Publications

Category: Litigation

In a recent decision, the São Paulo State Courts recognized the bad faith of an association that sought compensation in the millions, as it found that it was a front association whose sole purpose was to enrich itself without cause. The entity was ordered to pay a fine, court costs, and attorneys' fees.

The background to the case was the alleged misuse of personal data by a bank, which claimed to use databases to offer services and products to various consumers. The statement was made in a post on Twitter in response to a user.

Based on this posting, the association filed a public civil actionagainst the bank under the allegation that the exchange of data with other institutions, without the express consent of the owners, would violate the principles set forth in the Brazilian Civil Rights Framework for the Internet [“Marco Civil da Internet”] (Law 12,965/14), such as privacy and inviolability of personal data.

Among other prayers for relief, the association required the bank to stop collecting personal data, excluding that already stored in its system, and to pay compensation for non-economic damages in the amount of R$15,000 to each consumer who had their personal data violated, in addition to compensation for collective non-economic damages in an amount not less than R$10 million.

In its defense, the bank presented as its main argument the plaintiff’s lack of standing to sue, which, in fact, would be an extension of the law firm handling the case. Besides, the entity did not present its member list, which would justify its standing, nor the express authorization from the members to file the lawsuit.

The State Public Prosecutor's Office (MPE), which, in a first moment, manifested a position in favor of the association, also opined in favor of extinguishment of the case in its final opinion, on the understanding that there the association lacks standing. In its response, the MPE made a point of mentioning the case law of the Superior Court of Appeals^[1] regarding so-called “off-the-shelf associations".

At the trial level, the suit was extinguished without a judgment of the merits, precisely because of the understanding that the association had no standing. The basis used was that of Topic 82 of the Federal Supreme Court, according to which "the submission of express authorization is necessary for the filing, by the association, of a collective action in defense of the interests of its members.”

The MPE also pondered that "the plaintiff Institute did not present a list of members to justify its standing, or even a single complaint allegedly made by one of its members against the defendant" and that "the lawsuit was filed not to protect the interests of members, but as a source of revenue, which, without the danger of defeat, seeks compensation in a million-dollar sum, without any authorization from the interested parties, but with the aim of receiving substantial attorneys' fees.”

The decision, which still awaits confirmation by the São Paulo Court of Appeals, enforced the provisions of article 18 of Law 7,347/85, according to which, in public civil actions, associations should not be ordered to pay costs and fees, unless bad faith is proven.

The association was ordered to pay ten times the initial costs and a fine for bad faith litigation and attorneys' fees, fixed, respectively, at 5% and 10% of the updated amount in controversy.

In general terms, even though the case law is not unanimous as to the requirements that give associations standing in court, the decision in question shows that the São Paulo Court of Appeals is attentive to the malicious actions of the parties and their lawyers.

The decision is representative, in that it points out that associations cannot make use of the exemption from costs and the payment of fees for loss of suit provided for by law in order to bring unfounded lawsuits, filed not to defend the interests of the members, but to unduly enrich themselves through the Judiciary.

^[1] REsp 1.213.614/RJ.

Category: Tax

The month of July in the Administrative Board of Tax Appeals (Carf) was marked by the long-awaited return of in-person judgment sessions, after more than two years of exclusively virtual sessions. The 1st Panel of the Superior Chamber of Tax Appeals (CSRF) was the only one, for now, to resume in-person work at the agency.

The session took place in a hybrid model, with the remote participation of board member Edeli Pereira Bessa. Even in the face of various oral arguments and some technological connectivity challenges, all 63 cases on the agenda were reviewed by the panel.

Of the cases actually tried, the number of appeals denied certiorari and the rigorous analysis of the criteria for admissibility of the special appeals by the body are noteworthy.

In the July session, a significant number of appeals not admitted dealt with the legitimacy of the application of a qualified fine (150%, based on paragraph 1 of article 44 of Law 9,430/96) in assessments resulting from disallowance of amortization of goodwill.

