Publications

Category: Tax

The discussion on the (non) taxation of revenues arising from investment subsidies granted by Brazilian states to taxpayers has recently taken on new contours with the judgment  of Theme 1,182 by the Superior Court of Justice (STJ).

The understanding issued by the court through the decision published on June 12 was that the generic benefits of the Tax on the Circulation of Goods or Services (ICMS) – ICMS benefits in the forms of exemption, deferral, reduction of the calculation basis or reduction of rate, that is, benefits that are not presumed tax credits – should not compose the calculation basis of  the Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL).

For this, three requirements should be met (the last two, as established by article 30 of Law 12,973/14):

• Registration and deposit of the benefit in the Executive Secretariat of the National Council of Finance Policy (Confaz) – pursuant to article 10 of Complementary Law 160/17 (LC 160/17);
• Constitution and maintenance of the amounts related to the enjoyed benefits in the incentive reserve account in the company’s ’net equity; and
• Limitation in relation to the destination of the values, which cannot be distributed to the shareholders of the entity benefiting from the incentive .

The STJ confirmed the understanding that had already been adopted by both panels of the court, which was that the intention of the state in granting the tax benefit was no longer relevant since the edition of LC 160/17 – which inserted paragraphs 4 and 5 in article 30 of Law 12,973/14.

In other words, it would no longer be appropriate to question whether the state granted the benefit of ICMS with the objective of stimulating the implementation or expansion of economic enterprises (concept of subsidy for investment). This is so because the differentiation of the classification of benefits into investment subsidy (suitable for exclusion for purposes of calculating the IRPJ/CSLL) and costing subsidy (taxable by the IRPJ/CSLL) no longer mattered to define the possible non-taxability of these incentives granted by the states.

To benefit from the condition of non-taxability of generic benefits, therefore, it was enough to meet the three requirements mentioned above – and no other.

The STJ also ended up differentiating the benefits of presumed credits from generic benefits and established that only the former should receive the treatment provided for in EREsp 1,517,492/PR – which determined the non-taxation of presumed ICMS credits based exclusively on constitutional grounds, not analyzing any need to meet the requirements of the legislation. It was thus established that:

• the presumed credits could not be subject to taxation for offense to the federative pact and to reciprocal immunity (that is, they represent non-taxable revenues by themselves); and
• the other tax incentives could not be subject to taxation only when the requirements of article 30 of Law 12,973/14 and article 10 of LC 160/17, mentioned above, were met.

Taxpayers may have difficulties with the tax authorities

Although the understanding of the Superior Court seems very clear, taxpayers may still encounter resistance from the tax authorities in the application of the issued theses.

On June 12, shortly after the publication of the decision on Theme 1,182, the National Treasury Attorney General's Office (PGFN) released a public note informing, among other points, that the ICMS that was no longer paid due to the tax benefit cannot be incorporated into the company's profit. It must be registered in an incentive reserve account and subsequently reinvested in the expansion or implementation of an enterprise.

In our view, the PGFN's understanding of the need to reinvest the amounts in the expansion or implementation of an enterprise does not find support in the law or in the decision of Theme 1,182 issued by the STJ. However, it may represent an orientation on the matter that the Brazilian Federal Revenue Service (RFB) will adopt in future inspections.

We understand that the objective of the STJ in the judgment of Topic 1,182 was to ensure that the resources were not removed from the patrimonial sphere of the benefited legal entity, in reinforcement of the legal content expressed in paragraph 2 of article 30 of Law 12,973/14.

The paragraph is explicit in not allowing the exclusion of benefits from the calculation basis of IRPJ and CSLL if there is a different destination for the  benefits. It lists, in its paragraphs, examples of what should be considered as deviation – basically hypotheses of transfer of profits to the partners of the legal entity.

From no perspective did the legislator and the ministers of the STJ understand that the deviation of the destination would be characterized as the need for reinvestment in expansion or implementation of an enterprise, as the PGFN intends to make taxpayers believe. This is an attempt to reopen a long discussion, now pacified in the courts and definitively eliminated, on the mathematical proof of investment of resources in assets of the legal entity.

