Publications

Category: Tax

One of the first measures adopted by the new government, in January of this year, was the promulgation of Executive Order 1,160/23, which reinstated the casting vote as a tiebreaker criterion in judgments by the Administrative Council for Tax Appeals (Carf). The executive order repealed the rule contained in article 19-E of Law 10,522/02, which provided for a decision favorable to taxpayers in the event of a tie in the judgment.

EO 1,160/23 also increased the threshold for voluntary appeals before Carf from 60 to 1,000 minimum wages. Thus, controversies that do not exceed this amount will be decided in the sole and final instance by the Regional Judgment Office (DRJ), without the possibility of taking the dispute to the appellate level of administrative tax litigation, Carf.

Despite producing immediate legal effects, EO 1,160/23 encountered a lot of resistance, both in the Brazilian Congress and in society in general, during its process of conversion into law. The validity period of the executive order - 60 days, extendable for another 60 days - ends on June 1 of this year. Thus far, the text has not been put to a vote, which indicates that the rule will not be converted into law and will cease to have effect.

Presentation of Bill 2,384/23 by the federal government

In this context, the government presented in the Chamber of Deputies, on May 5, Bill 2,384/23 (Bill 2,384/23). Like EO 1,160/23, the bill proposes return of the casting vote as a tiebreaker criterion in Carf judgments. In other words, another attempt to resume the scenario of resolving disputes with the prevalence of the vote of the chairman of the panel.

Bill 2,384/23 contains six articles. Article 1 regulates the proclamation of the result of judgments in the event of a tie, in the same terms as those contained in EO 1,160/23 and with reference to the rule contained in paragraph 9 of article 25 of Decree 70,235/72.^[1] Article 5, in line with the first article, expressly repeals the rule in article 19-E of Law 10,522/02 (tie-breaker favorable to the taxpayer).

The other provisions deal with other topics:

• Article 2 proposes that the Federal Revenue Service make available methods for self-regularization of main and ancillary obligations;
• Article 3 provides that the Federal Revenue Service must classify taxpayers by degree of tax compliance, based on criteria such as registration regularity; good standing in the payment of taxes due; and accuracy of information provided in returns and bookkeeping, among others;
• Article 4 brings in the provision, also already contained in EO 1,160/23, to increase the limit of jurisdiction for filing voluntary appeals with the Carf from 60 to 1,000 minimum wages.

This last measure, although it tends to reduce the backlog of cases at Carf, limits access - especially for individual taxpayers and taxpayers with smaller tax debts - to the appellate level of tax administrative litigation, the only one in which the judgment is carried out in equal composition, which allows greater debate on the issues.

As a rule, the processing of a bill takes longer than it does for executive orders, which have a special and faster process, subject to the requirements of relevance and urgency. It goes through subject-matter committees, where the matter is debated by members of congress and there can be further reflection on the subject.

Thus, in view of the forthcoming expiration of EO 1,160/23 and the known longer processing of the bill, the government presented to the Chamber of Deputies, based on article 64, paragraph 1, of the Federal Constitution, a request for Bill 2,384/23 to be processed under an urgent procedure, which dispenses with some internal formalities.

The Chamber of Deputies has 45 days to consider the request for urgency. After this deadline, all other legislative deliberations in the Chamber will be halted, with the exception of those with a constitutionally determined deadline, until the vote is concluded. The Chamber of Deputies has until June 20 to respond regarding the request for urgency for Bill 2,384/23, at the risk of blocking the agenda from the following day.

It is worth remembering that, as of July 18, congressional recess begins, lasting until July 31, as provided for by article 57 of the Federal Constitution.

The fact is that, as of June 1, the rule provided for in EO 1,160/23 loses validity, returning to the previous rule, provided for in article 19-E of Law 10,522/02, which, as mentioned, in the event of a tie vote at Carf, provides for a final decision favorable to the taxpayer.

