Publications

Category: Tax

The Administrative Council of Tax Appeals (Carf) started 2023 with changes and the expectation that great challenges will be solved. The body is already under the leadership of a new chairman, Carlos Higino Ribeiro de Alencar, appointed on January 5. Already on the 9th he publicized CARF/ME 455, which mandated suspension of all of Carf's judgments sessions for this month.

On January 12, several measures were published with the aim of reducing the fiscal deficit, by increasing tax collection and reducing the backlog of cases pending with Carf. Among the measures that directly impact on the Carf is the return of the casting vote in the event of a tie in the vote of the judging panels, revoking article 19-E of Law 10,522/02, which decided tie votes in favor of taxpayers.

With these relevant changes, and still expecting to maintain the level of debates and decisions at the Carf, we continue the trilogy of articles on the main topics decided by the panels of the Superior Chamber of Tax Appeals (CSRF) of Carf in 2022, with a retrospective of the issues debated by the 2nd Panel of the CSRF.

Responsible mainly for deciding cases involving social security matters and Withholding Income Tax (IRRF), the 2nd Panel of the CSRF also underwent changes in its composition that were reflected in changes in consolidated understandings after 2018.

There were only six meetings in the year 2022, due to the tax auditors' strike. However, these meetings were marked by debates that directly influenced some changes in understandings or even confirmation of others already consolidated by the 2nd Panel of the CSRF.

As for changes in understanding, we highlight the judgment in favor of taxpayers for the non-levying of social security contributions on profit sharing payments to non-employee directors (Appellate Decision 9202-010.354). The understanding was that there is no distinction between "employer" and "worker" when interpreting Law 10,101/00 or Law 8,212/91.

According to the decision, giving different tax treatment to profit sharing paid to employees and non-employee directors could violate the constitutional principle set forth in article 150, III, of the Federal Constitution. This issue was decided in favor of the taxpayer due to the application of article 19-E of Law 10,522/20 (repealed).

Still with regard to the payment of profit sharing, the Panel recognized, also by applying article 19-E of Law 10,522/20, that execution of a collective bargaining agreement on a date subsequent to the fiscal year to which it refers, by itself, is not a reason to rule out application of Law 10,101/00, i.e., to deconstitute (de-characterize, invalidate, undermine} the agreement and levy social security contributions on the sums (appellate decision 9202-010.357). In this specific case, the plan had already been repeated in previous years and this already indicated the predictability of the rules, necessary for characterization of the payments for profit sharing purposes.

In relation to the matter of incentive bonuses (hiring and retention), the prevailing understanding was that social security contributions are not levied on these amounts, which do not have the nature of remuneration (Appellate Decision 9202-1010.457). The panel found that payment of these bonuses represents fulfillment of civil obligations and not labor contracts, another issue decided due to the application of article 19-E of Law 10,522/02.

In 2023, it is possible for there to be revision of the case law on the issues decided based on application of the former article 19-E of Law 10,522/02. This is because, with the return of the casting vote, the majority of the board members representing the National Treasury have an understanding contrary to the prevailing theory in these specific matters.

With regard to the discussion of taxation of stock option plans offered by the company to its officers and directors and employees (stock options), a topic that will certainly be resumed in future debates with the 2nd Panel of the CSRF, the position was also favorable to the taxpayer (Appellate Decision 9202-010.506).

Until then, the prevailing understanding was that social security contributions should be levied on this amount. It was claimed that the shares were offered to employees in the context of an employment contract, which in itself would constitute a form of indirect remuneration.

In 2022, after much debate, the theory that social security contributions cannot be levied on this amount prevailed, since payments related to stock options are made by a third party. It is understood that stock option plans have a mercantile nature. The value of the share is paid by the market, therefore it is not to be confused with remuneration and should not be subject to social security contribution.

At the six meetings in the year 2022, old positions were maintained without any change in case law. Specifically regarding payment of hiring bonuses, the panel only confirmed the case law of 2021 finding for the impossibility of levying social security contributions (Appellate Decision 9202-009.762).

