Publications

Category: Digital Law

By imposing the suitability of companies to the Brazilian General Data Protection Act (Lei Geral de Proteção de Dados Pessoais or LGPD), came to tow, in Brazil, a flood of new types of warnings on hundreds of Brazilian sites regarding the so-called Cookies, files installed on the device that allow the collection of information from users, which can even happen to track their behaviors.

For their technical features, Cookies play a key role on the Internet. They enable the operation of websites and the provision of online services and can help improve the user experience by supporting countless business models. To perform their functions, however, they ause themselves to the processing of personal data, and this requires special attention.

The truth is that the warnings of Cookies they appeared in Brazil even before the lgpd was in force, inspired by a specific standard (e-Privacy Directive) that Europe adopted years ago for this collection methodology, although our law is different from the European reality.

All this raised many questions. For example, in recent months Brazilian companies have often wondered whether or not they needed to do a warning from Cookies. In addition, critics were also heard with opinions contrary to the mechanism.

The question, however, it's not eliminating the Cookies, but strengthen the balance line between business development and protection of privacy and personal data. This guideline has always been present in historical data protection documents and is expressly reinforced by the distribution of grounds made by Art. 2° of the LGPD.

Then, at a great time, the new Guidelines to Cookies and Protection of Personal Data National Data Protection Authority (ANPD). The guide presents an overview of the subject, sets out the main concepts and categories of Cookies and examines the most common legal bases of treatment and the requirements to be observed in the use of Cookies, such as strengthening transparency measures through policy publication. The document remains open for public consultation, which demonstrates the democratic performance of the ANPD.

Classification of Cookies

Reinforcing the recommendations of the specialized literature and what the practice reveals, the guide brings clear and useful criteria for the classification of Cookies, by separating them according to:

• The entity responsible for the management of: may be suitable when defined directly by the site, or third-party, if diverse domain.
• The need: May be necessary, if used to ensure the functionalities of the site, or not necessary, when disabling does not prevent the operation of the site.

• The purpose: may be analytical or performance, if they aim to identify the use of the site; functionality, when used to provide basic services to the user; when used to display ads.
• The retention period of the information: may be session or temporary, if they collect and store information only while the holder accesses the site, or persistent, if stored for a defined period.

It is interesting to note that the guide highlights the Cookies able to make the user identifiable, because they contain personal data, and that, therefore, are pertinent to the regulation of privacy protection.

The Cookies that store only information that does not identify the user or make it identifiable (with anonymous data profile only) does not fall within the scope of application of the LGPD and, consequently, is not subject to anpd guidelines.

Use of Cookies and the LGPD

The ANPD reinforces that the use of Cookies that identify users is within the scope of the LGPD and should follow their predictions.

In an extremely didactic way, the Authority explains how this should be done, highlighting the need to observe the principles of legislation in the collection and use of information, such as the principles of purpose, need and adequacy, free access, rights of the holder, period of processing and deletion of personal data and transparency, among others. The ANPD provides practical examples of how to observe such criteria.

Transparency, as expected, receives special attention. Ensure the clarity and completeness of the information regarding Cookies is a measure of governance to be constantly sought.

In addition, the ANPD demonstrates caution in this respect, recommending that companies redouble their attention to the subject in order to mitigate sanctioning risks.

As the Authority itself points out in the Guide, "one of the potential problems related to the use of Cookies it is the lack of transparency, that is, the lack of clear, accurate and easily accessible information about the collection and performance of the processing, which may derail or unduly restrict the control of the holder over his/her personal data. Privacy risks can be magnified in situations where lack of transparency is associated with practices of collecting massive amounts of personal information for the purpose of identifying, tracking, and creating behavioral profiles of users."

The publication also highlights the concern to realize the foundation of informational self-determination (Art. 2°, I, LGPD) in relation to Cookies.

In this way, the holder should be given the possibility to manage the preferences of Cookies, so that you have the option to disable those that are not necessary for the operation of the site, which involves, for example, Cookies third-party and advertising.

The information should be made available by means of notice or banner from Cookies already widely used by the portals and with more detailed information in privacy policies or notice or in the Cookies Specific.

The ANPD stresses that the holder should be informed, in a clear and easy manner, about the processing purposes for which the Cookies will be collected and for what period they will be stored. According to the Authority, the purposes of using Cookies should be specific, and no longer generic, as with the request to accept general terms and conditions. Storage periods must be determined and proportionate in relation to their processing purposes and necessarily compatible with the LGPD.

