Publications

Category: Labor and employment

Although much is said about the high unemployment rate in Brazil, little is discussed about booming sectors that need professionals, such as technology. The talent competition in a highly competitive market means that companies must look for various mechanisms to attract qualified candidates.

In a market in which high salaries, long-term incentives and flexible work are the minimum expected, the hiring bonus presents itself as a differential: after all, why would the professional give up on certain rights for something uncertain?

The hiring bonus aims, precisely, to compensate the professional for the loss of potential rights due to the request to resign to accept the new job, such as the loss of shares subject to vesting periods or short-term incentives.

The lack of legal provision on the subject, however, may generate questions regarding labor/employment and social security charges on this type of payment and should be a point of attention for companies that wish to implement it.

Our Tax Department has already analyzed the theme from a social security point of view in this article. But, and from a labor/employment point of view – is the hiring bonus subject to labor/employment charges and repercussions?

The case law of the Brazilian Labor Courts understands that the amounts paid as hiring bonus should serve as base for labor/employment charges (in this case, for the Severance Guarantee Fund - FGTS) due to its remunerative nature, given that the amount is paid as a result of the provision of agreed services and represents an asset increase for the employee.

On the other hand, according to recent decisions of the Brazilian Labor Courts, including decisions of the Brazilian Superior Labor Court, as the hiring bonus is paid only once, the amounts paid as hiring bonus should be limited to serve as base for the collection of FGTS, and not for the payment of labor repercussions (13th salary, vacation payment plus vacation bonus etc.).

Companies, however, should beware when contractually structuring the payment of the hiring bonus so that its legal nature is not characterized as a retention bonus, both for labor/employment and social security purposes. This situation can happen, for example, by conditioning the payment (or maintenance of the amounts) to a minimum period for the employee to stay employed by the company or to another requirement other than the employee's hiring.

Therefore, companies must pay attention, because, depending on how the hiring bonus is contractually structured by the company, it may be subject to different labor/employment and social security charges and repercussions.

Category: Tax

Sinief Act 26/22 was published on 6 July in the Official Gazette, amending the Sinief Act 01/21, which establishes a differentiated treatment of ICMS applicable to natural gas processing.

The Sinief Act 26/22 aims at improving and bringing greater legal certainty to the activities related to the processing of natural gas hired by third parties, an essential activity for the opening and development of the natural gas market.

Among the changes brought, the following stand out:

• The provision of symbolic transfer operations between establishments of the same taxpayer located in the same state, prior to the shipment of unprocessed natural gas for industrialization, or to enable mutual operations with third parties (clause 2^nd, item XII, clause eleventh, paragraph 2^nd and clause twenty, paragraph 4^th);

• The extension of the deadline for issuing fiscal documents to the 4^th business day of the following month in specific situations (clause twelfth, item I, 'a' and clause sixteenth item I, 'a');

• The suppression of the requirement in the sense that the complementar invoices related to the return of natural gas and by products should be issued in a "proportional" way, in cases in which it is not possible to make reference to all invoices required by the rule in a single invoice related to the return (clause thirteenth, paragraph 3^rd);

• The provision of mutual operations of processed natural gas, with the purpose of making the quantities injected into the pipelines connected to the Natural Gas Processing Unit (UPGN) compatible with the quantities actually allocated to a given player by the manufacturer (i.e., UPGN owner) (clause seventeenth-A);

• The provision of new agents able to obtain accreditation from the Treasury secretariats (twenty-first clause); and

• The inclusion of the systematic of issuance of tax documents and collection of ICMS similar to the provisions of Sinief Act 22/21 (clause twenty-second).

The changes represent an important advance for the opening of the natural gas market in Brazil enabling greater access to essential infrastructure, diversity of agents and greater competition.

Category: Tax

The Constitutional Amendment 123/22, enacted on July 15, made relevant changes to the federal and state tax regime applicable to fuels, especially to establish competitiveness differential for biofuels in relation to fossil alternatives.

Among the tax changes brought by the amendment is the inclusion of a provision in the Federal Constitution that ensures the maintenance of more favorable tax regime for biofuels destined for final consumption. The change gives biofuels lower taxation compared to the on levied on the fossil fuels in order to make it more competitive.

The most favorable tax regime will be regulated by Complementary Law and will include, mainly, the social contributions levied on gross revenue and import (PIS and Cofins), as well as the ICMS.

