Publications
- Category: Labor and employment
One of the greatest labor challenges facing the Brazilian business community today is compliance with the minimum quotas for the hiring of apprentices and people with disabilities or rehabilitated workers.
Under Brazilian law, to meet their minimum quota, companies are required to employ a number equivalent to:
- at least 5% (and, at most, 15%) of apprentices, a percentage calculated over the total number of employees in each establishment, as long their duties require professional training; and
- from 2 to 5% of rehabilitated or disabled employees, calculated over the total number of employees of the company throughout Brazil.
The goal of the legislator in creating such obligations was to enforce the social function of companies and to provide effective means for the proper integration, inclusion, and vocational training of young people and persons with disabilities. However, the collective repercussions of noncompliance with these obligations are often very burdensome for companies.
This is because, in addition to the possibility of fines and the application of large penalties by the Ministry of Labor, companies that do not meet the minimum hiring percentages are also subject to the intervention of the Public Labor Prosecutor's Office (MPT).
The intervention of this agency, in turn, usually results in the filing of a public civil action or the signing of a consent order, pursuant to which companies, under penalty of imposition of additional fines, undertake to comply with the quotas for apprentices and people with disabilities.
This scenario is even more sensitive for companies that, due to their economic activity, do not have positions or sectors in their structure that allow for the absorption of the minimum number of apprentices or disabled persons, as required by the legislation. This is because, although some positions require specific skills, competencies, or training, often incompatible with apprenticeships and/or physical and intellectual limitations, they will still be considered for quota enforcement purposes.
In this context, the intervention of the Ministry of Labor and the MPT has been recurrent in recent years, given the real difficulties faced by companies in achieving minimum hiring percentages, either due to the peculiarities of their economic activity or the lack of trained professionals or persons interested in occupying such positions.
Given this scenario, some professional and economic categories have included, in their collective rules, specific provisions to address the particularities of their economic activity, thus easing the rules in order to comply with legal quotas.
This easing generally occurs through a recognition of the incompatibility of a given position with its occupation by employees without proper training or specific ability or full physical or intellectual ability to hold it.
Once this incompatibility is recognized, such positions are excluded from the calculation basis for the legal quota, thus reducing the minimum number of places to be allocated to apprentices or persons with disabilities.
The legal validity of this adjustment at the collective level was the subject of various debates in the Judiciary, which, in turn, reacted by adopting contradictory positions, sometimes recognizing its legality, sometimes ruling it out.
However, shortly before the enactment of Federal Law No. 13,467/2017 (the Labor Reform), this subject was meticulously examined by the Section Specialized in Collective Bargaining of the Superior Labor Court (TST). On that occasion, the section upheld the validity of a provision in a Collective Labor Agreement (CCT) entered into between the unions of the companies and workers of private security of Tocantins, which restricted the calculation basis of disabled employees to only the employees in the administrative areas, excluding, therefore, the security guards themselves:
"ORDINARY APPEAL - ANNULMENT SUIT - SECTION 16 - HIRING OF CARRIER OF PHYSICAL DEFICIENCY QUALIFIED OR REHABILITATED - SECURITY SERVICE.
A collective bargaining provision that changes the calculation basis for the legal reserve of vacancies for persons with disabilities (article 93 of Law No. 8,213/1991) is valid for positions compatible with their abilities, in accordance with the reality of the industry. Deference to the autonomous instrument, pursuant to article 7, XXVI, of the Federal Constitution. Ordinary Appeal heard and not granted relief.”
(Case No. 76-64.2016.5.10.0000, Reporting Judge: Maria Cristina Irigoyen Peduzzi, Date of decision: March 13, 2017, Subsection I Specialized in Individual Disputes, Publication Date: April 11, 2017).
In sum, the TST’s decision was based on two main grounds:
- The incompatibility between the hiring of persons with disabilities and the particularities of the category of security guards, which requires: (i) a professional training course, which includes personal defense, weapons, and shooting, among others; and (ii) passing examinations attesting to the guard’s physical health and mental and psychological and technical capacity;
- The prevalence of collective bargaining over general labor rules, since they may more precisely and adequately reflect the particularities of each professional category.
