Publications
- Category: Infrastructure and energy
With the issuance of GM Ordinance No. 517/2018, the Ministry of Transport, Ports, and Civil Aviation provided guidance, at the beginning of October, on the procedures and requirements for the approval of investment projects as a priority in the area of infrastructure, in the logistics and transport sector, and for the issuance of incentive debentures. The text of the rule puts into effect the provisions of article 2 of Law No. 12,431/2011, which regulates the conditions for the offer of incentive debentures with the objective of financing priority investment projects.
The regulation is in line with similar changes made by other infrastructure sectors, which have recently updated the rules for defining their priority projects. As an example, in December of 2017, the Ministry of Mines and Energy issued Ordinance No. 493/2017; the basic sanitation sector, in turn, had its rules for the definition of priority projects updated through the promulgation of Ordinance No. 315/2018 of the Ministry of Cities, in May of 2018.
Ordinance 517/2018, on the other hand, regulates all modalities of the logistics and transportation sector, in such a way that the standards for the qualification of road, railroad, port, and airport infrastructure projects have become the same. The previous ordinances applicable to the different transport segments were revoked.[1] Thus, the ministry met the interest already shown by the transport and logistics market by standardizing procedures and eliminating inconsistencies found in the framework for investment projects in the different modes of transportation. The ministry also sought to benefit from the experience accumulated in the different sectors, especially the highway sector, which has been using in a more frequent and successful manner the issuance of debentures under the terms of Law No. 12,431/2011, and to apply it uniformly to the segment as a whole, thereby allowing for a more agile and efficient review of the requirements presented.
The new ordinance establishes as priority those projects that are the subject of a concession, permit, authorization, or lease or public-private partnership process included in the Investment Partnerships Program (PPI), under the terms of Law No. 13,334/2016, or any projects previously approved by the Ministry of Transport.
Thus, Ordinance 517/2018 gives relevance to projects considered priority by the PPI, therein formalizing the correctness of the prioritization of the infrastructure projects in the area of transportation and logistics with the Federal Government’s agenda. The measure indirectly meets the Federal Government's objectives of resuming private investments in these projects with more speed and legal certainty.
One of the innovations of the ordinance that should be featured is the possibility of using incentivized debentures to raise funds for the payment of concession expenses (not only implementation, expansion, maintenance, recovery, adaptation, or modernization of projects), in line with changes already made, for example, by the Ministry of Mines and Energy.
The project owner's request must be supported by technical documentation, with a description of the project and project implementation and investment schedule, as well as a technical declaration by the respective regulatory agency attesting to the validity of the contract and stating that the project is contemplated in the concession instrument or related to the public service provided. This requirement was a novelty introduced by Ordinance 517/2018 and aims to prioritize companies in a situation of good standing before regulatory bodies.
Once the application has been received, the Department for Development and Partnerships of the Ministry of Transport will review the application and, if necessary, request the submission of additional documents and information. It is important to note that the Department for Development and Partnerships may consult other departments of the Ministry of Transport (namely, the National Department of Civil Aviation, the National Department Ports, and the National Department of Land and Water Transport), depending on the sector of the project under review.
Once the project is approved, by means of a ministerial ordinance, the issuance of debentures should occur within up to 2 years. In the case of non-issuance, the legal entity owning the project must provide a justification.
The ordinance provides for monitoring of the implementation of the project by the Department for Development and Partnerships. Accordingly, the project owner must inform the department of the issuance of the debentures within 30 days. It must also send information and documents annually regarding the investment in the project of the proceeds received from the issuance (a copy of the management report sent to the debenture holders, project uses and sources, and information on the issuance of debentures and a detailed report on the investment of the funds).
The tax treatment favored by certain investors makes it possible, in many cases, to obtain more attractive rates for companies issuing debentures under Law No. 12,431/2011. The local capital market has been taking advantage of this condition and making significant use of incentivized debenture issuances, per the terms of Law No. 12,431/2011, with 181 public offers carried out since the law was enacted until October 17 of this year.[2] The changes introduced by the Ministry of Transport through Ordinance 517/2018 aim to eliminate gaps and standardize procedures, thus giving greater legal certainty and encouraging investments in the transport and logistics sector.