On the subject of merger of shares, there has been no change in understanding. The historical position (Appellate Decision 9202-010.045) was adopted that the shareholder of the acquired company, upon receiving the shares of the acquiring company with appreciation, will have a capital gain liable to income tax.

Despite the change in the composition of the 2nd Panel of the CSRF, with the return of the casting vote in 2023, continuity in solid decisions is expected, resulting from rich debates and surrounded by legal security.

Category: Tax

Challenge and innovation were words that certainly represented the year 2022 for the Administrative Council of Tax Appeals (Carf). The first months of the year were marked by stoppage of the judgment sessions due to the adherence of part of the board members of the body to the tax auditors' strike. Without the minimum quorum of board members for judgments, the sessions had to be suspended.

Also in the first half of the year, a relevant and unexpected change: the appointment of board member Carlos Henrique de Oliveira to the chairmanship of Carf, replacing board member Adriana Rêgo, who presided over the body during the entire period after Operation Zelotes.

At the beginning of the second half of the year, the tax auditors reached an agreement on extension of the strike and the body's judgment sessions finally resumed. At first, only the Superior Chamber of Tax Appeals (CSRF) resumed its judicial activities (with the new chairman already in charge), but was soon followed by the ordinary panels.

In September, there was an innovation: for the first time in its history, Carf held a session in person outside Brasília. The change was the result of implementation of a measure announced by Chairman Carlos Henrique de Oliveira at the very beginning of his term. The CSRF sessions were held in São Paulo, thus bringing the judgments closer to the taxpayers.

The year 2022 was also marked by innovation in important tax issues, as well as major reversals in the most consolidated case law. Whether by the change in the composition of the CSRF panels or the new tie-breaking criteria in favor of taxpayers, important topics had new debates, which often resulted in new results.

In the trilogy of articles that we will continue in the coming weeks, the main topics of each of the three panels of the Carf's Superior Chamber of Tax Appeals will be addressed. In this first article of the trilogy, we take a look back at judgments by the 1st Panel of the CSRF.

Judgments by the 1st Panel of the CSRF in 2022

In the 1st Panel of the Superior Chamber of Tax Appeals, responsible for deciding cases involving the IRPJ and CSLL, changes in the composition of the panel caused changes in the body's historical understanding.

A big highlight was the changes in the discussions related to the amortization of goodwill on equity acquisitions. The 1st Panel ruled out application of a qualified fine in transactions with goodwill with a "vehicle" company (appellate decision 9101-006.292) and with internal goodwill (appellate decision 9101-006.153). In an absolutely innovative manner, it recognized the possibility of deducting intra-group generated goodwill expenses (appellate decision 9101-006.373) from the IRPJ and CSLL calculation basis.

Specifically with regard to the deductibility of goodwill expenses from the CSLL tax basis, until the beginning of 2022, decisions were favorable to taxpayers, applying a criterion different from the IRPJ (appellate decision 9101-005.894). With the change of the board, the issue became unfavorable to taxpayers in July of 2022 (appellate decision 9101-006.164). This understanding was maintained in the remaining sessions of the year.

The board also recognized the possibility of deducting amounts paid to officers and directors and managers as profit sharing (appellate decision 9101-006.372) from the IRPJ and CSLL calculation basis.

Regarding transfer pricing, the panel decided finding for the possibility of presenting, during tax audits, a new calculation for the purpose of obtaining the parameter price (appellate decision 9101-006.312) and for application of the FOB clause (free on board) for the calculation of the price charged (appellate decision 9101-005.979).

With respect to the issue of profits earned abroad, the case law remained stable throughout the year: the 1st Panel ruled out taxation of profits from foreign subsidiaries and affiliates under MP 2158-35/01 by application of clause 7 of the Treaties (appellate decision 9101-006.247).

