Publications

Category: Real estate

With the publication of Decree No. 48,378/21, the Rio de Janeiro City Government created a new ancillary tax obligation for IPTU taxpayers for real estate located in the city. As of this fiscal year 2021, they are required to submit an Annual Statement of Registration Data (DeCAD) for all of their residential and non-residential urban properties by the last business day of June of each fiscal year. The measure aims to create an updated database and facilitate changes in the registration data of properties in the city of Rio de Janeiro, including ownership and addition of built area.

According to article 34 of the National Tax Code (CTN), a IPTU taxpayer is an owner of property, holder of its useful domain, or its owner on any account. Owner means the one who has the option to use, enjoy, and dispose of the property (article 1.228 of the Civil Code). Useful domain covers the rights of holders of rights of tenement, use, and sale, in relation to the tenement building. As for possession, it is understood that only the possessor with animus domini, that is, a definite spirit of dominion, may be a taxpayer of the IPTU. Lessees, for example, do not qualify as taxpayers, since they only hold direct possession of the property, without animus domini. Therefore, in the case of leased properties, the obligation to submit the DeCAD will, as a rule, be assigned to the lessor.

The DeCAD should be delivered electronically in the appropriate form to be made available on the website of the Municipal Department of Finance and Planning. IPTU taxpayers must confirm the following information regarding their property: current real estate registration number, complete address, taxpayer data, clarification regarding their legal relationship with the property, exercise to which the information provided in the DeCAD refers, whether the property is built or not, built area, and nature of use (whether residential or non-residential), including specifying the nature of the specific use of the property and typology/constructive characteristics of the property.

Taxpayers of more than one property may submit a single DeCAD containing all the information on the property owned by them individually. In the event of non-compliance with this ancillary tax obligation, as well as omission, inaccuracy, inadequacy, or falsity in the data entered on the form, the taxpayer shall be subject to the penalties provided for in the applicable municipal legislation.

The Municipal Tax Administration may use the information contained in or arising from the DeCAD to make tax entries. However, the data entered on the form is not presumed to be true, nor is it binding on the administrative authorities, which may continue to use other sources of information for tax purposes.

If it is necessary to rectify an DeCAD already submitted, taxpayers may submit, in the same exercise, a rectifying statement by the last business day of June (same deadline for regular submission of a DeCAD). For prior fiscal years, the rectifying statement may be submitted by October 30 of the fifth fiscal year following the taxable event.

The new decree entered into force on the date of its publication, January 1, 2021. IPTU taxpayers must already be scheduled to make the first DeCAD by June 30, 2021 (last business day of the month). The DeCAD form must be available by March 31, 2021.

Category: Tax

Until the advent of Law No. 13,988/20, known as the Legal Taxpayer Law or the Tax Settlement Law, the procedure for administrative resolution of small tax disputes (litigation of up to 60 minimum wages) was essentially regulated by the system introduced in Decree No. 70,235/72. According to the criteria established therein, administrative litigation of federal credits and debts occurred at two levels or trial stages.

In the first stage, which takes place within the scope of the Judicial Offices of the Special Federal Revenue Service (DRJs), a board formed solely of representatives of the Federal Revenue Service is responsible for examining the legality of the tax assessment or the decision that denies the restitution/compensation of a claim.

According to data released by the Brazilian Federal Revenue Service (RFB),[1] of the total stock of 267,000 administrative cases awaiting consideration in this first phase, in February of 2020, about 184,000, or almost 70% of the total, were cases with small value disputes. These cases waited an average of 948 days until the end of this trial phase.

The parties that did not have their claims accepted by the DRJs could enter a second stage of administrative dispute, submitting the case to trial by a joint body of the Administrative Tax Appeals Board (Carf),[2] which would lead take on average six years.

According to management data published on the Carf website, of the universe of 116,000 tax lawsuits awaiting judgment in February of 2020, 71,000 were small claims, that is, up to 60 minimum wages. In Brazilian Reais, small claims corresponded to a dispute of approximately R$ 1.6 billion, against R$ 627.9 billion referring to the value of the whole inventory of Carf proceedings. That is, 61% of all Carf's cases pending judgment represent not even 1% of the total amount in dispute.

The figures show that the model of administrative tax litigation, as it had been presented, was exhausted. Disputes for very low amounts ended up perpetuating themselves in time and congesting the judicial bodies, also responsible for deciding the largest tax controversies. The overall result of the equation is a deficiency in the provision of Public Administration services to society and an excessive slowness to resolve tax issues.