In these cases, the predominant reason cited by the panel for non-admission of appeals, whether from the taxpayer or the National Treasury, was the lack of divergence of understanding between the decisions under appeal and decisions submitted as paradigms.

More specifically, in these cases, the panel has been maintaining the understanding that the particularities of each corporate reorganization transaction that generated the goodwill end up differentiating one judgment from the other, not because of divergence of interpretation of the legislation, but because of the facts.

In the judgments that went beyond the admissibility barrier and effectively entered issues of the merits, several discussions were taken up by the panel, which, with new members, had the participation of Carf's chairman, board member Carlos Henrique de Oliveira, and the new full board member, Gustavo Fonseca.

What most called the attention of taxpayers was the change in the understanding of the panel regarding the possibility of deducting expenses with goodwill amortization from the CSLL (Social Contribution on Net Income) tax basis. By the end of 2021, the board members, by application of article 19-E of Law 10,522/02, had recognized the taxpayers' right to make the deduction from the calculation basis.^[1]

When the discussion was resumed in the July session, the majority of board members voted to maintain the tax disallowance, under the argument that there is no provision allowing the deductibility of these expenses, unlike what occurs in the calculation basis of the IRPJ (Corporate Income Tax) - article 25 of Decree-Law 1,598/77.

It was also argued that, although article 57 of Law 8,981/91 provides that the rules for calculation and payment of the IRPJ apply to the CSLL, the provision itself states that "the tax basis and tax rates set forth in the legislation in force shall be maintained." Therefore, there is no doubt that, in legislation, not all exclusions and additions for one tax work for another.

In the current composition of the panel, board members Gustavo Fonseca and Carlos Henrique de Oliveira, who voted against the theory defended by the taxpayer and thus confirmed the change in the board’s understanding, had not yet opined on the matter.^[2]

Another relevant topic decided in the July session, this time in favor of the taxpayer, was the illegitimacy of the 30% limit for offsetting the IRPJ/CSLL tax losses of a defunct company.

This discussion had already been decided in a manner favorable to the taxpayer (including contrary to the position of the Superior Court of Appeals in REsp 1.925.025/SC and REsp 1.805.925/SP). The innovation was the statement of vote of the chairman of Carf, for whom the 30% lock is applicable within a normal situation of a company's life (affiliating it with the principle of continuity of legal entities). In the event of its termination, the limitation on the loss deduction should not apply. Thus, the taxpayer's special appeal was accepted by a majority vote.^[3]

The chairman of Carf also expressed his position in favor of canceling the assessment on revenues from investment subsidies. The case concerned IRPJ and CSLL collections for the calendar years 2011 and 2012 on ICMS presumed credit amounts granted by the State of Paraíba.

With the vote of the presiding board member, the 1st Panel of the CSRF formed a majority and cancelled the assessment, on the understanding that Complementary Law 160/17 settled discussion on the matter - differentiation, for taxation purposes, of investment subsidies and cost subsidies, equating the legal consequences of these two concepts.^[4]

The return of in-person judgment sessions, even if initially only of the 1st Panel of the Superior Chamber of Tax Appeals, certainly represents a breakthrough in the return to the pre-pandemic scenario. Relevant and dense topics were brought up for discussion, and the good management of the work allowed the agenda to be fulfilled, something that has not happened in a board meeting of Carf.

In 2022, a movie already seen in 2018 will be repeated, with the expected end of the tax auditors' strike movement and effective regulation, or not, of productivity bonuses, such that Carf judgments can be fully resumed. This time, with the possibility for the sessions to take place virtually, in person, or hybrid, without giving up the debates and judgments on highly complex issues and large amounts of money.