In this sense, explains the Authority in its Guide, "if the person responsible for the website informs the holder who uses Cookies for the purpose of audience measurement only, you may not use the information collected for purposes other than that purpose and not compatible with that purpose, such as for the formation of profiles and the display of advertisements."

Consent or legitimate interest?

I'm having another question about the Cookies, the ANPD delimited a little more the pattern to be followed in identifying the legal bases related to such files. The Authority identifies consent and legitimate interest as the two most common legal bases,^[1] reaffirming its understanding that there is no hierarchy between legal bases.

Or assent, following LGPD standards, should be free, informed and unambiguous. That is, the free option for the collection or not of the data should be ensured, complete information about what data is collected and all the circumstances of processing must be ensured, and consent must be obtained without the holder having any doubt about his expression of willingness to agree.

In relation to Cookies not necessary (as the necessary ones will be related to other bases – legitimate interest and compliance with legal obligation so in particular), the holder must be provided with all information relating to the Cookies collected on the page and offered the possibility of authorizing or not the collection.

In practice, the holder should be assured of the effective possibility of accepting or not the use of Cookies, without negative consequences or interventions of the controller, may become addicted or impair his expression of will, so that he is not truly free.

Considering that consent cannot be tacit, it is not possible to use warnings or Banners from Cookies with pre-selected authorization options.

The holder must also be given the possibility to revoke such consent in a simple and free manner. According to the ANPD "a simplified and free procedure should be made available to the holder to revoke the consent provided for the use of Cookies, similar to the procedure used to obtain it."

In relation to the legitimate interest, the ANPD stresses that it can be used in cases of Cookies strictly necessary, which the Authority considers as those that "are essential for the proper provision of the service or for the operation of the website, which can be understood as a form of support and promotion of activities of the controller and the provision of services that benefit the holder (Art. 10, I and II, LGPD)".

According to the Authority, following the best market practices to date, this essentiality it should "consider the peculiarities of each specific situation and assess whether, in this case, the rights and interests of the holders do not prevail, in compliance with the other applicable legal requirements".

In other words, governance decisions establishing legitimate interest in a generic way may be questioned. Such a basis is therefore not a carte blanche for the use of any Cookies. The specific preparation and documentation of a LIA (Legitimate Interest Assessment) is essential for decision-making and the documentation of accountability expected by law.

Based on the idea that the case-by-case analysis will reveal whether the legitimate interest is a possible legal basis or not, the ANPD stresses that "the use of Cookies for audience measurement purposes (Cookies can be based on the legal hypothesis of legitimate interest in certain contexts, in any event, the requirements laid down in the LGPD. In particular, it is reasonable to assume that audience measurement will be a legitimate interest of the controller, as well as that the risks to the privacy of holders will be minor when the processing is limited to the specific purpose of identifying patterns and trends, based on aggregated data and without the combination with other tracking mechanisms or without the formation of user profiles."

Policy of Cookies

The ANPD dedicates a relevant part of the guide to recommendations on the structure and content expected for the Cookies or equivalent document, such as a banner, to ensure the necessary transparency.

The policy of Cookies may be included in a specific section of the privacy notice, in a specific and separate location, or in the banner from Cookies. Regardless of the format adopted, the holder must be informed how its collection is carried out and for what purpose. The main thing is to ensure how this information will reach the user. The guidelines of ABNT ISO IEC 29.184/2021 in this regard are relevant.

In addition, the holder should be able to give his consent to the Cookies which cannot be previously enabled, through the options "accept all Cookies", "reject Cookies not needed" and "manage/select Cookies". The holder should also be able to revoke the consent, which can be carried out by means of banner second level.

The guide expressly indicates the following guidelines on the banner from Cookies, including a number of practical examples:

• all buttons (reject, accept, and manage Cookies) must be the same size;
• Cookies cannot be enabled by default;
• all information should be brought in a clear and simplified manner to the holders; and
• the options for choosing Cookies for the holder should be simple and easy to adjust.

The policy of Cookies and the privacy notice to comply with the principle of transparency and the rules of Article 9 of the LGPD should be easily accessible to the holder (as hyperlink included in the banner), in Portuguese, presenting which categories of Cookies collected, for what purposes and providing information on how to perform the blocking of Cookies browser settings.

Final comments

The guide brings an educational bias that deserves praise and reinforces how much the ANPD represents a Case success in this respect. The publication corroborates the guiding stance adopted by the Authority, which seeks to promote the culture of the protection of personal data, encouraging the adoption of transparent practices that improve understanding and control of holders over the use of their personal data.