In this scenario, and with the declared goal of attributing greater speed and ensuring greater efficiency to federal administrative litigation for small claims, Law No. 13,899/20 was published, whose articles 23 et seq. were dedicated to instituting new measures to change the system for deciding administrative tax litigation for small claims.

The main changes introduced by Law No. 13,988/20 were: (i) final administrative judgment by the DRJs; and (ii) the possibility of adhering to a tax settlement, following its own criteria and procedures. We will look at the two measures below.

The judgment at last instance by the DRJ

Article 23 of Law No. 13,988/20, regulated by ME Ordinance No. 340/20, now provides that tax disputes for small amounts are ultimately examined by a board of the Brazilian Federal Revenue Service, prohibiting access to such administrative proceedings by an adjudicatory body with the Carf.

There are advantages and disadvantages to the new measure.

Although the measure strongly tends to speed up the judgment of low-value administrative tax proceedings, it ends up modifying the quorum for the body responsible for the second phase and, thus, restricting the taxpayers' defense.

One must recall that, until the enactment of Law No. 13,988/20, small claims litigation was judged at the appellate level by the extraordinary panels of Carf, a peer body, formed by the same number of representatives of the tax authorities and the taxpayer and with the opportunity for oral argument and monitoring of the judgment.

With the advent of this law, and its recent regulation by ME Ordinance No. 340/20, the plurality of parties in dispute in small claims administrative tax litigation has ended. In these cases, appeals are now ultimately examined by the appellate chambers of the DRJs, composed of three to seven judges selected from among the chief judges of the ordinary panels of the DRJs, all of whom are tax auditors and therefore representatives of the Brazilian Internal Revenue Service.

Moreover, in trials before the DRJ, oral arguments or even monitoring of the sessions by the parties is not allowed. For administrative proceedings for small amounts, therefore, defenses will be exercised only on paper, without reinforcement via oral arguments. Consequently, it becomes even more relevant to prepare a consistent and founded initial defense containing all the elements to prove the facts and the law.

An attempt to contribute to an environment of greater legal certainty came in the form of mandatory observance of the Precedents and Resolutions of the Carf by the DRJs, thus binding the position of the DRJs to that already included within the Carf’s guidance. The measure converges on greater uniformity of positioning. However, any repeated positions of the Carf, if not treated as a summary of law or precedent, will not be mandatory for the appellate panels of the DRJ.

Another point of attention is that, in the regulation of small claims litigation under ME Ordinance No. 340/20, the tie-breaking criterion was maintained by the vote of the presiding judge’s vote, contrary to the criterion established by Law No. 13,988/20 itself for the other administrative proceedings under the Carf, in which ties in judgments finding and ordering tax debts to be resolved favorably to the taxpayer.

Considering that administrative proceedings for small claims will no longer reach the Carf, the best solution, even to ensure the preservation of article 112 of the National Tax Code (CTN), would be that of disputes at the appellate level also in favor of the taxpayer.

The adoption of a special procedure for the judgment of administrative tax proceedings for small claims ensures greater speed in administrative litigation and, consequently, should substantially reduce the number of proceedings awaiting examination by the Carf. However, in pursuit of its objectives, Law No. 13,988/20 ended up sacrificing important constitutional principles for procedural practice, focusing on speed of review at the expense of full exercise of rights of defense.

Possibility of settlement

The second important measure adopted by Law No. 13,988/20 was the institution of settlements in tax matters. Bringing to reality the command until then pending regulation of the eighty-year old article 171 of the CTN, Law No. 13,988/20 allowed taxpayers and the Federal Government to settle regarding their debts.

Settlements, because they are an instrument that aims to solve tax disputes by extinguishing the debt through mutual concessions, represent an unequivocal change in the paradigm of the Public Administration in tax collection and should contribute to greater efficiency in tax litigation.

Among the modalities of settlement provided for in Law No. 13,988/20, a specific settlement was instituted for small tax litigation, allowing a discount of up to 50% of the tax debt with a payment period of up to 60 months.

Adherence to this type of settlement is subject to the rules that will be instituted by the PGFN and the RFB, as published notices.

The first notice for small value litigation settlements was published in August of 2020 (RFB Notice of Settlement No. 1/2020), allowing the payment of a downpayment of 6% of the net debt, after the application of the percentage reduction, and the payment of the remaining net debt from 7 to 52 installments, with discounts that could vary from 50% to 20% of the value of the principal, fine, interest, and other charges. Up to December 29, 2020, interested taxpayers could adhere to the conditions of this first notice. It is expected that the next notices will be published soon.