The concomitant requirement of a separate fine on the estimated income tax and an ex-officio fine of 75% on the amount not collected at the end of the calendar year has been the subject of much debate: in precedents in 2021, the body had been deciding for setting aside one of the penalties (appellate decision 9101-005.986).

At the July 2022 session, in a majority decision, the panel confirmed the possibility of concurrent application of the penalties (appellate decision 9101-006.172). In the September session, the board members resumed the understanding that concomitance is impossible, by applying the article 19-E of Law 10,522/02 (appellate decision 9101-006.284).

In 2023, the debates are expected to be renewed due to the change in the composition of the board: at least nine board members of the Superior Chamber of Tax Appeals are expected to leave the body at the end of their terms. The beginning of the year already had a new nomination for the chairmanship of the body, tax auditor Carlos Higino Ribeiro Alencar.

Regardless of the changes in composition, what is expected is continuity in the formation of a fair and open case law, with a guarantee of the adversarial process and full defense. Much more than a simple review of the administrative assessment, Carf, and especially the panels that make up the Superior Chamber of Tax Appeals, perform the noble and essential function of consolidating the Federal Administration's interpretation of tax legislation. In a country with such a complex tangle of regulations, this will never be a small task.

Category: Litigation

The lack of funds to afford the high costs of initiating certain litigation proceedings, judicial or arbitral, can make it very difficult or even impossible to file lawsuits or initiate arbitration proceedings.

To remedy this problem, third-party funding was created. This resource makes it possible for a third party that is not a party to the dispute, be it a financial institution, a company, or even an individual, to bear the costs and expenses of a certain proceeding.^[1]

In return, this third party usually receives a portion or percentage of the financial advantage eventually obtained by the funded party, should the latter win the dispute.^[2]

On the other hand, if the funded party loses, the funder will bear all the costs of the proceeding without receiving any consideration. This is precisely the risk of the deal, and the reason why the arrangement is usually preceded by a careful analysis of the funders' probability of success.

This concept is not yet all that widespread in Brazil, although third-party funding of litigation is already a widely recognized practice in international arbitration and judicial litigation in other countries. In the United States, for example, third-party funding is quite usual, especially in the filing of so-called class actions.

Its use, however, is gradually growing in the Brazilian scenario, especially with the creation of funds for this specific purpose. Those who defend this type of arrangement point out the following as positive points:

• Feasibility of initiating proceedings (especially arbitration) that would be financially unfeasible for the holder of the right;
• Dissemination of the arbitration proceeding among parties with less economic power;
• Reduction in the number of "weak merit" proceedings, as third party funders tend to make an independent and impersonal assessment of the claim, accepting only those that meet their investment criteria, i.e. have a reasonable chance of success;
• The third party investor's concern is that the proceeding be as economical and objective as possible; and
• The unburdening of the Judiciary, as it allows access to other more costly means of dispute resolution.

On the other hand, some counterpoints still generate resistance to third-party funding in Brazil, for example:

• The risk of violating the impartiality of the arbitrators and the judgment, as well as corrupt conduct;
• The possibility of stimulating unnecessary litigation, as a way for funders to profit from the claims;
• The risk of the so-called "minority activism", which could result in the filing of liability lawsuits by the funders against the controller, aiming to receive the premium and fees referred to in article 246 of the Brazilian Corporations Law; and
• The possibility of disagreement between the funded party and the funder during the proceeding.

Another factor that generates insecurity and, consequently, delays consolidation of the practice of third-party funding across Brazil is the absence of any specific regulations on the matter. There are only a few best practice recommendations issued by arbitral chambers.^[3]

A relevant issue to be evaluated and for which there is still no secure definition, for example, is whether or not the funded party is obliged to disclose information about the funding and the identity of the funder(s).

On this point, Brazilian arbitration chambers have recommended that the parties report, at the first opportunity, the full identification of the funder(s) to the arbitral tribunal, which should transmit this data to the arbitrators and other parties. The goal is to prevent impartiality on the part of the arbitrators towards the funder from being compromised in any way.^[4]

Although the case law on the subject is still quite incipient, the Court of Appeals of the State of São Paulo (TJSP) issued a recent decision on the subject and established the first outlines of the information that must be disclosed in third-party funding situations.