^[1] Appellate Decision 9101-005.936

^[2] Administrative Proceeding 16561.720109/2013-74

^[3] Administrative Proceeding 19515.005446/2009-03

^[4] Administrative Proceeding No. 10480.725593/2015-11

Category: Tax

After a little over two years without in-person sessions due to the pandemic, the Administrative Board of Tax Appeals (Carf) has resumed in-person work, now under new management, presided over by Board Member Carlos Henrique de Oliveira.

The first step in the return to the pre-pandemic scenario was taken with the publication of the agenda for the 1st Panel of the Superior Chamber of Tax Appeals for the month of July, with the indication that the session would be in person. This is the only Carf group that is holding judgment sessions, since the others do not have a quorum due to the adhesion of the board members representing the National Treasury to the strike movement of the category.

At the beginning of July, ME Ordinance 5,960/22 was published, regulating in-person and hybrid judgment modalities at the agency. 

The ordinance provides for the possibility of hybrid sessions, with the remote participation of the parties and the majority of the board members of the panel, thus following the procedure that was adopted by most courts of law in the post-pandemic scenario.

Under the terms of the ordinance, if it is not possible for more than half of the panel to attend in person, the session will be converted into a virtual session, in which case the parties will be allowed to withdraw the case from the agenda for a judgment in an in-person session.

Attention is drawn to the fact that there is no deadline for Carf to announce the presence of the board members and the possible change in the judgment modality, which may lead the parties to incur unnecessary expenses of time and resources if conversion of the in-person session into a virtual one takes place at the last minute.

The ordinance also provides for the possibility of removing a case from the agenda of a in-person session for a judgment in a virtual session, provided that the request meets certain procedural requirements. What is new is that there is no deadline to formalize this request for withdrawal; it only has to be done before the beginning of the judgment.

In order to optimize the judges' work and the smooth running of sessions, the Carf will also make it possible to transfer judgments to other days and/or times within the same meeting, at the parties' convenience.

The idea is that the sessions will be broadcast live on the Carf's Youtube channel, allowing interested parties to follow the judgments of their own cases and those of their interest. The agency also met a long-standing request from lawyers and will now make the recorded sessions available on its website, thus giving greater publicity to judgments.

Overall, the changes are beneficial. But the big challenge now is to guarantee the return of the judgments of the other Carf panels, in any of the session modalities, in view of the stoppage of the tax auditors, which is preventing the agency from functioning.

Category: Tax

Diana Piatti Lobo and André Essinger

When talking about crediting PIS and Cofins on inputs, the normative and case law context is always the same: the legal references of articles 3, II, of laws 10,637/02 and 10,833/03 and the examination conduct by the Superior Court of Appeals (STJ) in REsp 1.221.170/PR.

The STJ decided REsp 1.221.170/PR in 2018, under the procedure for repetitive appeals system, and declared the illegality of normative instructions 247/02 and 404/2004, as it considered that the interpretative limits for the concept of input present in these normative provisions were undue.

The Court defined the concept of input for the purposes of crediting PIS and Cofins as provided for in Law 10,637/02 and Law 10,833/03 and established that it must be assessed according to criteria of "essentiality" and “materiality" for a given good or service in the development of the activity performed by the taxpayer.

Despite this, the issue is still subject to discussions in the administrative and judicial spheres, in view of the divergence between the tax authorities and taxpayers regarding the subsumption of the facts to the open concepts of "essentiality" and “materiality" and the possibility of applying these concepts in the context of commercial economic activities or in subsequent stages of the production process and/or provision of services.

When it comes specifically to publicity, advertising, and marketing expenses, there are two main interpretative currents:

• one defends the possibility of taking PIS and Cofins credits on expenses, as it considers these expenses to be intrinsically linked to the generation of revenue and, therefore, are essential and relevant to the business activity; and
• the other holds that these expenses, although relevant and certainly incurred to generate revenue, do not fall within the legal concept of inputs, which would require, in this line, a link to the production stage of goods and/or services.

