Publications

Category: Labor and employment

The publication of Executive Order No. 905/2019 brought about various important impacts for employers from a practical point of view. One of the main changes is permanent authorization for work on Sundays and holidays for all categories of workers, ending the obligation for collective bargaining or administrative requests to the competent authorities for this purpose.

In addition, all employers are allowed to work on Sundays and public holidays, subject to local laws and regulations for the commerce sector, with no interference by the federal government regarding the categories of employees authorized, contrary to what previously the case. However, the rules established in collective bargaining agreements on the subject must be observed.

Before the publication of the MP, Ordinance No. 604/19 of the Special Bureau of Social Security and Labor was in force, which regulated work on Sundays and holidays only for 78 categories of employees, leaving out various sectors that lacked labor regulations for these days.

Although the obligation to provide weekly days off is maintained, it is no longer required to do so, as a rule, on Sundays. While article 68 of the CLT now expressly authorizes work on Sundays and holidays, article 67 assured only the right to paid weekly rest for 24 consecutive hours, preferably granted on Sundays.

This is a major paradigm shift, as prior to the promulgation of the MP, the CLT stated that “except for reasons of public convenience or overriding need for service”, paid weekly rest should be given predominantly on Sundays, except for sectors that were already authorized by Ordinance No. 604/19 to work on Sundays.

The MP also added a paragraph to the new article 68 of the CLT, stipulating that the weekly paid break schedule on Sundays must be (i) one Sunday every for four weeks of work for the retail and services sector and; (ii) one Sunday every seven work weeks for industry. Specifically for commerce, the MP provided that local laws and regulations must be observed, which in fact already occurred.

The provision for alternation in enjoyment of weekly paid rest on Sundays is new in the CLT. Previously, the provision for alternation existed only in Law No. 10,101/2000, which provided, for commercial activities in general, mandatory time off on Sundays for every three weeks of work, and in Ordinance No. 417/66 of the then Ministry of Labor, which provided for mandatory time off on Sunday every seven weeks of work.

Per the new rules, when work occurs on Sundays or public holidays, employees must enjoy to compensatory weekly rest on any other day within the same week, and there is no need to remunerate this work as overtime. However, if the compensatory time off is not granted in the same week, that day must be paid double.

The regulation brings about security in labor relations and creates more opportunities for production and consumption. There is a clear need for various sectors to operate on Sundays, which makes it absolutely fundamental to disentangle this issue for business establishments, with the removal of different rules regarding work on these days.

Category: Tax

The penalty of forfeiture of property is one of the most severe and extreme penalties contained in Brazilian law. Despite its confiscatory nature, the Federal Supreme Court (STF) has already abstractly recognized its validity and compliance with the current Federal Constitution (RE 251.008-AgR/DF, Opinion drafted by Justice Cezar Peluso, First Panel, published in the Official Gazette of the Judiciary on June 16, 2006).

However, as this is an extreme penalty, application thereof must be preceded by a rigorous examination of the factual circumstances and their classification within the restricted scenarios that legitimize it, lest it run contrary to the principle of legality.

In the exhaustive list of scenarios that allow for the penalty of forfeiture, article 689 of the Customs Regulation contemplates unjustified deviation from route during the customs transit of the imported good:

Article 689. The penalty of forfeiture of the merchandise is applied in the following scenarios, as they constitute damage to the public purse (Decree-Law No. 37, of 1966, article 105; and Decree-Law No. 1,455, of 1976, article 23, head paragraph and paragraph 1, as amended by Law No. 10,637, of 2002, article 59):

(...)

XVII - foreign, in transit in the customs territory, when the land vehicle driving it is diverted from its legal route, without justified grounds;

It was on the basis of that provision that the customs authorities imposed the penalty of forfeiture on a given taxpayer on the grounds that it intended to mislead the good imported after finding the deviation during customs transit.

According to article 334 of the Penal Code, however, misleading only occurs in the case of an act to “evade, in whole or in part, the payment of a duty or tax due for the entry, exit, or consumption of merchandise."

That is, in order to find misleading, the Penal Code textually requires that the intention be to evade the payment of tax. Therefore, application of the penalty of forfeiture based on an allegation of misleading will necessarily require the customs authority to demonstrate the act of evading the payment of tax.