Although the measure represents a major advance in the tax authority/taxpayer relationship, its effectiveness depends on its scope. In order for the transaction to become a reality as a possible method of dispute resolution, especially in cases of small claims, the Brazilian Federal Revenue Service and the National Treasury Attorney's Office must follow a constant work of approximation with taxpayers, granting the advantages that effectively facilitate the settlement of tax debts and make the settlement attractive to a larger public.

The regulation of low-value administrative tax litigation and the possibility of offering these debts for tax settlements demonstrate an extreme concern by the federal government with reducing the serious tax outlook and the large amount of pending litigation. The proposed measures tend to translate into gains in speed, efficiency in dispute resolution, and savings for the public coffers, but are still on a path for improvement.

[1] NETO, José Barroso Tostes. "Contencioso administrativo tributário federal: diagnóstico e perspectivas” [“Federal administrative tax litigation: diagnosis and perspectives”] in Revista ETCO - Instituto Brasileiro de Ética Concorrencial [“ETCO Review - Brazilian Institute of Competition Ethics”]. Special Edition No. 25. Year 17. August 2020, p. 9.

[2] Within Carf, there is also a special trial body, under the responsibility of the Superior Chamber of Tax Appeals (CSRF), which is in charge of standardizing case law in tax matters, this being the last stage of federal administrative litigation.

Category: Labor and employment

The modernization of labor relations, the advancement of technologies, and the constant use of mobile phones have led to the creation of various possible channels of communication between employees and the proliferation of social networking groups. The lack of a regulation on their use at companies, however, exposes the employer to risks related to overtime, time on call, and even non-economic damages. This makes it essential to guide employees on how to use these means for professional purposes, especially in the most popular, less formal and usually personal channels, such as WhatsApp.

The sending of messages regarding work and the obligation to reply outside working hours can give rise to recognition of overtime and time on call. In 2019, a decision by the Labor Appeals Court (TRT) for the 4th Circuit/RS became final, which granted a claim for overtime by an employee who used WhatsApp outside of his normal working hours for conversations of interest to the company.[1]

The same court, in March of 2020, recognized an on call arrangement for an employee who was required to be available to the company by telephone and through messages in that application.[2] Likewise, in July of 2020, a decision by the TRT for the 1st Circuit/RJ became unappealable, according to which, for the purpose of establishing an on call arrangement, it is necessary to prove that there was an express requirement by the company regarding the employee's participation in the WhatsApp group outside of working hours.[3]

The creation of a WhatsApp group can confuse personal and professional relationships among employees and even lead to situations among subordinates and managers that could be interpreted as moral harassment. Recently, the 3rd Panel of the Superior Labor Court (TST) upheld a judgment for non-economic damages for moral harassment that occurred in a corporate WhatsApp group in which managers discussed delays and absences of employees, results, and names of those who did not meet the team's weekly goals.[4]

Although new channels of communication facilitate interaction between employees, the employer should be aware of the risks they present. One way to mitigate such risks is to develop internal policies to guide and regulate the use of these channels in order to maintain a safer working environment for workers and the company itself.

[1] RO 0021845-23.2017.5.04.0401

[2] ROT 0020459-74.2017.5.04.0233

[3] ROT 0100353-31.2018.5.01.0045

[4] RRAg-1001303-33.2018.5.02.0321

Category: Real estate

With the publication of Federal Law No. 13,786/18 (the Termination Law), the legislator sought to end the discussion regarding the fair and reasonable percentage that could be retained by real estate developers in the event that purchase and sale agreements are undone at the mere will of the purchaser or by default on the payment of the purchase price.

The law clearly defined the maximum retention limit at 25% (or 50%, for cases where there is segregated equity) of the amount paid by the purchaser, plus the brokerage commission. It did not indicate, however, what arrangement would apply to contracts executed before the law entered into force, which often provided for higher percentages (reaching 70% in some cases).

Faced with this doubt, the Public Prosecutor's Office of the State of São Paulo filed with the São Paulo Court of Appeals, in 2017, a collective consumer action[1] regarding the unfairness of provisions that stipulate withholdings between 50% and 70% of the amount paid by consumers. The action was submitted to the Third Panel of the Superior Court of Appeals (STJ) and decided under Special Appeal 1820330/SP, for which Justice Nancy Andrighi drafted the opinion.