In the case, a minority shareholder had filed a liability suit against the controller of a company alleging abuse of power. The controllers began to request that, in addition to the name of the funder, the contracts and documents related to the funding of the litigation by the third party be presented.

The lower court judge ordered that the contracts signed with the those responsible for funding the litigation be submitted to the record. The argument is that it would be necessary to determine whether, in that case, the funded party was being used as a straw man to conceal the identity of the real plaintiffs.

The judges of the 2nd Chamber of Business Law of the TJSP, however, in a unanimous opinion, found irrelevant presentation of the documents related to the funding, as well as disclosure of the identity of other potential funders.

The decision was handed down on September 20 of this year by the reporting judge Natan Zelinschi de Arruda, in Interlocutory Appeal 2153411-63.2022.8.26.0000 filed by the funded party. The judges of the 2nd Chamber of Business Law of the TJSP who reviewed the case found that:

• the funding of litigation is allowed in the legal system, and there is no impediment to the party "seeking the help of others to share the high costs and results of a lawsuit"; and
• investigating the identity of the funders would be totally irrelevant to resolving the merits of the dispute.

The issue will reach the Superior Court of Appeals for the first time, since the appellee has recently filed a special appeal against the appellate decision of the TJSP.

Whether or not one agrees with the resolution of the issue given by the TJSP, the mere fact that the matter is now being faced in our courts is commendable. With the decision, the trend is that funders and funded parties will have greater certainty and a better ability to predict the information that may be disclosed. This will allow these players to make better informed decisions when choosing to fund a particular dispute.

If the international trend is followed, third-party litigation funding in Brazil will be an increasingly frequent and usual practice. Consequently, more controversial issues on the subject will certainly be subject to much discussion in Brazilian courts until the matter is finally regulated or settled in our case law.

^[1] The funding can cover administrative costs, fees for arbitrators, lawyers, experts, and even money judgments.

^[2] Although this is the most common practice, the lender and the funded party are free to decide the funder's remuneration as they see fit.

^[3] Following the example of the guidelines established in Administrative Resolution 18/16, established by the Arbitration and Mediation Centre of the Brazil-Canada Chamber of Commerce (CAM-CCBC) and Administrative Resolution 14/20, issued by the Chamber of Business Mediation and Arbitration - Brazil (Camarb).

^[4] See Administrative Resolution 18/16, established by the Arbitration and Mediation Centre of the Brazil-Canada Chamber of Commerce (CAM-CCBC) and Administrative Resolution 14/20, issued by the Chamber of Business Mediation and Arbitration - Brazil (Camarb).

Category: Tax

On January 12th of this year the federal government published Executive Order 1,160/23 and PGFN/RFB Joint Ordinance 1/23, which bring in a series of proposals for reducing the primary deficit.

The package of measures, called "Zero Litigation", modifies the processing of administrative tax proceedings and establishes new models for settlements or installment plans

On the same date, Executive Order 1,159/23 was published, which contains a specific provision on the calculation basis of PIS and Cofins contributions.

The following points are worth mentioning:

• Revocation of article 19-E of Law 10,522/02 and reinstitution of the casting vote

Executive Order 1.160/23 revoked article 19-E of Law 10,522/02, which established a tie-breaking criterion in favor of taxpayers in the judgments of tax proceedings by the Administrative Council of Tax Appeals (Carf).

This article was introduced in the legal system in 2020 by an act of the Legislative Branch, as part of the conversion of Executive Order 899/19 into Law 13,988/20.

Since then, tax authorities have been trying to reduce the scope of application or even attack the constitutionality of the provision, but without much success. It is important to point out that, in the judgment yet to be concluded of Direct Actions of Unconstitutionality 6,399, 6,403, and 641, which deal with this matter, the Justices of the Federal Supreme Court (STF) have been voting, in their majority, in favor of the constitutionality of the provision.