However, a few months after this decision, the subject again gained prominence with the entrance into force of the Labor Reform, which recognized the prevalence of that which is negotiated over that which is legislated, except for the topics protected at the constitutional level.
Although one could take the position that collective bargaining on this issue would be strengthened by the Labor Reform, the discussion returned to the spotlight. Also based on the new law, the MPT went on to argue that the quotas for apprentices and people with disabilities could not be subject to an agreement in collective rules.
Contrary to what one might imagine, the expectation is that this controversy may not take that long to be reviewed. This is because the subject is already pending the TST’s review since, on August 29, 2018, the MPT filed a suit for declaratory relief in order to nullify a collective bargaining provision, assigned the case No. 1000639-49.2018.5.00.0000.
The purpose of the proceeding is annulment of the provisions of the CCT signed between the National Union of Airline Companies (SNEA) and the National Union of Aeronauts (SNA), which exclude pilots, flight attendants and flight mechanics from the calculation basis for the minimum quotas for hiring apprentices and disabled or rehabilitated people.
According to the MPT, the legislation on the subject is governed by public policy rules, which cannot be subject to collective bargaining with a view to a reduction of rights, not least because they are protected by the exceptions of article 611-B of the Consolidated Labor Laws, subsections XXII, XXIII, and XIV.[1]
On the other hand, trade unions defend their position under the same arguments that have been accepted by TST in the past, such that the court will have a new opportunity to review the prevalence of the collective rule over the legislation, as well as the incompatibility of certain positions with the legal quotas.
In a superficial analysis of the controversy, the reporting judge in the case, Justice Katia Magalhaes Arruda, considered that the contested provisions apparently violated cogent state norms, whose easing through collective bargaining was supposedly inviable.
However, before considering the petition for preliminary injunctive relief submitted by the MPT, the parties were summoned to a prior justification hearing in order to clarify the controversies presented in the claim.
The hearing was held on October 30, 2018, at which time the Justice pointed out that the case law of the TST supposedly included in the calculation basis also employees allocated in positions that require technical training and physical and intellectual fitness.
She also pointed out that other professional categories with similar problems, such as security guards, used alternative means of meeting the quota, such as the signing of partnerships with host houses, public agencies, and vocational training institutions.
In this scenario, the justice proposed that the trade unions meet with the employees and the companies they represent to study the possibility of excluding the provisions in question from the next CCT, such that the parties agreed to hold a new hearing on November 21.
On this opportunity, the trade unions ratified their understanding about the legality of the CCT and the Justice suspended the suit for 90 more days for the parties to attempt to conciliate.
In case there is no agreement, it is expected that the TST will have a new opportunity to review the controversy surrounding the validity of normative provisions that ease the form of fulfillment of the quotas, especially in light of the changes promoted by the Labor Reform.
In order to do so, it will have to face issues that are sensitive for both sides, such as the social function of companies, the prevalence of that which is negotiated over that which is legislated, the incompatibility of certain activities with the hiring of apprentices and the disabled and the possibility of fulfilling these obligations by alternative means.
However, regardless of the position to be adopted by the TST, the new decision should radiate to all other professional categories that face equal difficulty, marking the limits of collective bargaining to be initiated in the coming years.
[1] Article 611-B. The suppression or reduction of exclusively the following rights constitutes unlawful subjects of a collective agreement or collective bargaining instrument:
XXII - prohibition of any discrimination regarding salary and hiring criteria for disabled workers;
XXIII - prohibition on night work, dangerous, or unhealthy for minors under eighteen years of age and any work for minors under the age of sixteen, except as an apprentice, from the age of fourteen;
XXIV - measures for the legal protection of children and adolescents;
- Category: Real estate
The Court of Appeals of São Paulo decided in favor of the sale of rural property mortgaged in favor of a Brazilian financial institution equated to a foreign entity, despite the current restrictions on the acquisition and leasing of rural properties by Brazilian companies equated to foreigner entities, as they have a majority of their capital stock and/or control held by foreigners. The appellate decision was published on July 17, by the 23rd Chamber of Private Law of the TJ/SP, in the context of interlocutory appeal No. 2024029-90.2017.8.26.0000, of the District of São Paulo.
