Publications

Category: Venture Capital and Startups

The agenda of the moment is undoubtedly the tax reform. Despite the wide-ranging debate on the subject in recent years, the most recent discussions in the National Congress make it clear that the proposal, in addition to lacking definitions on how various aspects of the new system will be implemented, is not being seen with a strategic eye by its debaters in relation to problems that could make the evolution of startups in Brazil unfeasible.

The list of tax reform proposals is long and there are many proposals, but for the point we want to analyze, the proposals for constitutional amendments 45 and 110 (PEC 45 and PEC 110) stand out.

These two texts propose the creation of a Value Added Tax (VAT), similar to that adopted in Europe, India, and Oceania. In an attempt to break paradigms, it is suggested to adopt a broad tax base, which considers transactions involving goods and services (as well as the rights related to them).

Despite the similarities between the two proposals, they differ in one fundamental aspect. While PEC 45 provides for the creation of just one VAT to replace ISS, ICMS, PIS, and Cofins (i.e. the taxes that are currently levied on consumption, services, or products), PEC 110 provides for the creation of a federal VAT and a state/municipal VAT (i.e. a dual VAT), with the same calculation bases.

Both proposals provide for the IPI (federal tax) to be abolished. On the other hand, a selective tax will be created, which will be levied on goods and services that may have harmful impacts on health and the environment, for example.

Given the need to make progress on the issue, a working group (WG) was set up in the Chamber of Deputies with the aim of combining the two proposals and resolving problems identified in the debates, in order to define the text (substitute) that will be sent to the floor. At the beginning of June, the WG presented a report with some guidelines.

Thus far, it is known that the substitute will include a kind of dual VAT. Standard and differentiated rates will be adopted for certain sectors and a broad right to credit will be guaranteed; in other words, the tax paid at one stage will be used to write off the tax due at the next stage.

Among these issues, the most worrying is the tax rate. The proposals stipulate that the tax will be levied on the basis of a standard rate, regardless of the sector, which will correspond to the sum of percentages defined by the entities. This percentage, however, remains unknown, with speculation that a rate of around 25% will be adopted. This is the big obstacle that startups have to face.

As is known, most startups are service providers, following the global trend towards the "servitization" of the economy.

Currently, services in Brazil are taxed at a rate that varies from 2% to 5%, depending on the municipality. To this must be added PIS and Cofins, which are also levied on service transactions, at the rates of 3.65% in the cumulative system and 9.25% in the non-cumulative system. Depending on their field of activity, startups can also be covered by the Simples Nacional system, which has rates similar to those mentioned above.

The definition of a rate higher than the aggregate rate of the taxes currently levied means, therefore, a clear increase in the tax burden.

It could be argued that the tax reform preserves the Simples Nacional system, which guarantees taxation more in line with small companies and to which some startups are subject.

Perhaps that is why there has not been much movement from this segment of companies around the reform. This is a worrying attitude, as it disregards its own growth in the short term, a fact that would limit the continuation of a Simples Nacional company.

It is clear that rapid growth, a characteristic (and objective!) of startups, will lead these companies to bear a higher tax burden, much higher than the one applied today when they leave Simples Nacional. This could even influence tax planning to keep companies in the most beneficial tax system, a very questionable initiative.

Proponents of the reform say that there will be no increase because there will be ample credit rights. However, this mechanism does not have much impact on the service sector for three reasons: 

• the provision of services is not conditional on the large purchase of goods or services that could accumulate credits in this chain;
• the biggest expense in the service sector is labor, which does not generate credit - this impossibility of credit will induce more and more services provided through individually owned corporate entities in these chains; and
• the increase in the tax burden cannot be neutralized by non-cumulative taxation because, for the most part, services are provided directly to the end consumer.

The congressmen are aware of this, but they believe that, in general, it is the richest who consume services. However, even if this premise is true, the reality is changing. Startups operate on two major fronts which, indirectly or directly, promote consumption of services by a broad spectrum of the population.

Indirectly, startups develop technological and disruptive solutions to meet the needs of the productive sectors, making it possible to reduce the cost of end products. In a direct, and remarkable, way, they help to decentralize access to goods and services, favoring the most varied sections of the population.

A large increase in the tax burden, however, will certainly reduce the scalability potential of these solutions, not because of their nature, but because of the loss of competitiveness due to the market's inability to absorb the price increase.