Proceedings of ADIs 6.399, 6.403, and 6.415 at the STF

It is worth remembering that, at the Federal Supreme Court (STF), direct actions of unconstitutionality ("ADIs") 6.399, 6.403, and 6.415, are being processed, challenging the formal and substantive constitutionality of article 19-E of Law 10,522/02.

The judgment of the ADIs began in a plenary session on March 24, 2022, with a partial score of six votes for the constitutionality of the legal provision questioned. The judgment was interrupted by a request for review of the record by Justice Nunes Marques.

Last May 16, the Justice released the suits for judgment, and they can be scheduled at any time. If the judgment of the ADIs occurs before the approval of Bill 2,384/23, its outcome will define whether the tie-breaker rule in favor of taxpayers with the Carf will continue to be applied.

If Bill 2,384/23 is approved before judgment of the suits, the tie-breaking rule applicable in Carf judgments will be the one provided for in the bill, since it repeals article 19-E of Law 10,522/02.

If EO 1,160/23 expires without being converted

What happens to cases that were judged by the Carf applying the casting vote during the period in which the provisions of the executive order were in force?

In such cases, the Brazilian Congress has the prerogative to issue, within 60 days, a legislative decree to regulate the legal effects generated during the validity of the executive order.

If no such decree is issued, article 62, paragraph 11, of the Federal Constitution provides that legal relations constituted and arising from acts performed during its validity will continue to be governed by what was established in the executive order.

Thus, during the few months of EO 1,160/23, the cases that were judged by the Carf applying the casting vote, in principle, will have their results maintained - even if there are other arguments to litigate the validity of the executive order.

The regulation by Congress is therefore extremely necessary to avoid perpetuating an absolutely unfair situation in the treatment of taxpayers who had their appeals included in the Carf's judgment agenda during the term of the executive order and those who did not have cases included in the agenda during this period. Tie votes would generate exactly opposite resolutions.

Regarding Bill 2,384/23, what is expected?

The urgent procedure indicates that, by the end of the first semester, it is possible to have a position from Congress on this government initiative. Perhaps this will allow for some stability in the administrative judgment environment.

In the dispute over the definition of tiebreaker criteria applicable in Carf judgments, the government entered into an "arm wrestling" contest with taxpayers, contrary to the most recent movements that suggest more dialogue and rapprochement between tax authorities and taxpayers, through self-regularization and tax compliance projects.

Beyond the tie-breaking criteria with the Carf, however, there is much to be rethought in the structure of administrative tax litigation. But that is a scene for the next chapter, or rather, the next article.

^[1] Article 25. Decisions on cases demanding taxes or contributions administered by the Federal Revenue Service are assigned:

Paragraph 9. The offices of chairman of the panels of the Superior Tax Appeals Chamber, its panels, and the special panels shall be held by board members representing the National Treasury, who, in the event of a tie, shall have the casting vote, and the offices of vice chairman, by representatives of taxpayers. (Included by Law 11,941/09)

Category: Real estate

Several media outlets recently aired a video showing a former athlete living in the São Conrado neighborhood of Rio de Janeiro assaulting a deliveryman. The condominium of the aggressor accused of racism reported that the episode was not isolated. Other occurrences had already been reported, which weighed in the decision, on April 12, to expel the condominium member, as it believed violent acts represent antisocial behavior.

Whether or not the defendant owns the unit she occupies is immaterial for the purposes sought by the condominium. The right to property is not absolute and is limited, for example, by neighborhood rights and condominium rules. Both a tenant, if the property is rented, and the owner himself can be penalized for inappropriate practices. This is because the legislation aims to curb abuses in the exercise of individual property rights, which could pose risks to the community in relation to safety, health, and peace.

Some factual circumstances, however, must be considered when analyzing whether the claim to expel a condominium member for antisocial behavior is valid. The first of these is the need for the conduct complained of to generate difficulty living in the building, considering the discomfort of the neighbors and possible media repercussions. Episodes that trigger demonstrations, for example, can obstruct access to the building, create difficulties for residents to come and go, and give the place a bad name.