Similarly, the guide reinforces the ANPD's tendency to follow the directions adopted by european data protection authorities on the subject. It thus revalidates the work supported by the foreign experience. Although there is convergence between European regulation and Brazilian legislation, it is worth remembering that Europe has a specific standardisation on the application of Cookies, which does not occur in Brazil. Therefore, the collection and use of Cookies may be subject to new regulations by the ANPD.

^[1] Cookies may also meet compliance with legal obligations for example (art. 7°, II, LGPD), in the case of the duty to guard electronic records by the application providers, according to the legal obligation established by the Civil Framework of the Internet (Federal Law No. 12.965/2014).

Category: Environmental

On September 13 of this year, the Brazilian Institute of The Environment and Renewable Natural Resources (Ibama) issued the Ibama Ordinance 83/22, which established the "Standard Operating Procedure (Procedimento Operacional Padrão - POP) for information gathering and conduction of inspections aimed at confirming  the occurrence of environmental damage in areas altered or degraded by suppression of native vegetation without prior attainment of license / authorization or violating the conditions set forth in the valid license / authorization".

The ordinance defines environmental damage as "any harm caused to the ecologically balanced environment resulting from the degradation of environmental attributes through anthropic activities, actions and omissions which are unauthorized or in violation of applicable authorizations".

It also establishes that the evidence that the involved party has committed an infraction, of the materiality and of the existence causal nexus between the conduct described by the Ibama agent and the alleged harmful event must be indicated in the inspection report – a document that is either incorporated in the proceeding or precedes it.

These provisions demonstrate the environmental authority’s clear concern in conditioning the enforcement of potential sanctions to the confirmation of essential elements to adequate assessment of environmental administrative responsibility – which, according to the majority position of doctrine and jurisprudence, is subjective in nature – i.e. requires the existence of fault.

Therefore, the recognition of environmental administrative responsibility shall depend on the verification of the occurrence of an illegal conduct, along with the demonstration of the subjective element in said conduct, in addition to proving the existence of a causal nexus between the conduct and the damage ensued.  

This has been the official position of the environmental institution, as perceived from the ratification of Opinion 04/2020/GABIN/PFE-IBAMA-SEDE/PGF/AGU, on July 14, 2022. The same understanding regarding environmental administrative responsibility has also been repeatedly reinforced by the Superior Court of Justice (Superior Tribunal de Justiça - STJ).

The existence of well-defined rules for the imputation of penalties in the administrative sphere can potentially reduce the number of penalties enforced by Ibama agents, for it prevents the sanctioning of conducts that lack such subjective element. This limitation may result in a cutback on significant resources by the entrepreneur relating to the elaboration of his administrative defense and even on the potential filing of judicial remedies aimed at the annulment of an unfair administrative penalty.  

Ibama also benefits from the new rules, as clear definition of parameters for the characterization of environmental administrative responsibility may assist authorities in avoiding excessive discussions in the administrative sphere and unnecessary spending of public resources with future challenging of the penalties in the judicial sphere.

Even the judiciary may benefit from the new rules considering the proper application of the institute of environmental responsibility in the administrative sphere may lead to a decrease in lawsuits questioning the lawfulness of the issuance of infraction notices and, therefore, contribute, to a certain extent, to the mitigation of the judiciary’s work overload.

In addition to establishing rules for the imputation of environmental administrative responsibility, the main objective of the ordinance is to standardize the necessary information to be collected by Ibama's environmental inspection in order to characterize the environmental damage resulting from irregular suppression of vegetation.

The new standards establish the obligation to fill information relating to two additional forms (A and B), in addition to the requirements regarding the preparation of an inspection report, as previously required by Article 14 of the Federal Law 6,938/81 (National Environmental Policy Law – PNMA).

Information to be included in form A must be collected primarily in the field. Such information, for instance, relate to the biome, successional stage, and characterization of water bodies and humid areas, among others. This form is also intended to provide ample characterization of the damaged area’s surroundings, through the detailing of information about connectivity and landscape flows, as well as the indication of external threats.

Form B, in its turn, deals with information that should preferably be filled out "in office". Some examples provided by the ordinance are: the type of property where the area of interest is inserted, the domain of the degraded area, the enrollment before the rural environmental registry (Cadastro Ambiental Rural - CAR) and the occurrence of vegetation suppression in an area inhabited by endangered species.

Ibama expressed a clear intent of using the data collected in environmental inspections  to subsidize the procedure for repairing environmental damage. Item 3 of the ordinance provides that "the collection of data on the environmental inspection at the time of the issuance of a penalty will improve the definition of administrative procedures necessary to the repair of environmental damage, with the purpose of making the inspections more effective in favor of environmental preservation and/or conservation".

