Publications

Category: Tax

Virginia Pillekamp, Fernanda Sá Freire Figlioulo e  Ana Yoshie Yassuda

A recent position of the Federal Supreme Court (STF) established a new chapter in the dispute among the states of the federation over the competence to charge ICMS tax on imports, the so-called "war of the ports.” When ruling on Extraordinary Appeal with Interlocutory Appeal No. 665134 (ARE 665134), on April 27, the STF unanimously established the following theory of General Repercussion (topic 520):

"The taxing authority for the ICMS tax obligation levied on imported goods is the member state in which the legal recipient of the transaction that gave rise to the circulation of the goods is domiciled or established, with the transfer of domain."

The theory justifies the declaration of partial unconstitutionality, without a reduction in the text, of article 11, I, "d" of Federal Supplementary Law No. 87/96 (Kandir Law), which defined the establishment of the "physical entry" of imported goods or merchandise as the place of the operation or delivery, for the purposes of ICMS taxation due on importation (ICMS-Import).

The theory is important in determining the taxing authority of the ICMS, especially in the context of the “war of the ports." To optimize the tax and financial aspects of import operations, Brazilian companies sought to perform the customs clearance of goods and merchandise through trading companies located in states of the federation with more favored taxation, which would then be the taxing authorities of the ICMS-Import tax.

The war of the ports affected the sector when the tax authorities of other states of the federation, such as São Paulo and Minas Gerais, issued thousands of fines against these companies, based on the aforementioned provision of the Kandir Law. With the STF's position on this topic, the location of the "physical entry" of goods becomes irrelevant in determining the taxing authority for the ICMS-Import tax.

In the vote of the reporting judge, Edson Facchin, it is possible to perceive three topics of majority reasoning in the composition of Topic 520.

First, the STF held that the definition of the taxing authority of the ICMS-Import tax obligation is based on the final recipient of the goods, which is not interdependent on the place of customs clearance:

"Therefore, customs clearance is the temporal aspect of the event of levy, being, it bears repeating, a criterion unrelated to the definition of the personal aspect of the tax obligation."

In agreement with this observation, the Justice highlighted the concept of a "final recipient" for that context "(...) that gives cause for the occurrence of the circulation of goods, characterized by transfer of domain." And, thus, as for "circulation of goods", Edson Facchin emphasizes that, provided that there is actually an international legal business, for the purposes of defining the establishment responsible for the tax, this expression includes the physical entry and symbolic entry of imported goods. In symbolic entries, this determination is based on the understanding that there is legality emanating from a documental or symbolic operation in feigned circulation of goods, provided that there is an actual legal business.

To demonstrate the proposed understanding applied to the three most common scenarios of importation of goods in the Brazilian legal system, the Justice explicitly outlines three interpretative guidelines, according to his own words, expounding them in topics:

• a) In importation on its own account, the economic recipient coincides is the same as the legal recipient, since the importer uses the goods in its production chain;

• (b) In importation to the account and at the order of a third party, the legal recipient is the one who gives actual cause for the import operation, that is, the party contracting for the rendering of services consisting of the performance of the customs clearance of goods, in its own name, by the importer contracted; and

• c) In importation to its own account, to order, the legal recipient is the importing company (trading company), because it is the one who engages in the ICMS triggering event with the intention of subsequent resale, even if per a prior agreement, after the process of internalization.

Establishment of the theory, according to Justice Edson Fachin, provided legal security to import operations, supporting and clarifying the STF's understanding, as well as stabilizing social expectations on legal relationships of a tax nature.

Assessing the specific case, we believe social expectations remain unstable. To explain better, in the case put under analysis in ARE 665134, clearance of the goods occurred in the state of São Paulo, followed by the sending of the materials in transfer to the state of Minas Gerais for the industrialization process. Later, the goods returned to São Paulo for marketing and sale.

In promoting the debate, the taxpayer argued for the levy of the tax in São Paulo, alleging, among other issues, that the establishment located in Minas Gerais had the objective of enabling the industrialization of raw materials to order in a brokerage stage only. Thus, since the final recipient of the imported goods is located in São Paulo, the ICMS tax should be pay to the São Paulo tax authorities.