[1] SEP/PR Ordinance No. 404, of October 2, 2015; SAC/PR Ordinance No. 18, of January 23, 2012; and MT Ordinance No. 9, of January 27, 2012.
[2] http://sistemas.cvm.gov.br/asp/cvmwww/registro/ofertasreg/OfertasProjPri.asp
- Category: Banking, insurance and finance
Presidential Decree No. 9,544/18, published on the last 30th, acknowledged the interest of the Brazilian government in having foreign ownership of up to 100% of the capital stock of Direct Credit Companies (SCDs) and Interpersonal Lending Companies (SEPs) authorized to operate by the Central Bank of Brazil (Bacen), also known as credit fintechs.
These types of financial institutions were recently created by Bacen, mainly to foster competition in the credit market and to legally support the growing evolution of the use of technology in the development of banking activities. Credit fintechs are subject to more lenient regulations as compared to those applicable to "traditional" financial institutions, acting exclusively via electronic platform.
In Brazil, foreign participation in the capital stock of financial institutions is authorized only if it is in the interest of the Brazilian government, in view of article 52, sole paragraph, of the Transitory Constitutional Provisions Act (ADCT). If, for example, a financial institution that has foreign participation in its capital wishes to initiate its activities in Brazilian territory, or a financial institution that already operates in Brazilian territory has an interest in receiving foreign investment, it must, in addition to obtaining authorization from Bacen, request an opinion from the government, through a decree by the President of the Republic, attesting to the interest of the Brazilian government in this foreign participation, in accordance with the procedure prescribed by Bacen Circular No. 3,317/16.
Under Decree No. 9,544/18, the national interest in foreign participation of up to 100% in credit fintechs is automatically recognized, which makes the authorization process more agile and efficient, since an opinion by the presidency of the Republic in each specific case is avoided.
The issuance of the decree was a significant step forward in the effective practical implementation of the BC+ Agenda, inasmuch as it eliminated a time-consuming and costly legislative step that until today needed to be met for any foreign investment in the credit fintechs regulated by Bacen.
Since the process for operating authorization for credit fintechs is faster than that of "traditional" financial institutions, because of the very nature and the limited scope of these companies, it made perfect sense that this requirement for the authorization process also be simplified. The measure will serve as a catalyst for potential new investments in these types of financial institutions, which will likely also contribute to the emergence of more players in this segment, thereby creating more competition and reducing the cost of credit for the end customer.
- Category: Infrastructure and energy
The collision of the Tunisian-flagged container ship Ulysse with the Cypriot-flagged freighter CLS Virginia near the island of Corsica in the Mediterranean Sea in early October spilled dozens of cubic meters of fuel oil and mobilized French and Italians in an attempt to contain the oil spill in the sea. The oil slick stretched for about 20 kilometers towards the French coast in a strip 100 meters wide. The authorities involved have not yet disclosed the cause of the accident, but given the good conditions of visibility and weather, the accident was probably caused by human error.[1]
The episode drew attention not only because of the serious environmental consequences of the spill, but also because of the closure of the famous beaches of the French Riviera, such as Saint-Tropez, Ramatuelle, and Sainte-Maxime due to the presence of oil slicks.[2] Considering the circumstances of the event, the objective of this article is to analyze the liability regime that may be applied to the polluter based on the international conventions that govern the subject.
France is a signatory to the main international conventions dealing with civil liability in matters relating to maritime transport, namely the International Convention on Civil Liability for Oil Pollution Damage 1992 (CLC 92),[3] the International Convention on Civil Liability for Bunker Oil Pollution Damage 2001 (BUNKERS 2001),[4] and the International Convention on Limitation of Liability for Maritime Claims (LLMC 96).[5]
CLC 92 is applicable in cases of damage caused by contamination resulting from an oil spill from the ship, whether it is cargo or fuel for the ship’s own consumption (bunker oil), in the territory, including the territorial sea and the exclusive economic zone of State that is a signatory of the Convention. However, for the purposes of the convention, only vessels constructed or adapted to carry oil loads are contemplated in the definition of ship. In other words, the convention has its application restricted to tanker ships.