Until the Complementary Law is published, the competitive differential of biofuels in relation to fossil fuels will be guaranteed by maintaining, in percentage terms, the difference between the tax rates or tax burdens applicable to each fossil fuel and the biofuel that replaces it, at a level equal to or greater than that in force on May 15, 2022.

Therefore, until the effects of the Complementary Lw take place, the immediate reduction in the tax burden applicable to biofuels will be determined according to the tax burdens applicable to fossil fuels to which they replace on the date of May 15, 2022, by assessing the tax difference existing on that date.

The tax regime favored for biofuels in relation to fossil fuels will be ensured for 20 years. Any legislative modification (state or federal) or originated from a court decision with erga omnes effects – that is, valid for all – the rates applicable to a fossil fuel will also result in an immediate and automatic change in the rate applicable to biofuels, preserving the difference in the rates between fuels. The mandatory approval of the ICMS Agreement under the National Council for Business Policy (Confaz) is waived for these rate reductions.

In addition, the Federal Government will deliver to the states and to the Federal District that grant ICMS tax credits to producers or distributors of hydrated ethanol in its territory a financial assistance in the amount of up to R$ 3.8 billion, in five monthly installments, from August to December of 2022, in an amount equivalent to the amount received.

ICMS tax credits and financial assistance will comply with the following main rules:

• They must be granted by December 31, 2022, with the right of the taxpayer to take advantage of them in the subsequent years;
• They aim to reduce the tax burden of the hydrated ethanol production chain, to also maintain a competitive differential in relation to gasoline;
• They will be calculated proportionally to the participation of the states and the Federal District in relation to the total consumption of hydrated ethanol in the country in 2021;
• The receipt of financial assistance by the states or the Federal District will import in the waiver of the right on any action based on any type of compensation due to the possible loss of collection for the granting of the presumed credits in transactions with hydrated ethanol;
• The granting of presumed credits is waived from the ICMS Agreement edition under the Confaz.

Constitutional Amendment 123/22 also authorized to set at zero the rate of taxes levied on gasoline, provided that the rate of the same tax levied on hydrated ethanol is also set at zero.

The amendment enters into force on the date of its publication, producing immediate effects for matters that do not depend on further regulation.

Category: Tax

Since July 1^st, when it was published in the extra edition of the Official Gazette of the State of Rio de Janeiro, it is in force the Decree 48,145/22, which sets the maximum ICMS rate in the State for internal transactions  and  services with fuels, electricity, communication and public transportation.

The Decree arises  from the alignment of the State of Rio de Janeiro with the provisions set forth by  the Complementary Law 194/22, of  June 23th, 2022. The Complementary Law determines that fuels, natural gas, electricity, communications and public transportation are considered as essential and indispensable goods and services.

According to the provisions of Decree 48.145/22, the internal rate in the State of Rio de Janeiro for transactions and services with fuels, electricity, communication and public transportation will be a maximum of 18%. The lower rates established by the Law 2,657/96 (ICMS Law of the State of Rio de Janeiro) will be maintained.

According to Complementary Law 194/22, goods and services related to fuels, natural gas, electricity, communications and public transportation cannot be treated as superfluous, therefore:

• It is not allowed to impose ICMS rate higher than the one applicable in internal transactions in general;;
• It is allowed reduce the ICMS rates in order to benefit consumers in general; and
• It is not allowed the increase the ICMS rate to fuels, electricity and natural gas when the ICMS rate applicable at the time of publication of the Complementary Law was lower than the standard one imposed in internal transactions in general.

Regarding the fuels, the rate defined  above will be used as a limit to define specific rates (ad rem) referred in Complementary Law 192/22, of March 11, 2022. It is worth noting that, unlike the provisions of Complementary Law 194/2022, Decree 48.145/2022 does not include the natural gas in the list of goods subject to such tax regime.

The provisions of Complementary Law 194/2022, introduced in the legislation of the State of Rio de Janeiro by Decree No. 48,145/2022, may also lead to discussions on the applicability of the payment of the Fund to Combat Poverty and Social Inequalities (FECP) in transactions and services with such goods and services, in view they do not qualify as superfluous.

Category: Infrastructure and energy

Bill 414/21, which originated from Senate Bill 232/16, aims to implement a few of the motions to modernize the electricity sector. It results not only from years of work of the Federal Government’s but also from civil contributions towards a more competitive and inclusive electricity sector, open to technological innovations that already move the energy industry and deeply affect the relations between the different agents that are part of it.