In a recent case we handled, the Federal Court of Appeals for the 2nd Circuit (TRF-2) brought for judgment a case litigating precisely a tax assessment issued by the customs authorities on the grounds that a particular taxpayer intended to mislead an imported good by virtue of deviation from route found during the customs transit of the good.

Leaving aside a discussion of the reasons that led to the deviation from route, the fact is that the TRF-2 decided to dismiss the forfeiture because the customs authority could not prove the taxpayer's intent to evade payment of the tax due.

To ratify the understanding of the TRF-2, the prevailing opinion emphasized that the presumption used by the customs authorities could not stand up to the set of evidence presented by the taxpayer, which was even sufficient to explain proper justification for the deviation from the route.

In the case examined, the good subject to forfeiture had been duly imported under a special customs regime, with the signing of a consent and presentation of a guarantee of the taxes suspended.

In support of its decision, the TRF-2 further noted that while the route stipulated had not been observed, there is a more specific penalty for punishing deviation from routes during customs transit. Thus, the court reaffirmed the understanding that damage to the public purse cannot be presumed indistinctly for the purpose of applying or maintaining such an extreme penalty.

Category: M&A and private equity

Latin America is going through a turbulent and uncertain time, reflecting the current scenario of economic and political crises in various countries in the region, such as Chile, Bolivia, Mexico, Argentina, and, in recent days, Colombia. Although all these countries are experiencing internal difficulties from a macroeconomic point of view, there are various causes and circumstances that have contributed to the current environment, affecting liberal or leftist governments.

In Chile, protests over constitutional reforms stemming from the population's discontent with the country's politics and economy have led President Sebastián Piñera's center-right government to face a serious social and political crisis, creating insecurity for new investments and for the financial markets.

Bolivia, for its part, is immersed in political and social chaos. Numerous demonstrations and protests in Brazil over allegations of electoral fraud have led center-left president Evo Morales, who has been in power since 2006, to step down. This uncertainty aggravates the situation of the Bolivian economy, which has been slowing down in recent years.

Contrary to the circumstantial problems of Chile and Bolivia, Argentina faces a situation that may be said to be chronic in nature, due to the systematic crises suffered over the last decades. The markets are experiencing a moment of great apprehension regarding the country, due to the return of Kirchnerism, with the victory of President Alberto Fernández and Vice President Cristina Kirchner in the October elections. The economic crisis and the fear of a return of a more protectionist government have produced mistrust in the private sector and led to investors leaving the Argentine market in recent months.

In Mexico, in turn, in spite of GDP growth in recent years, the left-wing government of President Andrés Manuel López Obrador gives worrying signals to investors, especially in the area of infrastructure. The highlight is the legal uncertainty caused by the cancellation of construction of a new international airport in Mexico City.

In Colombia, whose economy has undoubtedly been improving over the last few years, the crisis provoked by demonstrations is still very recent and its consequences are entirely uncertain.

A source of major investments in Latin America, Spain, for its part, is ending an almost bipartisanism between PSOE socialists and PP liberals, which recently provoked frequent internal political blockades and led to the holding of new general elections in November for the fourth time since 2015. The result of the election seems to be leading the country to a coalition government between the socialist Pedro Sánchez, the current president, and Pablo Iglesias, leader of the far-left-wing party “Unidas Podemos”. This movement will, however, require the support of minority groups of the left-wing independentist regionalism to maintain some stability. From an economic perspective, unpromising prospects for growth in the domestic market are projected, which may have a direct impact on the behavior of the country's investors.

The whole context of crisis in Latin America negatively affects trade flows between the countries in the region, especially Argentina. In turn, the flow of foreign investments follows a different logic, with a connotation to some extent countercyclical. We will explain. The Brazilian economy presents a favorable scenario for foreign investors. Historically low interest rates and controlled inflation encourage new investments and boost credit and consumption in the powerful domestic market. The new government, which liberal tendencies, is working to launch an ambitious program of privatization of major state-owned enterprises and to expand the existing partnership program with the private sector in order to develop new projects.

Due to Brazil's immense infrastructure deficit, compounded by the absence of major projects in recent years, there are good companies and good projects offered in virtually every sector, from energy and oil and gas to airports, railways, highways, and ports.