Tax simplification, with the adoption of standard rates, cannot be a pretext for penalizing the services sector, especially startups, given their economic importance.

On this issue, sectors of the economy have managed to raise awareness among congressmen. Understanding the importance and effective impact of this increase, the congressmen included in the WG's report the possibility of establishing differentiated rates for certain sectors, such as health, education, and agricultural production.

Even if it is not possible to extend this mechanism to all sectors, it is necessary to look for other instruments to reduce this final cost. One of the alternatives suggested by the technology sector, through the Association of Brazilian Information Technology Companies (Assepro), is the adoption of a mechanism to exempt payroll. It is an interesting idea, as it avoids the proliferation of services provided through individually owned corporate entities} of the chain or the inclusion of employees in the corporate framework as a form of tax planning.

Another point is tax breaks, which, according to the proposals under discussion, should in principle be banned.

Therefore, whether through differentiated tax rates, payroll tax relief, or any other mechanism, such as tax benefits, it is certainly still necessary to deepen the debate regarding the proposals on the tax mechanisms that should be implemented. The discussion is fundamental for guiding tax policies to encourage investment in startups, whatever the sector in which they operate.

Category: Labor and employment

On June 23, 2023, the Federal Supreme Court (STF) resumed the judgment of Argument of Breach of a Fundamental Precept (ADPF) 488, regarding the inclusion of companies from the same economic group in labor executions.

ADPF 488 was filed on October 11, 2017, for which the reporting judge is Justice Rosa Weber. The suit was filed by the National Transport Confederation (CNT) to challenge acts performed by labor courts and judges that include, in the enforcement of judgments or in the execution phase, individuals and legal entities that did not participate in the trial phase, on the grounds that they were part of the same economic group.

The CNT contends that the practice, in addition to not finding support in the current legal system, restricts the fundamental right to an adversarial process, a broad defense, and due process of law for those seeking to prove that they do not participate in economic groups.

This is because the mechanisms for producing evidence and the procedural channels in the execution phase are restricted, given that the labor appeals system itself does not allow infra-constitutional matters to be brought before the Superior Labor Court (TST) in the execution phase.

Among the infra-constitutional matters that should be analyzed in a case like this is the concept and definition of an economic group, based on the interpretation of article 2, paragraph 2, of the Consolidated Labor Laws. Accordingly, the party included only in the execution phase of the proceeding finds a restriction provided for by law with regard to the questioning of what an economic group would be, an essential discussion, since it is on this basis that they are included in the suit.

The CNT argues that the procedural and appellate characteristics of the labor enforcement phase restrict the right of defense, which affects the interest of people who did not participate in the trial phase of the proceeding.

The party included in the execution phase, without any opportunity for prior justification, is not summoned to submit a defense, but only to pay within 48 hours the amount ordered in a judgment handed down in a proceeding of which it was not even aware, and can only put forward its claims in defense after depositing in court the full amount of the execution or naming assets for attachment, which represents a huge obstacle for exercise of the adversarial process.

The practice also violates the fundamental right to due process of law. Execution of judgments against those who did not participate in the trial phase is expressly prohibited by article 513, paragraph 5, of the Code of Civil Procedure.

On December 14, 2021, the reporting judge, Justice Rosa Weber, issued her opinion, with Justice Alexandre de Moraes concurring, without assessing the merits of the issue, voting not to hear the ADPF on the grounds that the claim relates to a consolidated jurisprudential understanding of the TST, without having demonstrated the establishment of a relevant legal and constitutional dispute.

The opinion does not present any position on the merits of the issue, i.e. the possibility or lack of possibility of including companies from the same economic group in executions of labor claims, since it was handed down to the effect of not even hearing the ADPF, due to the lack of suitability of the procedural measure itself.

On that same date, in view of the opinions that have been issued thus far, Justice Gilmar Mendes asked to review the record, suspending the judgment. The ADPF, although a separate procedural measure, is related to Topic 1.232 of the Management by Topics of General Repercussion, leading case of the Extraordinary Appeal (RE) 1.387.795, the case, led by Machado Meyer's labor practice group, discusses the "possibility of including a company that is part of an economic group that did not take part in the trial phase" as a defendant in the labor execution proceeding.”