With the repeal of article 19-E of Law 10,522/02, the tie-breaking criterion of paragraph 9 of article 25 of Decree 70,235/72 returns, namely, the prevalence of the vote of the chairman of the panel ("casting vote"). Per a provision of the internal rules, the chairman of the panel is always a board member from the representation of the National Treasury, which had been generating discussions regarding the existence of a voting tendency in favor of the Tax Authorities, that is, in favor of maintaining assessments, especially for high impact issues.

The reinstatement of the casting vote was announced as a measure that would promote increased tax revenues. However, its most likely effect is an increase in litigation of tax disputes, with a rush to the Judiciary for review of administrative acts that have been upheld in judgments decided by casting vote.

The new judgment tie-breaking system is valid as of now, and should be applied in the Carf's next judgment sessions, scheduled for February.

In any case, the definitive introduction of the casting vote in the legal system will depend on the conversion into law of Executive Order 1,160/23 within the deadline provided for in article 62, paragraph 3, of the Federal Constitution.

• Low value litigation - access to the Carf

Executive Order 1,160/2023 also established a restriction on access to the Carf for disputes involving smaller amounts. The tax assessment or tax dispute that does not exceed one thousand minimum wages must be decided in the last level of appeal by the Regional Judgment Offices.

In practice, the increase in the authority limit will serve as a barrier to the Carf, reducing, in the long run, the backlog of administrative proceedings. The order may, however, result in more lawsuits in the judiciary.

• Increase in the limit for filing an ex-officio appeal with the Carf

The federal government has also announced a change in the limit for filing ex officio appeals with the Carf. This appeal is filed by the National Treasury against decisions by the Regional Judgment Offices that lift, in whole or in part, tax credits.

The new limit established by the Ministry of Finance will be R$15 million. In practical terms, DRJ decisions canceling assessments of up to R$15 million will be final.

• Tax Litigation Reduction Program (PRLF) of the National Treasury Attorney's Office

The federal government's program of measures also included new scenarios for tax settlements. PGFN/RFB Joint Ordinance No. 1, of January 12, 2023, establishes conditions for exceptional settlements in the collection of federal debts under discussion in tax administrative litigation or already entered as outstanding federal debt.

The measure aims to reduce the backlog of pending cases and increase tax collection by granting discounts to individuals, companies, and micro and small enterprises.

For transactions involving individuals, micro and small enterprises, the discounts granted can reduce the total debt by 40% to 50%. The adherence will encompass debts of up to 60 minimum wages.

The transaction involving other legal entities is intended only for debts classified as low recoverability (measured according to the provisions of Chapter II of PGFN Ordinance 6,757/22), but will allow a reduction of up to 100% in the accrual of fines and interest. It is also possible to use tax losses and a negative tax basis to discharge part of the debt.

The ordinance goes into effect on February 1, 2023, and adherence to the program can be done until March 31 of the same year.

• Executive Order 1,159/23 - exclusion of ICMS from the PIS and COFINS tax bases

Executive Order 1,159/23 amended Laws 10,637/02 and 10,833/03 to confirm the exclusion of the ICMS amounts from the PIS and Cofins calculation basis, as decided by the STF in the judgment of Extraordinary Appeal 574.706.

The change was the introduction of a provision establishing that the ICMS is also not included in the calculation basis for the PIS and Cofins credits when determining the cost of acquisition.

Specifically for this provision, which causes a restriction on the right to a credit, the measure will only take effect on the first day of the fourth month following its publication, respecting the ninety day notice period.

We will continue to monitor any other related measures and will inform taxpayers of their impacts.

Category: Environmental

In a decision rendered in November 2022 in the context of Direct Action of Unconstitutionality 4,529 (ADI 4,529) filed by the Attorney General's Office (PGR), the Supreme Federal Court (STF) ruled that a state norm was unconstitutional, as it provided less protection in relation to environmental licensing.