According to CLC 92, compensation for damages caused to the environment is limited to the costs incurred as a result of actual recovery measures. The party civilly liable for any damage and pollution caused as a result of the incident shall be the owner of the vessel at the time of the accident or, if the incident consists of a series of events, when the first of them is found to have occurred.
BUNKERS 2001, for its part, is applicable only in the case of damage caused by pollution resulting from contamination due to an oil leak or spill from the ship itself, which is to say, oil intended for the operation or propulsion of the ship, in the territory, including the territorial sea and the exclusive economic zone of a State signatory to the Convention. BUNKERS 2001 identifies as subject to civil liability the owner of the vessel, the shipowner, and the bareboat charterer at the time of the incident or, if the incident consists of a series of occurrences, when the first of them is found to have occurred. It should be noted, therefore, that this convention significantly broadens the list of individuals subject to liability.
Although both conventions have quite similar provisions in some respects, since BUNKERS was very much inspired by CLC 92 and was motivated by the need for international rules suited for leakage from bunkers, they differ greatly with regard to the limitation of liability. CLC 92 establishes a regime for limitation on liability based on the gross tonnage of the vessel, according to which the maximum limit shall be set for the compensation to be paid by the owner or, depending on the convention applied, the shipowner and bareboat charterer.
The rule of the CLC stipulates that, for vessels with a gross tonnage of 5,000, the maximum compensation limit will be 4,510,000 Special Drawing Rights (SRD) (approximately US $ 5.78 million), which are units of measurement with currency conversion determined by the International Monetary Fund (IMF) and updated daily. The maximum values are adjusted according to the gross tonnage of the vessel, not exceeding the total value of 89,770,000 SRD.
BUNKERS 2001, for its part, leaves the limitation on liability to the national legislation of the country in which the incident occurred. That said, under the regime proposed by BUNKERS 2001, the person subject to liability may be subject to both the internal regime and the limitation of liability proposed by LLMC 96, when it has been incorporated by the domestic law of the country in question.
The logic of civil liability adopted by LLMC is similar to that used by CLC, while its compensation ceilings are driven by the gross tonnage of the ship. Therefore, depending on the legislation applicable in the country concerned with respect to limitation of liability, the parties responsible for the incident may encounter significantly different amounts payable by way of compensation.
The collision between two vessels off the coast of France is emblematic, therefore, for its shedding light on the coexistence of different international conventions on civil liability in international maritime traffic. In the present case, considering that France is a signatory to LLMC 96, isolated interpretation of the language of the conventions analyzed would lead to the indication that the compensation limits to which the persons responsible for the incident will be subjected will be those established by that convention, despite the fact that France is also a signatory to CLC 92 and BUNKERS 2001.
[1] https://www.dailymail.co.uk/news/article-6249813/Oil-spill-feared-ships-collide-near-Corsica.html
[2] https://www.apnews.com/53297575985c487488799a260c7dbbbe
[4] http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/International-Convention-on-Civil-Liability-for-Bunker-Oil-Pollution-Damage-(BUNKER).aspx
[5] http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/Convention-on-Limitation-of-Liability-for-Maritime-Claims-(LLMC).aspx
- Category: Tax
Normative Instruction No. 1,765/17, published on December 4 of last year, conditioned the receipt of offsetting statements for IPI credits, contribution to PIS, Cofins, and negative IRPJ or CSLL balances on prior confirmation of transmission of tax documents in which the right to a credit is demonstrated.
Due to electronic cross-referencing of data, it is common that some offsets are not ratified by the Brazilian Federal Revenue Service (RFB) because of mistaken information transmitted by the taxpayer itself through DCTF, EFD, and ECF, which do not reflect payment in excess. Not infrequently, only when after becoming aware of what transpired does the taxpayer identify the error it committed and submit a response in disagreement supported by evidence of its credit right with a basis on the principles of substantive truth and good faith.