In addition, in recent inspection procedures, initiated after the publication of the decisions of Theme 1,182, the RFB sought to apply a second understanding on the decision of the STJ. This other position ends up restricting (or even making impossible) the application of the court's understanding to concrete cases.

In a specific precedent, the tax authorities sought to sustain that the STJ would have concluded that the exclusion of incentives from the calculation basis of IRPJ and CSLL would impose compliance with the requirements set forth in article 10 of LC 160/17 and in article 30 of Law 12,973/14. Among these requirements would be that there must be the occurrence of an effective tax benefit to the taxpayer resulting from the state rule that granted the ICMS benefit.

From this standpoint, the tax authorities considered that there would be no tax benefit for the seller of the merchandise that enjoyed generic benefits of ICMS. As an example, it was mentioned that there would be:

• the mere deferral of the collection of the tax to a later stage of the production chain, due to the recovery effect of the non-cumulative regime (that is, the value of the tax that the seller ceases to debit in the operation benefitted with exemption or reduction of calculation basis or rate is equal to the value that the buyer ceases to credit); or
• the tax benefit of the purchaser of the goods (final consumer), not of taxpayer of the tax.

In our view, therefore, the RFB's orientation is to seek to restrict the application of the decision of Theme1,182 of the STJ, initiating a discussion hitherto non-existent – and, mainly, not provided for in the law. In addition, the tax authorities seek to ignore the theses issued by the Superior Court on the possibility of excluding subsidized revenues in relation to generic ICMS benefits from the IRPJ/CSLL calculation bases, directly affronting the principle of legal certainty.

There are motions to clarify filed against the decision rendered in Theme 1.182 that are pending judgment. These motions seek to clarify, among other points, the inappropriateness of the requirement to apply the benefit in reinvestment in the expansion or implementation of the enterprise, so that it is clear that the RFB can only proceed with charging IRPJ and CSLL if, in an tax assessment procedure, it is verified that the taxpayer did not observe the legal requirements provided for in article 10 of LC 160/17 and in article 30 of Law 12,973/14.

The decision of the STJ in relation to this point may therefore remove the understanding issued by the PGFN in its public note – and, depending on the depth of the analysis, the understanding of the RFB mentioned above.

On August 7, the National Treasury filed challenges to the motions to clarify opposed by taxpayers and amicus curiae in the case and reinforced its understanding of the need for the gains obtained from the tax benefits of ICMS to be destined to the viability of the economic enterprise through the implementation of a new venture or expansion of an existing one.

According to the understanding of the tax authorities, the decision of the STJ only removed the need for prior proof that the state law had the intention to subsidize, maintaining the need for subsequent proof that the amounts related to the tax benefits of ICMS were invested in the economic enterprise (via implementation or expansion of these).

In addition, the PGFN confirmed in the records of the aforementioned challenges the position that has been adopted by the RFB in the inspections, as we mentioned above, having highlighted that "when the tax exemption occurs through exemption and reduction of ICMS, the taxpayers who are in the middle of the productive chain will not obtain any economic advantage, nor is there a waiver of revenue,  given that there will be a recovery in the subsequent stages [of the production chain]"

The tax authorities concluded that the tax benefits of ICMS granted in a generic, unconditional manner and that do not generate any gain are not subsidies and, therefore, would not be able to be excluded from the calculation basis of the IRPJ / CSLL upon proof of compliance with the requirements of article 30 of Law No. 12,973/2014.

We consider that both the position of the PGFN and the understanding of the RFB in the recent inspections of which we have heard are not supported by the judgment of Theme 1,182 or by the current legislation. Even so – and despite the fact that the decision of the STJ in Theme 1,182 was issued under the rite of repetitive appeals (systematic whose intention is, ironically, to confer isonomic treatment and legal certainty to its beneficiaries) – it is important that the taxpayer is alert to the possible resistance he will face as to the application of the thesis on the non-taxability of generic ICMS benefits.

If the different positions of the tax authorities on the restrictive interpretation of the application of the thesis issued in Theme 1,182 were not enough, there are discussions that were not addressed by the STJ in this repetitive appeal and that may directly impact the enjoyment of the tax credit originated from the exclusion of ICMS tax benefits from the calculation basis of IRPJ and CSLL.