The STF held that the taxing authority of the ICMS-Import tax was the state of Minas Gerais, despite the fact that, in the headnotes and in so many other passages of the opinion, it argued that "the economic recipient should not be confused with the legal recipient. Due to this contradiction, among other aspects of the decision, the taxpayer, on May 25, 2020, filed a motion for clarification, which is pending review.

Category: Litigation

On May 21, the House of Representatives approved Bill 1,397/20, which contemplates emergency measures to deal with the effects of the covid-19 pandemic, including amendments to the Bankruptcy and Corporate Reorganization Law (LRF). The approved version has some changes in relation to the original proposed by Representative Hugo Leal.

The text under consideration in the Senate makes it clear that all the provisions it contains apply to legal entities under private law and to individual businessmen, and the mechanisms of legal suspension and preventive negotiation can also be used by rural producers and self-employed professionals who regularly carry out their activities. Bill 1,397/20 states, however, that its measures do not apply to consumers and to cooperative acts performed by cooperatives with their members.

Unlike the original version, which extended the duration of the transitional measures until the end of the pandemic, the version of the Bill approved provides that they will be in force from the publication of the law until December 31, 2020. The transitional measures created by Bill 1,397/20 are:

• Legal suspension: period of 30 days from the effective date of the law (in the original version is was 60 days) during which legal actions of an execution nature involving discussion or performance of obligations due after March 20, 2020, as well as contract revision actions, are suspended automatically.

The following acts relating to contracts signed or renegotiated before March 20, 2020, are also prohibited in such period:

• judicial or extrajudicial executions of real, fiduciary, secured, and co-obligation guarantees;

• decrees of bankruptcy;

• unilateral termination of bilateral contracts, thus considering null and void any contractual provision to that effect, including early maturity.

However, this prohibition does not apply to obligations arising from claims of a strictly salary nature, to contracts entered into after March 20, 2020, or to the exercise of rights of early maturity and offsets in the scope of repo and derivative transactions.

The approved version of the bill provides, unlike the original, that no late fee (contractual or tax) will be imposed. As nothing is said about default interest and adjustment for inflation, it is possible to argue that such charges will apply.

• Preventive negotiation: a procedure of voluntary jurisdiction, which may be filed, within 60 days of the end of the period of legal suspension, by economic players who have a reduction of 30% or more of their turnover compared to the average of the last quarter, as attested by an accounting professional.

The assignment of the claim to a court, which must be submitted to the court of the place of the debtor's principal place of business, will entail suspension of executions against the debtor for a maximum and non-extendable period of an additional 90 days. The debtor maintains the protections applicable to the legal suspension period discussed above. Once the claim has been assigned to a court, the competent judge will examine whether the formal requirements for the benefit have been met, thereby ceasing the suspension and terminating the proceedings if they have not been met.

No response, brief, or any kind of inquiry or expert investigation regarding the claim for preventive negotiation shall be entertained.

During these 90 days, the debtor must seek to renegotiate out of court the terms and conditions of its debts. The position of a negotiator previously provided for was excluded from the approved version of the bill. At the end of this period, the debtor must notify the judge of the result of the negotiations within 60 days. The case will be shelved after the submission of this report.

The bill establishes that, in the event that a petition for judicial reorganization is filed thereafter, the legal suspension period shall be deducted from the 180-day stay period already provided for in the LFR.

A novelty of the approved version of the Bill is that creditors who have entered into an settlement with the debtor during the legal suspension or preventive negotiation period will have their rights and guarantees originally contracted restored if the debtor applies for judicial or extrajudicial reorganization within 360 days of the execution of such settlement.

The bill makes it clear that the debtor may enter into, regardless of judicial authorization, financing agreements and receivables discounting operations with any financing agent, investment fund, including its creditors, partners, or companies in the same economic group, to fund its restructuring and preserve the value of its assets.

The novelty of the bill approved by the House of Representatives is treating as not subject to judicial and/or extrajudicial reorganization the debt claims arising from financing and discount agreements provided between March 20, 2020, and the end of the validity of the law. In the event of bankruptcy, such a debt claim will have the priority provided for in subsection V of article 84 of the LRF.