The judgment resumed on June 23, 2023, after an in limine decision was issued by Justice Dias Toffoli in RE 1.387.795, accepting a prayer for relief submitted by Machado Meyer. The Justice ordered a nationwide suspension of all labor executions that deal with the issue at stake in Topic 1.232, pending final judgment of the extraordinary appeal.

The judgment is expected to conclude on June 30, 2023, if there are no further requests for review of the record.

The debate resumed with the dissenting opinion of Justice Gilmar Mendes, who argued that the action should be heard and, on the merits, partially granted, in order to declare the incompatibility with the Federal Constitution of judicial decisions handed down by the Labor Courts that include, in the execution phase, subjects who did not participate in the trial phase, on the grounds that they are part of the same economic group, despite the absence of effective proof of fraud in the succession and regardless of their prior participation in the trial proceeding or in an incidental proceeding to pierce the corporate veil.

If Justice Gilmar Mendes' opinion is confirmed, the decision will be paradigmatic and will bring about legal certainty and encouragement to companies and investors.

The effect would be especially positive for the M&A and private equity market, whose transactions are often incorrectly interpreted by the labor courts.

Category: M&A and private equity

On June 2, the Executive Branch, through the Ministry of Finance, submitted to the National Congress for deliberation the text of Bill 2.,925/23, which aims to amend Law 6,385/76 and Law 6,404/76 (the Brazilian Corporations Law). The aim is to deal with transparency in arbitration proceedings and the system of private protection of investors' rights in the securities market.

Spearheading Bill 2,925/23 is the Secretary of Economic Reforms, Marcos Barbosa Pinto, former chairman of the Brazilian Securities and Exchange Commission (CVM). The bill is considered one of the main changes to the Brazilian Corporations Law since the changes brought about by Law 10,303/01.

In general terms, Bill 2,925/23 sets out clearer parameters for bringing liability actions, increasing the possibility of compensation for investors. According to a note from the Ministry of Finance, the main innovation is the possibility for minority shareholders and debentureholders who are harmed by the illegal acts of controlling shareholders and administrators to have the right to bring a collective civil action for liability.

Below is a brief summary of the main changes proposed by the bill.

I. Amendments to Law 6,385/76

Expanded supervision: broadening the CVM's powers under article 9 of Law 6,385/76 to create more instruments for the CVM to investigate cases, including, among others, the power of the agency to:

• request a search and seizure warrant from the Judiciary in the interest of an investigation or administrative proceeding;
• request review of and copies of investigations and proceedings opened by other federal entities; and
• share access to information subject to confidentiality with monetary and tax authorities, provided that, with regard to the last two items, the CVM and these authorities respect the same secrecy restrictions applicable to the information at its source.

Civil liability: civil liability for losses suffered by investors as a result of the action or omission of issuers in breach of the laws and regulations of the securities market will apply to:

• officers and directors of securities issuers;
• controlling shareholders of the issuer, when the laws or regulations directly impose on them the duty to comply with the rule infringed on or when they contribute to the commission of the illicit act; and
• offerors and underwriters of public offers for the distribution of securities, as well as offerors and brokers of public offers for the acquisition of securities.
• Civil liability in the above cases will require proof of fault or intent.

Collective actions: change of criteria for investors to have standing to bring collective civil actions for liability for damages arising from breaches of securities laws or regulations, as well as individual compensation actions.

Publicity in arbitration proceedings: the possibility for the articles of association, bylaws, indentures, and instruments of issues of securities to provide for liability claims to be decided by arbitration, with the proviso that arbitration proceedings must be public.

II. Amendments to the Brazilian Corporations Law

Publicity in arbitration proceedings: obligation to publicly disclose arbitration proceedings relating to publicly-traded companies.

Closure of liability suits: expansion of the list of matters exclusive to the general meeting provided for in article 122 of the Brazilian Corporations Law to include, as a competence of the meeting, the authorization of a transaction aimed at closing liability suits provided for in articles 159 and 246 of the Brazilian Corporations Law. The transaction to close liability suits will not take effect if shareholders representing 10% of the voting capital stock decide to reject it.

Prohibition of voting by officers and directors: a prohibition on officers and directors voting, as shareholders or proxies, in resolutions on the exoneration of officers and directors and auditors from liability and on the filing of liability suits.