It is then incumbent the condominium to impose the penalty provided for in its bylaws for inappropriate behavior. In the event of repeat offenses, article 1,337 of the Civil Code that, with a resolution of 3/4 of the remaining owners, the fine can be increased up to ten times the amount allocated to contribute to the condominium expenses, according to the seriousness of the faults. It is worth remembering that condominium members who have been fined have the right to challenge the penalty.

If the penalty, even if increased, does not have the expected effect of obliging the condominium member to avoid repeating the antisocial practice, a current in the courts has been using the Pronouncement 508 of the V Civil Law Working Group, held in 2012, to authorize as an extreme measure exclusion of the condominium member from the building. This must occur after a meeting that decides to file a lawsuit for this purpose, ensuring the guarantees inherent to due process of law and a broad defense.

These were the steps followed in another recent case of violence generated by racism, which occurred in a residential condominium in the city of São Paulo against a comedian. Earlier this year, the condominium filed an action seeking expulsion of the condominium member for antisocial behavior. The judgment in this case may serve as an important precedent for consolidation of case law on the subject.

Also because there is an interpretation in the Judiciary that the construction of Pronouncement 508 was not imported into the law, which is why expulsion of an antisocial condominium owner is not possible due to the absence of a legal provision. Thus, the only alternative for punishment of cases such as the one reported in Rio de Janeiro is application of successive fines, increased up to the legal ceiling.

The possibility of expulsion does not imply loss of ownership of the property, but rather the right to live together in the space. The condominium member vacates the property due to lack of social behavior appropriate for living in the condominium. If he is owner of the unit, he continues to have his other rights intrinsic to ownership - to enjoy and dispose of the thing - assets. In other words, an indirect sanction of the need to sell or lease the property is applied.

It is worth questioning, however, whether the repetition of harmful conduct and successive penalties are indispensable requirements for expulsion of the condominium member, when it comes to acts of violence, racism, and other serious and intolerant conduct. Currently adopted, this interpretation sometimes prevents severe or, above all, effective punishment of the offender.

The discussions promoted by this and other cases can be a path to positive changes in the debate on the exclusion of condominium members for racism in a deep and broad way. With the recent change in the Racial Crime Law in 2023 (Law 14,532/23) and gradual social advances, it may be that the Judiciary will adopt a more energetic response to finally curb repetition of this type of behavior in condominium life.

Category: Real estate

The Tax on the Transfer of Real Estate (ITBI) is a tax of great controversy as to its generating fact in different situations. One of the controversial issues is the collection made by municipalities on real estate payment operations in real estate investment funds (FII), a topic not yet pacified by the Brazilian courts.

The discussion whether or not there should be payment of ITBI in these transactions occurs mainly because it is a municipal tax. This causes the rules for collection to vary according to the location of the property paid.

In February of this year, in a judgment held in the records of AREsp 1,492,971, the 1st Panel of the Superior Court of Justice (STJ) confirmed the understanding of the Court of Justice of São Paulo (TJ/SP) and determined the payment of ITBI in operations of this nature.

In the judgment, the understanding that prevailed among the Justices who are members of the 1st Panel of the STJ that "the acquisition of real estate for the equity of the real estate investment fund, operationalized by the issuance of new quotas of the condominium and effected directly by the administrator of the fund, configures, to all evidence, transfer for consideration of immovable property, characterizing the fact that generates the ITBI (...)".

In the case that gave rise to the judgment, a company that manages FIIs filed a writ of mandamus against the municipality of São Paulo, alleging illegality in the collection of the ITBI on the operation of payment of the real estate to the assets of the FII.

According to the administrator, the transferred fiduciary property should be considered only a security right. Thus, it would be immune to the collection of the ITBI, according to what is established by the Federal Constitution (CF) in its article 156, item II.^[1] The administrator also claimed that the transfer of the property to the assets of the FII would not constitute a transfer of ownership, since the fund does not have legal personality.