• Provisional amendments to the LFR (applicable only to proceedings initiated or amended during the term of the law proposed by Bill 1,397/20): for requests for judicial reorganization and approval of out-of-court reorganization plans initiated during the term of the law, the bill proposes relaxation of certain requirements, such as allowing new requests by companies that have already benefited from these institutes without time restriction and reducing the quorum for approval of out-of-court reorganization to a simple majority of the creditors involved (currently three-fifths).

During the transitional arrangement, an application for approval of an out-of-court reorganization plan may be submitted with proof that creditors representing at least one third of all the claims of each type covered by the plan have agreed to it, with a commitment to reach the quorum referred to above within a non-extendable period of 90 days from the date of the application. The creditor may also convert the application into judicial reorganization.

The bill also provides for the granting of a stay period to the debtor applying for extrajudicial reorganization in view of the type(s) of creditor(s) covered. As we indicated in our prior article, the LRF does not provide for a suspension period for this type of proceeding, but case law already allowed for it.

In the case of bankruptcies, the minimum default limit for bankruptcy to be decreed was raised from 40 minimum wages (i.e. R$ 41.8 thousand)¹ to R$ 100 thousand.

The transitional rules proposed in the bill also affect ongoing out-of-court reorganization, judicial reorganization, and bankruptcy proceedings: obligations assumed in ratified reorganization plans will not be payable for 120 days, and during this period the possibility of conversion of reorganizations into bankruptcy due to noncompliance with the obligations established in approved plans is suspended.

In addition, debtors may submit a proposal for a new reorganization plan including debts that were taken on after the assignment to a court of the application for reorganization, which is currently prohibited. The approved version of the bill excepted debt claims related to financing granted during judicial reorganization, known as DIP financing, but limited them to those that had been preceded by the express consent of the Judiciary. The legislature's choice in this regard is controversial, since the granting of this type of financing today does not require judicial consent under the current system.

The bill also stipulates that debtors will be entitled to a new stay period under the LFR.

With regard to the addition to the plan, the amount of the claims originally held by the creditors, less any amounts paid, shall be taken into account both for the calculation of the amount to be paid and for the counting of votes for approval of the amended plan.

For micro and small businesses, the bill establishes more beneficial rules for the debtor in the event of judicial reorganization, with a special plan providing for payment of the first installment within one year.

As the text was approved by the House of Representatives, the administrative acts of nullification, revocation, blocking of registration, or registration of taxpayer numbers that are subject to judicial discussion in the scope of judicial reorganizations are suspended during the term of the law.

In our next article, we will examine the possible changes proposed for the text of the Bill by the senators.

¹ Based on the national minimum wage in force on the date of publication of this article (R$ 1,045.00), as provided for in Executive Order No. 919, of January 30, 2020.

Category: Labor and employment

The Federal Supreme Court (STF) en banc has partially approved an in limine decision issued by Justice Marco Aurélio de Mello as reporting judge for seven Direct Unconstitutionality Suits (ADIs) filed against Executive Order No. 927/20 and suspended the understanding that covid-19 is not an occupational disease. The decision was reached by a majority vote in a session held on April 29.

The Justice writing for the court, who had rejected the preliminary injunction requested by the parties and the workers' representative entities, voted to maintain his decision. However, the dissenting opinion opened by Justice Alexandre de Moraes prevailed, to the effect of suspending article 29, which does not consider contamination of workers with the coronavirus to be an occupational illness, except when the existence of a causal link between the illness and work has been proven. Article 31 was also suspended, according to which labor inspectors must act in a guiding manner with respect to irregularities found during the 180-day period when the Executive Order came into force.

For most of the Justices on the STF, the requirement that the employee prove a relationship between coronavirus contamination and work imposes "diabolical proof," given the impossibility of precisely defining in which circumstance the disease was contracted. The decision, therefore, signals that it would be the employer's burden to prove that the disease was not acquired in the work environment or because of it, thus reversing the burden of proof in the specific case of infection with the coronavirus.

The main implications of recognition of an occupational illness are suspension of the employment contract and the right to provisional job security for a minimum period of 12 months.

Considering the dizzying increase in the number of people infected with the coronavirus in Brazil and the economic impacts of the pandemic, a temporary guarantee of employment for workers who contract the disease places an even greater burden on companies, which are already being forced to lay off employees or even close down their activities.