Since August of 2010, with the publication of Opinion AGU/LA 01/2010, the acquisition of rural properties by Brazilian companies equated to foreign entities is subject to a series of restrictions provided for in Law No. 5,709/1971, Decree No. 74,965/1974 and Law No. 8,629/1993. These restrictions concern, for example, the extent of the area that can be acquired, the limitation of the percentage of areas by nationality, the requirement to obtain prior approval from INCRA, the National Congress and/or the National Defense Council, and the need for prior approval of the projects that will be developed in the areas to be acquired, among other issues.
The creation of real estate guarantees, such as a mortgage, is not prohibited by law, but given that the acquisition is restricted, the execution of the mortgage guarantee in the event of non-payment of the debt is subject to such restrictions, since the mortgagee could not auction off the rural property if there were no other interested purchasers and thus become its owner without all the restrictions resulting from the AGU Opinion being observed.
In the case of financial institutions, the obligation to sell properties received in settlement of loans granted has been used as a basis in the argument that the restrictions resulting from the AGU Opinion would not be applicable to rural property foreclosures by Brazilian financial institutions equated to foreign entities. The justifications are the fact that (i) the financial institution is not acquiring the property for its own use and has a legal obligation to sell the property and (ii) the restriction on the sale of the property could end up hollowing out the real estate guarantee itself, which would have a significant impact on the concession of new credit lines by these banks, especially those intended for the agribusiness sector. However, the issue is not settled and still needs a final response.
The recent decision by the 23rd Chamber of Private Law of the TJ/SP is just one more chapter of this story and gives light and direction to the discussions on the foreclosure on (execution of) real estate guarantees for rural properties, although it still does not resolve the issue completely. The judges who decided favorably to the issuance of the auction approval letter in favor of the bank (it was not a unanimous decision) argued that since the issuance of the letter by itself would not be enough to transfer ownership of the rural property, as only its registration with the competent real estate registry office would be able to materialize the transfer of ownership of the property, there would be no legal prohibition on the issuance of the auction approval letter despite the restrictions arising from Law No. 5,709/1971. In addition, it was argued that the sale of the rural property by the bank equated to a foreign entity would not be a risk to national security precisely because the financial institution has an obligation to sell the asset auctioned and because the goal of the auction is to guarantee its right to credit. Finally, despite the fact that a recommendation was made in favor of completion of the auction, it was pointed out that it is up to the real estate registry official to evaluate whether or not the respective auction authorization letter is void, given the particular circumstances of the case and the feasibility of registering it in favor of such a financial institution.
This decision, although not unanimous, was positive in indicating that financial institutions equated to foreign entities will be able to foreclose on real estate guarantees granted over rural properties. However, it is a timid decision and did not address the issue completely. It failed to decide whether or not to register the registration was null and delegated to real estate registries the decision on how to proceed, guided by the rules of their respective ombudsman’s offices and subject to further civil and criminal liability for their acts.
Moreover, even if such auction authorization letters come to be effectively registered, thus transferring the ownership of such rural properties to financial institutions equated to foreign entities, the doubt about the legality of such acquisition (which may affect the whole of the ownership chain of the property from then on) will continue to exist and generate legal uncertainty. Unfortunately, we will still have to wait for the new chapters and the course of the discussion to effectively end the legal uncertainty still facing the foreclosure on of these real estate guarantees.
- Category: Tax
Abuses by the State and especially by the tax authorities to impose taxes without proper legal support are not uncommon. This routine fact, in addition to the excessive tax burden, the enormity of instrumental duties, and the extremely high interest rates on arrears and fines, creates a very difficult environment for Brazil's economic development.
Specifically in the case of ISS, in addition to the intense discussions about the place of provision of service, conflicts of jurisdiction between taxing political authorities, and the constitutionality of various items and subitems brought in by the List of Services of Supplementary Law No. 116/2003, the controversies were aggravated by the publication of Supplementary Law No. 157/2016 and the decision on Extraordinary Appeal No. 651.703/PR, admitted on the basis of general repercussion, the written opinion of which was drafted by Justice Luiz Fux.
