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Category: Tax

The Law 10.456/24, sanctioned without vetoes, establishes a special tax treatment for companies or consortia responsible for independent projects of plants for the generation of electrical energy from natural gas in the State of Rio de Janeiro.

The incentive is intended for new projects that have obtained a prior environmental license and are winners of energy auctions held by the National Electrical Energy Agency (Aneel) between 2015 and 2032.

The new tax benefit provides for the deferral of ICMS in the following transactions:

• import of machinery, equipment, parts, pieces and accessories intended for the installation of the project, insofar as they are imported and customs-cleared by the ports and airports of Rio de Janeiro;
• internal acquisition of machinery, equipment, parts, pieces and accessories intended for the installation of the project; and
• interstate acquisition of machinery, equipment, parts, pieces and accessories intended for the installation of the project, in relation to the ICMS rate differential.

The deferral also applies to companies contracted or subcontracted for the construction of the plants of companies and consortia holding the tax benefit.

Additionally, there is also an ICMS exemption on the internal acquisition or import of natural gas – even if liquefied – to be used in the process of electrical energy generation.

The ICMS deferral also applies to internal transactions with natural gas produced in the State and destined to companies or consortia not granted with the special tax treatment mentioned above. In this case, the tax must be collected in the occasion of the electrical energy output transaction from the thermoelectric plant. The ICMS deferral extends to the supply of transport services of natural gas.

The payment of ICMS will be waived:

• when the electrical energy output is destined to another State for commercialization or industrialization; or
• when it is a remittance of goods or supply of services that is not taxed or that is exempt, as long as the legislation allows the full maintenance of the credit.

As a return for the tax benefits provided for in the Law and as a mechanism of energy compensation, companies and consortia holding the tax benefit must invest at least 2% of the variable cost related to the natural gas fuel in projects for the generation of electrical energy from renewable sources.

Alternatively, this investment can be made in:

• projects for the preservation of energy in public buildings, public lighting, monuments of historical or tourist interest;
• studies on energy transition, renewable energy and sustainable development; or
• studies on the energy sector within the State of Rio de Janeiro.
  
  

Machado Meyer Advogados remains available to clarify any doubts on the subject.

Category: Crisis management

"We are acting in the logic of risk management and not just the disaster (...) because we understand that the cost of prevention is always lower than that of the remedy,"^[1] said the Minister of Environment and Climate Change, Marina Silva, in June, after the federal government installed a preventive situation room to deal with drought and firefighting in the country.

Similar to a disease that is only treated after the expression of severe symptoms, many issues are lately addressed, when the crisis is already ongoing. Early intervention, however, could have mitigated or even avoided the problem.

In this moment of reflection, considering the context of corporate business, we can refer to risk analysis among the preventive measures normally used for strategic decision-making.

It is unlikely that an oil company, for example, will not carry out a risk assessment before deciding how much it will invest in biofuels each year. Likewise, it is expected that a hospital network will assess the risks involved before deciding to close emergency care in one of its units.

So far, we are dealing with standardized actions. The real innovation, when it comes to prevention in crisis tenure, occurs when this risk analysis is accompanied by a damage mitigation plan.

The decision to take risks is a day-to-day business constant, but the difference is that not everyone invests in effectively preparing to mitigate the losses that will result from the materialization of these risks. Let's think of two distinct examples:

• a company carried out a risk analysis led by its best engineers and reviewed by a prestigious consultancy, but did not prepare a damage mitigation plan or invested in crisis preparedness actions beyond those required by the business's regulator;
• Another company also did the due risk analysis with external review but went further and was concerned with engaging its internal business legal team in the evaluation process. In addition to complying with all the actions required by the laws and regulations, it drew up a plan to mitigate possible damage and carried out periodic training and simulated exercises with different sectors, which, up to that point, were not so used to interact among each other.

Both companies complied with the laws and regulations and assessed business risks, but which would be better prepared to deal with a crisis?

We know how difficult it is to bring awareness to a company about the importance of investments in preventive measures, the results of which are not usually immediately noticed. We can imagine that it is more difficult for a manager to obtain funds to prepare for hypothetical crisis’ scenarios than to invest in what has chances of having positive financial impact for the business.