The ordinance may, therefore, result in very beneficial results for the productive sectors, as it aims to consolidate robustly detailed concepts and recommendations to guide the proper drafting of the inspection report by Ibama’s inspectors and, as such, enable the regular imputation of environmental responsibility in the administrative sphere. Considering that the standards set forth by the ordinance are quite recent, there is still expectation about the effectiveness and scope of its application.

In addition to the benefits already listed, the effective application of the standard may bring greater legal certainty to the entrepreneur, since the new rule will inhibit the application of sanctions in situations that lack a subjective element to the supposedly unlawful conduct.

If the imputation of a penalty actually takes place, the sanctioned party will have the necessary information to adequately exercise its right to contradictory and broad defense, since, if completed correctly, forms A and B will present detailed information by Ibama agents on the alleged unlawful conduct.

Category: Institutional

The Quotas Act (12,711/12) will turn ten years old in 2022 and a review of its provisions is scheduled for this year. The legal text reserves 50% of the vacancies of federal higher education institutions for people who attended their entire high school in public schools and declare themselves black, brown, or indigenous, in addition to people with disabilities. Half of the spaces reserved must be reserved for students from families with a per capita income equal to or less than 1.5 minimum wages. In this article, we propose two changes that can be made in the legislation to increase the enrollment of marginalized individuals in public education and reduce dropout rates.

An instrument for repair of historical injustices

Racism, discrimination, and the effects of social inequality are some of the various assaults that individuals from minority groups experience in the course of their social and academic trajectory. The problem requires a more active role of the State in the adoption of effective measures, whether voluntary or coercive, with the aim of safeguarding the dignity of the human being.^[1]

The Federal Constitution of 1988, in its article 3, defined as the fundamental objectives of the Republic: to build a free, fair, and solidary society, to guarantee national development, to eradicate poverty and marginalization, to reduce social and regional inequalities, and to promote the well-being of all, without prejudice to origin, race, sex, color, age, and any other form of discrimination.

The framers of the Constitution explicitly established that the State has the duty to apply the measures necessary to combat prejudice and discrimination, eliminate social inequality, and promote opportunities for historically vulnerable groups, in order to allow this segment to ascend from the socioeconomic point of view.

The institutionalization of affirmative action is, therefore, a tool for the Rule of Law to achieve de facto equality, given the historical injustices in Brazilian society against social minorities identified as black, indigenous, women, people with disabilities, and LGBTQIA+ individuals.

The Quotas Act was enacted exactly for this purpose. The advances it provides, however, have been slow. A study by the IBGE (Brazilian Institute of Geography and Statistics) showed that "between [the years of] 2016 and 2018, the proportion of [black] students aged 18 to 24 years attending higher education, went from 50.5% to 55.6%. This level, however, was still below the 78.8% of students in the white population of the same age group in this level of education.^[2]

Two proposals for improvement

In our view, two relevant changes could be made during the revision of the Quotas Act to increase its effectiveness:

• inclusion of welfare mechanisms to keep quota-holding students in academic education; and
• implementation of measures to combat fraud by candidates who self-declare as black, brown, and indigenous without actually belonging to this segment.

We believe it is not enough to insert peripheral people in the academic environment through a quota mechanism without means for the permanence of these students in the educational system, with measures such as pedagogical and emotional support and financial aid for the maintenance of black students in educational institutes. This would reduce dropout rates for financial reasons. After all, the reality faced by many individuals at the margins is that they leave the educational institution, without completing the basic cycle, in search of unskilled jobs for subsistence.^[3]

As for the problem of fraud, Law 12,711/12 is silent regarding inspection to validate racial self-declaration. As a way to compensate for this omission, some higher education institutions already adopt security mechanisms, such as the hetero-identification committees, "method[s] of identifying an individual's race and ethnicity from the social perception of another person."^[4] Thus, the candidates who declare themselves to be black, brown, and indigenous during the selection process for admission to higher education are analyzed by a committee based on phenotypical and documentary criteria, in order to reduce the access of fraudsters to higher education.^[5]

Intentional action by business to accelerate correction of inequalities

Faced with the reality of underemployment of historically vulnerable individuals, the companies themselves have started to promote affirmative action in the job market to expand the amount of black people in the corporate environment through specific selection processes for this segment.

A well-known example is Magazine Luiza. With 53% blacks in the workforce, the company found that this group represented only 16% of management positions. To start correcting the problem, the company has adopted a selection process for trainees aimed only at black individuals, without excluding criteria such as the need for fluent English and prior experience abroad.^[6] In the end, 19 professionals were selected and went through a training process for leadership roles.