In addition, if the STF's understanding is maintained and employers are unable to prove the absence of a causal link between contamination with the coronavirus and work, there will be an increase in taxation on companies due to the impact on the calculation of the Accident Prevention Factor (FAP).

For that reason, it is recommended that companies submit an appeal in the administrative sphere, in the event that accident illness aid (type B-91) is granted to workers placed on leave due to covid-19 in order to convert the social security benefit into common illness aid (type B-31). The absence of a causal link between contamination and work must be demonstrated through evidence of the adoption of mandatory measures, in addition to the guidelines and recommendations of the Brazilian authorities to confront the pandemic.

Similarly, in labor claims, if there is a request for recognition of an occupational illness by a worker contaminated with the coronavirus, companies must handle the case like any other request for recognition of an occupational illness. To this end, they must submit documents proving the adoption of individual and collective protection measures to preserve the health of their employees and request medical expert evidence, including at the workplace.

It is important to remember that the Social Security Benefits Law (Law No. 8,213/91) provides in its article 20, paragraph 1, "d", that endemic disease is excluded, as a rule, from the concept of an occupational disease. The law considers a disease to be occupational only when it is proven that the contamination resulted from direct exposure or contact determined by the nature of the work.

Based on this provision, the precedents of the Labor Courts do not consider cases of contamination of employees by endemic diseases, such as malaria or leishmaniasis, to be occupational, precisely because of the impossibility of determining the time and place of infection. Labor case law finds an occupational nature only in cases where the workplace puts the employee at permanent risk to the vector of the disease or where there is displacement from a place where there was no risk of contracting it in order to fulfill the contract in a region prone to its development.

Although article 20, paragraph 1, "d" of Law No. 8,213/91 specifically governs endemic diseases, it is reasonable to apply the same understanding, by analogy, to covid-19, since the motivation for the rule is even more fitting in a pandemic scenario: difficulty in establishing when and where contamination occurred.

Therefore, based on the interpretation of this passage of the law and the principles of protection of the work environment, although the STF may declare in a final judgment the unconstitutionality of article 29 of MP 927/20, we believe that the cases of workers contaminated by the coronavirus whose employers have adopted preventive measures to contain the disease and complied with the workplace health and safety rules, in addition to the guidelines of the health authorities, cannot be classified as occupational.

Category: Tax

The covid-19 pandemic led various commercial, industrial, and service providers in Brazil to suspend their activities indefinitely. Thus far, there is no prospect of normalization of economic activity.

Although some activities can be carried out remotely, in other sectors it is common for employees to be dismissed from work while social distancing measures last. In such cases, employees do not work, but maintain their employment relationship and continue to receive the amounts usually paid by the employer. This may be the case, for example, with shop assistants or with workers of large industrial plants, activities that cannot be performed remotely.

Situations in which employers continue to make payments to employees, even when they are dismissed from work, may give rise to the non-imposition of the social security contributions due by the employer on these amounts. This is because section 22, subsection I, of Law No. 8,212/91 provides that the employer's social security contributions shall be levied on compensation paid, due, or credited to the workers and intended to compensate work.

The compensatory element thus assumes a central role in defining the scenarios for the imposition of social security contributions. These social contributions become due only if the payments serve as compensation for the service provided or for the availability of the service provider. In other words, if the employee is not being compensated for providing services or for being at the employer's disposal, then such payments should not be subject to the social security contributions due by the employer.

Accordingly, the Superior Court of Justice (STJ) ruled, under the repetitive appeals procedure (REsp 1.230.957/RS), that no social security contributions are levied on amounts related to indemnification for the lack of dismissal notice paid to employees, since there is no retributive element in the payment. We believe that this STJ decision reinforces the importance that there must in fact be compensation for these social security contributions to be levied.

More recently, the Federal Prosecutor's Office has expressed a similar view in Extraordinary Appeal 1.072.485/PR, defending the non-imposition of the social security contributions due by the employer on the additional vacation pay, precisely because such cases also do not involve compensation for the provision of services, among other reasons.

Although tax authorities may adopt a different position from that set forth above, in our opinion, it is possible to argue that employees in this situation are not at the employer's disposal if the employer is prevented from operating in a normal manner, whether due to health measures to preserve the health of employees or due to municipal and state regulations. Thus, when it is impossible for employees to perform the activity for which they were hired, we believe that it cannot be said that they are at the disposal of their employer.

