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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Dec. 31, 2024
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | 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 it to be 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 December 31, 2024, the Company had accounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of $135 million (net of judicial deposits) within non current other liabilities to cover legal actions against the Company for which its 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 December 31, 2024, 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 of resulting in a loss for an aggregate amount up to $257 million. No loss amounts have been accrued for such reasonably possible legal actions, the most significant of which are described below. The following table summarizes the contingencies activity during the years ended December 31, 2024, 2023 and 2022:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Contingencies | (In millions)
Balance at beginning of year | $ | 124 |  |  | $ | 53 |  |  | $ | 13 |
Charged to Net income | 176 |  |  | 335 |  |  | 16 |
Judicial deposits | (92) |  |  | (273) |  |  | — |
Charges Utilized / Currency translation adjustments / Write-offs | (73) |  |  | 9 |  | 24 |
Balance at end of year | $ | 135 |  |  | $ | 124 |  |  | $ | 53 |
Tax Claims Withholding Tax in the Brazil-Argentina Double Taxation Treaty On November 6, 2014, the Brazilian subsidiaries, Mercadolivre.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Pago Instituição de Pagamento Ltda. (formerly known as “Mercado Pago.com Representações Ltda.”) and the Argentine subsidiary, MercadoLibre S.R.L., filed a writ of mandamus and requested a preliminary injunction with the Federal Court of Osasco against the federal tax authority to avoid the withholding income tax (“IRRF”) over payments remitted by the Brazilian subsidiaries to MercadoLibre S.R.L. for the provision of IT support and assistance services by the latter, and requested reimbursement of the amounts improperly withheld over the course of the preceding five (5) years, by applying the convention signed between Brazil and Argentina to prevent double taxation (the “Brazil-Argentina Treaty”). The preliminary injunction was granted on the grounds that such withholding income tax violated the convention signed between Brazil and Argentina that prevents double taxation. In August 2015, the injunction was revoked by the first instance judge in an award favorable to the federal tax authority. The Company appealed the decision and deposited into court the disputed amounts. In June 2020, the Company’s appeal was dismissed. The Company submitted a new remedy before the same court in July 2020, which was dismissed on February 17, 2021. On March 18, 2021, the Company filed two appeals with the superior courts. However, the Vice President of the local Federal Court dismissed the remittance of the appeals to the Superior Courts and retained the cases in the local court. Against this decision, the Company filed new appeals, one interlocutory appeal in the Federal Court and other interlocutory appeal in the Superior Courts. On November 29, 2023, the interlocutory appeal was dismissed in the Federal Court, whereas on April 3, 2024, the Superior Court of Justice decided to analyze whether the matter under consideration is capable of becoming a binding precedent. In April 2024, the Company submitted a petition claiming that the case is fully capable of being judged as a binding precedent and the civil association Câmara Brasileira da Economia Digital submitted a petition as amicus curiae with the same arguments. On October 14, 2024, the Superior Court of Justice decided the matter under consideration will be judged as a binding precedent. Besides, in cases involving other taxpayers which also applied the convention signed between Brazil and Argentina to prevent double taxation (“Convention”) as amended by the 2017 protocol, the Superior Court of Justice decided the IRRF is due in the State of the source (i.e. Brazil), given that the Convention grants such rights regardless whether the services provided between the parties contain transfer of technology or not. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is probable based on the technical merits of the Company’s tax position and the existence of adverse decisions issued by the Superior Court of Justice previously mentioned. For that reason, the Company has recorded a provision for the disputed amounts, which was $338 million as of December 31, 2024, and which was recorded in non-current other liabilities in the consolidated balance sheets, net of the corresponding judicial deposits for $307 million (which includes $60 million of interest income). Considering that the Brazil-Argentina Treaty to prevent double taxation was amended in 2017, the Company started a new tax claim for the period from January 2019 onwards, and the court granted a preliminary injunction recognizing the right of collecting the withholding tax at a 10% rate. As a result of this preliminary injunction, further judicial deposits of withholding tax will be based on a rate of 10%. According to the current stage of both cases, the Company maintains the provision considering a 15% rate. Interstate rate of ICMS-DIFAL on interstate sales Interstate rate of ICMS-DIFAL on interstate sales without Complementary Law During 2020 and 2021, the Brazilian subsidiaries, eBazar.com.br Ltda. and Mercado Pago Instituição de Pagamento Ltda., filed 15 writs of mandamus with the State Courts of Justice where these companies have sales branches in order to prevent Brazilian states from collecting the ICMS 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). From those 11 cases filed by the Company after the Supreme Court’s decision (after February 24, 2021), 7 became final and unappealable in favor of the corresponding States (cases related to the branch of Extrema: São Paulo, Rio Grande do Sul, Paraná, Distrito Federal, Bahia, Rio de Janeiro and Santa Catarina), and therefore their corresponding liabilities were settled with the corresponding judicial deposits. Another one of the 11 cases became final and unappealable in favor of Ebazar.com.br Ltda. Finally, the remaining 3 of those 11 cases are still pending and may not stand because of the modulation of effects with respect to that decision. In addition, a case related to the State do Goiás received judgment in favor of the Company, as a result of which, in June 2024, the State filed an appeal that was rejected by the Court. The case has not become final and unappealable. 