Through the referred ADI, the PGR intended to invalidate regulations of the state of Mato Grosso related to environmental licensing of hydroelectric projects.^[1] For better understanding of the controversy, please find below relevant provisions extracted from Complementary Law 38/95:

"Article 3 The Consema, a collegiate body of the State Environmental System - Sima, has the purpose of advising, evaluating and proposing to the government of the State of Mato Grosso guidelines of the State Environment Policy, as well as deliberating, within the scope of its competence, on rules and standards that are compatible with the ecologically balanced environment and essential to quality of life, having the following attributions:

(...)

XII – express its opinion on the environmental licensing of thermal or hydroelectric plants with a capacity above 30 MW, for which, mandatorily, the preparation of an Environmental Impact Study - EIA and presentation of the respective Environmental Impact Report -Rima will be required, depending on the validity of the approval license by the Legislative Assembly".

"Art. 24. The licensing of the implementation of the following environment modifying activities shall depend on the preparation of the EIA and its respective Rima, to be submitted for Fema approval:

(...)

VII- hydraulic works for the exploitation of water resources, comprising a flood area above 13 km² (thirteen square kilometers), sanitation or irrigation, opening of canals for navigation, drainage, rectification of watercourses, opening of bars and inlets, transposition of basins and dikes.

(...)

XI- electricity generation plants, whatever the primary energy source above 30 (thirty) MW" (emphasis added).

The wording of the abovementioned provisions implies exemption from the drafting of environmental impact study (EIA) and its respective environmental impact report (Rima) for all hydroelectric works with a potential of 10 to 30 megawatts and with an extension of flooded area inferior to 13 square kilometers. The PGR argued that the provisions would result in insufficient protection of the ecologically balanced environment, which would violate Article 225, caput and § 1, IV, of the Federal Constitution.

The PGR also argued that the legal regulations in question go against the Resolution 01/86 issued by the National Council for the Environment (Conama) – the authority competent to establish standards and criteria for the licensing of effective or potentially polluting activities according to Federal Law 6,838/81 (National Environment Policy - PNMA).

According to Resolution 01/86, "[i]t shall depend on the preparation of Environmental Impact Study and its Environmental Impact Report – Rima, to be submitted for the approval of the competent state agency, and the Special Secretariat for the Environment - Sema in a supplementary nature, the licensing of environmental modifying activities, such as: (...) VII - hydraulic works for the exploitation of water resources, such as: dam for any hydroelectric purpose, above 10 MW, sanitation or irrigation, opening of canals for navigation, drainage and irrigation, rectification of watercourses, opening of bars and inlets, transposition of basins, dikes" (emphasis added).

The PGR, therefore, argued that the rules of the state of Mato Grosso could not establish less protective parameters than those provided for in federal norm. The authority concluded that "[the] Member State, even though it has concurrent competence, must comply with the already set out standards in general rules, using it as a minimum standard. In such a way that it would only be authorized to act beyond such normative framework; never short of what has been previously established by law".

The unconstitutionality of the mentioned normative provisions would be based on two main points:

• the usurpation of the competence from the Federal Union, considering that Conama Resolution 01/86, general environmental regulation, does not authorize hydroelectric projects with a potential of more than 10 megawatts, even with a reduced flood area, to be exempt from the presentation of EIA and Rima; and
• insufficient protection of the environment and setback in the handling of the subject, by making the minimum protection parameter more flexible when the flood area is reduced – which would not be supported by federal legislation.

Amongst several other points, the reporting judge of the case, Minister Rosa Weber, pointed out in her majority opinion that the wording of Conama Resolution 01/86 "was elaborated as a way of giving density to the command provided by Article 225, § 1, IV, of the Federal Constitution and, therefore, enable the exercise of police power to control the effective or potentially polluting activities".

