - Petrobras

MandatoryDistribution
that exceeds the sum of the net
positive result of equity adjustments
and profits or revenues from
operationswhosefinancialresultstake
place after the end of the next
succeedingfiscalyear;and
third,aportionofournetprofitsthat
exceeds the minimum mandatory
distribution may be allocated to fund
working capital needs and investment
projects, as long as such allocation is
based on a capital budget previously
approvedbyourshareholders.Capital
budgets formore than one yearmust
be reviewed at each annual
shareholders'meeting.
UnderBrazilianCorporateLaw,thebylaws
of a Brazilian corporation may specify a minimum
percentageoftheamountsavailablefordistribution
bysuchcorporationforeachfiscalyearthatmustbe
distributedtoshareholdersasdividendsorinterest
on shareholders' equity, also known as the
mandatory distributable amount, which cannot be
lower than 25% of the adjusted net profit for the
fiscal year. Under our bylaws, the mandatory
distributable amount has been fixed at an amount
equaltonotlessthan25%ofournetprofits,after
the allocations to the legal reserve, contingency
reserve and unrealized revenue reserve.
Furthermore, the net profits that are not allocated
tothereservesabovetofundworkingcapitalneeds
and investment projects as described above or to
the statutory reserve must be distributed to our
shareholders as dividends or interest on
shareholders'equity.
The Brazilian Corporate Law, however,
permits a publicly held company, such as ours, to
suspendthemandatorydistributioniftheboardof
directorsandtheFiscalCouncilreporttotheannual
general shareholders'meeting that thedistribution
would be inadvisable in view of the company's
financial condition. The suspension is subject to
approvalofholdersofcommonshares.Inthiscase,
the board of directors must file a justification for
such suspension with the CVM. Profits not
distributed by virtue of the suspension mentioned
aboveshallbeallocatedtoaspecialreserveand,if
not absorbed by subsequent losses, shall be
distributedassoonasthefinancialconditionofthe
companypermitssuchpayments.
PaymentofDividendsandInterestonShareholders'
Equity
WearerequiredbytheBrazilianCorporate
Law and by our bylaws to hold an annual general
shareholders' meeting by the fourth month after
the end of each fiscal year at which, among other
things, the shareholders have to decide on the
payment of an annual dividend.The payment of
annual dividends is based on the financial
statementspreparedfortherelevantfiscalyear.
Law No. 9,249 of December 26, 1995, as
amended, provides for distribution of interest
attributed to shareholders' equity to shareholders
asanalternativeformofdistribution.Suchinterest
islimitedtothedailyproratavariationoftheTJLP
interest rate, the Brazilian government's longterm
interestrate.
We may treat these payments as a
deductible expense for corporate income tax and
social contribution purposes, but the deduction
cannotexceedthegreaterof:
50%ofnetincome(beforetakinginto
account such distribution and any
deductionsforincometaxesandafter
takingintoaccountanydeductionsfor
social contributions on net profits) for
the period in respect of which the
paymentismade;or
50%ofretainedearnings.
Any payment of interest on shareholders'
equity to holders of ADSs or common shares,
whether or not they are Brazilian residents, is
subject to Brazilian withholding tax at the rate of
15%or25%.The25%rateappliesifthebeneficiary
isresidentinataxhaven.See“—TaxationRelating
to Our ADSs and Common and Preferred Shares—
Brazilian Tax Considerations.”The amount paid to
shareholdersasinterestattributedtoshareholders'
equity,netofanywithholdingtax,maybeincluded
as partof anymandatory distribution ofdividends.
UndertheBrazilianCorporateLaw,wearerequired
todistributetoshareholdersanamountsufficientto
ensurethatthenetamountreceived,afterpayment
by us of applicable Brazilian withholding taxes in
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