Fortunately, there are a few low-cost actions and efforts that can be adopted in aid of building preventive crisis management awareness and still generate results. Some examples:

• Leadership awareness – The effort to raise leadership awareness is of paramount importance so that executives and managers are prepared to face a crisis and mitigate its damage. With good prior awareness, a lot of wear and tear will be avoided when responding to and managing a crisis, as the team will be better able to deal jointly with the situation.
• Training of foreign stakeholders – If a company has a foreign shareholder, the prior training of this stakeholder on Brazilian customs can also be adjudged as an action to prevent crisis. After all, it is not simple to explain the modus operandi of the Brazilian Judiciary, the litigant culture, the profile of the Public Ministry and the Brazilian procedural rules, especially the possible injunctions that may be granted and all the consequences of a bad procedural management. Try doing this amid chaos…
• Training, workshops and guided simulations – Another relevant tool is the realization of various exercises with the teams to understand the consequences of any crises. From the identification of operational bottlenecks and the visualization of the developments that may occur if the previously mapped risks materialize – which reinforces the need for the damage mitigation plan mentioned at the beginning of this article – it is possible to continue with training and workshops. These initiatives are important to better train people, to facilitate engagement between areas, or to unlock failures that may have been identified along the way.

Through these examples, we see that investments do not need to be high so that companies can go beyond strict compliance with laws and regulations to better prepare for crises.

Although it may not be the custom, we increasingly realize how positive it can be to dedicate efforts in preparing for responses to emergencies, catastrophes, accidents or crises. Although these actions led by the business legal team do not propose to prevent a crisis from occurring, they greatly influence the ability of companies to react. This, undeniably, has enormous power, since every decision made by a company has consequences of legal repercussions and can reflect, positively or negatively, on the continuity of the business dealings, the rebound time, etc.

Preventive measures can not only guide a more organized, faster and effective reply, but, above all, to decrease the damage caused by crises.

The recently established crisis in Rio Grande do Sul and the drought and fires in the Pantanal and the Amazon (two opposite sides of climatic problems) have put a spotlight on the sum of prevention and preparedness actions, in addition to drawing attention to the issue.

We know that the challenge is great, and the topic is very difficult. However, in a world where the impacts resulting from climate change are increasingly frequent and critical, it is worth to make the best efforts to neutralize these impacts, mitigate them or, at least, better prepare to provide effective responses – specially knowing that measures of easy implementation and high impact, with low efforts and investments, can have a striking impact on crisis management.

These preventive actions are beneficial for all companies, especially those located in sectors that are naturally more exposed to various types of risks.

^[1] Agência Brasil: Government installs crisis room for fires and drought in the country

Category: Crisis management

In this second article on crisis management, we deal with the industry of electricity, in which public service concessionaires face increasingly complex challenges, especially in adverse weather conditions – such as excessive rainfall – whose recurrence is aggravated by climate changes and global warming.

Allied to the increase in the frequency and intensity of these climatic events, which impose higher pressure on the electricity infrastructure, there is also the growing politicization of debates involving the electricity business and in companies that have undergone privatization processes.

In this context, it is necessary that companies in such sector prepare adequately for a crisis– whether due to events originating in energy generation, transmission or distribution.

As a heavily regulated business, the electricity industry has a series of legal obligations that must be strictly followed by utilities. These obligations are constantly changing and have accompanied the growing need to adapt to extreme weather events, which are increasingly frequent.

As an example, the National Electric Energy Agency (Aneel) initiated the Subsidy Taking 002/24 (TS 002/24), as a result of Technical Note 7/2024-STD-SFT/Aneel. The aim is to assess the need for regulatory intervention for these events, addressing the regulation of services and criteria for the application of variable overdue feed to unavailability.

The technical note also mentions the need to review companies' contingency plans and deals with the definition of cut off in an emergency.

To deal with crisis situations, such as in the event of a blackout due to extreme weather events, there is Normative Ordinance 61/GM/MME, of March 13, 2023, which instituted the General Protocol for Security and Crisis Management of Infrastructure Assets of Electric Energy, Mining, Oil and its by-products, Natural Gas and Biofuels (PGC), like others the Crisis Management Committee (CGC).

The PGC defines preventive and responsive actions for situations that compromise the integrity or availability of services. The CGC, on the other hand, has the function of monitoring and proposing strategic actions, categorizing incidents, establishing response procedures, and defining the contents of communications during crises.