The judgment, therefore, revolved around two legal grounds:

• the existence of tax immunity on the right in rem of guarantee (Article 156, II, of the CF); and
• the absence of transfer of ownership of the property in its payment to the FII, since the fund cannot be the holder of rights and obligations because it does not have legal personality (Article 35, II, of the National Tax Code).

The judge in the case rejected the administrator's requests, as he interpreted that the former owners no longer had a direct relationship that allowed them to exercise rights over the properties and received in return the social quotas of the FII. There would have been a costly transfer of ownership, an operation subject to the ITBI.

The magistrate understood that the paid-up property became the property of the FII, even if the registration is formally made in the name of the administrator of the FII, as a fiduciary owner, since the FII has the legal nature of a closed condominium and does not enjoy legal personality.

This understanding was maintained by the São Paulo Court of Appeals, which led to the filing of a special appeal to the STJ.

Issue may end up being analyzed in the Supreme Court

Although there is an infraconstitutional aspect in the discussion about the ITBI generating fact in the payment of real estate to the FII patrimony, it is undeniable that there is also a constitutional aspect in relation to the existence or not of tax immunity in this operation. With this, it is possible that the issue will be examined by the Federal Supreme Court (STF).

In May, inclusive, the issue was presented in the Supreme Court. In a monocratic decision in Case 1,434,753, Justice Rosa Weber denied the follow-up to an extraordinary appeal that dealt precisely with the tax immunity of Article 156, II, of the CF in the payment of real estate in FII.

The decision, however, was made for strictly procedural reasons. With this, the Justice did not come to address the merits of the issue.

Another discussion revolves around the collection of ITBI in the change of the FII administrator. That is, to record the change of administrator – transfer of fiduciary property – in the real estate registry, characterizes ITBI taxable event?

We believe not, because, as provided for in article 11, paragraph 4, of Law 8,668/93, the succession of the administrator constitutes only a transfer of fiduciary property for the purpose of managing the fund's assets. The operation does not generate a transfer of ownership.

If this issue is taken to the Judiciary, it will be necessary to analyze whether the position of the 1st Panel of the STJ in AREsp 1,492,971 will influence the judge's assessment of the possibility of charging ITBI in cases of mere change of administrator of the FII, even if they are legally different situations.

There are already decisions that recognize that the succession of the fiduciary property of real estate that is part of the FII patrimony does not constitute a transfer of ownership (REsp 1.521.383/RS).

About all this discussion, we understand that, in the future, operations involving the payment of real estate in FII will probably be taxed by the competent municipality. The ITBI will be calculated based on the value of the properties transferred and may reach up to 5% of the value of the property, depending on the rate applied by the municipality in which the property is located.

It is essential, therefore, that, before carrying out the operation, the municipal legislation is analyzed to verify the hypotheses of incidence of ITBI and the value of any charges. Thus, it will be possible to define the most efficient structure, considering various business and legal aspects – including tax.

There is also another point that deserves attention: the changes brought about by the new regulatory framework for investment funds (CVM Resolution 175/22). Established by the Brazilian Securities and Exchange Commission (CVM), the framework should enter into force on October 2 of this year and the changes may generate new discussions about the incidence of ITBI in operations involving FIIs.

^[1] Constitution. Art. 156 [...] II – transmission "intervivos", in any capacity, by means of a onerous act, of immovable property, by nature or physical accession, and of rights in rem over immovable property, except those of guarantee, as well as assignment of rights to its acquisition.

Category: Infrastructure and energy

The National Civil Aviation Agency (Anac) took an important step in the regulatory modernization process earlier this year, when it published Ordinance 10.219/SIA, prepared by the Superintendence of Airport Infrastructure.

The ordinance provides for the experimental regulatory environment related to topics of interest to the superintendence and aims to encourage innovation in the areas of operational safety and civil aviation security and facilitation (AVSEC).