Limitation on the exoneration of officers and directors and auditors: amendment of the rules for exoneration of officers and directors and auditors for liability in relation to events occurring during their term of office. The automatic exoneration upon approval of the annual financial statements is eliminated.

Filing of liability suits: alteration of the criteria for shareholders to have standing to file the liability suits provided for in articles 159 and 246 of the Brazilian Corporations Law, as well as a prohibition on the company filing an independent liability suit in the event of a liability suit filed by a shareholder.

Rebalancing economic incentives in liability suits: change in the premium due to the plaintiff of the suit by the convicted officer or director or controlling shareholder, from 5% to 20% of the amount of the compensation.

With the approval of Bill 2,925/23, it will be incumbent on the CVM to regulate the changes in greater detail.

Category: Environmental

In the first half of this year, Machado Meyer Advogados held a debate on environmental racism and the struggle for social justice. The event was organized by the affinity groups Green Team and ^[1] ID.Afro^[2] and  was attended by the master in Sustainability and PhD in Political and Economic Law from the Presbyterian University Mackenzie Waleska Batista and the Director of Operations of LabJaca, Mariana de Paula.

Environmental racism occurs when people from ethnic minorities or populations on the periphery suffer discrimination because of environmental degradation^[3],  such as pollution, deforestation, and other environmental problems. It is important to constantly debate this highly topic to raise awareness in society and seek viable solutions to a problem that affects several social minorities.

Origin of the concept of environmental racism

The term arose in discussions of environmental justice and was first debated by the black movement in the United States in the 1980s. Later, the concept was adopted by Brazilian scholars^[4] and evolved over time. The term environmental racism was disseminated in the "First international colloquium on environmental justice, work and citizenship", held in 2001 in Rio de Janeiro, which encouraged the realization, in 2005, of the "First Brazilian seminar against environmental racism".^[5]

Recognizing the existence of an environmental problem presupposes discussing the relationship between environmental degradation and the reproduction of social injustices in the Brazilian context.^[6] Environmental justice, specifically in the context of environmental racism, seeks to understand how the quality of life of socially disadvantaged population groups (for example, the occupants of peripheries of urban centers) is related to the negative environmental effects of the industrial operations  and the lack of public policies to neutralize any possible impacts.

These communities are often forced to live in areas more exposed to environmental impacts, which results in socio-environmental inequalities. In addition, it is not uncommon for political and economic decisions to disregard the impact on low-income and ethnic minority communities. This results in the creation of policies that maintain environmental inequality and may even increase discrimination against certain groups already at a social disadvantage.

From an environmental point of view, there is, in Brazil, an extensive legal framework to ensure the protection of traditional communities – historically most affected by environmental impacts – and mitigate any effects suffered by them as a result of the installation of potentially polluting projects or environmental crises.^[7]

Combining current legislation, the development of public policies and the participation of society and traditional communities in decision-making has proven to be the most effective way to advance in the debate on combating environmental racism.

For example, the participation of any interested party in the environmental public hearings held within the scope of the environmental licensing processes of ^[8] activities considered effective or potentially causing great environmental degradation is guaranteed, subject to the preparation of the Environmental Impact Study and the respective Environmental Impact Report (EIA/Rima).

At these hearings, the entrepreneur presents to the interested parties the content of the environmental studies prepared for the project, clarifying doubts and collecting criticisms and suggestions for the improvement of the enterprise (article 1, Resolution 9/87 of the National Council of the Environment – Conama).

If the project involves any impact on traditional communities – including quilombola and indigenous communities – the licensing agency may involve in the environmental licensing process the intervening agencies,^[9] responsible for ensuring the interests of these communities. These agencies must approve the environmental studies and the continuity of the environmental licensing, as well as collaborate for the due fulfillment of obligations imposed by the environmental agency.^[10]

It is important that the combat against environmental racism is widely discussed, including in forums such as environmental licensing. This is because preventingenvironmental impacts in the most vulnerable communities necessarily involves eliminating information asymmetry.

The more communities are informed and participate in decisions, the greater the guarantee that potentially polluting projects, public policies and legislation will take into account the interests of these communities to prevent and mitigate the effects of environmental damage.

The importance of environmental crisis management

In addition to defining an action plan to prevent the occurrence of environmental damage, it is very important to establish projects and public policies for the management of environmental crises arising from natural events. Rainfall, prolonged droughts, ocean acidification, sea level rise, among other topics, are recurrent topics at international conferences on the environment^[11] and can impact, especially, the most vulnerable communities.