The minister also understood that the "State of Mato Grosso increased the minimum requirement for the conduction of the environmental licensing, since it modified its legal enforcement for projects with a primary energy source above 10 MW as provided for in Resolution 01/86, and established it as a compulsory requirement only for those enterprises with a capacity above 30 MW" and that it "inserted new criterion relating to requirement for licensing of hydraulic works for the exploration of water resources, i.e.: flood area above 13 km² (thirteen square kilometers), as stated in the original wording, or 300 ha, according to the current text" (emphasis added).

On the subject, concluded the minister that the state of Mato Grosso "did not limit itself to its role, within the framework of concurrent competences, of developing rules that are complementary to the general rules issued by the Union in environmental matters (Article 24, VI, §§ 1 and 2). In fact, it innovated, by increasing the minimum primary energy source suitable to create a presumption of significant environmental degradation, and by establishing a diverse licensing requirement, relating to the extent of flooded area. Created a different rule and exceeded, therefore, the federal legislation on the treatment of the subject. It has occurred, therefore, an invasion of the general competence of the Federal Union" (emphasis added).

Hence, the Minister decided on the "formal unconstitutionality of the contested provisions and expressions".

Minister Rosa Weber also addressed the unconstitutionality of the legal devices challenged by the PGR by the material perspective and stressed that "[the] exemption of licensing of potentially polluting enterprises violates article 225 of the Republic’s Constitution. That happens due to the fact that economic activities, such as the exploitation of water resources for hydroelectric purposes, shall only be considered lawful and constitutional when subordinated to the environmental protection rules" (emphasis added).

In the end, the minister pointed out that the normative action of the State of Mato Grosso entails "insufficient protection, in non-compliance with the principles of the prohibition of setbacks on socio-environmental issues, prevention and precaution" (emphasis added).

The decision of the Supreme Court is aligned with the latest trends and logic observed in the main courts when facing disputes involving environmental issues, such as the decision issued by the Superior Court of Justice (STJ) in the context of repetitive special appeals (Theme 1010/STJ), which discussed which rule should be taken into account for permanent preservation areas (PPAs) located in urban areas - Forest Code or the Urban Land Installment Law.

At the time, the STJ decided to enforce the most protective norm, that is, the prevalence of the Forest Code – which allows the conservation of a greater extension of ciliary PPAs.

The relationship between the subjects of environmental licensing and competence of the entities is constantly at the center of legal discussions and may present new developments in the future, considering that  ADI 4,757 has also been filed before the Supreme Court, by which the validity of various legal provisions contained in the Complementary Law 140/11 are being challenged.

These provisions include Article 14, §4, which, in summary, grants the extension of the term of licenses automatically in the event the request for renewal of a license was timely filed, until manifestation of the relevant authority. Article 17, § 3, is also under discussion, which established the supervisory competence of an enterprise to its licensing authority.

This discussion is viewed with concern by some sectors and there is great expectation regarding the outcome of the controversy, since Complementary Law 140/11 is one of the most relevant and consolidated norms that regulate the role of federative entities in the environmental sphere, playing an important part in settling conflicts of competence.

^[1] The provisions discussed in the ADI are Articles 3, XII, and 24, XI, complementary law 38/95 and subsequent Supplementary Law 70/00. The proceeding also involves the validity of the expression contained in Article 24, VII, of Complementary Law 38/95, both in the current wording, given by Complementary Law 189/04, and in Complementary Law 70/00.

Category: Litigation

Appropriate methods for conflict resolution are becoming increasingly relevant in the national scenario of alternatives available for dispute resolution. These methods include mediation and conciliation, governed by the Law 13.140/15. In addition, the Article165 of the Code of Civil Procedure (CPC) brings a basic concept by distinguishing the two techniques.

Regardless of the legal conception, the nature of the conflict may favor the adoption of one of the alternatives. Conciliation is usually indicated for situations where the parties do not have personal relationships, which means that the object of the conflict is punctual and there is no past relationships that needs to be harmonized before discussion about the conflict.