The initiative also aims to increase competition between companies, stimulate internationalization and attract investment. It also enhances the regulatory framework so that it can contemplate changes in the civil aviation sector brought about by the adoption of new technologies.

The ordinance establishes rules so that participants can compose the regulatory sandbox portfolio and creates procedures for the Superintendence of Airport Infrastructure to monitor the projects. In this testing environment, market agents and regulatory bodies will be able to work together to develop new technologies and obtain subsidies for the formulation of regulations more adjusted to the activities of the airline industry.

The concept of regulatory sandbox was introduced into Brazilian legislation by Complementary Law 182/21, which established the legal framework for startups and innovative entrepreneurship. The standard has enabled the creation of experimental regulatory programs (regulatory sandbox) to make the application of standards more flexible in controlled and specific contexts, which helps to stimulate research, development and innovation.

The use of the regulatory sandbox allows regulated entities to carry out their activity under less bureaucratic rules and more appropriate to their different business models. The flexibility of regulations in specific cases and in a controlled context is the main advantage brought by this testing environment.

The possibility of adapting the standards to the characteristics of the activity developed by regulated entities helps to stimulate the creation of innovative projects and brings more freedom to the market.

The regulatory sandbox also contributes to reducing costs and maturation time of products, as well as accelerating the learning curve of the regulatory bodies themselves.

In civil aviation, the first term of admission to this test environment was signed in April this year. That was when Anac signed an agreement with Vinci Airports to enable the implementation of an innovative system of lighting taxiways, landing and takeoff with individual sources of photovoltaic energy at the airports of Tabatinga and Tefé, in the state of Amazonas.

Initiatives like this can greatly contribute to the development of the Brazilian airline industry, especially in areas that use state-of-the-art technology, such as remotely piloted aircraft (RPAS and drones) and electric vertical take-off and landing vehicles (eVTOLS).

Because they use advanced technology and in a constant process of updating and transformation, RPAs and eVTOLs often end up on the margins of industry regulation. With the regulatory sandbox in civil aviation, new models of drone operations and technological solutions will be able to be tested, which will help to develop a suitable regulatory framework to regulate the operation of these aircraft models.

Category: Infrastructure and energy

On June 22, the Ministry of Mines and Energy (MME) published Ordinance 737/GM/MME, which announced the Technical Note 14/23 for public consultation. The Note presents guidelines for treating electric power distribution concessions with a final term between 2025 and 2031. Considering the significant number of concession contracts reaching their final terms, the energy sector eagerly awaiting the new rules.

The technical note suggests the establishment of two minimum criteria that will guide the analysis of any requests for extension:

• efficiency of the energy supply quality verified over the concession years, to be measured based on frequency indicators and interruptions duration; and
• concession’s economic and financial management efficiency.

Regarding the service provision quality, MME proposes that the criteria be the same as those currently applied by the National Electric Energy Agency (Aneel) to characterize concessionaire’s contractual default, under articles 3, 4, and 9 of Annex VIII of Aneel Normative Resolution 948/21.

MME also brought up for discussion the inclusion of other mechanisms to mitigate the risks of discontinuity of public services. These mechanisms are the requirement of:

• a recovery plan approved by Aneel; and
• the proof of the technical capacity in distribution concessions management by the new controller in case of shareholder control exchange, as would occur in a new bid proceeding.

Technical Note 14/23 also mentions the financial contribution requirement for the concessions’ extension. The MME’s proposal is to allocate these resources to energy efficiency measures, such as improvements in lighting systems, digital meters popularization, investments to combat non-technical losses (energy theft), and photovoltaic panels installation in communities subject to water insecurity.

MME also foresaw the early extension possibility. In the case of concessionaires that have expressed their interest in the renewal before the new rules’ publication, MME will give 60 days to rectify or not the application. In cases where the concession is not extended, the compensation for the unamortized assets will continue to be calculated by Aneel based on the current methodology (Remuneration Regulation Base – BRR).