When we talk about environmental racism, it is necessary to understand that eventual environmental crises go beyond the impacts on fauna and flora and also affect social organization. Heavy rains on the northern coast of the state of São Paulo in early 2023, for example, affected vulnerable areas with a majority black population. This demonstrates that the impact of these events is not restricted to the physical environment. It also extends to the social environment.^[12]

As determined by the Brazilian Institute of Geography and Statistics (IBGE), there is great inequality in the representation of the white population in relation to the others in the Legislative Branch.^[13] This indicates that the people most impacted by environmental degradation remain without decision-making power^[14] and outside the center of the debates,^[15] as they are not equally represented in the forums in which public policies are discussed.

This fact further highlights the repeated delegitimization of the speech of these minorities, as well as the difficulty of these groups to constitute themselves as subjects of law and not subject to administration.

Not for another reason, the impacts of heavy rains, floods, landslides, among other emergency situations, have as victims, in their majority, the black population, the quilombola, indigenous and riverine communities.

It is essential, therefore, that the agenda of the fight against environmental racism be present in dialogues signed by the most diverse groups and sectors in conjunction with the public sector, to implement specific public policies on the subject. In Brazil, it is possible to affirm that there are already movements to include the rights of minorities in environmental policies.

Combating environmental racism in the Legal Amazon

The reactivation of the Amazon Fund by Federal Decree 11,368/23 is a possible and important governmental instrument in this regard. The fund aims to raise donations for non-reimbursable investments in actions to prevent, monitor and combat deforestation, in addition to promoting the conservation and sustainable use of the Legal Amazon. Its reactivation can help combat environmental racism in the Legal Amazon, as the fund indicates in its schedule the analysis of projects to support indigenous populations and communities, with proposals for actions from various sectors.^[16]

In addition, another important – and recent – initiative is the creation of the Committee for Monitoring the Black Amazon and Combating Environmental Racism, announced during the Amazon Dialogues^[17], between August 4 and 6, in Belém/PA.^[18] The committee will be created by the Ministry of Racial Equality in partnership with the Ministry of Environment and Climate Change and intends to propose measures to combat Environmental Racism in the Legal Amazon.

It is concluded that the combating environmental racism involves a multidisciplinary and multicultural debate. It is an effort that demands the joint action of society and government entities to prevent and mitigate the occurrence of environmental damage and its effects on the most vulnerable communities.

^[1] The Green Team is an engagement group composed of the employees of the office, created from the campaign "Sustainable Machado Meyer", aimed at promoting sustainability actions in our workplace.

^[2] The Afro Identity (ID.Afro) program makes up our Diversity Committee and represents the firm's commitment to ethnic-racial equity through the promotion of an open and welcoming environment.

^[3] Journal of USP. Environmental racism is a reality that affects vulnerable populations. Accessed 9.8.2023.

^[4] HERCULANEUM, Selene; PACHECO, Tania. "Environmental racism, what is it." Rio de Janeiro: Sustainable and Democratic Brazil Project: FASE, 2006.

[5] Silva, Lays Helena Paes and. Environment and justice: on the usefulness of the concept of environmental racism in the Brazilian context. 2012. Accessed 11.8.2023.

[6] SILVA, Lays Helena Paes e. "Environment and justice: on the usefulness of the concept of environmental racism in the Brazilian context". e-cadernos CES, n. 17, 2012.

^[7] It is possible to mention the National Policy for the Sustainable Development of Traditional Peoples and Communities (Federal Decree 6.040/07), the regulation for the demarcation of quilombola communities (Federal Decree 4.887/03) and the Indian Statute (Federal Law 6.001/73).

^[8] "The location, construction, installation, expansion, modification and operation of establishments and activities that use environmental resources considered effective or potentially polluting, as well as projects capable, in any form, of causing environmental degradation, will depend on prior environmental licensing by the competent environmental agency" (Article 2, caput, Conama Resolution 237/97).

^[9] Among them, the National Foundation of Indigenous Peoples (Funai), to represent indigenous communities, and the National Institute of Colonization and Agrarian Reform (Incra), to represent quilombola communities.