In addition, the low growth on the part of Brazilian companies in recent years and their increased indebtedness have created attractive opportunities for private acquisitions (M&A) in various sectors, such as health, education, and renewable energy generation.

In this scenario, Brazil emerges as a natural destination for diversifying the flow of investments of the main Latin American business groups, as well as an increase in the already historically high flow of Spanish investments.

This movement has been clearly felt by us, in the context of Machado Meyer's Latin American & Iberian Desk, a multidisciplinary group of partners and associates fluent in the Spanish language and experienced in the business environment of these countries, as we have represented important Latin American and Latin American and Spanish investors interested in doing business in Brazil.

Category: Corporate

Today is the last day of the deadline for submitting suggestions at the public hearing of the Brazilian Securities and Exchange Commission (CVM) regarding changes in the minimum percentages of equity participation for a shareholder of a corporation to file a lawsuit against the officers and directors^[1] and the parent company^[2] without the provision of collateral.

Launched in October of this year, SDM Public Hearing Notice No. 07/19 opened this discussion seeking to improve the mechanisms for protection of investors and minority shareholders and eliminate obstacles aimed at development of the Brazilian capital markets.^[3]

Currently, suits for civil liability against the officers and directors of a given company may be brought by the company itself, after resolution at a general meeting, or by shareholders representing at least 5% of the capital stock. The purpose of these lawsuits is to redress losses caused directly to the Company's equity that, in certain cases, result in damages to shareholders.

In turn, suits for liability against the parent company may be filed, without provision of collateral, by shareholders representing 5% or more of the capital stock or, with the provision of collateral, by any shareholder, in cases where it is believed that the parent company is required to compensate damage it has caused to the company for acts in violation of the duties and responsibilities of the controlling shareholder,^[4] which include, for example, the duty to use controlling power to guide the company in the fulfillment of its corporate purpose and in compliance with its social function and responsibility for the non-abusive exercise of the power of control.

The authorization for the CVM to change the minimum percentages required for the exercise of these rights is in the Brazilian Corporations Law itself, provided that two requirements are met: only reduction, not increase, of the percentages provided for by law, and this reduction occurs through the setting of a percentage scale based on the value of the capital stock.^[5]

According to the CVM's draft rulemaking instruction, the companies will be divided into ranges of capital stock, which will correspond to certain minimum percentages. Accordingly, the percentage of 5% of the capital stock for the filing of a suit against the officers and directors and the parent company will be applied only to companies with capital stock from 0 to R$ 100,000,000.

In addition to suggestions regarding the scale proposed by the CVM in the two cases cited, the federal authority will also receive comments on changes in the minimum percentages of equity interest in the case of requesting to see the company's books, convening a general meeting of shareholders, requesting information from officers and directors, setting up an audit committee, and requesting information from the audit committee. The authority has not proposed specific changes to these items in the draft presented and expects suggestions from the public at the public hearing.

According to a survey by the CVM Economic Analysis and Risk Management Advisory Committee in the report “Critérios para a participação de acionistas em assembleias de companhias de capital aberto” [“Criteria for Shareholder Participation in Meetings of Publicly-Held Companies,”^[6]  of December of 2018, the proposed scale will affect 77.78% of Brazilian publicly-held companies.

With the approval of the rulemaking instruction, a shareholder holding a smaller shareholding than the one provided for in the CVM’s scale for the range of the company in which it invests will continue to have to provide collateral when filing suit against the parent company.

Suggestions and comments should be sent to the Superintendence of Market Development, preferably at the e-mail address This email address is being protected from spambots. You need JavaScript enabled to view it. or to Rua Sete de Setembro, 111, 23rd floor - Centro - Rio de Janeiro - CEP 20050-901.

^[1] Action provided for in paragraph 4 of article 159 of Law No. 6,404/76.

^[2] Action provided for in paragraph 1, “a”, of article 246 of Law No. 6,404/76.

^[3] CEREZETTI, S. C. N., Regulação do Mercado de Capitais e Desenvolvimento [“Capital Market and Development Regulations”], in C. Salomão Filho (coord.), Regulação e Desenvolvimento: Novos Temas [“Regulation and Development: New Topics”], São Paulo, Malheiros, 2012, pp. 190-228.