The initiative shows that it is not enough to insert people at the margins of the elite labor market by means of university quotas and affirmative action. It is also necessary to offer courses, mentoring, a financial basis, and management training to develop and improve these individuals so that in the near future they can be on an equal footing with other professionals.

Another important affirmative action is Project Include Right, which encourages participation by and inclusion of black professionals in law firms. The initiative of the Center for Studies of Law Firms (Cesa), which recently won the 18th edition of the Innovare Award^[7] in the Law Practice category, offers courses to train professionals and help them compete for positions in the firms associated with Cesa in selection processes aimed only at black participants in the project.

From formal equality to de facto equality

Reparative initiatives are extremely important for the inclusion of blacks and other minorities in society. It is necessary to treat individuals who experience different realities unequally, in order to offer those at the margins of society greater chances for improvement. From formal equality, established by the Constitution, we need to advance to material equality, de facto equality, and fulfill the goal of the Republic, based on the principle of human dignity, of building an equitable society, in which actions of historical equalization will no longer be necessary for the placement of vulnerable groups in the class environment.

^[1] Research, Society and Development, v. 10, n. 7, e47510717067, 2021.

^[2] Desigualdades sociais por cor ou raça no Brasil [“Social inequalities by color or race in Brazil”], IBGE, Estudos e Pesquisas – Informação Demográfica e Socioeconômica, No. 41, 2019. https://biblioteca.ibge.gov.br/visualizacao/livros/liv101681_informativo.pdf

^[3]"The college is not ready to deal with the remainder of quota students", Carta Capital, November 20, 2019 https://www.cartacapital.com.br/educacao/a-faculdade-nao-esta-pronta-para-lidar-com-a-permanencia-dos-alunos-c/

^[4] " What is hetero-identification and how will hetero-identification committees work in this selective process?", IFRS Selective Process, March 22, 2021 https://ingresso.ifrs.edu.br/2021/perguntas/o-que-e-heteroidentificacao-e-como-vao-funcionar-as-comissoes-de-heteroidentificacao-neste-processo-seletivo/

^[5] "Quotas Act has decisive year in Congress," Agência Senado, February 11, 2022, https://www12.senado.leg.br/noticias/infomaterias/2022/02/lei-de-cotas-tem-ano-decisivo-no-congresso#:~:text=O%20PL%204.656%2F2020%2C%20do,de%20gradua%C3%A7%C3%A3o%20de%20institui%C3%A7%C3%B5es%20particulares.

^[6] Legacy: The Magalu Trainee Program exclusive for black (black and brown) people, YouTube, September , 21, 2021, https://www.youtube.com/watch?v=_Z0ovbveEkI

^[7] 18th edition of the Innovare Prize, Innovare Institute, 2021, https://www.premioinnovare.com.br/pratica/projeto-incluir-direito/1407

Category: Capital markets

In July, the joint committee of the Securities and Exchange Commission of Brazil (CVM) examined a proposal for a consent order originating from a lawsuit filed to investigate the criteria used by a company in the allocation of earnings, pursuant to article 193 of Law 6,404/76 (Brazilian Corporations Law).

The analysis was based on inquiries and complaints filed by an investor who questioned the amounts recorded in the company's capital stock and profit reserve accounts. He also pointed out that a relevant part of the net profit was allocated to the profit reserve account, to the detriment of an increase in the capital stock.

The investor, who holds preferred shares, felt harmed, since the company's bylaws have a clause of priority dividends for holders of preferred shares, with a minimum value of 6% of the capital stock.

After inquiries from the CVM's technical area, the company reported that the profits had been allocated according to regular approvals in general meetings and that the allocations did not exceed the limit established in article 193 of the Brazilian Corporations Law - 20% of the value of the capital stock.

In addition, the company indicated that the amounts allocated to profit reserves derived, among other sources, from unrealized profits and reserves for contingencies, this being a practice presented and approved at general meetings of shareholders, aimed at preserving business security.

The technical area of CVM, after analyzing the company's statements, found that, with regard to:

• the legal reserve, at the time of the facts presented by the investor, the company could not have proceeded with the allocations of net income, due to the limit provided for in article 193 of the Brazilian Corporations Law;

contingency reserves, there was non-compliance with articles 153 and 192 of the Brazilian Corporations Law, because the documents related to the general meeting did  not  mention the creation of contingency reserves;

• retention of profits, there was non-compliance with article 196, paragraph 1, of the Brazilian Corporations Law, since, although it was stated in the management proposals that there would be no retention of profits, an analysis of the explanatory notes of the approved financial statements proved otherwise; and
• the reserve of unrealized profits, there was violation of article 197 of the Brazilian Corporations Law, since the portion of net income realized exceeded the amount of the minimum mandatory dividends, and therefore the reason for the creation of the reserve of unrealized profits in the periods analyzed was not proven.