In the case of employees who have been dismissed as a result of the pandemic, but maintaining the employment contract, there does not seem to be any payment for the time that the employee remains at the employer's disposal, since there is no prospect of a return to normality and regularization of the activities of these employees. In fact, employers do not seem to take advantage of this potential availability of employees, since economic activity cannot be resumed while the restrictions continue. That is why it is unlikely that this is the reason for maintaining jobs and making the payments discussed here.

The preservation of jobs at this time seems to be more related to the high costs for the formal dismissal and subsequent hiring of employees, or even the laudable feeling of social solidarity, than to the expectation that the provision of services by employees will be necessary again in the short term. In this context, amounts paid by employers to employees who are dismissed from work are similar to the arrangement for cost allowances, expressly dissociated from compensation by section 457, paragraph 2, of the Consolidated Labor Laws, and on which no social security contributions due by the employer are imposed.

In view of the above, we believe it is possible to question the imposition of the social security contributions due by the employer on the amounts paid to employees dismissed from work due to the covid-19 pandemic.

Category: Infrastructure and energy

The serious economic consequences of the covid-19 pandemic put the organization and management capacity of Brazilian regulatory agencies to the test, in addition to requiring adjustment of standards to mitigate the impacts in some extremely relevant sectors. This is the case of the air sector, one of the most affected by recent economic, social, and health changes.

With most aircraft out of service and a drastic reduction in passenger demand, airlines are experiencing an unprecedented crisis around the world. In Brazil, the National Civil Aviation Agency (Anac) has been proactive and sensitive to this delicate moment, taking a series of measures to mitigate the negative economic consequences of the sector's almost complete shutdown.

Besides authorizing the transportation of cargo in the passenger cabin, Anac’s board of directors recently approved two new resolutions that have as their main objective facilitation of the operation of the companies and to grant a brief financial respite that may be decisive for the future of some companies in the sector.

Resolutions No. 556 and 557 temporarily amend some provisions of Anac Resolution No. 400, which establishes the general conditions for air transport in Brazil. According to the new standards, the following rules shall apply:

• If the carrier changes the flight schedule and itinerary in a scheduled manner, passengers must be informed at least 24 hours in advance of the originally contracted time. Before the modification approved by Anac's board of directors, the minimum deadline was 72 hours.

In cases of change, flight delay, cancellation of flight, or interruption of service, the carrier shall be exempt from the following obligations:

• Offering material assistance, provided that the change, delay, cancellation, or interruption has been caused by the closure of borders or airports as mandated by the authorities;

• Offer re-accommodation on another company's flight to the same destination at the earliest opportunity if there is availability on another carrier's own flight; and
• Offer provision of the service by another mode of transportation.

• In cases of delay of more than two hours, the transporter will not be obliged to provide meal vouchers or to observe the meal characteristics to be provided according to the schedule.

• Information requested by users must be provided and complaints resolved within 15 days, suspending the period of ten days originally stipulated by Anac Resolution No. 400.

The new rules apply to all flights originally scheduled or events registered by December 31, 2020.

Anac took the opportunity to draft the new resolutions to clarify the reimbursement rule in Executive Order No. 925. According to the text promulgated by the Brazilian President’s Office, the period for reimbursement of the purchase price of tickets is 12 months. However, Anac Resolution No. 557 clarifies that this deadline does not apply to cases in which the passenger withdraws and the request was made within 24 hours of receipt of the voucher, when the ticket was purchased seven days or more before the boarding date. In this case, the seven-day period for reimbursement provided for in Anac Resolution No. 400 remains in force.

Aviation is going through a delicate time and its survival will require the joint and coordinated action of the government, private initiative, and the regulator. The economic effects of the pandemic are still unpredictable, however, to reduce its reach, mitigation measures must be precise and timely.

Category: Infrastructure and energy

The crisis caused by the covid-19 pandemic continues to hit various sectors of the economy relentlessly. In Brazil, the domestic air market has been reduced by 90%, while the international market remains practically shut down, according to data released by the National Civil Aviation Agency (Anac).[1]

A series of regulatory measures have already been implemented by Anac with the aim of providing financial breathing space for airlines and making some operational rules more flexible, in an attempt to guarantee minimum survival conditions for the sector during this period of extreme reduction in demand. Rules on reimbursement of tickets, transport of cargo in the passenger cabin, deadline for meeting consumer demands, and notice period for cancellations and rebookings were promulgated. However, thus far there has been no concrete position on issues of a health nature.