^[4] The duties and responsibilities of the controlling shareholder are set forth in articles 116 and 117 of Law No. 6,404/76.

^[5] As provided for in article 291 of Law No. 6,404/76.

^[6] Available at: http://www.cvm.gov.br/export/sites/cvm/menu/acesso_informacao/serieshistoricas/estudos/anexos/Criterios_para_a_participacao_de_acionistas_em_assembleias_de_companhias_de_capital_aberto.pdf

Category: Tax

A growing number of Brazilians have opted to live abroad in recent years. The reasons for this choice are manifold: while in previous decades they were linked to employability and formation of equity, today they are more related to quality of life, economic stability, and security.

Itamaraty estimates that there are currently 3 million Brazilians living outside Brazil, either for work or studying. The number already seems significant even considering only citizens in good standing in their new jurisdictions. And the trend is growing, as 62% of Brazil's young population indicates that they want to live abroad at some point in their lives, according to research by Datafolha.

The information provided by the Federal Revenue Service of Brazil (RFB) confirms this phenomenon. Brazil's declarations of definitive departure more than doubled between 2011 and 2018: they went from less than 10,000 to 22,400, an increase of 165 percent, according to the RFB.

Currently, the most sought after countries by Brazilians are the United States, Portugal, Canada, and Japan. That is, cultural issues are decisive in choosing the new country of residence.

In order to avoid potential discussions with the Brazilian tax authorities in the event of changing countries, some procedures need to be observed.

Tax residence, double taxation, and declaration of departure

The first point to keep in mind is that citizenship differs from tax residence, which in turn is different from physical residence.

Physical residence is where the individual actually lives, resides. Citizenship, in general, is linked to an individual’s nationality, which may be given based on the place of birth or blood ties. The rules of tax residence, in turn, are provided by the domestic legislation of each country. The independence of these concepts makes several scenarios possible, among them: (i) citizenship in one country and tax residence in another; (ii) physical residence in one country and tax residence in another; (iii) tax residence in more than one country and physical residence in another; or (iv) physical residence in one country and no defined tax residence, stateless from a tax point of view.

Thus, the risk of double taxation should not be disregarded in the event of changing countries. To avoid this, it is essential to present a declaration of definitive departure to the RFB. This document closes tax residence in Brazil, but does not have an impact on the citizenship of the individual. In Brazil, formalization of departure occurs in two stages. The first is the presentation of notice of definitive departure, which must be sent by February of the year following departure from Brazil. By April of the following year, the declaration of departure must be formalized with the RFB.

If the declaration of departure is not filed, the individual continues to be a tax resident of Brazil for the first 12 consecutive months from the date of departure from Brazil. Failure to present these documents also generates collection of a fine. If there is a tax due, a fine of 1% per month or fraction over the arrears is calculated over the amount of the tax due, subject to the minimum amount of R$ 165.74 and the maximum of 20% of the tax due. If there is no tax due, the minimum fine of R$ 165.74 applies.

One must also take into account the existence or lack thereof of a Treaty to Prevent Double Taxation between Brazil and the new country of residence. The rules of tax residence and the tiebreaking criteria^[1] in the event of any double residence (the treaty does not allow a person to reside in both States) are governed by these treaties and, if such a protocol exists between the two countries, this rule prevails over local law. Considering the countries most sought after by Brazilians, Brazil has a treaty with Canada, Japan, and Portugal.

Investments in Brazil - possible change in taxation

In addition to the formalization of departure from Brazil with the RFB, income-paying sources and financial institutions responsible for current accounts and investments should also be notified.