One of the main objectives of Bill 414/21 is expanding the Free Market^[1], an endeavor that began over 25 years ago with the publication of Law No. 9,074/95, which allowed free consumers with large demands and served at high voltages to freely choose their energy supplier.

Currently, Bill 414/21 is under analysis in the Brazilian House of Representatives and awaits the opinion of the special committee, created on May 31^st this year by the House’s president, Arthur Lira (PP-AL). The case’s designated reporting House Member is Mr. Fernando Coelho Filho (União Brasil-PE). If approved in the House with amendments, the bill will return for the Senate’s deliberation.

The Bill´s approval is certainly awaited within the sector and is among the Federal Government’s priority agenda. Amidst the changes brought by Bill 414/21 is the proposal of the 42-month deadline for the full opening of the Free Energy Market, which would give every electricity consumer the option to freely choose their energy supplier within up to four years. Such measure would allow the Free Market’s expansion for the commercialization of electricity, with the offer of diversified products to which the final consumer does not currently have access.

Bill 414/21 brings changes to the laws on concessions of public services, generation, transmission, distribution, commercialization, among others, and establishes a 24-month deadline for the Executive Branch to present a plan for the Free market’s broadening, which shall include a last-resort supply system for those consumers or end users who are not covered by power purchase agreements.

The Bill also foresees the modification of some rules, such as the extension of electricity concessions and changes in sectorial charges – in the quotas of the Energy Development Account (Conta de Desenvolvimento Energético - CDE), for example. According to Bill 414/21, there will be a change in the proportion of the payment of annual quotas, which will be prorated proportionally in the energy market, serving distribution and transmission companies from 2030 onwards. Another proposed measure is the Energy Development Account’s payment exemption for consumers receiving the Social Tariff.

Initially, low voltage consumers (below 2.3 kV) should not have access to the tariff discounts currently applied to the generation of renewable energy . Nevertheless, currently, the largest source of collection of the Energy Development Account (approximately 79%) comes from the tariffs paid exactly by these consumers, who will now have the possibility to trade their electricity outside the regulated market.

In order to avoid a decrease in the percentage paid by low voltage consumers, it was established that specifically these consumers will not be exempt from this tariff when entering the free energy market.

Bill 414/21 changes the amounts and mandatory allocation of a percentage to research and development, raising the percentage applied to energy efficiency programs to 0.50% and reducing the percentage of investment for research and development by 0.25%.

Currently, the free market is limited to consumers with an energy demand ranging between 500 kW and 1,500 kW (who can contract renewable sources) and above 1,500 kW (free to contract the supply from any source). Under the new proposal, all consumers, including those with a demand below 500kW, will be able to enter the free energy market. This opening to more consumers will likely cause an expansion to the sector.

As a result of the greater possibility of entering the free market, it is expected that many energy consumers will exercise this right. However, this dynamic will generate uncertainty for distributors about the expectation of consumption in the regulated market^[2] and, consequently, about the amount of energy they must contract to uphold this market.

The costs incurred by distributors resulting from this migration between free market and regulated market will be covered by a sector charge to be created to distribute excesses and deficiencies to the entire chain. The fund will be regulated by the National Electric Energy Agency (Agência Nacional de Energia Elétrica - ANEEL).

The costs arising from serving consumers with the right to supply of last resort will also be borne, applicable when the power supply is suspended or when the activities of the energy seller in the free market are terminated, a scenario that will be regulated to define its applicability.

Legislative advances remain incomplete in several different aspects, such as defining what low-voltage consumer representation mechanisms will look like in the free market. It is also discussed whether the expansion of the free energy market will meet expectations of lower electricity prices through increased competition among suppliers.

It is expected that the debates in Congress, with the participation of civilians, agents, sectoral organizations, specialists and other interested parties, will promote a rapid opening in the Brazilian energy market for all consumers.

It is noted that the expansion must be accompanied by measures that seek the energy security and the system’s economic and financial sustainability. The objective is to achieve the expected benefits of the competitive dynamics in the energy market, especially the improvement of energy supply and the reduction of prices.

^[1] In this article, the terms “free market” and “free energy market” refer to the regime under which electric energy trading participants can freely negotiate all commercial conditions, such as suppliers, prices, contracted energy quantities, supply period, and payments. Simply put, the free energy market allows consumers to acquire energy from sources other than their local concessionaires, with far more autonomy to create their own terms and conditions for such.