The technical note does not contemplate a proposal for a normative act, only general guidelines on extending concession contracts. These guidelines will be discussed between the granting authority and the sector agents through public consultation.

From the legal perspective, some of the main points of attention involve the concessionaries’ technical and economic-financial capacity measurement, the treatment of those requests that have already been submitted, and those that are to come, considering the concessions’ final date, the requirement of counterpart for the extension and the new context of innovation and technology in which the new distribution concessions are inserted.

This important debate should be closely monitored in the coming months. The new extension rules for energy distribution concessions definition will represent an important indicator for the distribution market’s future in Brazil and will serve as a precedent for other concessions in other public service segments.

Category: Real estate

The City of Rio de Janeiro published, at the beginning of May, Decree 52.436/23, which regulates the Complementary Law 252/22 and the new procedure for the sale of public real properties in the municipality (hereinafter referred to in this article as just “Property” or “Properties”). The new rules seek to facilitate the disposal of part of the Properties currently underutilized, idle, or deteriorated and promise to generate new resources for the municipal cash, heat the construction industry and attract private investment to the local real estate market.

The main advance is the application of the Proposed Property Acquisition (PPA) – provided for in Federal Law 14.011/20 – which brings private investors closer to the available Properties. The advertisement of the Properties will be in the official gazette of the municipality and on the digital platform licitaimoveis.rio with their registration data, location, minimum value of the purchase offer, requirement of documentation, and photographs of the lands or buildings.

Interested parties may submit an acquisition proposal through a request to the Executive Superintendence of Real Estate Assets using the model available on the City Hall's website. The application does not oblige the Public Administration to dispose of the Property or generates subjective rights for the interested party in the acquisition.

In the event of a favorable manifestation of the transaction, according to criteria of convenience and opportunity, the stage of pricing the chosen Property is available to initiated, which will depend on an updated appraisal report (maximum six months).

If the valid appraisal report is pending, the interested parties will have to pay all the costs to present such document, prepared by a qualified professional, to be approved by the Special Evaluation Committee of the Municipal Department of Finance and Planning.

The appraisal reports carried out by (i) entities of the Public Administration with the main activity of urban or real estate development or (ii) banks or other public company do not need the mentioned approval, as well as in case of agreements signed with organs or entities of the federal, state or municipal Public Administration.

The next step is the sale of the Property for the evaluated value through bid  or auction in up to two sessions, the second with a discount of up to 25% of the appraisal value.

On equal terms with the winner of the public bid, the assignee of the real or personal rights, the lessee, and the original interested party in the acquisition that paid for the evaluation of the Property may acquire it.

If more than one interested party holds preemptive rights and there is no agreement between them, a drawn will define the buyer. If the interested party who paid for the appraisal of the Property is not the actual buyer, the costs with the emission of such diligence will be reimbursed - limited to 0.2% of the value of the Property evaluated.

The eventual frustration of the second attempt at bid  or auction will imply the release of the Property for direct sale to any interested party, maintaining the discount of a maximum of 25% of the appraisal value, with the participation of real estate brokers.

The sale of the Property may be satisfied in up to 36 installments upon payment of a signal of at least 10% of the purchase price.

The importation of the federal procedure for the sale of those Properties represents an effort by the City Hall to requalify idle or underutilized buildings and lands and attract new investments for Rio de Janeiro.

The new policy is aligned with the Reviver Centro program, a plan for the urban, cultural and economic recovery of the City Center. The initiative may represent an opportunity to generate new business, which will occupy these Properties acquired at attractive prices, in addition to heating up the local construction sector.

However, some aspects can inhibit the interest of potential buyers. It will be necessary to consider the investment of time and money in the appraisal report and with the real estate due diligence, without guarantee of the purchase due to prior public bid or auction to sell the Property. It is also necessary to consider the mentioned existence of preemptive rights of third parties.

Thus, although the new process allows the sale of properties in attractive conditions, investors will need to evaluate the delay in the purchase and the possibility that it will not materialize.