Contrary to the provisions regarding the application of the Termination Law as a legal reference and in an analogical manner (considering that it had been published after the execution of the contracts at issue, but that it dealt fully with the subject), the Justice established that "the percentage of 25% unequivocally encompasses all indemnities that must be guaranteed to the seller in the event of breach of contract with the consumer at fault." In other words, in addition to reducing the contractual percentages in the specific case (which is in accordance with the criterion of the most current legislation), the STJ included, in this same limit, a brokerage commission, on the understanding that this is a cost within the liability of the seller of the unit (even if contractually the obligation to pay the commission is transferred to the purchaser, as understood by Topic 938/STJ).

The issue is delicate and the STJ’s solution is debatable. Even considering that it was already common to reduce the percentage of retention in cases of proven contractual abuse and that the adoption of the criterion of the most recent law may be a way out in certain cases, the STJ, by including the brokerage commission in this amount, ended up adopting a solution more onerous for the developers than the legislation itself, considering that the Termination Law allows retention of the brokerage commission in addition to the percentage of 25%.

Although the decision may serve as a parameter for future judgments in the STJ itself or in the state courts, it has not settled the issue and does not necessarily apply to all other cases that discuss the issue. In other words, it is not yet possible to define the course of the case law on the subject nor to define the applicability, by analogy, of the parameters brought in by the Termination Law to the contracts executed before its entrance into force.

[1] 1053043-30.2017.8.26.0100

Category: Tax

An analysis of the documents underlying the debate and subsequent approval of Complementary Law No. 160/2017 (LC 160/17) reveals that the purpose of the law was to terminate the litigation associated with the ICMS “Tax War”.

From the state tax perspective, LC 160/17 grants "forgiveness" for benefits unconstitutionally granted by the states over the years and ensures transparency and equality among federal entities for future ICMS incentives. At the federal level, articles 9 and 10 of the law sought to close the debate on whether or not an ICMS tax incentive can be classified as an investment subsidy and, therefore, excluded from the IRPJ, CSLL, PIS, and Cofins calculation basis.

The opinion of the Senate Economic Affairs Committee, when discussing the bill that resulted in LC 160/17, was perhaps the most emphatic on the law's objective: "the classification of ICMS tax benefits as a subsidy for funding or investment has been controverted (...) The aim of SCD No. 5 of 2017 is to close the discussion on the matter by inserting provisions in article 30 of Law No. 12,973, of 2014, to provide that ICMS tax benefits, whether or not granted within the scope of the “Tax War”, will be considered an investment subsidy. With this, the burden of the IRPJ, CSLL, PIS/Pasep Contribution, and Cofins will be eliminated."

It is clear that the legislator's intention was to eliminate the legal uncertainty surrounding the qualification of a tax incentive as an investment subsidy or as a cost subsidy, given the countless discussions that had been going on for years in the administrative and judicial courts on the matter (often adopting criteria not provided for in the legislation to qualify ICMS tax benefits as a kind of subsidy or otherwise), determining that any and all ICMS tax benefits will receive treatment as an investment subsidy. To reinforce this legal qualification, the new paragraph 4 of article 30 of Law No. 12,973/14 further emphasizes that "other requirements or conditions not provided for in this article may not be required" for classifying ICMS tax benefits as investment subsidies.

It seemed like the discussion was finally over. Provided that the states meet the requirements for registration and filing of tax benefits under LC 160/17 and that taxpayers allocate the “subsidy revenue" to the tax incentive reserve, the amount of the ICMS benefit could also be excluded from the IRPJ, CSLL, PIS, and Cofins taxable basis.

This position was even confirmed by the Federal Revenue Service itself in the Consultation Proceeding No. 11/20, which, despite the clarity of LC 160/17, was well received by the legal community as a definitive indication of the end of this debate, with a view to achieving some level of legal certainty. The favorable understanding of the tax authority, however, was short-lived.

In the recent Consultation Proceeding No. 145/20, published in December, the Federal Revenue Service reignited the debate over the qualification of ICMS benefits as investment subsidies or costs. In it, the agency states that, in order to be excluded from the taxable basis of IRPJ, CSLL, PIS, and Cofins, the state incentive must necessarily be granted as a "stimulus to the implementation or expansion of economic enterprises.”

Following this view, the intention of LC 160/17 was only to depart from the requirements of synchrony and binding that had been required until then by the tax authority to identify an investment subsidy, which are requirements set forth in Normative Ruling No. 112/78 and in article 198, paragraph 7, of Normative Instruction No. 1,700/17.

The new position of the Federal Revenue Service once again "selects" a specific set of ICMS benefits that may receive the tax treatment of "investment subsidy," which excludes those that do not present a clear counterpart in an economic enterprise.