The recognition and use of the aforementioned tax credit would be conditioned not only to the validation of the possibility of excluding subsidized revenues from the IRPJ/CSLL calculation bases, but also to the deductibility of the ICMS expenses recognized in the company's bookkeeping – with special attention to the accounting procedure determined by Technical Pronouncement 07 of the Accounting Pronouncements Committee (CPC).

According to this pronouncement, it should be recorded:

• an expense related to the ICMS that would be fully due in the operation, if there was no tax benefit; and
• the corresponding subsidized revenue.

Although they deal with different situations, we assess that the risk of the tax authorities considering the mentioned expenses non-deductible became greater with the publication of the Consultation Procedures  Cosit 15/20 and Cosit 12/22.

There are also controversies about the extent and measurement of the granted subsidies regarding ICMS presumed credits. It is discussed whether the recognized revenues could be fully excluded or whether the exclusion would be restricted to the portion that effectively exceeds the credits that could be recognized by the taxpayer from its acquisitions (in this case, granted credit minus recognized credit).

It can be seen, therefore, that despite the effort of taxpayers to pacify the issue, the non-taxability of revenues from investment subsidies is still a controversial matter and can generate clashes between taxpayers and the tax authorities.

Category: Tax

The State Treasury Office of the State of São Paulo published, on July 31, SRE Ordinance 51/23, which repeals CAT Ordinance 115/14, which may represent a setback in relation to the measures already in place for the exemption from the issuing of Tax Infraction Notices.

In the name of efficiency and reasonableness, CAT Ordinance 115/14 established the possibility that no Tax Infraction Notices would be issued, upon the acknowledgement of proof of the cumulative presence of certain requirements by a Quality Control Commission. By means of its Annex, CAT Ordinance 115/14 determined the hypothesis on which – due to its lesser offensive potential – no Tax Infraction Notices would be issued.

SRE Ordinance 51/2023 changes this situation.

The analysis of the fulfillment of the requirements for the exemption of Tax Infraction Notices is no longer the competence of the Quality Control Commissions– which are, essentially, extinguished. Although it is not explicit, in the new standard, it seems to us that this competence for analysis is now attributed to the fiscal agent responsible for the audit proceedings.

In reality, this means that there is no longer a document that formalizes this analysis, since the exemption from Tax Infraction Notices is a faculty guaranteed to the tax agent within the scope of the audit proceeding itself – and there is no provision demanding that the analysis of the exemption requirements is recorded in the Tax Infraction Notice itself.

Considering the optional nature of the exemption, it is possible that, with the end of the Quality Control Commissions, tax agents would opt not to check for these requirements and the exemption would always be waived by them.

Before, although often the access to the manifestation of the Quality Control Commission  was not granted to the taxpayer, the examination on the possibility of applying the exemption had, as a rule, a mandatory character. Moreover, there was a record of this analysis within the State Treasury Office of the State of São Paulo.

The new standard also changes the very requirements for waiving of Tax Infraction Notices, making them more restrictive.

Under the terms of item IV of Section 10 of CAT Ordinance 115/14, once the other requirements are met, only recidivism by the taxpayer would exclude the possibility of exemption from the notice of infringement, that is, the practice of the same infraction in the last five years. According to SRE Ordinance 51/23, the exemption is prohibited in the case of assessment for any of the infractions conveyed  in Sectione 85 of Law 6,374/89 in the last three years.

There is also no provision allowing for the notification of  taxpayer so that, in ten days, he regularizes his situation before the state of São Paulo or presents a guarantee, in case of open debts.

Another relevant point of SRE Ordinance 51/23 is the absence of  hypotheses in which the Tax Infraction Notice  "will cease" to be issued, as there was in the Annex and article 10, paragraph 3, of CAT Ordinance 115/14. This means that these conducts, despite their lower offensive potential acknowledged by the State Treasury Office, could once more be written up as punishable infractions,  subjected to penalties by São Paulo tax agents.

In general, the changes promoted by SRE Ordinance 51/23 can be understood as a setback in relation to the more conciliatory legislation hitherto in force and a return to a more antagonistic position between the State and the taxpayer, in opposition to the spirit of the repealed CAT Ordinance 115/14.