Regarding distribution of dividends, the Brazilian Corporations Law establishes that companies must allocate part of their net income to payment of mandatory dividends to shareholders, pursuant to article 202 of the Brazilian Corporations Law.

Paragraph 6 of article 202 of the law provides that "profits not allocated under the terms of articles 193 to 197 must be distributed as dividends." Exceptions are the amounts allocated to the profit reserves (which cannot exceed 20% of the capital stock), the amounts retained by the capital budget, or the amounts allocated to the unrealized profit reserve, in the event that the minimum mandatory dividend exceeds the realized portion of the net income.

In view of the facts, the CVM's technical area proposed accountability of those who were members of the company's board of directors in the period of the data analyzed. The defendants, in turn, after being made aware of the accusations, presented a joint proposal to enter into a consent order, which included, among other points, monetary obligations and obligations related to the correction of the irregularities pointed out in the proceeding.

After review by the Consent Order Committee (CTC), the following obligations were negotiated with the defendants:

• pay to the CVM the amount of R$824,614.00;
• allocate the amounts created in the unrealized profit reserve - as a result of the resolutions passed in the general meetings of the period analyzed - to the increase in the company's capital stock; and
• make accounting adjustments to rectify errors in the company's financial statements.

Unanimously, the joint committee of the CVM accepted the CTC's opinion and accepted the proposal for a consent order.

Category: Labor and employment

There is no other subject being talked about than the first debate of the presidential candidates in the 2022 electoral race. The topic is on people's lips and, of course, in virtual chat groups.

In our last article, we addressed the precautions employees and employers should take when using work tools and private social networks to exchange messages, and the consequences they may face when transmitting fake news. It was not for nothing: shortly after publication, the Federal Supreme Court (STF) opened an investigation against members of a virtual chat group precisely because of the content shared.

Fearing something already discussed in the 2018 election - the possibility of businessmen influencing their employees to vote for one candidate or another - the Labor Prosecutor's Office (MPT) this year issued Recommendation 01/2022 to curb certain corporate practices.

According to the agency, companies must refrain from granting (or promising to grant) any benefit in exchange for voting, as well as threatening, embarrassing, or directing people to vote for candidates in the upcoming elections.

The message is clear and ends with a warning: failure to comply with the recommendation will lead the Labor Prosecutor's Office to apply administrative and judicial measures to guarantee individual liberties and the democratic order.

It is important to say that this embarrassment does not have to take place within the gates of the company, nor does it have to be materialized solely by the acts of its officers or CEO. It can happen in the virtual field - in message groups or in posts on social networks - and can be committed by any representative of the company who has a management position, such as managers and coordinators, among other employees who can influence the decision of their subordinates.

Once again, awareness is the appropriate instrument to prevent the conduct. Companies should not ignore the political moment that Brazil is going through and simply close their eyes to the possibility that certain anti-democratic practices may occur among their employees, even if they are disguised as jokes or “pranks".

Information, lectures, and courses can be given to employees so that they avoid unnecessary exposure of the employer and practices considered abusive by the prosecutorial bodies. The companies must also be prepared to deal with any non-compliance of their conduct by employees who do not follow the Labor Prosecutor’s guidelines. To do this, they need to draw up a contingency plan.

The authorities are watching the companies' movements closely. It is therefore essential to guide and monitor employees so that they do not end up engaging in anti-democratic practices during the presidential elections.

Category: Capital markets

The Brazilian Securities and Exchange Commission (CVM) has the function of regulatory agent of the Brazilian capital market under the terms of Law 6,385/76. In this capacity, the authority is responsible for the regulation, oversight, and imposition of sanctions on issuers, controllers, and administrators of securities, to the entities that are part of the securities distribution system, to the independent auditors, and to other persons that act professionally in the capital market.

Due to the inspection and supervision activities performed by the CVM, a securities markets oversight fee was instituted by law. The taxable event is exercise of the police power legally attributed to the CVM, under the terms of Law 7,940/89, with constitutional support in article 145, subsection II, of the Federal Constitution.

This Law 7,940/89 was recently amended by Law 14,317/22 (originated from the conversion of Executive Order 1,072/21), which modified the oversight fee as follows:

• expanded the list of taxpayers;
• updated the sums charged;
• established a new calculation criterion based on the net equity of the regulated participants;
• created a type of fee resulting from CVM registration activity, in addition to the already existing periodic oversight fee and public offering fee; and
• changed the form of appeal for coercive fines imposed when a CVM order is not complied with.