^[10] It is important to highlight that the licensing environmental agency is allowed to continue or not the environmental licensing process. However, considering the expertise of the intervening bodies and the primacy for the protection of traditional communities, the licensing body tends to adopt the recommendations of these intervening bodies.

^[11] United Nations. What you need to know about the United Nations Conference on Climate Change (COP26). UNEP: 2021.

^[12] "Inequalities by color or race are also expressed in access to sanitation services, which, in addition to the implications related to health and living conditions, also brings patrimonial impacts. Considering that the value of the residence is not only determined by the physical characteristics of the property itself, but also by the location and insertion in the urban infrastructure, lower rates of access to sanitation services indicate lower values of these properties." (Ibid., p. 7).

^[13] "Political participation is one of the social dimensions where there are inequalities of access according to color or race and object of concern expressed in the Declaration and program of action adopted at the World Conference against Racism, Racial Discrimination, Xenophobia and Related Intolerance, held in Durban in 2001. In the first edition of this newsletter, an under-representation of the black or brown population was highlighted in the Chamber of Deputies, in the State Legislative Assemblies and in the Chambers of Councilors [...] despite constituting 55.8% of the population, this group represents 24.4% of the federal deputies and 28.9% of the state deputies elected in 2018 and by 42.1% of the councilors elected in 2016 in the country [...]" (IBGE, Coordination of Population and Social Indicators. Social inequalities by color or race in Brazil. Studies and Research: Demographic and Socioeconomic Information No. 48, Rio de Janeiro, 2nd ed., p. 13, 2022.

^[14] Ditto.

^[15] LOUBACK, Andrea Coutinho. COP26 is more representative in terms of climate justice. Le Monde Diplomatique Brasil, Nov. 12. 2021.

^[16] The document "Guidelines and Criteria for the Application of the Resources of the Amazon Fund", established by the Steering Committee of the Amazon Fund on February 15, 2023, indicate that the analysis of projects on the subject is on the committee's agenda.

^[17] General Secretariat. Amazonian Dialogues. Accessed 8.8.2023.

^[18]Secretariat of Social Communication. Anielle Franco announces monitoring of the Black Amazon and confronting environmental racism. Accessed 6.8.2023.

Category: Competition

The Tribunal of the Administrative Council for Economic Defense (CADE) dismissed, in August, an investigation regarding an alleged practice of resale price maintenance (RPM) in the Brazilian relevant market for watches. It concluded that the investigated company did not have market power. The investigation concerned the alleged implementation of a commercial policy that imposed on online resellers a minimum profit margin, with threats and retaliation in case of non-compliance. Although it did not condemn the investigated company, CADE signaled to the market its opinion about RPM practices.

RPM occurs when a company establishes a minimum, fixed or maximum resale price to distributors or resellers of its product, taking away their freedom to determine the price to their customers. Indirect practices such as establishing a profit margin can also be deemed as RPM.

RPM can be expressed in writing – established in an agreement or communication that indicates the price imposed and the sanction for non-compliance – or implicit – when the supplier constrains distributors or resellers to adopt the indicated prices.

CADE's main concern in such cases is the reduction of intra-brand competition, that is, the elimination of rivalry between distributors or resellers of a certain product/brand, which tends to reduce prices.

In this recent decision, CADE reiterated  that the mere suggestion of a resale price (minimum or maximum) and maximum resale price maintenance raise less competition concerns than minimum resale price maintenance.

In addition, CADE kept the relative presumption of illegality of minimum resale price maintenance, a stricter position that has been adopted since 2013. In minimum RPM cases, the Brazilian antitrust agency assumes that the practice has an anticompetitive purpose and reverses the burden of proof: it is up to the investigated company to prove that such presumption is incorrect.

The competitive assessment of RPM practices comprises the following steps:

• to identify whether the conduct occurred;
• to define the relevant market and to assess whether the company under investigation has a dominant position/market power;
• identify the potential or actual competitive harm of the practice (e., the negative effects to the market); and
• to identify the economic rationale, efficiencies and adequacy of the practice to achieve the desired goal (e., its justification and pro-competitive effects).

The investigation may be dismissed if the practice did not actually take place or the investigated company did not have market power – which, in practice, would prevent it from potentially harming the market.

If, however, the company has market power, to avoid a condemnatory decision it will be necessary to prove that the conduct was supported by economic rationality (i.e., a legitimate goal) and produced clear benefits to competition.