The gap in the guidelines involving official prevention measures was filled on May 19, with the publication of health measures for aviation. They are based on a technical note prepared by the National Health Surveillance Agency (Anvisa), which brings in a series of recommendations for airport operators, workers, civil servants, airlines, and service providers.

In addition to the already known recommendation for the use of face masks, Anvisa suggests the adoption of the following measures:[2]

Airport operators:

• Observe the guidelines of the World Health Organization (WHO);

• Intensify surveillance of suspected cases at airports so that the isolation measures necessary are taken and reporting to the relevant bodies is carried out;

• Disseminate audible warnings in all departure and arrival areas with the texts indicated by the health authorities;

• Notify the health authority of suspected cases identified in the airport area;

• Disseminate guidance on websites so that only passengers transit through terminals;

• Supervise cleaning teams to ensure the frequency of cleaning and disinfection of workers' personal protective equipment;

• Organize the movement of people in terminals in such a way as to allow a minimum distance of two meters;

• Increase the availability of hand sanitizer and liquid soap;

• Post informational materials with the prevention measures;

• Limit bus capacity to 50% of capacity in trips between terminals; and

• Keep the air conditioning systems with renewal of air at maximum capacity.

Airport civil servants and workers:

• Respect the minimum distance of two meters;

• Wash hands frequently with soap and water or, if not possible, use 70% alcohol sanitizer;

• Avoid touching the eyes, mouth, and nose;

• Clean hands after coughing or sneezing;

• If suspected cases are reported, wear an apron, goggles, and gloves in addition to a surgical mask; and

• Use personal protective equipment.

Airlines:

• Publicize audible warnings on all flights, as indicated by the health authorities;

• Supervise aircraft cleaning teams to ensure intensified cleaning procedures;

• Leave only security cards in the pockets of the seats and ensure the process of cleaning and disinfecting cards;

• Require crew and passengers to wear masks;

• Carry out the cleaning and disinfection procedures at each stopover before the new passengers board;

• Guide the disembarkation to ensure distance between passengers;

• Organize check-in and boarding procedures, respecting the minimum distance of 2 meters;

• Provide 70% alcohol sanitizer and liquid soap inside the aircraft;

• Take steps to ensure as much air renewal as possible inside the aircraft;

• Suspend in-flight services on domestic flights, or, if the company chooses to maintain services, prioritize food and beverages served in individual, sanitized packaging; and

• Respond to requests for lists of travelers and crew members to enable the authorities to investigate suspected cases.

The technical note also includes guidelines for air taxi companies, specialized aeromedical transport companies and health inspection teams. The implementation of the measures will be supervised by a special working group set up at the request of the Ministry of Infrastructure and coordinated by Anac.

Moments of extreme economic stress such as that caused by the pandemic bring about financial consequences that are still immeasurable in the short term. On the other hand, they end up creating a favorable scenario for revising economic, management, and operational models, in addition to significantly speeding up the normally lengthy and bureaucratic process of drafting new standards.

One lesson that the pandemic provided to regulated sectors was the possibility of quick regulatory readaptation, without prejudice to the quality of the work developed. The actions of Anac and Anvisa so far is proof that it is possible to work efficiently in the preparation and alteration of rules and that regulation does not need to be synonymous with bureaucracy and slowness. The circumstances, although unfortunate, made two regulatory agencies work together with the same objective: to reduce the rate of contagion and ensure the survival of an economic activity of significant relevance to the functioning of Brazil.

The only certainty amid the chaos caused by the pandemic is that aviation and all its procedures will be drastically altered in the near future until the transmission of the virus is controlled. Until then, the joint effort of the authorities, private sector, and population will be essential.

[1] https://www.anac.gov.br/noticias/2020/novas-medidas-sanitarias-em-aeroportos-e-aeronaves-reforcam-uso-de-mascaras-e-protecao-aos-passageiros-e-profissionais

[2] Technical Note No. 101/2020/SEI/GIMTV/GGPAF/DIRE5/ANVISA