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 $2 million provision for the disputed amounts related to these 3 cases, which are presented net of the corresponding judicial deposits of $2 million. With respect to the 4 cases filed by the Company prior to the Supreme Court’s decision (before February 24, 2021), 2 of them became final and unappealable in favor of the Company. Of the remaining 2 cases, in June 2024, one of the cases. related to the State of Rio de Janeiro, received judgment partially in favor of the Company. Therefore, the Company presented a motion of clarification which is now pending judgment. In September 2024, the other one of the cases, related to the State of Paraná, had been received in the Superior Tribunal of Justice to the judgment of a Special Appeal filed by the State, which is now pending. The Company has not recorded any liability for the controversial amounts. The Company deposited into court the disputed amounts. As of December 31, 2024, the total amount of the deposits related to the ongoing cases was $3 million. Interstate rate of ICMS-DIFAL on interstate sales under Law No. 190/22 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 or prospective application of taxes (pursuant to which no tax may be levied before the expiry of ninety days from the enactment of the law or in the same fiscal year of enactment). Notwithstanding this provision, which expressly points to the need to comply with the anticipation, Brazil’s Federation States 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 States, aimed at preventing the Brazilian tax authorities demand payments of the DIFAL. In this regard, the Brazilian Supreme Court (“STF”) has issued a decision regarding the constitutionality of the supplementary Law on November 29, 2023. In the judgment, the majority of STF judges considered the supplementary Law No. 190/22 to be constitutional, therefore, the ICMS-DIFAL is due from April 5, 2022, due to the corresponding time lapse of ninety days between the law enacting and the beginning of the charge. The decision has not yet become final and unappealable and a motion to clarify was presented on May 13, 2024. However, such motion to clarify is unlikely to change the merit of the decision. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is remote for the period between January 1, 2022 to April 4, 2022, and probable for the period between April 5, 2022 to December 31, 2022 based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any liability for the controversial amounts related to the period through April 4, 2022, and has recorded liabilities for the disputed amounts related to the period from April 5, 2022 to December 31, 2022, by $27 million, which are presented net of the corresponding judicial deposits of $24 million. Interstate rate of ICMS-DIFAL over fixed assets From April to September 2022, the Brazilian subsidiary Mercado Envios Serviços de Logística Ltda., now incorporated by eBazar.com.br Ltda., also filed writs of mandamus to 3 Federation States (São Paulo, Santa Catarina and Bahia), for the purpose of preventing the Brazilian tax authorities from demanding payment of the DIFAL over their respective fixed assets not explicitly addressed by the supplementary Law No. 190/22. Regarding this topic, the STF has not expressly pointed to the principle of anticipation. Therefore, there are two controversies regarding DIFAL over fixed assets: (i) if DIFAL is applicable under the previous supplementary Law No. 87/96, and (ii) if supplementary Law No. 87/96 is deemed not applicable, if the new supplementary Law No. 190/22 needs to comply with the principle of anticipation. In this last controversy, the same decision above mentioned applies to the Brazilian subsidiary Mercado Envios Serviços de Logística Ltda., and its writs of mandamus. Therefore, Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible for the period between January 1, 2022 to April 4, 2022, and probable for the period between April 5, 2022 to December 31, 2022 based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any liability for the controversial amounts related to the period until April 4, 2022, and has recorded liabilities for the disputed amounts related to the period from April 5, 2022 to December 31, 2022 for $3 million which are presented net of the corresponding judicial deposits of $2 million. Exclusion of ICMS tax benefits from federal taxes 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. See Note 2 – Summary of significant accounting policies of these audited consolidated financial statements for additional detail on the ICMS tax incentives. 