This is because, for assets that will remain in Brazil, the form of taxation of income and gains may be changed due to the change from tax residence status to non-resident. Generally speaking, non-resident taxation is equated to that of a resident individual.^[2] However, specific rules, which are sometimes even more beneficial, may apply. This is the case, for example, with investors who, upon becoming non-residents, now hold investments in the Brazilian financial and capital markets through CMN Resolution No. 4,373/14. The so-called “4,373 Investors” are entitled to a zero rate for income tax (IR) tax on capital gains earned on stock exchange transactions and reduced IR rates for other transactions. These tax benefits are only available to non-residents who are not domiciled in jurisdictions considered by Brazil as having favored taxation.^[3]

Individuals leaving Brazil should also consider that there is a possibility that the tax authorities may require IR tax at the time of migration of the nature of the investments from resident to non-resident. This position was stated by the RFB in Interpretive Declaratory Act No. 1/16, according to which, in the case of an individual resident in Brazil who acquires the status of non-resident, for the purposes of applying the special tax regime, the taxpayer shall require from the individual (i) proof that he/she has submitted the notice of definitive departure to the RFB and (ii) the withholding and payment of income tax on income earned up to the day prior to the acquisition of non-resident status.

Although, in our view, it is possible to debate the legality and even the constitutionality of this declaratory act, the risk arising from this interpretation by the RFB cannot be ruled out.

Need for prior review of destination country’s legislation

In addition to the Brazilian issues in changing countries, it is always important to consult an expert advisor in the destination jurisdiction.

In this sense, the starting point before the change should be mapping of the individual's assets in order to assess the changes necessary in the investment structure and asset management. After this mapping, this study is discussed with a legal advisor in the destination jurisdiction.

Some jurisdictions require prior reorganizations in order for individuals to enjoy a more beneficial tax regime. This is the case of Portugal and its non-habitual resident tax (RNH) regime. Income from tax havens is taxed in Portugal at the rate of 35% and is not subject to the exemption rule provided for by the RNH regime.

In the event of prior restructuring, depending on the alternative chosen, income or gains taxation in Brazil may be triggered, even if there is no immediate economic availability of cash.

International information exchange procedures and their potential impacts

The pursuit of international tax and banking transparency is already a reality. Information exchange agreements are encouraged by nations as a way to combat tax evasion, money laundering, fraud, and tax evasion.

In Brazil, Decree No. 8,842/16 promulgated the text of the Convention on Mutual Administrative Assistance in Tax Matters. Since then, the first automatic exchange of this information has already taken place in an agreement involving 100 countries signed by the Organization for Economic Co-operation and Development (OECD). Brazil received financial information for 2017 from Brazilians living in 85 countries, including Argentina, Andorra, Bahamas, Cayman Islands, Portugal, Japan, and Uruguay. By contrast, it has provided 54 countries with information on foreigners living here. It is necessary to be aware of these changes and the current ease of obtaining information that would previously be covered by bank and tax secrecy rules.

Given the interest in living abroad, it is therefore essential to plan moves carefully, analyzing national and international impacts and complying with the requirements of the respective laws.

[1] The tiebreaking criteria are, in this order: (i) permanent housing, (ii) center of vital interests, (iii) habitual presence, (iv) nationality, and (v) decision by mutual agreement between States.

[2] Article 18 of Law No. 9,249/95.

[3] The list of jurisdictions considered as having favored taxation is found in article 1 of Normative Instruction No. 1,037/2010.

Category: Environmental

Cetesb (São Paulo State Environmental Company) approved new procedures for the incorporation of reverse logistics in the state environmental licensing process, by means of the Board Decision (DD) No. 114/2019/P/C, published on October 25th of this year. The rules enter into effect in November, 30 calendar days after the date of publication.

The new DD No. 114/2019, republished with corrections on October 30, revoked Cetesb DD No. 76/2018. In compliance with article 4 of State Bureau of the Environment (SMA) Resolution No. 45/2015, which defines the guidelines for implementation and operationalization of post-consumer liability in the state of São Paulo, DD No. 114/2019 establishes that the fulfillment of the procedures provided for for structuring, implementation, and operation procedures is a requirement for issuing or renewing the operating license.

Under SMA Resolution No. 45/2015, reverse logistics systems should be implemented in the state of São Paulo for post-consumer product and packaging waste with significant environmental impact. Such products and packaging must be returned independently from the public urban sanitization and solid waste management service. In addition to those sectors already covered by article 33 of Federal Law No. 12,305/2010^[1] (Brazilian Solid Waste Policy - PNRS), SMA Resolution No. 45/2015 included the following sectors: edible oil; automotive lube oil filter; home remedies, expired or in disuse; packaging of food, beverages, toiletries, perfumery, and cosmetics; and real estate paints.