When examining 21 decisions handed down by the Carf's ordinary courts on the matter,^[1] all of them after the concept of inputs was established by the STJ, a majority unfavorable to the taxpayer can be seen, with a prohibition on taking PIS and Cofins credits in relation to these expenses.

The general line maintained in these decisions is that, besides being necessary to prove the essentiality and materiality of the expense with its end activity, this expense must fit into the production and/or provision of service phase, which, in general, does not occur with advertising and marketing expenses.

To better understand the above arguments, we resort to the decision rendered through appellate decision 3302-012.005, handed down on October 26, 2021. In it, the 2nd Panel of the 3rd Chamber of the 3rd Section, by majority vote, upheld the disallowance of PIS and Cofins credits taken by a leading streaming company.

The main reason raised was that the expenses with advertising and marketing were not a structural element and inseparable from the performance of the service performed by the company (provision of films and other visual materials), so that its suppression would not compromise the performance of its core business.

The winning vote highlighted that advertising and marketing expenses "are only an option for the taxpayer to seek quick and bigger results, but this does not justify attaching such expenses as a sine qua non condition for the performance of its activities.

The dissenting vote, in turn, held that because it is a virtual company that uses streaming technology to attract customers to watch licensed movie products and distribute them to its consumers, marketing and advertising services would be essential to the company's activity, and therefore eligible for PIS and Cofins credits.

This opinion was based on the evidence submitted, based on documents and reports prepared by market experts, that the suppression of these advertising and marketing expenses would have such an impact on the company's revenue generation that the business activity would undoubtedly become unviable.

Also noteworthy is appellate decision 3302-012.007, issued on October 26, 2021, and unfavorable to the taxpayer. In it, the Carf board members, despite having recognized the importance of the expenses incurred with advertising and marketing for a company that manufactures soaps and detergents and sells cleaning, household maintenance, perfumery, and personal hygiene products, held that these costs are not essential for the purposes of carrying out its activity, and consequently, for the purposes of generating PIS and Cofins credits.

There are also, albeit in a minority, examples favorable to the taxpayer in the Carf's case law, as can be seen in appellate decision 3401.005-291 handed down on August 29, 2018. The decision recognized the right of a customer in the production and sale of cosmetics, hygiene, perfumery, and cosmetics in general to treat credits as inputs arising from expenses with advertising and marketing.

In the decision, in summary, the Carf's team found that it is possible to credit PIS and Cofins, since the company's corporate purpose involves activities such as economic feasibility studies, definition of the strategy to launch its products in the market, and validation of results, which are directly related to marketing and advertising activities.

Along the same lines, the 1st Ordinary Panel of the 2nd Chamber of the 3rd Section, through appellate decision 3201-005.668, issued on August 21, 2019, when analyzing a case involving a credit card company, recognized the company's right to assess PIS and Cofins credits on marketing expenses, as it considered these services essential and material to the performance of its business activity.

More specifically, when comparing the nature of the revenue ascertained and the inputs used, the Carf panel, by majority vote, concluded that the specific services provided by the company to its customers are exactly those linked to brand development and market performance. They would therefore be directly linked to services related to marketing and advertising, and are thus intrinsic to their provision of services.

Although it seems more appropriate to analyze in a deeper way the essentiality and materiality of marketing, advertising, and publicity expenses from the point of view of the impact on the generation of revenue and the achievement of the taxpayer's core business, it can be seen that the Carf examines the particularities of the concrete case only to ascertain whether the expenses have a pertinent, essential, and relevant relationship with the production process or with the provision of services, to enable the sale and delivery of the good or service to the end consumer.

Despite the importance of the discussion on the subject, especially in a scenario of increased competition among companies and, consequently, greater need for investment in marketing, advertising, and publicity, the majority position indicates a restrictive interpretation regarding the possibility of crediting these expenses.