Regardless of any value judgment on the tax policy choice of the Legislative Branch in the promulgation of LC 160/17 (which, it is worth remembering, had the vetoes of the Executive Branch on this matter overturned), it seems evident that Consultation Proceeding No. 145/20 is disregarding the legal text and the objective for which the complementary law was conceived, making it completely ineffective, in addition to modifying the recent response by the agency itself in the opposite direction, accentuating the scenario of legal uncertainty that so harms the Brazilian tax environment.

Thus, the tax authority's most recent interpretation leads to the conclusion that LC 160/17 was enacted solely to remove the infralegal and, always, illegal requirements of the Federal Revenue Service (synchronization and binding), which could never have been required due to the lack of a legal basis in that regard. Of course, it is not necessary for the legislator to promulgate a rule with the force of complementary law in order to set aside a rule inserted into the tax system, illegally, via a normative instruction, which does not even have the force of law.

As is increasingly common in Brazil, it seems that the Federal Revenue Service does not agree with the tax policy chosen by the legislator and, without any legal support, will cling to this discussion, dragging litigation on for another decade, contradicting the text of the complementary law and the positions already established in the higher courts on the impossibility of levying of IRPJ, CSLL, PIS, and Cofins on ICMS tax benefits, as per Topic 843, decided under the general repercussion regime by the Federal Supreme Court, and the Motion to Resolve Divergence in Special Appeal No. 1.517.492, decided by the First Section of the Superior Court of Appeals.

It is seen that the Executive Branch, this time through the Federal Revenue Service, insists on acting in a dissonant manner from the Legislative Branch (which, as mentioned before, overthrew the veto of the Executive Branch itself when passing LC 160/2017) and the Judiciary, contributing to a scenario of complexity, cost, and legal uncertainty.

Situations such as these reinforce the need for a broader tax reform, but also serve as a warning against the risk that it will not achieve its full effects as long as the contentious mentality of the Federal Revenue Service persists, which adopts its individual interpretation in clear conflict with the spirit of the legislator.

Category: Labor and employment

After almost a year of pandemic, the time has come to talk about carnival for 2021: how will Brazil's biggest festivity take place and how will it affect labor and employment relations? Will the workers continue to perform their activities normally? What should companies do?

First of all, is Carnival a holiday or not? There are two types of holidays in Brazil: civil and religious. Civil holidays are those established in federal, state, and municipal law. Religious holidays are made up of reserved days provided for by municipal law, not exceeding four in number, including Good Friday.

Carnival, despite being a tradition in Brazil, is not a national holiday. There is a carnival holiday only in places where state or municipal law establishes it. In the state of Rio de Janeiro, for example, Law No. 5,243/08 establishes Tuesday during Carnival as a state holiday.

In locations where Carnival is not a holiday, employers may adopt the measure they prefer in relation to their employees, always respecting the provisions of the collective bargaining agreement applicable to their employees.

Due to the pandemic, however, several cities have yet to define whether to hold or postpone Carnival. The festival will not take place in certain locations this year, and in others it may still be cancelled or postponed.

In certain localities, on the other hand, municipal and/or state authorities have already issued decrees canceling Carnival days as optional day-offs for public agencies. The São Paulo City Government, for example, by means of Municipal Decree No. 60,060/2021 defined that there will be no optional day-offs on February 15, 16, and 17, 2021. According to the City Government, the adoption of the optional day-off corresponding to the days of Carnival and Ash Wednesday would potentially encourage the agglomeration of people in public and private spaces, in the opposite direction of what is recommended by the health guidelines and protocols.

In any case, we emphasize that the fact that Carnival is or is not optional day-off for the purposes of the Public Administration does not affect labor and employment relations in the private initiative. This is because, for companies, what must be taken into consideration is whether or not there are state and/or municipal laws or regulations establishing Carnival as a local holiday, regardless of whether it is optional day-off.

Thus, if it is not a local holiday, companies have four alternatives:

1. Grant employees day off, on a voluntary basis, without the need for offsetting, on the date initially scheduled or on the date of the festivity to be established by the local authorities.
2. Grant day off on the date initially scheduled or on the date of the holiday to be established by the local authorities, with corresponding offsetting for hours not worked, by means of individual agreement or hours bank, provided that the limits for offsetting provided for by law and the terms of the applicable collective bargaining agreement are complied with.
3. Offset in advance the hours not worked due to Carnival, with flexible days off because of the uncertainty regarding the date, to be fixed via individual agreement or hours bank, provided that the limits on hours offsetting provided for by law and the terms of the applicable collective bargaining agreement are complied with.
4. Require normal work from employees, subject to the terms of the applicable collective bargaining agreement.

*Information updated on February 2, 2021.