An effective preparation for a crisis, however, requires more than organization (highly recommended) and strict compliance with regulation – especially because, as a rule, the triggers and legal statutory requirements are focused on technical and operational aspects, not on legal developments and actions that, if taken, could mitigate losses.

An example of this is the assessment of energy supply and risks of possible blackouts or unavailability of equipment of companies operating in the business. If carried out as an effort to prepare for a possible crisis, this assessment can help avoid major inconveniences.

Likewise, efforts to structure, guide and organize that allow open, direct and secure communication with the regulator and society have a lot to add.

If, instead of making their communications as a mere compliance with regulatory requirements, companies strive to share more detailed information with the State, the public authorities will be effectively able to employ efforts in a mobilization to furnish any gaps pointed out.

In both examples, the efforts mentioned can not only deliver immediate and noticeable results to companies, but also contribute considerably to mitigating risks and losses in the event of critical events.

Being prepared for a crisis (and knowing how to act before and in the face of it) is relevant to make the right legal decisions, which results in effective responses, capable of controlling the situation that the company is experiencing at that time.

In short, from a legal point of view, proactive action by companies in the electricity business to contribute to the system and mitigate the chances of a cut off in the regular energy supply may lead for them not being held responsible for unforeseen events (or at least mitigating the losses), such as extreme weather events.

Therefore, in the face of the challenges of the electricity business – in which innovations and improvements go hand in hand with higher pressure in general – strategic, critical and provocative preparation can prove to be a relevant ally of companies in managing a blackout, for example.

It is true that the legal departments do not have the power to properly avoid a blackout, an eminently technical issue. However, they can greatly contribute in advance to mitigate the effects of a crisis, especially by making a critical assessment of the potential legal consequences and advising on actions capable of minimizing damages in the civil, administrative, regulatory, and criminal spheres.

Category: Crisis management

Accidents, data leaks, systems compromised, labor complaints, power blackouts, product recalls, raw material shortages, environmental issues, climate disasters, and several other complications. Internal or external situations, capable of temporarily paralyzing operations and with great potential to be amplified by the press, media or social networks. Regardless of their kinds and magnitude, crises are increasingly complex and multifaceted.

If not even national laws and regulations are capable to curtail all the nuances of a society in constant evolution, the difficulties faced by companies – small, medium or large – to prepare for situations that require emergency action are understandable.

What to do? Who to contact? When to activate the insurer? What are the impacts? How to contain the damage? What can be done to hold business continuity or to resume payments, etc.? How to guide communication? What are the legal consequences of each decision taken in an emergency? Anyway: where to start? The ability to provide an adequate and rapid reply to the problem can be vital.

What we call crisis management is the antidote that allows companies not only to face their problems, notwithstanding of complexity, but also to curtail and prepare themselves to, if necessary, minimize losses and unwanted legal, economic, financial and reputational consequences.

After all, better-prepared companies are more likely to recover faster from a crisis. Considering the importance of the topic, we inaugurate with this text the series of articles that aims to inform and address issues about emergency response, reputational tenure, and all the efforts that can be undertaken in advance to mitigate risks and control legal repercussions in a crisis.

To begin with, at first: what is a crisis?

We consider a crisis to be any fact or event – sudden or gradual – capable of causing damage and that, therefore, requires an immediate response. It is therefore not limited to major accidents such as explosions and leaks. It covers any and all circumstances, of higher or lesser degree, with the potential to cause damage to the activity, reputation and/or financial results.

For airline companies, for example, crises are not limited to a plane crash – which, by the way, has a very low recurrence. Crises can also occur due to the accusation of the crew for discriminatory treatment, the death of an animal transported or a forced landing due to unforeseen health emergency with passengers. Or even, of course, due to the most diverse developments of flight delays and cancellations, generated by issues of the company itself – such as extrapolation of the flight hours limit – or external factors – such as weather events.

It is also extremely relevant to keep in mind the possibility that these external factors may lead to major crises, which can also occur in the event of fuel shortages, lack of parts and components essential for maintenance, or even a strike by flight controllers.

In an oil and gas company, in another example, the crisis is not only due to environmental accidents of great repercussion. Protests by social and environmental movements, bird deaths, task accidents on platforms and logistics complications are examples of sensitive incidents that can be very difficult for companies.

Regardless of the business’ sector and the size of the company, the fact is that organizations are faced with all sorts of crises on a daily basis.