For the purpose of clarifying the levying and collection of the oversight fee, the CVM disclosed Circular-Letter 1/2022-CVM/SER, on January 14, 2022. The CVM also makes available on its website a series of answers to frequently asked questions, through which it seeks to clarify the taxpayers' main doubts about the levying, collection, and calculation of the oversight fee.

Considering, however, the questions received, especially from investment fund managers, regarding the correct interpretation of Law 14,317/22, the CVM published, on September 20, 2022, Circular-Letter 2/2022/CVM/SIN/SSE, with guidelines on the levying and collection of the oversight fee, directed especially to the sector in which these administrators operate. We highlight the main clarifications provided by the authority:

1. Modalities of the CVM oversight fee

There are three cases for levying the oversight fee for the securities markets (CVM fees):

• CVM registration activity, for which a registration fee will be due;
• periodic inspection activity, for which an annual fee will be due; and
• activity of public offering oversight, for which an offering fee will be due.

2. CVM Fee Payers

The CVM fee payers are the individuals and legal entities listed in article 3 of Law 14,317/22, among which are, with special regard for the investment fund industry:

• individuals and legal entities within the securities distribution system;
• investment funds, regardless of the assets that make up their portfolio;
• administrators of securities portfolios;
• providers of securities bookkeeping and custody services;
• non-resident investors' portfolios (and not directly the investors); and
• offerors of securities in the public offering of securities, subject to registration or exemption from registration by the CVM.

3. Situations, frequency, and conditions for the collection of CVM fees

The situations, frequency, and conditions for the collection of CVM fees are indicated in articles 4 and 5 of Law 14,317/22. We highlight the main points:

Registration Fee

The CVM registration fee will be due upon initial application for registration as a securities market participant or issuance of an equivalent authorizing act, including market participants whose registration is simplified or automatic, as long as they are regulated by the CVM.

This fee must be paid in full, regardless of the date of the initial registration application or equivalent act, and therefore pro rata payment is not allowed.

As a general rule, the registration fee will be due within 30 calendar days of the registration request. The CVM advised to pay within this deadline, even if the payment notice issued on the CVM website has a different due date.

The regulator explained that it was not possible to customize the system used to issue the payment notice to allow correct setting of the due date. It advised that it is the participant's responsibility to keep track of the deadline.

The CVM made a point of clarifying again, as it had already done in its answers to frequently asked questions, that the registration fee is different from the annual fee. The former is not an advance, even if partial, of the payment of the latter. This point raised doubt since the registration fee consists of 25% of the annual fee applicable to the regulated participant. This, however, does not mean that it is an advance; it only refers to the way of calculating the amount due as a registration fee.

Annual Fee

This fee will be due annually and must be paid in full considering the entire year to which it refers, with pro rata payment not being admitted.

The CVM's annual fee is now due from the date of registration with the CVM until the request for cancellation or suspension is granted, even if the taxpayer is not performing activities or has had its registration suspended by an administrative act of the CVM.

Law 14,317/22 contains a table in its Annex I with the ranges of amounts owed by legal entities for the annual fee. The calculation criterion used is the taxpayers' net equity, except in relation to independent auditors, whose criterion is the number of establishments, according to Annex III of the standard. For individuals, the fees are fixed and are listed in Annex II of the law.

- Investment Funds:

The annual fee for the oversight of investment funds has some specifics:

• Investment funds with asset separation between classes/subclasses:

If the units of the fund are divided into classes or sub-classes for the purposes of calculating the annual fee the sum of the amounts calculated according to the net equity of each class or sub-class should be considered, observing the parameters established in Annex I of Law 14,317/22.

The CVM clarified that this form of calculation provided in the law already considers the new structure of investment funds with mandatory separation of equity between classes and subclasses, whose regulation is still being discussed in the scope of Public Hearing SDM 08/20, which intends to change the rules for investment funds, regulated by CVM Instruction 555 and the standardized and non-standardized Receivables Investment Funds (FIDCs), regulated by CVM Instruction 356 and CVM Instruction 444.

The public hearing has already been subject to comments by market participants and, according to the CVM's Regulatory Agenda 2022, the standard should be issued this year.

• Investment funds with a single class:

In relation to single class funds, for the purposes of calculating the annual fee, the fund's net equity should be considered, observing the parameters set forth in Annex I of Law 14,317/22.