In the aforementioned judgment, the Federal Supreme Court (STF) innovated, breaking with concepts previously established in case law and legal scholarship, with respect to what should be understood as “services."
Distancing itself from the traditional concept in civil law of services as an "obligation to act," the STF understood that the concept of services is related "to the offering of utility to others based on a set of material or immaterial activities, provided habitually and for the purpose of profit." This conception created by the STF unpredictably extends ISS overarching rule governing application of ISS, insofar as it introduces extremely broad and unsettled semantic concepts.
With respect to Supplementary Law No. 157/2016, Article 3 of Supplementary Law No. 116/2003 provides that, as a general rule, the service is considered provided and ISS is considered due at the place of establishment of the provider.[1] However, Supplementary Law No. 157/2016 included new provisions in article 3, creating more exceptions to the general rule, in addition to the existing ones.
Two of the most relevant changes specifically affect the financial sector and shift the collection of ISS to the municipality where the recipient of the services is located in relation to leasing services and services provided by credit and debit card management companies and client funds and portfolios.
The President of Brazil rightly vetoed the above-mentioned amendments based on two important arguments:[2] (i) in relation to leasing services, shift in collection of ISS is contrary to the logic of taxation of these services, which must occur at the place where review of the registration, granting, and oversight of the financing granted occurs” and, (ii) in relation to the services rendered by credit and debit card management companies and client funds and portfolios, displacement would generate "a potential loss of tax efficiency and collection, in addition to increasing costs for companies in the industry."
Nevertheless, in response to pressure from various municipal authorities, the National Congress overturned the presidential veto. Considering that the last publication of Supplementary Law No. 157/2016 occurred on June 1, 2017, as well as in compliance with the principle of tax anteriority, the changes came into effect, in theory, on January 1, 2018.
In addition to difficult and costly practical applicability, which undermines the principle of reasonableness, since leasing companies and fund managers and client portfolios are required to register in all municipalities in which they have clients domiciled (Brazil has more than 5,500 municipalities), the new rules also bring in laconic wording that gives rise to various questions. They also deviate from the theory for tax assessment set forth in the Constitution.
On this point, it may be argued that the amendments introduced by Supplementary Law No. 157/2016 are unconstitutional, since the law may not shift tax collection at will for the purpose of collecting revenue for less favored municipalities at the expense of instrumental duties for taxpayers. Likewise, tax authorities are not permitted to decide the best interpretation of the rule on tax jurisdiction in the event of doubts.
So much so is this the case that, taking as an example portfolio management services and client portfolios, the legal loophole gives rise to a number of dubious interpretations, such as whether the recipient of the service of fund management is the fund itself or the shareholder of the fund. Clear delimitation of the recipient of the service will have a highly relevant impact on the taxpayer, who must collect ISS in this or that municipality.
In addition, the exceptions to the general rule of collection of ISS, originally provided for in Supplementary Law No. 116/2003, are related to services that have concrete results in other municipalities. Therefore, the amendments introduced by Supplementary Law No. 157/2016 further enhance another debate that has long occupied the courts regarding ISS on exportation of services: what is the concept of result and where does it occur.
In relation to the export of fund and portfolio management services, for example, the tax authorities maintain that, even if the recipient is located abroad, the result will be in Brazil if the asset is located here. Based on the new rules, however, it is possible to sustain that, regardless of the location of the asset, the result would occur at the location of the recipient of the service, since, supposedly, the law moved payment of ISS to the recipient's municipality.
Whatever the future unfolding of the new rules, they are not self-enforcing. According to the text of the Constitution, ISS is a tax under municipal jurisdiction and, although its guidelines are established in supplementary laws, municipalities must introduce their own legislation to regulate the collection of ISS.
For this reason, municipalities should incorporate the changes brought in by Supplementary Law No. 157/2016 into their internal lawmaking. This fact has also generated controversy. As long as their legislation is unchanged, municipalities cannot collect ISS and, when it does, they must respect the principle of anteriority.