Even if companies are, as in the examples, from heavily regulated industries and consider themselves, in principle, technically prepared to respond promptly to crises, failures can occur at any time – and the problems are accentuated precisely when these failures accumulate.

As James T. Reason[1] teaches, small failures can converge into big problems, and it is precisely at this point that seemingly insignificant factors individually gain relevance when combined. Definitely, small can get big. Each decision made necessarily leads to a legal consequence.

Attention to the legal implications

It is in this context that crisis management is of crucial importance to deal with the legal implications that a crisis can entail. Poor crisis management, especially by ignoring the legal aspects involved, can have devastating impacts on a company's business and reputation.

A crisis always triggers a range of legal challenges, from litigation with customers, suppliers, or employees, to regulatory investigations and lawsuits. Lack of preparation and inadequate response to these issues can result in significant financial damage, loss of stakeholder trustworthy, and irreparable damage to its reputation.

By ignoring the legal aspects involved in a crisis, one runs the risk of facing serious consequences, such as fines, penalties, loss of inflow of contracts, and even criminal prosecution. Additionally, the lack of a proper legal approach can undermine the company's ability to recover and to resume payments, etc. normal operations, directly impacting business continuity.

Therefore, it is essential aspects to understand that prevention and proactive tenure of legal issues during a crisis are essential to protect the company and its interests. It is necessary to identify, mitigate, and manage the legal risks associated with crises, ensuring that the company is prepared to efficiently face challenges and minimize negative impacts.

A preventive approach focused on the legal issues related to crisis management can add great value, protect the company from potential damages, and enable business continuity in a resilient format.

Companies that are always in the routine of "putting out fires" usually adopt immediate measures that can temporarily close gaps and avoid momentary risks. In the long run, however, postponing action on relevant issues can also turn into a crisis itself. Problems recur and often "overflow". Temporary solutions, which deal only with superficial aspects, cause old problems to reappear and new ones to be created.

An unmanaged or poorly managed crisis can result in avoidable and significant losses. Having a well-designed and properly structured crisis management and business continuity plan is the first step. However, if it is not accompanied by other actions, it may not be enough.

There is no point in having policies if the company does not have constant training and synergy between the areas that will need to work together in crisis situations. In the same sense, a risk matrix prepared only by the business continuity/technical areas are also not the best strategy. By acting in this way, for example, a legal assessment capable of mitigating the legal impacts inherent to the situation and reducing exposure to litigation is no longer to have, which would help to decrease losses.

What is increasingly seen is that, in the imminence of operational challenges, the ability to respond becomes vital.

In each such context, this series of articles will seek to address the most varied types of crises, in different segments and sizes of companies. The objective is to contribute to preparing companies to provide immediate responses, capable of mitigating the impacts and damages generated by a crisis. For those who are interested, our multidisciplinary team from the Crisis Management practice is prepared to debate and to deepen the topics that we will bring in this space. See you in the next article!

^[1]James T. Reason CBE is a former professor of psychology at the University of Manchester and has contributed to studies and research related to risk management in companies, by proposing that factors associated with tenure and organization converge massively to the occurrence of accidents in organizations, constituting latent failures of task systems and can cause major accidents.

Category: Crisis management

We have witnessed, in recent years, a large increase in cyberattacks, which often keep cybersecurity experts up at night. On July 19, however, the world woke up to a different cyber crisis: it was not a hacker attack or a data leak, but an impact caused by a failure of bringing up to date the security system of the cybersecurity company Crowdstrike. The problem ended up affecting computers using Microsoft's operating system globally.

At times like this, some questions arise:

• How to react?
• Has my company been prepared to deal with unexpected situations?
• Who should lead internally?
• Who should I contact externally?

What we call crisis management is the antidote that allows companies not only to face their problems, notwithstanding the complexity; it also relief organizations to curtail and prepare to, if necessary, minimize losses and unwanted legal, economic, financial, and reputational consequences.

A preventive approach focused on the legal issues related to crisis management can add great value, protect the company from potential damages, and enable business continuity in a resilient format.

Fortunately, in Brazil, the impacts of this cyber crisis on the 19th were milder than in other parts of the world. There was no news of a stoppage at the airports. The main obstacles involved access to the internet in general and the difficulty of using important applications – especially those related to financial institutions.

We know, however, that the impossibility of accessing banking applications, for example, can cause panic among users, even further so if accompanied by fake news. It is a situation capable of causing damage to consumers and third parties, among others.