The topic was subject to review only by the Carf's ordinary panels. The 3rd Panel of the Superior Chamber of Tax Appeals, the highest administrative level of appeal responsible for settling interpretative conflicts, has not yet ruled on the merits of the issue. This fact leads us to await the discussions and the possibility of a reversal in the case law that is currently the majority of the body.

^[1]3302-012.005, 3302-012.007, 3301-011.071, 3301-011.073, 3301-011.074, 3301-011.075, 3301-011.076, 3301-011.077, 3301-011.079, 3301-011.081, 3302-010.033, 3302-009.388, 3302-009.389, 3302-009.390, 3003-001.184, 3302-008.120, 3301-007.117, 3001-000.939, 3201-005.668, 3301-005.689, 3401-005.291

Category: Tax

The deductibility of expenses with amortization of goodwill from the calculation basis of the Corporate Income Tax (IRPJ) and Social Contribution (CSLL)^[1] is a topic that has long been discussed in the judgment sessions of the Administrative Board of Tax Appeals (Carf).

A careful analysis of recent precedents allows us to affirm that, despite the maturity of the discussion, the case law is not yet settled as to the definition of the limits of the corporate restructuring considered valid for goodwill deductibility purposes.

Carf, an administrative court recognized for the technical quality and depth of its discussions, has always had on its agenda debates that are very relevant to taxpayers. In relation to goodwill and related matters, it can be seen that the history of the case law has unfolded in three distinct phases, whose results were defined according to the judgment criteria adopted at each moment.

The first phase took place between the 2000s and early 2015. During this period, there was a transition from the Taxpayers Board to the Administrative Board of Tax Appeals, currently Carf, created in 2008.^[2] In this first phase, the validation criteria adopted by the administrative court were based on three requirements:

• Goodwill transactions formed in acquisitions between unrelated parties;
• the so-called "economic sacrifice" - as the cash payment came to be known by the court; and
• the presence of a report supporting the future profitability of the stake acquired.

In this phase, therefore, the presence of a transaction between unrelated parties was essentially valued, even if followed by internal restructuring.

It imposed the penalty of non-deductibility to the transactions styled as "internal goodwill", that is, the goodwill formed in acquisitions of an equity interest without the presence of independent parties. The precedents existing at the time were handed down by ordinary panels, since the Superior Chamber of Tax Appeals had not yet reviewed the issue.

With the resumption of judgment sessions at the end of 2015, after the suspension of the agency’s sessions for almost a year, the second phase of the analysis of goodwill cases at Carf began. The ordinary panels and the 1st Panel of the Superior Chamber of Tax Appeals, with significantly changed membership, are now reviewing the prior case law of the board and the criteria for validating the transactions that enable the deductibility of goodwill.

More specifically, the courts have started to adopt concepts imported from abroad, where anti-avoidance rules are established, such as "economic substance" or "business purpose".^[3]

This phase was also marked by the invocation of requirements foreign to the legislation governing goodwill (Law 9,532/97 and Law 12,973/14) - "transfer of goodwill", "actual acquirer", "economic sacrifice", among others - as a substitute for payment. As a result, in this second phase, the cases decided by the 1st Panel of the Superior Chamber of Tax Appeals, with two exceptions,^[4] had the deductibility of goodwill from the IRPJ and CSLL tax basis refused.

Regarding the qualification of the ex-officio fine, the 1st Panel of the Superior Chamber began to impute the 150% qualified penalty to identification of civil offenses, such as abuse of right and sham transaction, fraud against the law, or simply the presence of "artificiality". In this second phase, little value was placed on strictly including the facts in the concepts of evasion, fraud, or collusion, which authorize application of the aggravated penalty under the terms of article 44, I, together with paragraph 1, of Law 9,430/96 and Law 4,502/64.^[5]

The third phase began in the early months of 2020, marked by suspension of in-person sessions due to the pandemic and the extinguishment of the casting vote promoted by Law 13,988/20.