There are also those who maintain that there is a lapse of ISS “untaxability" between the date of publication of Supplementary Law No. 157/2016 and the date of adaptation of the municipal legislation to the new rules, subject to the principle of anteriority. This is because the municipalities where the service providers are located may no longer require ISS in the former manner.
An investment fund management company located in Curitiba recently obtained a favorable injunction in State Court to suspend collection of ISS in relation to services rendered to recipients located in other municipalities. The company based its petition for a preliminary injunction on the fear of being taxed twice for the same service. The Attorney General of the Municipality of Curitiba appealed the decision and is awaiting a ruling on the matter by the Court of Justice of the State of Paraná.
[1] In a brief summary, Article 4 of the aforementioned law defines a “establishment of the provider" as the place where the taxpayer carries out the activity of rendering services, either permanently or temporarily, and which constitutes an economic or professional unit, regardless of what it is called (headquarters, branch office, etc.).
[2] Available at: http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2016/Msg/VEP-720.htm.
In September, the Ministry of Transparency and Comptroller-General of the Union (MTCGU) published the Practical Handbook for the Evaluation of Integrity Programs in the Administrative Accountability Procedure of Legal Entities (PAR). The document seeks to provide guidance and assurance for public servants with the Federal Executive Branch responsible for conducting the PAR, instituted by Law No. 12,846/2013 (the Anti-Corruption Law), especially members of the Administrative Accountability Procedure Committee (CPAR).
While the manual is intended for members of the Federal Executive Branch, its user-friendly format and easy-to-use language helps the market to more clearly understand how authorities intend to evaluate integrity programs promoted by the Anti-Corruption Law in the context of the PAR.
The publication also tends to be freely used by authorities of other powers that may be responsible for conducting accountability procedures, which might bring greater security to this work and to the authority itself. The text does not have the status of law and should be considered a guiding document, just as the document "Integrity Program - Guidelines for Private Companies", also released by the MTCGU in 2015 (at the time, known as CGU).
The manual reinforces the idea that integrity programs aim, mainly, at preventing, detecting, and remedying irregularities and that, although potentially reducing the fine applicable to legal entities that commit unlawful acts, they do not exempt them from liability. Hence, the existence of an integrity program has no bearing on the analysis of the legal entity's liability. An evaluation of the program will be carried out, therefore, if it is deemed useful to determine the amount of the fine to be proposed.
Thus, the CPAR will evaluate a legal entity’s integrity program only when three situations simultaneously apply to the specific case: (a) if the PAR concludes that a fine will in fact be applied to the legal entity; (b) if the calculation parameters of the fine (articles 17 and 18 of Decree No. 8,420/2015) lead to an amount above zero on the percentage applicable to the gross revenue of the legal entity subject to the fine; and (c) if the benefit accrued by the irregularity committed by the legal entity is equivalent to less than 20% of its gross annual revenue.
Item (a) arises, for example, from the possibility that the legal entity may be considered innocent of the allegations made, a situation in which a fine would not be applied and therefore an evaluation of the integrity program would not be necessary.
Item (b) relates to the fact that it is impossible for a legal entity found guilty in the PAR to be exempt from a fine – therefore, it does not make sense to evaluate the integrity program in order to reduce the fine if it is already the minimum amount – which is 0.1% of gross annual revenue (even if the calculation results in an amount equal to or less than 0).
Item (c) is due to the fact that the fine will never be less than the advantage received by the legal entity when the illegal act was committed. Thus, if the advantage obtained in committing the irregularity is more than 20% of gross revenue (the maximum percentage of the fine), the fine will be equal to the value of the advantage (and reduction of the fine will not be applicable). With this provision, the legislation seeks to ensure that commission of an offense is never beneficial to the legal entity.
In any case, the information regarding the integrity program must be demonstrated together with the first written defense presented by the legal entity participating in the PAR, even if the program is not evaluated at that moment and might, depending on the specific case, not ever be evaluated. This demonstration should be carried out according to the profile report and compliance reporting models (available in the manual and stipulated by the ordinance CGU No. 909/2015).