Companies that are well-prepared for crises can minimize the impacts of these adverse episodes due to their ability to communicate in an agile and effective format to transmit the necessary information and, at the same time, calm their users and stakeholders.

It should not be forgotten that all measures adopted, and decisions taken in the heat of the moment bring future legal consequences and repercussions – which, if ignored, may even bring serious reputational and financial impacts on business.

Companies can preemptively take some measures to respond appropriately to crises. Among them, the following stand out:

• to accomplish a risk assessment;
• identify in advance the responsible parties who must lead and to make the necessary approvals in cases of crisis;
• have a draft of an official communication ready – to be adapted to the specific case; and
• Constantly training teams so that they are able to deal with similar situations and calm down direct users.

Preventive measures can not only guide a more organized, faster and effective reply, but, above all, to decrease the damage caused by crises. Preparation is the key to better navigating turbulent waves. We increasingly have indications – as the July 19 event showed – of how this preventive effort should not be neglected.

Category: Real estate

In a recent decision, the Superior Court of Justice (STJ) established the understanding that a municipality can start charging property tax on property that has become part within city limits, even if Incra has not held a prior hearing.

In the trial of REsp 2.105.387/SP, which took place on May 14, the owner of a property located in São José do Rio Preto, state of São Paulo, filed a lawsuit for the annulment of the collection of IPTU. The argument was that the property would still have rural destination and Incra had not been notified about the change in land use. In addition, the taxpayer claimed that the municipality did not have an specific law that identified the property as part of its urban area.

The dispute refers to the question of the necessary requirements for a property to cease to be taxed by the Rural Territorial Property Tax (ITR) and to be taxed by the IPTU.

The IPTU is the tax levied on urban properties, while the ITR is levied on rural properties, as provided for in articles 29 and 32 of the National Tax Code. However, according to the court precedents (Topic 174 of the STJ), the definition of which tax will be applied to each property depends on the analysis of the spatial criteria – which takes into account the location of the property – and the criteria of destination – which considers rural properties intended for agricultural, livestock or agribusiness extractive exploitation, regardless of their location.

For a property to cease to be rural and start to be considered urban, some requirements must be observed. According to the Statute of the City (Law 10.257/01), municipalities that intend to expand the urban perimeter must define, by law, the parameters and guidelines for urban renewal of the areas in question, especially in relation to infrastructure, road system and public equipment.

In cases where the property is in a rural area, but is used for urban activity, the owner, as a general rule, must contact the municipality through an administrative procedure, to file for conversion based on the mischaracterization of the ownership in the capacity of owner as rural.

Once the procedure is completed, the property will be registered in the municipal registry and will be taxed by the IPTU. In this case, after the conclusion of the procedure in the municipality, the owner must request the decharacterization of the property at Incra.

When the property is included within city limits by law, the municipality may, from then on, start taxing by the IPTU.

To make the decharacterization, however, it is necessary that the municipality itself send a request to the regional superintendence of Incra and request the change of the registration of the property. This request can cover more than one property, as long as the properties and their respective owners are properly described.

In both cases, the understanding is that it is not up to Incra to authorize the conversion of the land to urban, as provided for in article 53 of Law 6.766/79, but only to cancel the registration. The administrative procedure at Incra, therefore, aims only at the cancellation of the rural registration and, with that, no longer to apply the collection of the ITR.

Incra has already expressed itself in this regard through Normative Instruction 82/15, by defining that its performance in urban subdivision processes is restricted to relevant cadastral updates. There is, therefore, no need to hear in the agency.

In the trial of REsp 2.105.387/SP, STJ also considered that the communication to Incra is only a procedural rule. The aiming is to enable the Federal Government to verify the use and location of the property, to assess whether issues related to land planning are being addressed. In other words, this communication is not related to the taxation of the property and the exercise of the municipal competence to tax.

At the moment when it ceases to be part of the rural zone and becomes part within urban limits defined by the municipal law, the property can already be considered urban. In this sense, it is up to incidence the taxable event of the IPTU and the taxation by the ITR is excluded.

The STJ's understanding favors the municipalities, since it authorizes the immediate collection of the IPTU. Considering that the IPTU is much higher than the ITR, owners of rural properties, especially in large areas, must be aware of legal updates that may affect their properties within urban limits and change the way taxation is done.