^[2] The regulated contracted environment refers to the market segment in which power purchase and sale operations are carried out between selling agents and distribution agents, usually preceded by a bidding process.

Category: Litigation

The name given to the Entrepreneur’s Defense Code may suggest that it is a counterweight to the Consumers’ Defense Code, because consumers and entrepreneurs, in general, occupy antagonistic positions in their relations. However, this is not the case.

Established by the Legislative Assembly of the State of São Paulo with the approval of the Bill 838/21^[1], the code was sanctioned (with a few vetoes) by State Governor Rodrigo Garcia and published in the Official Gazette on April 12, 2022 – becoming State Law 17,530/22.

The new legislation has as its main goal to debureaucratize and facilitate the interactions between entrepreneurs and Public Administration, by providing rights to guide entrepreneurs in the exercise of their function, as well as duties of the State in relation to the class.

Article 3 of the code, for example, provides for the guiding principles on the subject: free initiative in economic activities, presumption of good faith of the entrepreneur before the Public Administration and subsidiary and exceptional intervention of the State in economic activities.

On the other hand, among the duties of Public Administration in relation to entrepreneurs we find guidelines such as simplification of procedures for opening and extinguishing companies, as well as the need to provide clear and accessible information.

The Entrepreneur's Defense Code also provides that entrepreneurs have the right to hold the State as a facilitating agent of their activity. Another right provided by the code is that corporate documentation can be provided electronically, facilitating entrepreneurs’ day-to-day activities.

With this approach of protection to entrepreneurs, the code reaffirms legislative provisions of greater hierarchical stature, such as provisions of the Declaration of Rights of Economic Freedom that guarantee the exercise of business activity. The new law, thus, reinforces the need for observance of concepts already established in Brazilian legal framework and brings them to the daily life of the entrepreneur class from São Paulo.

As mentioned, the Entrepreneur's Defense Code aims to facilitate the daily life of the entrepreneur, stating, for example, that the Administration cannot abuse from discretion in its decisions and that the Administration must take economical aspects into consideration in its decision-making processes. These provisions, in our view, make explicit the applicability of the code in the interactions of entrepreneurs with commercial boards and registration entities in general.

Therefore, the Entrepreneur's Defense Code (applicable to all entrepreneurs in the State of São Paulo) more directly supports small entrepreneurs, who, despite of being an important driving force of the economy, may have difficulties in bureaucratic interplays^[2] with the Administration, either because they have lean structures or because of they lack adequate advice.

In this perspective, it is possible to conclude that the new law demonstrates the effort of the state of São Paulo to help entrepreneurs (especially micro and small entrepreneurs) in their interactions with the Public Administration, by bringing to the state legislative framework important provisions.

In any case, it is necessary to observe the application of article 3, §1 of the code, which provides, in summary, that the good faith of entrepreneurs will be presumed, including in relation to the application of penalties and the judgment of administrative infractions. A hasty interpretation could lead to the understanding that consumers’ rights could be harmed.

At this initial moment, however – based on the context of the promulgation of the code, its provisions, the justifications of the bill, its introductory text, as well as the principles of the law –, we believe that the mentioned provision is predominantly applicable in disputes with the Public Administration, not with consumers. In this sense, it does not seem to us that the provision can be used against consumer protection institutions (such as Senacon and Procon) to presume the entrepreneur's good faith in relation to consumers.

Besides hierarchically superior, the Consumers’ Defense Code specifically governs consumer relations, while the Entrepreneur's Defense Code, as demonstrated so far, aims at relations between entrepreneurs and the State. Thus, it seems to us that the specificity of the laws enable application of both, but in different scenarios.

Therefore, distinctly from the first impression of the Entrepreneur's Defense Code, if the initiative is successful and respects the Consumers’ Defense Code, there may be improvements in the daily performance of entrepreneurs, which can, indirectly, benefit consumers.

^[1] Proposed by Deputies Sergio Victor and Ricardo Mellão, both of the New Party.

^[2] And it is precisely in the sense of debureaucratization the greatest innovation brought by the code: the possibility of a regulatory sandbox. The concept materializes in granting temporary and exceptional authorization so that entrepreneurs can develop innovative activities through business models and experimental technologies, which will potentially bring even more debureaucratization and incentive for certain entrepreneurial initiatives. Although the initiative seems to be valid, only time will reveal if its application in practice will bring actual benefits.