• Method of calculation of the annual fee:

The value of the net equity of the investment funds for the purpose of determining the annual fee should be calculated as follows:

• by the arithmetic average of the daily net assets ascertained in the first four months of the calendar year (i.e. January to April) for funds with daily calculation; or

• based on the value calculated on the last business day of the first four-month period of the year (that is, the last business day of April) for those who have not calculated their net equity on a daily basis.

In view of the rule set out above, the CVM clarified in Circular-Letter 2/2022/CVM/SIN/SSE that the annual fee will only apply to funds that have been created by the end of April of each year and are operating during this first four-month period.

There will be no annual fee for investment funds created after the beginning of May of each year. In this case, the annual fee will be due as of the next calendar year.

If the fund is created at any time after the beginning of May and ends up being closed in the same year, there will also be no levying of the annual fee.

If the fund is created or closed during the first four months of the year, however, the calculation of the annual fee should consider the arithmetic average of the net equity in the period in which the fund operated within that four-month period.

• Investment funds with net equity or zero equity:

The authority clarified that the investment funds registered with the CVM that have zero or negative net equity during the entire first four months of the year must pay the annual fee at the lowest value of the table in which they fit. This means that pre-operational investment funds are also required to pay the annual fee, at the lower amount provided for in Annex I of Law 14,317/22.

• Investment funds that are closing down their activities:

As a general rule, the annual fee will be due up to the closing date of the fund's registration with the CVM, calculated in the ways set out above.

The CVM has clarified how taxpayers should proceed when faced with two exceptional situations related to the liquidation of investment funds:

• in extraordinary liquidation attributed to some external factor caused by a third party (such as liquidation order by the CVM or resignation or extrajudicial liquidation of the fund administrator without replacement), a new annual fee will not be due if the forced liquidation extends into the following year;

• in ordinary liquidation ordered by unitholders, whether by total redemption of the units or by resolution in a meeting, the annual fee for the following year will be due, if the liquidation extends into the next calendar year.

Offering Fee

The CVM offering fee will be due on the occasion of a public offering of securities, including cases of exemption from registration by the CVM, and will be calculated based on the total value of the transaction.

Regarding the public offering of investment fund units, the offering fee must be collected:

• in the case of public offerings subject to registration with the CVM, when filing the registration request; and

• in the case of public offerings with restricted placement efforts that benefit from an automatic waiver of registration with the CVM, by the closing date of the public offering. As stated by the authority, this date may be the settlement date, but not necessarily, since it may be some later date if the structure of the offering provides for the fulfillment of steps related to the completion of the offering after the liquidation date.

If the public offering is done concomitantly with the issuer's initial application for registration with the CVM - including for investment funds - there will be no registration fee, only the offering fee. In other words, there can be no double charging of the CVM oversight fee in this situation.

The offer rate corresponds to a 0.03% rate over the total value of the transaction, observing the minimum rate of R$ 809.16 (that is, transactions under R$ 2,697,200.00 must pay the minimum amount). There is no longer a maximum ceiling for the offering rate.

In public offerings, the total value of the transaction for purposes of calculating the registration fee must cover the base lot, the additional lot, and the supplementary lot, if any. In case of a bookbuilding procedure, the ceiling value of the issue must be considered.

In restricted offerings, the total value of the transaction for the purposes of calculating the registration fee will be the total amount effectively raised, as reported in the closing notice. In this notice, the reference number of the payment of the offering fee that has been made at the closing of the offering must be filled out for information to the CVM.

It is important to note that the concept of the closing of the offering, for the purposes of payment of the registration fee, is not necessarily confused with the date of sending the closing notice.

The offering fee is not charged for public offerings:

• of shares owned by the Federal Government, states, Federal District, and municipalities and other Public Administration entities, which cumulatively: do not seek placement with the public in general and are held in an auction organized by an entity managing an organized market, under the terms of Law 8,666/93;
• of a single, indivisible lot of securities; or
• of Audiovisual Investment Certificates.

The CVM guidelines in Circular-Letter 2/2022/CVM/SIN/SSE are timely and useful to clarify unclear areas, especially regarding the assumptions of levying and form of calculation of the CVM fees that must be collected by administrators of investment funds at the time of registration of issuers, periodically for the funds under management and for the administrator itself and its employees accredited with the CVM, and in conducting public offerings of units.

This is a subject with material economic implications, since any errors that lead to under calculation of the amounts due or delays may generate interest and a late payment fine, in addition to legal charges, under the terms of article 5, paragraph 1, of Law 7,940/89 , which is obviously undesirable.

We remain at your disposal for any further clarifications on this subject.