After an initial halt in the judgments, Carf resumed the sessions virtually. A limitation was set on the amount of cases that could be included in the agenda. This circumstance limited the examination of goodwill cases because they usually involve high values.

With the increase in the values assigned to cases and inclusion of more cases on the agenda, the first trials on the topic began, with the casting vote already extinguished. These precedents, which were decided as of the second half of 2021, are marked by a more detailed analysis of the specific case and a review of the criteria that had been guiding the second phase.

Transactions involving the so-called "internal goodwill" continue to be invalidated by the 1st Panel of the Superior Chamber of Tax Appeals, even in the face of a casting vote in favor of the taxpayer.^[6]

This is a point of intersection between the three phases, because corporate acquisitions and reorganizations without the presence of independent parties have never been accepted by Carf's case law.

The panel also recently decided, in April of 2022,^[7] a case involving the amortization of goodwill using a "vehicle company". Despite the favorable outcome for the taxpayer on that occasion, we believe that the issue needs to be debated further to consolidate a trend in the case law.

The conduct of the Superior Chamber of Tax Appeals, however, indicates the end of phase two and the beginning of a phase in which the legal concepts already established by law are guiding the subsumption of the facts under analysis.

With regard to the qualification of the ex-officio fine, the precedents identified show a clear change in the position of the panel, which detaches itself from the concepts provided for in the civil law in order to impose the increase and, consequently, a greater subsumption of the analysis into the conduct provided for in Law 4,502/64.

In a case on the subject,^[8] decided in September of 2021, the 1st Panel of the Superior Chamber provides a detailed analysis of the criteria of lawful and unlawful avoidance, as well as evasion, for the purposes of applying the qualified fine.

From an analysis of this and other precedents, the expectation is that the case law will consolidate to this effect. In other related topics, the suppression of the casting vote has guided a favorable outcome for the taxpayer in proceedings arising from tax assessment notices.^[9]

Despite this mostly favorable survey, the current Carf scenario is one of uncertainty. The suspension, since January, of trial sessions due to the adhesion of the board members representing the National Treasury to the strike of the category, in line with the change in the chairmanship of the body and the indecision as to the resumption of the sessions in person, generates doubts among taxpayers as to the unfolding of the judgments.

The first in-person session of the 1st Panel of the Superior Chamber of Tax Appeals after the pandemic will take place in July. In an optimistic view, it is expected that in the second half of the year in-person sessions will effectively be resumed, enabling a return of the judgment of goodwill issues for the consolidation of administrative case law on the subject.

^[1] Provided for in Laws 9,532/97 and 12,973/14.

^[2] After the promulgation of Executive Order 449, of December 3, 2008, converted into Law 11,941/2009.

^[3] There was an attempt to introduce anti-tax rules incorporating these concepts into MP66/02, which was rejected by the Brazilian Congress.

^[4] Appellate Decision 9101-003.610, of June 5, 2018, Appellate Decision 9101-003.208, of November 8, 2017.

^[5] Article 44. In cases of an ex-officio assessment, the following fines shall be applied:

I - seventy-five percent (75%) on the total or difference in tax or contribution in cases of lack of payment or collection, lack of declaration, and in the case of inaccurate declaration;

Paragraph 1. The fine percentage mentioned in subsection I of the head paragraph of this article shall be doubled in the cases provided for in articles 71, 72, and 73 of Law 4,502, of November 30, 1964, regardless of other applicable administrative or criminal penalties.

^[6] For example, Appellate Decision 9101-005.778, decided on September 9, 2021.

^[7] Appellate Decision 9101-006.049, of April 4, 2022.

^[8] Appellate Decision 9101-005.761, of October 26, 2021.

^[9] According to ME Ordinance 260/20.

Category: Capital markets

CVM resolutions 166 and 168, issued in September 2022 by the Brazilian Securities and Exchange Commission (CVM), have amended CVM Resolution 59 and CVM Resolution 80, which provide for the registration and provision of periodic and eventual information of securities issuers admitted to trading in regulated securities markets.