With the enactment of Cosit Normative Opinion No. 2, of August 28, 2015 (PN Cosit No. 2/15), it was established that, if an error is identified in the statement of credit subject to an offset, the SRF shall allow the taxpayer to transmit a corrected DCTF to prove its right to a credit at a time subsequent to delivery of the offsetting statement or even after a decision denying ratification of the offsetting. In this situation, the case should be released to the Brazilian Federal Revenue Office (DRF) for review of the decision not to ratify the offset, thus returning for a judgment by the Brazilian Federal Revenue Office’s Review Board (DRJ) only if the review is partial or if there is a question of law to be decided.
The Attorney General of the National Treasury (PGFN) also recognizes the duty of the Tax Administration to review, at any time, tax documents that may result in reduction or extinguishment of tax credits arising from an error of fact committed by the taxpayer, as per Opinion PGFN/CAT No. 591/14 and Opinion PGFN/CDA No. 1,194/04, since it is against the public interest to collect debts that may be corrected through an administrative review.
In fact, the taxpayer's credit right is born with the undue payment or overpayment of a tax, as per the provisions of article 165 of the CTN, regardless of the information contained in the tax documents transmitted to the RFB. This same conclusion may be extracted from article 168, I, of the CTN, according to which the taxpayer's credit right expires within a period of five years from the extinction of the tax credit, and not from the transmission of supporting documents.
In this context, a recent amendment to IN No. 1,765/17 began to require that the offsetting statements not be received without the respective proof of the amount of the credit. This has resulted in a real restriction on the right of taxpayers to recover, by way of offsetting, amounts wrongly collected, since the receipt of RFB offset statements is conditioned on prior transmission of the tax documents showing the right to a credit (EFD-ICMS/IPI, EFD-Contributions, and ECF).
The rule established by the RFB will have a significant impact on the offsetting of credits arising from negative IRPJ and CSLL balances, since companies that calculate profit per the real profit tax framework on December 31 of each year will be obliged to postpone the offsetting of the negative balance of said taxes until the delivery of the ECF, which occurs “by the last business day of July of the year following the calendar year to which it refers" (article 3, of IN No. 1,422/13). This will oblige taxpayers to seek other funds to settle federal taxes even though they are aware of the existence of a negative balance, which will impact on their cash flow.
For taxpayers who calculate IRPJ and CSLL in quarterly periods, the restriction will only apply after the close of the calendar year.
If a taxpayer insists on offsetting the negative IRPJ and CSLL balance with other taxes administered by the RFB prior to the transmission of the ECF, there is a risk that the offsetting statement will not be "received", which may entail immediate collection of the offset taxes, and even result in the registration of such amounts as delinquent debt.
Thus, although it seems that the RFB seeks to improve the control and review of credits offset by the taxpayers, IN No. 1,765/17 ended up imposing a restriction on the right to an offset to which taxpayers are entitled, without any basis on articles 165, 168, and 170 of the CTN or article 74 of Law No. 9,430/96. The measure therefore violates the constitutional principle of legality (article 5, II, of the Federal Constitution).
In addition, by conditioning the "receipt" of the offset statement on the transmission of the tax document proving the credit right, IN No. 1,765/17 assumes that the taxpayer's right to a credit arises with the tax document, which interferes with the starting point for the statutory limitations period for the taxpayer to recover the amounts unduly collected by making it the moment of effective delivery of the tax documents, which constitutes a matter reserved for a Complementary Law (146, III, b, of the Federal Constitution).
In view of the aforementioned defects, taxpayers have litigated this change in court. An injunction granted by the Federal Court of the Judicial District of Rio de Janeiro ensures the right of the taxpayer to regulate the processing of the offset statements based on negative IRPJ and CSLL balances, regardless of the previous transmission of the ECF, precisely because it recognizes that IN No. 1,765/17 illegitimately restricted the right to offset without any legal support.
Although the change brought about by IN No. 1,765/17 is also applicable to IPI credits (article 161-B) and contribution to PIS and Cofins (article 161-C), the economic and/or financial impacts to companies are not as marked, since EFD-ICMS-IPI and EFD-Contributions are delivered monthly.