Claiming that Article 42 of Decree No. 8,420/2015 presents vague parameters for evaluating integrity programs (which is also our view), the manual creates a methodology for evaluating programs, to be applied by means of a spreadsheet (which can be accessed at link).
As stipulated in this worksheet, therefore, the evaluation will be divided into three blocks:
- Organizational culture of integrity (COI);
- Integrity mechanisms, policies, and procedure (MPI); and
- Actions by the legal entity in relation to the injurious act (APJ)
The calculation will be done as follows: [(COI x MPI) + APJ] = percentage by which the fine is reduced. We describe below what each block refers to:
- COI, whose value varies from 0 to 1.8: it identifies the company's culture regarding integrity issues, engagement of professionals, etc.
- MPI, whose value varies from 0 to 1.5: evaluates the instruments used to prevent, detect, and remedy irregularities (policies, procedures, controls, processes, etc.).
- APJ, whose value varies from -0.6 to 1.3 (for programs existing before the injurious act) or to 0.3 (for programs established after the harmful act): aims to verify the role of the integrity program in the prevention, detection, and remediation of the irregularity that is the subject of the PAR, as well as what the reaction of the legal entity was with respect to the occurrence of this specific irregularity, that is, what measures were taken internally to remedy the specific case and to ensure that the situation does not occur again.
The values of each of the blocks will be automatically calculated by the worksheet based on the answers provided by the CPAR, that is: 0 will be "no", 1 will be "partially”, and 2 will be "yes".
The manual reinforces the need for a careful evaluation so that only legal entities whose integrity programs have effective capacity to prevent, detect, and remedy harmful acts to the public administration will bring about benefits, since the primary objective of these programs is to avoid irregularities.
In conclusion, these more objective parameters provided by the manual give greater legal certainty in the evaluation of the integrity programs in the context of the PAR, in addition to guiding more clearly the very preparation and structuring of the programs themselves, which contributes to the prevention of unlawful practices, since it helps legal entities to have have internal tools that are indeed effective in combating the problem.
- Category: Competition
The opinion of the Administrative Council for Economic Defense (Cade) on freight price tables, issued on June 17, brought to light an important discussion that goes beyond the limits of this concrete case: the application of the antitrust exemption.
Presidential Decree No. 832/2018, which instituted the Policy of Minimum Prices for Road Transportation of Cargo in response to the crisis generated by the truck drivers' strike, was the target of harsh criticism from the Brazilian business community for a variety of reasons, including reduction of competition in the sector. In a statement presented to the Brazilian Federal Supreme Court (STF), Cade expressed the understanding that, although the establishment of minimum prices does not benefit the market or consumers, the agency would not have the authority to discuss the merits of the public policy adopted by the federal government for that industry.
The Brazilian Competition Law (Law No. 12,529/2011) applies to acts carried out by individuals or legal entities, whether public or private, national or foreign, regardless of the sector of economic activity involved. The law does not prevent Cade from punishing any practice that could harm free competition, even if the conduct is encouraged or sanctioned by state agencies.
However, Cade recognizes that, in order to achieve certain public policies, the State may exercise its regulatory power over the economic order in a way that leads to reduction of competition in a given sector. It further recognizes that in such cases, the antitrust authority cannot impose fines or non-pecuniary penalties on those who acted within the bounds set by regulations.
The success, at Cade level, of a defense based on the antitrust exemption theory depends on whether three criteria are met in the specific case. The first one concerns the degree of autonomy the company had in relation to the conduct. Has it acted in accordance with the regulatory rule, or could it have acted differently? If there was an alternative less harmful to competition, the regulation could be used as a mitigating factor in the calculation of the penalty, but not to prevent the application of the penalty. The second criterion is the effective supervision by the regulator, who should be able to supervise and punish companies that do not comply with the rule. The last criterion concerns the existence of a clear industry policy of antitrust exemption, which should be a public policy decision made to ensure that the benefits aimed by the regulation outweigh the harm resulting from the reduction or elimination of competition in the industry.