Category: Consumer relations

Consumers are defined as the final recipients of products or services, according to art. 2^nd of the Consumer Protection Code (CDC). However, art. 17 of the CDC states that people affected by damages caused by a product or service are also equated with consumers.

Thus, since its promulgation, the CDC allows the expansion of the concept of consumer to also include "collateral" victims caused in the context of the production and consumption chain.

The subject arouses the attention of companies and lawyers, including for its impacts on business in general, and each judgment of the Superior Court of Justice (STJ) on the issue rekindles the interest of scholars.

In several cases mentioned below, we can see how the STJ's precedents on the consumer by equivalence matter have been evolving over time.

In 2012, for example, when ruling a case involving a vehicle accident, one of them being a taxi, the STJ understood that "the subject of the consumer relationship does not necessarily have to be a contracting party, but may also be a third party victimized by this relationship that U.S. law – in which the institute originated – calls a bystander."^[1]

Although, in this case, there was no effective assimilation of the victim to a consumer because the taxi was not in service at the time of the collision, there was, as can be seen from the transcribed excerpt, recognition of the possibility of application of the institute.

Also in 2012, during the assessment of a famous case of aircraft accident, the STJ recognized that all those who were affected by the disaster, regardless of whether they were passengers of the affected airplane, should be considered consumers by equivalence.

The reporting minister in the case stressed that "the victims of air accidents located on the surface are consumers by equivalence (bystanders), and the rules of the Consumer Protection Code regarding damages due to the fact of the service (art. 17, CDC) should be extended to them."^[2]

In 2016, when faced with a case involving oil spill in an area of environmental protection, the STJ granted the application of the CDC to the victims of the harmful event by equivalence: "The authors were victims of a consumer accident, since their fishing activities were harmed by the oil spill that occurred in the State of Rio de Janeiro. The provisions of article 17 of the Consumer Protection Code shall apply to the case."^[3]

More recently, in 2020, the STJ's understanding was tested during the trial of a case about the running over of a street cleaner by a bus carrying passengers. That is, the victimized professional had no connection with the consumption relationship between passengers (all were unscathed from the accident) and the carrier.

Even so, the rapporteur judge of the case in STJ asserted the following: "The
circumstance that the only victim of the accident caused by the bus owned by the defendant, when providing services for the transport of persons in Rio de Janeiro, being a third party to the consumer relationship does not remove his condition as a consumer by equivalence, but exactly materializes the hypothesis of article 17 of the CDC,  which expanded the basic concept of consumer of article 2^nd of Law 8078/90".^[4]

Thus, the STJ understood that it is enough to have a consumer relationship and that the service or product is being offered within the scope of the CDC so that, in the accident resulting from this relationship, the consumer legislation and all its protective institutes apply to the victims, involved or not in the consumption chain itself.

In this context, although none of the carrier's direct consumers was injured, STJ decided to extend the CDC's protective measures to the street cleaner victimized by equivalence.

Finally, in 2023, STJ once again ruled on the possibility of equating accident victims to consumers: in an action for compensation of damages resulting from the exploitation of hydroelectric plants, it was questioned whether the victims of such damages could be considered consumers by equivalence.

In this opportunity, STJ alluded to the theory of enterprise risk adopted by the CDC, concluding that "in the event of individual damages arising from the exercise of business activity aimed at the manufacture of products or provision of services, it is possible, due to the characterization of the consumer accident, the recognition of the figure of the consumer by equivalence,  which attracts the incidence of the provisions of the Consumer Protection Code".^[5]

In analyzing these precedents, it is possible to observe a continuous evolution of the issue in the court. It is strategically important to closely monitor this evolution, since the correct and rapid identification of consumers by equivalence in concrete cases allows to determine whether consumer protection legislation can be applied with the aim of balancing the relationship between consumers, even those assimilated, and suppliers.

Identifying in each specific case who the potential consumers are (even if by equivalence) allows the supplier of products and services to anticipate crucial issues in disputes, such as the facilitated application of the reversal of the burden of proof, the competence for the processing of actions and even the rights to be observed by the judge.

