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Commitments And Contingencies | 9 Months Ended
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Sep. 30, 2022
Commitments And Contingencies [Abstract] |
Commitments And Contingencies | 9. Commitments and Contingencies Litigation and Other Legal Matters The Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. Proceeding-related liabilities are based on developments to date and historical information related to actions filed against the Company. As of September 30, 2022, the Company had accounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of $45 million to cover legal actions against the Company in which Management has assessed the likelihood of a final adverse outcome as probable. Expected legal costs related to litigations are accrued when the legal service is actually provided. In addition, as of September 30, 2022, the Company and its subsidiaries are subject to certain legal actions considered by the Company’s Management and its legal counsels to be reasonably possible for an estimated aggregate amount up to $249 million. No loss amounts have been accrued for such reasonably possible legal actions. ‎ Tax Claims Interstate rate of ICMS-DIFAL on interstate sales During 2020 and 2021, the Brazilian subsidiaries, Ebazar.com.br Ltda. and Mercado Pago Instituição de Pagamento Ltda., filed 15 writs of mandamus before the State Courts of Justice where these companies have sales branches in order to prevent Brazilian states from collecting the ICMS (“Imposto sobre Circulação de Mercadorias, Serviços de Transporte Interestadual, Intermunicipal e Comunicação”) on interstate sales at a differential rate (“ICMS-DIFAL”) without the existence of a complementary law. Four of these cases were filed in 2020 (for the branches of Barueri and Louveira) and the other 11 were filed in 2021, after Ebazar.com.br Ltda. opened a new branch in Extrema. On February 24, 2021, the Brazilian Supreme Court ruled on the controversy in a binding precedent, which declared the unconstitutionality of ICMS-DIFAL without the proper complementary law. In the same case, however, the Supreme Court ruled on the modulation of the effects of its decision (with retroactive effect). Four of those 11 cases filed by the Company after the Supreme Court’s decision became final and unappealable in favor of the corresponding States, which can now withdraw the corresponding judicial deposits. Another one of the 11 cases became final and unappealable in favor of Ebazar.com.br Ltda. Finally, the remaining 6 of those 11 cases are still pending and may not stand because of the modulation of effects with respect to that decision. The Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing is probable. For that reason, the Company has recorded a $4 million provision for the disputed amounts related to these 6 cases. With respect to the other 4 cases filed by the Company prior to the Supreme Court’s decision, 1 of them became final and unappealable in favor of the Company. Of the remaining 3 cases, for which a judgment is still pending, Management considers that the risk of losing is remote. In January 2022, (therefore, already in the course of fiscal year 2022 and already in full application of the understanding of the Supreme Court for unconstitutionality), supplementary Law No. 190/22 was published, outlining the general rules for the requirement of DIFAL and expressly mentioning the need to comply with the principle of anticipation. Notwithstanding this provision, which expressly points to the need to comply with the anticipation, Brazil’s Federation Units have not complied with this guarantee. Therefore, Ebazar.com.br Ltda. and Mercado Pago Instituição de Pagamento Ltda., filed writs of mandamus to the 27 Federation Units, aimed at preventing that the Brazilian tax authorities demand payments of the DIFAL. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. From April to September 2022, the Brazilian subsidiary Mercado Envios Serviços de Logística Ltda. also filed writs of mandamus to 3 Federation Units (São Paulo, Santa Catarina e Bahia), for the purpose of preventing the Brazilian tax authorities from demanding payment of the DIFAL over their respective fixed assets. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Exclusion of ICMS tax benefits from IRPJ and CSLL tax base The Company has ICMS tax incentives granted by the State of Minas Gerais, through a special regime signed with the state by means of a term of agreement, which are aimed at implementing and expanding business in that state. The Company accounted for the tax benefit within cost of net revenues for $25 million and $8 million for the nine and three-month periods ended September 30, 2022, respectively ($3 million for the nine and three-month periods ended September 30, 2021). On November 9, 2021 the Company filed a writ of mandamus which claimed the exclusion of the amounts relating to the ICMS tax benefits granted by the State of Minas Gerais through the special regime from the tax base of the Corporate Income Tax (IRPJ) and of the Social Contribution on Net Profits (CSLL). On January 31, 2022, a decision was rendered granting the injunction requested in order not to include the amounts of tax benefits granted by the State of Minas Gerais in the tax base of IRPJ and CSLL, without, however, ruling on the requirements set forth in article 30 of Law 12.973/14 and article 38 of Decree-Law 1577/98. A motion for clarification was filed against this decision, which was accepted in order to include in the preliminary injunction the lack of compliance with such requirements. On April 12, 2022, the Office of Attorney-General of the National Treasury manifested itself in the records informing that it had not filed an appeal against the decision that granted the preliminary injunction. The Company is currently waiting for the judicial decision. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Buyer protection program The BPP program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of a purchased item and the value of any shipping service paid if it does not arrive, arrives incomplete or damaged, does not match the seller’s description or if the buyer regrets the purchase. The Company is entitled to recover from the third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specific circumstances, the Company enters into insurance contracts with third-party insurance companies in order to cover contingencies that may arise from the BPP. The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may be made under the terms and conditions of the Company’s BPP. Based on historical losses to date, the Company does not believe that the maximum potential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this program when they are probable and the amount can be reasonably estimated. As of September 30, 2022 and December 31, 2021, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $3,345 million and $2,964 million, respectively, for which the Company recorded a provision of $4 million and $5 million, respectively. Commitments The Company committed to purchase cloud platform services from two U.S. suppliers based on the following terms: a) for a total amount of $824 million, to be fully paid off between October 1, 2021 and September 30, 2026. As of September 30, 2022, the Company had paid $141 million in relation thereto; and b) for a total amount of $108 million, to be fully paid off between September 17, 2021 and September 17, 2024. As of September 30, 2022, the Company had paid $29 million in relation thereto. In September 2022, the Company amended this commitment whereby, effective as of September 23, 2022, the aggregate purchase commitment is $200 million, to be fully paid off between September 23, 2022 and September 23, 2025. In connection with the closing of MELI Kaszek Pioneer Corp (“MEKA”)’s initial public offering on October 1, 2021, MEKA (a special purpose acquisition company sponsored by MELI Kaszek Pioneer Sponsor LLC (the “Sponsor”), which is a joint venture between Company’s subsidiary MELI Capital Ventures LLC and Kaszek) entered into a forward purchase agreement with the Sponsor, pursuant to which the Sponsor committed to purchase from MEKA 5 million Class A ordinary shares at a price of $10 per share in a private placement to close substantially concurrently with the consummation of MEKA’s initial business combination. On April 8, 2022, the Company signed a 10-year agreement with Gol Linhas Aereas S.A. under which the Company is committed to contract a minimum amount of air logistics services for a total annual cost of $43 million. According to the agreement, Gol Linhas Aereas S.A. provides logistics services in Brazil to Mercado Envios through six dedicated aircrafts, one of which has already started operations as of September 30, 2022.

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