Waste covered by DD 114/2019 is that which is generated by the final consumer, thus defined as “the one who purchases the product or service for person consumption, and does not use it as an input in the production process, in the rendering of services, or for replacement in the market.” (item 1.6 of the Sole Schedule of DD No. 114/2019).

The implementation of reverse logistics by manufacturers, importers, distributors, and traders of such products and packaging is linked to Cetesb's ordinary environmental licensing. Demonstration of compliance is a requirement for issuing or renewing operating licenses. It is also stated as a technical requirement, according to the guidelines and conditions set forth in DD Cetesb No. 114/2019.

Fulfillment of obligations may occur through the signing of a Reverse Logistics Commitment Agreement (TCLR) or individual or collective instruments. In the case of the TCLR, those responsible for them shall enter the Reverse Logistics Plans (PLR) into the e-environment system (while the Sigor system is not yet available), demonstrating by March 31 of each year the achievement of the goals established through the Annual Results Report.

Due to the provisions of Federal Decree No. 9,177/2017 (Equal Protection Decree), if the company chooses not to sign the TCLR, it must meet proportional targets. In this case, registration of the PLR in the e-environment system must occur concurrently with the request for renewal of the venture’s Operating License.

The procedure approved by the DD refers to the first stage of reverse logistics systems, expected to last until December 31, 2021. Annual results reports for the year 2021 must be delivered by March 31, 2022. As of the following year, the quantitative and geographic goals will be evaluated again, through a new Cetesb DD.

In setting the targets, Cetesb relied on existing benchmarks and the respective quantitative and geographic targets, taking into account sectoral agreements and federally agreed-upon consent orders, specific laws applicable, existing TCLRs, and call for sectoral agreements. In the case of electronic products specifically, the targets were based on the draft of the Federal Sector Agreement, already submitted for public consultation and signed at the end of October, and the TCLR of the sector in force in São Paulo.

In DD No. 114/2019, the concept of “manufacturer” was regulated, which was generally provided for in Federal Law No. 12,305/2010. Manufacturers are considered to be the holders of the brand of their respective products and/or those who, on their behalf, fill in, assemble, or manufacture the products (topic 1.3 of the Sole Schedule of DD No. 114/2019). However, there is a provision for manufacturers who do not own a particular brand to ensure that their product and/or packaging is covered by a reverse logistics system. Otherwise, they will be responsible for the reverse logistics of the respective products or packaging.

The persons responsible for the reverse logistics systems were also assigned the obligation to keep a copy of the proof of environmentally appropriate final destination for a period of five years. In the case of sale of recyclable materials from packaging in general, this proof will be done through invoices and/or Certificate of Recycling of General Packaging (CRE). For the purpose of meeting reverse logistics tarets, the CRE must be individualized by project subject to environmental licensing and will have a maximum validity of one year. The respective tax invoice shall be issued only by proving reinsertion of the packaging into the production cycle for transformation into an input or new product, via approval of the parties.

Cetesb made it explicit that, for waste from selective municipal collection (including waste that goes to waste pickers' cooperatives, whose rejects are disposed of by the municipal sanitation service), manufacturers, importers, distributors, or traders should promote compensation for waste from the city government, in accordance with a commitment agreement or prior sectoral agreement that establishes mechanisms for such compensation.

Cetesb DD No. 114/2019 does not intend to regulate sectors that already have a commitment agreement or sectoral agreement signed. It only requires compliance with it for issuing environmental permits, in addition to formalizing procedures and establishing complex criteria for the implementation of reserve logistics under state environmental licensing.

^[1] Article 33.  They are required to structure and implement reverse logistics systems, upon return of products after consumer use, independently of the public urban sanitization and solid waste management service, manufacturers, importers, distributors, and traders of:

I - pesticides, their wastes and packaging, as well as other products whose packaging, after use, constitutes hazardous waste, observing the hazardous waste management rules provided for by law or regulations, rules established by Sisnama, SNVS and Suasa, or in technical standards; 

II - batteries;

III - tires;

IV - lubricating oils and the waste and packaging thereof;

V - fluorescent, sodium, and mercury vapor and mixed light lamps;

VI - electronic products and their components.