In view of this scenario, companies must remain vigilant when the information transmitted to the RFB is delivered and corrected through DCTF, EFD-Contributions, EFD-ICMS/IPI, and ECF in order to ensure the receipt and processing of their offset, and to continue to be assured the right to rectify actual errors. In addition, if taxpayers have calculated a negative IRPJ and CSLL balance for 2017 and intend to offset it with other taxes administered by the RFB prior to the transmission of the ECF, there is a basis for the filing of a judicial measure questioning the unconstitutionalities and illegalities of the restriction imposed by IN No. 1,765/17.
- Category: Tax
Investment funds have had a prominent place in the Brazilian financial market because they enable the gathering and consolidation of assets from different investors into a single investment channel.
Unlike the general rule applicable to legal entities in Brazil, investment funds are not subject to taxation on gains or income earned by their portfolio. In these cases, as a rule, taxes are levied only when the funds are distributed to the unitholders. For some types of funds there is also the possibility of exemption and zero income tax rate, provided that some requirements are met.
As a general rule, income from investments in the financial and capital markets is subject to withholding tax. In the case of investment funds, the income paid is usually subject to withholding tax (IRRF) at rates ranging from 22.5% to 15%, depending on the length of the investment. With respect to the Equity Investment Funds - FIPs, which are Brazilian private equity funds, there is a specific framework, which provides for the application of a 15% rate, regardless of the length of the investment, subject to certain requirements.
Article 78 of Law No. 8,981/1995 equates non-resident investors to residents with respect to various investments, both of which are subject to the same tax rules. As a general rule, therefore, non-resident investors are subject to the tax framework described above with regard to investments in funds.
However, in order to foster investments in our country, Brazilian legislation has established a framework for non-residents who invest in the financial and capital markets in accordance with the standards established by the National Monetary Council (CMN), currently set forth in CMN Resolution No. 4,373/2014.
For foreign investors in FIPs, a 0% IRRF rate on income and capital gains, including those obtained from the divestiture or amortization of their units, is provided, as long as the following requirements are met: (i) the fund does not hold in its portfolio, at any time, debt securities at a percentage greater than 5% of its net equity, though debentures convertible into shares are not subject to this limit; (ii) the foreigner is not resident or domiciled in a country with favored taxation, such that the country that does not tax the income or taxes it at a rate lower than 20%; and (iii) the unitholder does not hold units that, alone or together with persons related to it, represent 40% or more of all the units issued by the fund or whose units, alone or together with persons related to it, entitle it to receive income in excess of 40% of the total income earned by the fund.
In view of their potential economic benefits, investments via funds, especially FIPs, have been increasingly used by resident and non-resident investors. In a recent move, however, the Federal Revenue Service of Brazil began to focus its attention on FIPs. Last year, the Undersecretary of Oversight announced that one of the pillars of the fight against tax evasion would be tax planning involving such funds.
The results have already begun to be felt by the sector, with a new front of inspections and assessments focused on financial institutions that act as administrators of FIPs and account custodians for foreign investors.
In general terms, private equity fund managers are responsible for the organization and maintenance of the fund and, from a tax point of view, are charged with withholding and collecting the tax due on the income received by investors, pursuant to article 32 of the Law No. 9,532. Custodians, in turn, are responsible for the actual movement of the foreign investor’s funds in Brazil.
Apparently, the purpose of the Federal Revenue Service in recent audits is to identify the existence of any Brazilian investors or residents of favorably taxed countries who invest in these FIPs indirectly (through other investment vehicles) as final beneficiaries. In the Federal Revenue Service’s view, the existence of indirect investors residing in Brazil or in countries with favored taxation could eliminate the application of the zero rate mentioned above.
However, there is no provision in Brazilian tax law that eliminates or disqualifies a particular tax treatment, whether or not more beneficial, for legal arrangements that may indirectly benefit individuals who are not legally related to this tax treatment. What does exist are norms that have the purpose of mere registration, such as Normative Instruction No. 1,634/2016, which requires information about certain final beneficiaries in pre-established circumstances, but without the attribution of any tax consequences to them.