Conciliation, thus, must be used when the parties do not have a previous relationship, as occurs in consumer relations, in which there is acquisition of a product or service, default of payment, the consequent registration of the consumer in credit protection agencies and, subsequently, the possibility of debt negotiation.

It is also common to adopt conciliation in consumer relations involving the airline industry, in cases of unjustified cancellation or delays and in cases of baggage loss.

Mediation, on the other hand, is indicated for cases in which the parties have a previous bond, such as in situations where there is a conflict between partners involving business matters. This is because the goal of mediation is to restore communication between the parties involved and enable the construction of a solution.

Mediation, therefore, allows to mitigate possible personal disagreements and resolve the existing conflict in order to re-establish the relationship in the future, if possible and necessary.

With regard to mediation, Law 13.140/15 establishes some guiding principles:

• impartiality of the mediator;
• isonomy between the parties;
• orality;
• informality;
• autonomy of the parties' will;
• search for consensus;
• confidentiality; and
• good faith.

The mediators, an impartial third party, have no decision-making power. They play an important role of encouraging the parties to identify or develop consensual solutions to the controversy. In other words, the mediator aims to attract the trust of those involved by stimulating dialogue, understanding the needs of the parties, assisting them in understanding each other's reasons and leading the situation so that the parties themselves can reach a resolution.

It is also worth mentioning the principle of "search for consensus", which does not limit mediation to mere "agreements". Based on this principle, the parties have the chance to know better the controversies they discuss and, as far as possible, strengthen the bond between them so that they can resolve the issue through dialogue.

The mediator, in such a case, shall ensure clear communication between the parties and lay down rules so that the negotiation can be carried out with the necessary frankness. In this way, the parties must be able to present their arguments and objectives fluidly, reach a consensus and avoid a judicial dispute.

The mediation process, when well carried out, can bring numerous advantages, such as flexibility, speed, and reduction of direct and indirect expenses with the conflict – compared to a judicial or arbitration process. In addition, mediation creates an environment more conducive to the maintenance of personal and commercial relationships.

In the business environment, mediation can be used both in an "intraorganizational" way (to resolve disputes involving employees, departments, directors, or partners) to harmonize relations between the company and the outside world.

Business mediation has two aspects: preventive, since it aims to anticipate situations of conflict, and resolutive, which proposes solutions to situations in which there is conflict established.

The confidentiality of dealings is also important for companies, especially for the preservation of the image and security of sensitive information.

Business mediation has been getting prominence since the covid-19 pandemic period, because of the economic crisis generated, which involved companies, employees, suppliers, and the market itself.

Given this scenario, many companies found in mediation a way to resolve conflicts and avoid even greater financial impacts – especially considering that, for much of the period, judicial deadlines were suspended and, therefore, access to justice became even slower.

Therefore, the pandemic indirectly helped to demystify mediation and expanded access to appropriate conflict resolution methods.

To meet the  increased demand, it was necessary to implement technological solutions that would adapt the application of these alternative methods to the reality of that period, especially regarding to social isolation norms.

Renowned arbitral institutions, such as International Chamber of Commerce (ICC) and the Chartered Institute of Arbitrators (CIARb), published guides with practical recommendations to mitigate the effects of the pandemic, suggesting changes that would adapt the processes to the new remote reality.

In Brazil, the Chamber of Mediation and Business Arbitration (Camarb) issued the Resolution 15/20, which determined the suspension of face-to-face activities, prioritizing virtual meetings.

The pandemic emphasized preventive and collaborative action to the detriment of conflict and antagonism, which, in a way, was the posture adopted most of the time to face conflicts in the country.

The modernization of the methods brought celerity, practicality and cost containment. Negotiation meetings in a virtual environment as a rule tends to remain, even with the end of social isolation measures.

Thus, it is important to prioritize mediation as a measure of conflict resolution. The method allows optimizing the treatment of disagreements and solving them more efficiently because of the existence of the mediators. With them, it is possible to establish a better dialogue between the parties and, consequently, to reach consensus.