Given this rigorous approach to the legality of minimum RPM, CADE pointed out that companies should be cautious when structuring their commercial policies. They must establish a well-defined and delimited scope, supported by robust economic analyses, based on the most complete data possible, that support the desired economic rationality and the alleged economic efficiencies.

Category: Environmental

The virtual trial of Direct Action of Unconstitutionality (ADI) 7,321 was concluded on June 2, 2023. The action was proposed by the National Association of Mobile Operators (Acel) against provisions of Law 6.787/06 of the ^[1] state of Alagoas, which deals with the requirement of environmental licensing for the installation of Transmission Network of Telephone System and Base Radio Stations and Wireless Telephony Equipment.

According to Acel, the contested articles violate the exclusive competence of the Union to legislate on telecommunications, as well as to exploit these services, as provided for in the Federal Constitution. In addition, ACEL claimed that the contested provisions would be in dissonance with Federal Law 9,472/1997, General Telecommunications Law, and Federal Law 13,116/2015, known as the Antenna Law.

Based on these arguments, Acel requested the granting of a precautionary measure to suspend the effects of the contested provisions and, on the merits, the declaration of unconstitutionality of the legal provisions in question.

In a judgment initiated on May 26, 2023, by the rapporteurship of Justice Gilmar Mendes, the Plenary of the Federal Supreme Court (STF) decided, by majority, for the validity of ADI 7,321, declaring the unconstitutionality of the provisions of the Alagoas law.

In accordance with the vote of the rapporteur, the Arts. 19, X, and 150 of the General Telecommunications Law establish the competence of the National Telecommunications Agency (Anatel) to issue rules on the provision of telecommunications services and to regulate the deployment, operation and interconnection of networks, ensuring the compatibility of the networks of the different providers, aiming at their harmonization at the national and international level.

According to the rapporteur, the Union's exclusive competence to legislate on the subject stems from the need for a broad and deep integration of networks, equipment and systems at national and international levels.

Minister Gilmar Mendes also asserted that, despite the intention of protecting and defending the environment, the state law invades the private competence of the Union to legislate on the matter and directly interferes in the contractual relationship formalized between the granting authority and the concessionaires to the extent that it creates an obligation for companies providing telecommunications services and stipulates criteria for the installation of telecommunication infrastructures.

The rapporteur stated that the Supreme Court has extensive jurisprudence that state law should be declared unconstitutional when it provides for telecommunications, even for protecting health, the environment or consumers.

Minister Gilmar Mendes also stated that the state law is in dissonance with Federal Law 13.116/15, which provides for general rules applicable to the process of licensing, installation and sharing of telecommunications infrastructure to make it compatible with Brazil’s socioeconomic development.

In Article 7, the legal diploma mentioned provides that "the necessary licenses for the installation of support infrastructure in urban areas will be issued through a simplified procedure, without prejudice to the manifestation of the various competent bodies during the administrative process."

Article 8 of Federal Law 13,116/15 also determines that "the competent bodies may not impose conditions or prohibitions that prevent the provision of telecommunications services of collective interest, under the terms of current legislation." Therefore, according to the rapporteur, by subjecting the installation to new conditions, the state law enters into a normative domain reserved for the Union.

Finally, the rapporteur also declared the unconstitutionality, by dragging, of items 10.5. and 10.6 of Annex VI of State Law 6,787/06, which establish different sizes for telecommunications networks and stations and, consequently, offend the private competence of the Union.

In a dissenting vote, Justice Edson Fachin expressed the understanding that the declaration of unconstitutionality of the contested provisions would mean that any enterprise regulated by the Union would necessarily be licensed by it as if the private competence functioned as an attractive route of all environmental law.

According to Minister Edson Fachin, Complementary Law 140/11 and Federal Decree 8,437/15, which regulates some of its provisions, establish that infrastructure installation works to support communication networks are not the competence of the Union.

Thus, according to the dissenting vote, recognizing the private competence of the Union to license this type of enterprise would impact the way licensing has occurred in Brazil and reward the inaction of the Union, which could even represent the unconstitutional exemption of licensing for these activities.

Against the judgment were opposed embargoes of declaration, which still await trial.

^[1] Items 10.5 and 10.6 of Annex I, object of article 4, paragraph 1 of said law.