^[1]REsp 1125276/RJ, rel. Minister Nancy Andrighi, Third Class, judged on 02/28/2012, DJe 03/07/2012.

^[2]REsp 1281090/SP, rel. Minister Luis Felipe Salomão, Fourth Class, judged on 07/02/2012, DJe 15.03.2012.

^[3] CC No. 143.204/RJ, rapporteur Minister Ricardo Villas Bôas Cueva, Second Section, judged on 02.29.2016. In the same sense, "According to the jurisprudence of this Superior Court, defined in a case similar to that of the case, in the present hypothesis, the authors are comparable to consumers, configuring the oil spill as a consumer accident, which, supposedly, would have harmed the fishing activity of the interested parties" (CC n. 132.505/RJ, rapporteur Minister Ricardo Villas Bôas Cueva, Second Section,  Judged on 03.02.2015).

^[4]REsp 178.731-8, rapporteur Minister Paulo De Tarso Sanseverino, Third Class, judged on 06/16/2020, DJe 06.18.2020.

^[5]REsp n. 2.018.386/BA, rapporteur Minister Nancy Andrighi, Second Section, judged on 10/5/2023, DJe of 12/5/2023.

Category: Real estate

The Municipal Complementary Law 260/23, published on May 23, establishes special conditions for licensing, legalization of constructions and additions in buildings in Rio de Janeiro upon payment of compensation to the city hall.

The new legislation allows, for example, the construction of a rooftop floor in buildings with three or more floors, upon payment of consideration for the area of this new floor, as well as horizontal extensions of the uncovered areas, such as balconies and roofs.

Buildings originally intended for lodging that were licensed for the 2014 World Cup and the 2016 Olympic and Paralympic Games and did not obtain the occupancy permit (Habite-se) within the established timeframe may also be legalized with the payment of compensation.

In addition, buildings licensed for these events that have obtained the specific building benefits for use as a hotel at the time of licensing may change their use to residential, hospital with or without inpatient care, outpatient clinic, and laboratory tests, or any other use permitted by the zoning regulations of the site.

It is important to note that the beginning of the works for the conversion of the building is conditioned to the full discharge of the compensation.

The amount of the fee will be defined based on a compensation report, which, depending on the location and characteristics of the project, will need to be approved by the competent municipal authorities.

The documentation to be submitted to the city hall must demonstrate compliance with the minimum safety, health, and habitability requirements , as well as lighting and ventilation conditions provided for in the applicable technical standards.

Those interested in taking advantage of these benefits have 180 days, extendable for another 90, from the publication of the law, to file the legalization request.

Many hotels were already considering the conversion of their buildings, mainly for residential use, due to an excess supply and a decrease in hotel demand in the city of Rio de Janeiro, influenced by the financial crisis. The new legislation comes as a stimulus to this transformation. With this move, the city hall hopes to increase its revenue, as well as generate jobs and new business opportunities.

At the moment in which changes in the Master Plan of the city of Rio de Janeiro are being discussed, there are many criticisms to the new legislation, especially in relation to the impact that the transformation of use could cause in noise and atmospheric pollution and in the local road system.

It is argued that this type of urbanistic change should be made in the Master Plan itself, which goes through a public hearing, to ensure greater reflection and discussion on the impacts of the  measures.

In any case, the new legislation is already in force and it is expected that the technical analysis to be conducted by the city hall on a case-by-case basis will be thorough, to meet the aspirations of different political and economic sectors and ensure the urban well-being of the city of Rio de Janeiro.

Category: Banking, insurance and finance

Published today, June 14th, Presidential Decree 11,563/23 attributes to the Central Bank of Brazil (BACEN) the jurisdiction to regulate, authorize and supervise the provision of virtual asset activities.

Effective on June 20th, 2023, the Decree will allow BACEN to rule, among other issues, on authorization rules for the functioning and operation of virtual asset service providers.

The Decree does not apply to assets representing securities and safeguards the jurisdiction of the Brazilian Securities and Exchange Commission (CVM) concerning these assets.

With the publication of the Decree, Brazil is making progress in institutionalizing the crypto-asset sector.