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 to exclude the amounts of tax benefits granted by the State of Minas Gerais in the tax base of IRPJ and CSLL. On August 14, 2023, a judgment was handed down in favor of the Company and the Public Prosecutor's Office filed an appeal. On April 17, 2024, the Federal Regional Court ruled in favor of the Company. Therefore, the Federal Government presented a motion of clarification, which was rejected in August 2024. In response, the Federal Government filed a special appeal, but it was rejected on October 10, 2024. Against this last decision, on October 29, 2024, the Tax Authority filed an Interlocutory Appeal. On December 6, 2024, the case was remitted to the Superior Court of Justice. On February 5, 2025, the STJ rejected the Interlocutory Appeal filed by the Tax Authority. The case has not yet become final and unappealable. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is not more likely than not 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. The Company recorded a corresponding income tax benefit arising from the ICMS tax incentives for the period from September 2021 up to December 2023, which was $33 million as of December 31, 2024. In December 2023 Law 14,789 was enacted, with effect from January 2024, modifying the previous regulation so that the inclusion of the presumed tax credits in the calculation basis of IRPJ/CSLL would become mandatory. On October 18, 2024, the subsidiary eBazar.com.br Ltda. filed two new writs of mandamus, seeking the recognition of the right not to submit to the illegal and unconstitutional requirement of the IRPJ and the CSLL on the presumed tax credits from transactions related to the ICMS in the fiscal year of 2024 forward. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case under the new laws is not more likely than not 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 am ounts. T he Company recorded a corresponding income tax benefit arising from the ICMS tax incentives from January 2024 onwards, which was $31 million as of December 31, 2024. On April 25, 2023, the Company filed a writ of mandamus seeking an injunction and claiming the exclusion of the amounts relating to the ICMS tax benefits granted by the State of Minas Gerais in the tax base of the Social Contributions (PIS and COFINS). On May 26, 2023, a decision was rendered granting the injunction requested. On April 25, 2024, a ruling favorable to the Company was issued. On June 7, 2024, the Federal Government filed an appeal. The Company responded to the appeal and the case was referred to the Court for judgment on the request for an appeal. On October 29, 2024, a decision was issued for the proceedings to be suspended until a final decision on the Topic 843/STF. 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 am ounts. The Company recorded PIS and COFINS tax benefits arising from the ICMS tax incentives, which amount to $17 million as of December 31, 2024. Services Tax exclusion in the tax base of the Federal Contributions (PIS/COFINS) On August 29, 2017, the Brazilian subsidiaries, eBazar.com.br Ltda., Ibazar.com Atividades de Internet Ltda., Mercado Pago Instituição de Pagamento Ltda., and Mercado Envios Serviços de Logística Ltda., filed a writ of mandamus and requested a preliminary injunction before the Federal Justice in Osasco against the Federal Government to exclude the Municipal Service Tax in the tax base of the Federal Contributions (PIS/COFINS). The federal judge granted the preliminary injunction and ruled in favor of the companies on January 15, 2019. On April 8, 2019, the Federal Government presented an appeal that was rejected by the Federal Court. Following the Federal Court's decision, the Federal Government filed two appeals with the superior courts. Since February 12, 2021, the mandamus remained suspended by a decision settled by the Brazilian Supreme Court. The Brazilian Supreme Court started over the judgment on August 28, 2024. However, after a draw in the trial, the judges decided again to suspend the case. Management, based on the opinion of external legal counsel and the current composition of the Brazilian Supreme Court (who has shown dubious jurisprudence in similar cases), is of the opinion that the risk of losing the case is probable. For that reason, the Company has recognized a provision for the disputed amounts of $48 million. Administrative tax claims Federal taxes - Tax payments for the 2016 fiscal year On October 30, 2020 and November 9, 2020, Mercado Pago Instituição de Pagamento Ltda. and eBazar.com.br Ltda., respectively, received tax assessments claiming income tax payments for the 2016 fiscal year, with respective penalties and fines. In these assessments, the tax authorities do not recognize certain expenses incurred by the Brazilian subsidiaries, such as technology services imported from MercadoLibre S.R.L., Meli Uruguay S.R.L., and MercadoLibre, Inc., as deductible for income tax purposes. The tax authorities concluded that the Brazilian entities failed to submit sufficient evidence during the tax assessment that these services were necessary and effectively hired and paid by the Brazilian subsidiaries. The tax assessments that Mercado Pago Instituição de Pagamento Ltda. and eBazar.com.br Ltda. received amounted to a total of $17 million and $11 million, respectively, considering the exchange rate as of December 31, 2024. The subsidiaries filed their defenses on December 1, 2020 and December 8, 2020, respectively, arguing that the agreements and other documentation were submitted as evidence during the tax assessment. The defenses were also complemented by specific descriptions for each project that was impacted by such services to justify the necessity of all the expenses in dispute. On May 25, 2021, Mercado Pago Instituição de Pagamento Ltda. received an unfavorable decision from the administrative court in the first instance, and on June 28, 2021, eBazar.com.br also received an unfavorable decision from the administrative court in the first instance. The Companies filed appeals in respect of both cases with the administrative court in the second instance. On October 9, 2024, the administrative court of second instance issued a decision in order to return the case of eBazar.com.br Ltda. back to the first instance in an evidentiary proceeding. Therefore, eBazar.com.br provided a complementary report with more specific evidence. Regarding Mercado Pago Instituição de Pagamento Ltda., the appeal is still pending. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is not more likely than not. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Federal taxes - Revenue accounts 2017 fiscal year On December 30, 2022, eBazar.com.br Ltda. and one of the Company’s Senior Legal Directors received three tax assessments claiming corporate income taxes (IRPJ and CSLL) in the amount of $64 million, withholding income tax (IRRF) in the amount of $10 million, and PIS and COFINS in the amount of $10 million, all of them in relation to the taxable year of 2017, including punitive fine of 150% over the tax charged and interest on late payments based on the SELIC rate, and according to the exchange rate as of December 31, 2024. The Senior Legal Director was assessed as jointly liable with eBazar.com.br, due to his role as statutory officer, under provisions of the National T ax Code that enable joint tax liability for acts potentially in violation of the law or the by-laws. With respect to IRPJ, CSLL, PIS and COFINS, the tax authorities concluded that the Brazilian company failed to report taxable income as the company has made book entries in the profit and loss accounts, reverting previous revenues or other revenue accounts, as well as for using foreign languages such as English and Spanish in its book-keeping. The tax authorities also claimed that the company failed in the issuance of invoices, disregarding that the company indeed has a Special Tax Regime granted by the Municipality of Osasco that allows the issuance of a single invoice per period. On July 24, 2024 the administrative body of first instance issued a decision in the tax assessment case claiming corporate income taxes (IRPJ and CSLL). The decision issued is partially favorable to the Company as it rejected the punitive fine of 150% over the tax charged and reduced it to 100%, but maintained the tax assessment and also the joint tax liability of the Senior Legal Director. On August 28, 2024, after the administrative court of first instance issued an unfavorable decision and maintained the tax assessment, the Company filed an administrative appeal in the administrative court (“CARF”). The case has not yet become final and unappealable. Regarding the IRRF, the amount claimed by the tax authorities is already deposited in court under the writ of mandamus that discusses the company’s right not to pay IRRF on payments made to its affiliate in Argentina, due to the provisions of the Brazil and Argentina double tax treaty (for further details see contingency “Withholding Tax in the Brazil-Argentina Double Taxation Treaty”). Those deposits were incorrectly ignored by tax authorities. The Company presented the objection on January 30, 2023. Taking into account the documents attached to the Company's objection, in the case of PIS and COFINS, the administrative authorities decided in December 2023 to carry out a verification diligence to analyze the documents, which may influence the outcome of the case. The Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the cases is not more likely than not in the cases of IRPJ and CSLL and reasonably possible, but not probable in the cases of PIS and COFINS, based on the technical merits. In the case of IRRF, the Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is remote. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Buyer protection program 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. See Note 2 – Summary of significant accounting policies – Provision for buyer protection program of these audited consolidated financial statements for further detail. As of December 31, 2024 and 2023, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $5,769 million and $5,072 million, respectively, for which the Company recorded a provision of $14 million and $8 million, respectively. Commitments The Company committed to purchase cloud platform and other technology services for a total minimum aggregate purchase commitment of $3,215 million. As of December 31, 2024, the remaining purchase commitment is $3,102 million. On April 8, 2022, the Company signed a 10-year agreement with Gol Linhas Aereas S.A. under which the Company committed to contract a minimum amount of air logistics services for a total cost of $284 million (portion allocated to the services component of the agreement). As of December 31, 2024, the remaining purchase commitment is $233 million. Since October 2023, the Company signed 3-year agreements with certain shipping companies in Brazil, under which the Company committed to contract a minimum amount of logistics services for a total cost of $49 million. As of December 31, 2024, the remaining purchase commitment is $39 million. On January 10, 2024, the Company signed a 5-year agreement for the naming rights of the Complexo Pacaembu (municipal stadium of the city of São Paulo), for a total amount of $44 million, which has not commenced as of December 31, 2024. The agreement has the option to extend the term for 5 additional independent periods of 5 years each, for the same amount indexed by the Brazilian inflation rate index IPCA. As of December 31, 2024, the Company has lease agreements for new warehouses in Brazil, Mexico and Argentina for a total amount of $1,451 million that have not yet commenced. Lease terms under the agreements are between 3 to 15 years. The Company has unconditional purchase obligations related to capital expenditures for a total amount of $34 million. As of December 31, 2024, the remaining purchase commitment is $16 million.

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