The novelty of CVM Resolution 166 is the exemption of legal publications in newspaper for small businesses. The CVM Resolution 168, in turn, makes it mandatory to elect independent directors to publicly-held companies traded on the stock exchange and brings definitions related to plural voting and  new rules allowing the cumulation of the positions of Chairman of the Board of Directors and Chief Executive Officer, with the respective adjustments to Annex K of CVM Resolution 80. Both resolutions enter into force on October 3.

Dispensing legal publications in newspaper

To simplify the procedures applicable to small businesses, CVM Resolution 166 establishes that companies that have earned a consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the past fiscal year, may carry out the publications ordered by the Brazilian Corporate Law on the Empresas.NET or Fundos.Net.

Plural vote

The new resolution included Article 41-A in CVM Resolution 80, providing that plural voting (as provided for in Article 110A of the Law 6,404/76 or the Brazilian Corporate law),^[1] is not applicable in votes of the general meeting of shareholders which deliberates on transactions with related parties that must be disclosed by publicly-held companies, which demonstrates CVM’s clear intention to level the votes of shareholders on the matter, due to its relevance.

Accumulation of positions

Annex K of CVM Resolution 80 began to regulate not only the non-conflict declaration to be provided by the directors at the time of their tenure, pursuant to Article 147, § 4, of the Brazilian Corporate Law, but expanded its application to additional investiture requirements in management positions.

This expansion of application aforementioned was due to prerogatives attributed to CVM by the Brazilian Corporate Law, which, when approaching the theme of the prohibition of accumulation of positions of chairman of the board of directors and chief executive officer of the company, provides in article 138, § 3, that the CVM may issue a normative act that excludes smaller companies from this impediment.

Thus, CVM established as an exception the possibility of cumulation of the position of chairman of the board of directors and the position of chief executive of the company for small businesses, pursuant to Article 294-B of the Brazilian Corporate Law.

Therefore, the closure of these functions will not apply to companies that have earned consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the last fiscal year.

Independent directors

The same prerogative is assigned to CVM by the Brazilian Corporate Law when dealing, in Article 140, § 2, with the mandatory participation of independent directors on the board of directors of publicly-held companies with shares traded on the stock exchange, determining that such participation will comply with the terms and conditions defined by CVM.

After the new resolution was published, the CVM established the rules regarding the mandatory presence of independent members on the board of directors. They will apply to companies that have, cumulatively:

• registration of a publicly-held company, in category "A";
• securities admitted to trading on the stock market by an organized market management entity; and
• stock or stock deposit certificates (BDRs) in circulation.

The criteria adopted by CVM to determine the obligation of independent members on the board of directors present several points of convergence with that provided by B3 in its Novo Mercado Regulation, today considered the trading segment with stricter governance criteria for publicly-held companies in the Brazilian market.

The following table compares the criteria adopted by CVM in the newly published rule to those of the B3 Novo Mercado Regulation.

With the determination of the mandatory presence of independent directors in listed companies of any segment and with the convergence of the criteria of independence of directors with those of the Novo Mercado, CVM makes another move to strengthen the levels of governance for publicly-held companies, equating them with those that voluntarily joined the Novo Mercado.

The provisions of Articles 4 to 7 of Annex K concerning (i) accumulation of positions as chairman of the board of directors and the position of Chief Executive Officer or main executive officer of the company and (ii) mandatory presence of independent members on the board of directors of publicly-held companies shall apply only to the term of office initiated from 1 January 2023,  which will require the adequacy of companies that do not adopt such rules from the next fiscal year.

^[1]Art. 110-A provides: the creation of one or more classes of common shares with plural voting, not exceeding 10 (ten) votes per common share, is allowed:

I - in the closed company; and

II - in the publicly-held company, provided that the creation of the class occurs prior to the trading of any shares or securities convertible into shares of its issue in organized securities markets.