It is expected that the BACEN will present for public consultation a set of norms to regulate the activities and operation of virtual asset service providers, including topics such as authorization for operation and minimum capital stock, performance limits, and the intersection with the players of the traditional financial system.

In a note published on the CVM website, the agency clarifies that the operating authorization for virtual asset service providers to be granted by BACEN, under Law 14,478/22, does not cover activities with securities digitally represented in the form of tokens.

The CVM also reinforces that secondary operations involving tokens characterized as securities must be carried out by management entities of organized markets authorized by CVM. Any use of the operating authorization to be obtained before BACEN following Law 14,478/22, Decree 11,563/23 and further regulations to be issued by BACEN will not be allowed.

Finally, CVM emphasizes that it will invest efforts to develop new rules for the constitution and administration of organized securities markets, including tokens, considering the results obtained with the experiences of the regulatory Sandbox.

Category: Banking, insurance and finance

Law 14,478/22, also known as the “Crypto-assets Law” or “Legal Framework of Crypto-assets”, inaugurates a new phase of the cryptoeconomy in Brazil, bringing more legal security to market participants and, therefore, more strength to this sector.

The statute brings institutionality to a booming sector in Brazil, thus creating relevant material conditions for developing the local market.

The drafting of the legal framework was widely discussed in the Brazilian National Congress and with technical authorities, such as the Central Bank of Brazil (Bacen) and the Brazilian Securities and Exchange Commission (CVM). The statute creates two definitions that will act as touchstones for the entire sector: the concepts of virtual assets and virtual asset service providers.

Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Dogecoin stand out among the virtual assets described by the Crypto-assets Law. The virtual asset service providers category includes exchanges and custodians of virtual assets.

Both definitions are of fundamental importance for the consolidation of the crypto economy in Brazil, as the rules of conduct, procedure, and accountability of the various economic players operating in the sector will be based on them.

Furthermore, the Crypto-assets Law assigns a Federal Public Administration entity the duty to create specific rules for virtual asset service providers. It will be up to the entity, which must be indicated by the Executive Branch, to authorize the operation of virtual asset service providers, among other things.

Participants in the national and international crypto-asset market interested in doing business in Brazil are getting prepared for the issuing of the statute that will define the regulatory authority and the debate the issuing of further regulations.

Until the regulatory entity is appointed and regulations are  published, however, the main provisions of the law will have little practical effect. For example, the provisions that determine the need for authorization for the operation of the virtual asset service providers in Brazil will not have practical application until the regime for its authorization is laid down.

Until regulations are enacted and come into force, only the principles and norms of consumer and criminal law will have immediate effect.

It is important to remember that the scope of the Crypto-assets Law is also limited, even after the regulations are issued. Although it has been dubbed the Legal Framework for Crypto-assets, the statute does not cover all types of crypto-assets.

The draft brings a restrictive definition of virtual assets, excluding from its scope some forms of crypto-assets widely adopted in the market, such as NFTs – non-fungible tokens. The commercialization of these assets continues to be governed, depending on the case, by the general regime of Civil and Consumer law mostly.

The same goes for tokens representing assets that have features of securities. The Legal Framework for Crypto-assets rightly excludes such assets from its scope, as they are already subject to capital market legislation and norms issued by CVM.

The new Crypto-assets Law comes into force shortly after the European Union adopted rules on the crypto-assets market. On May 16, the regulation known as MiCA (Markets in Crypto-Assets) came into force, which is part of a European Union package to promote technological development, with financial sustainability, fostering innovation and consumer protection, helping to integrate and harmonize the local rights of the block.

With similar provisions, the Legal Framework for Crypto-assets, in Brazil, and the MiCA, in the European Union, will bring more protection to participants in the crypto asset market in the respective jurisdictions, with imposition of transparency and implementation of governance and a specific structure for issuers and service providers, including compliance with anti-money laundering rules.

The entry into force of the Crypto-assets Law is an important step towards the consolidation of the crypto-assets market in Brazil. We continue to monitor and await, along with the market, the issuance of the statute to indicate the regulatory authority and the start of the debate on the publication of further regulations.