Despite the absence of legislation that covers the lack of identification of the final beneficiary on the presumption of noncompliance with the legal requirements for enjoyment of the beneficial tax framework, the Federal Revenue Service has reviewed and assessed custodians and fund administrators that failed to identify the individuals who are the final beneficiaries of the income remitted by the funds.
In cases of already formalized assessments, in which the taxpayers, in the opinion of the tax authorities, were not able to present documentation capable of demonstrating the identity of the beneficiaries of the income paid by the funds, the tax authorities imposed a withholding tax at the rate of 35%, based on the rules governing payments to an unidentified beneficiary (article 61 of Law 8,981).
In view of this, and in view of the issuance of Normative Instruction No. 1,634/2016, which, despite having registration as its purpose, requires the maintenance of records on the beneficiaries of the investments, it is recommended that FIP administrators collect the information and, especially, documentation regarding the actual beneficiaries in order to anticipate possible inspections and reviews and avoid the effects of application of effective rates that can reach 53% due to an allegation of an unidentified beneficiary.
With this information and documentation in hand, the tax authorities will be able to verify the profile of the beneficiary, especially the beneficiary’s residence, in order to analyze whether this beneficiary was actually entitled to more beneficial tax treatment. In this case, if Brazilians or residents in countries with favored taxation are identified, the tax authorities may charge IRRF at the rate of 15% in relation to these beneficiaries, plus a fine and interest.
Although the presentation of the documentation may give rise to a second stage of action by the tax authorities, the advantage is that the allegation of an unidentified beneficiary would be ruled out, which could lead to taxation at a rate of 35% on all income paid by the funds.
If the documents due are presented, it will be incumbent upon the tax authorities to analyze each individual case and collect the tax only from the beneficiary who, in the opinion of the agency, does not meet the requirements necessary to obtain differential tax treatment.
As a practical consequence of the new tax reality that surrounds FIPs in Brazil, it will be up to managers to evaluate alternatives in order to mitigate risks, therein considering, for example, implementation of different investment structures to segregate investors with different profiles. The Federal Revenue Service’s race has already begun and it will now be up to fund administrators to seek different avenues to alleviate the risk of assessments related to the payment of income to non-resident beneficiaries.
- Category: Litigation
The São Paulo State Court of Appeals (TJSP) has ruled in a recent judgment that the São Paulo State Tax Authority must reimburse costs and procedural expenses incurred by a defendant acquitted in a public civil action for administrative corruption.
The party filed a collection action against the state pleading reimbursement of costs and procedural expenses (including an appeal bond) that he disbursed in a public civil action in which he was acquitted on appeal. At the trial level, the party was convicted and, after appeal, the TJSP modified the decision so as to acquit him of the accusations of corruption.
In public civil actions, the plaintiff, unless bad faith is proven, is exempt from the payment of costs, procedural expenses, and attorneys’ fees, by virtue of article 18 of Law No. 7,347/85. The Public Prosecutor's Office relies on the exemption granted by the law in the filing of public civil actions, and the causes, often even because of this exemption, are assigned very high values.
Not infrequently, these suits are dismissed after many years and the expenditure of large amounts by the defendants, both in hiring lawyers for the exercise of the technical defense as well as in costs and procedural expenses, including the payment of appeal bonds that use as a calculation basis the value of the causes.
In the appeal decided by the Court of Appeal (Appeal No. 1028683-23.2016.8.26.0405), the plaintiff was compensated for costs and procedural expenses, including the significant appeal bond that he disbursed.
The correct basis adopted in the appellate decision was that of the procedural principle of causality, according to which the person who gives rise to the proceedings and who is unsuccessful must bear the costs and expenses incurred by the winning party, as well as the fees for loss of suit.
Although the Public Prosecutor's Office is exempt from the payment of fees for loss of suit, the costs and procedural expenses must be reimbursed in the event of dismissal of the public civil action. According to the ruling, because the state exempted the Public Prosecutor's Office from paying fees for loss of suit, the State Tax Authority must compensate the opposing party for the amounts that he spent.