Publications
- Category: Tax
With their publication in the Official Federal Gazette last September 10, 33 precedents approved at the en banc meeting of the Superior Chamber of Tax Appeals (CSRF) of the Administrative Council for Tax Appeals (Carf), held in early September, entered into force. Publication of the minutes of the meeting marks the entry into force of the precedents approved.
The precedents reflect a consolidated and repeated understanding of discussions held under Carf. Their approval requires the consent of 3/5 of the members of the adjudicatory body concerned.
The approval of such a large number of precedents[1] contributes to the institutional purpose of the agency to standardize case law, reduce the backlog of disputes, and reduce the period for litigation in administrative proceedings, because the subject matter of a precedent must mandatory be observed by Carf's adjudicatory panels (ordinary panels and the Superior Chamber of Tax Appeals) and prevents the admissibility of special appeals.
With the approval of 33 new precedents, Carf now has a list of 158 precedents. Of this total, 104 have a binding effect, also affecting the position of the Attorney General of the National Treasury and the Special Secretariat of the Federal Revenue Service of Brazil in all disputes on the topic.
For now, the proposals approved at the September session should only be applied to Carf, which does not prevent them, subsequently, via an act by the Minister of Economy, from becoming binding on the entire Federal Tax Administration.
The initial list submitted at the September session contained 50 precedents. Seventeen proposals that dealt with matters without a consolidated understanding in Carf's judgments or on topics that require case-by-case examination were not approved.
The rejection of part of the precedents indicates that, at least with regard to these topics, there is still room for debate in the administrative sphere, with the possibility of changing the body’s understanding.
Thus, precedents that dealt with the rules on the applicability of social security contributions over amounts paid under Profit Sharing Plans,[2] the requirements for the deduction of goodwill amortization for Corporate Income Tax (IRPJ) and Social Contribution over Net Income (CSLL),[3] of the conditions for deducting equity interest expenses for the IRPJ and CSLL,[4] among others, did not pass the minimum quorum for approval under the rules.
Specifically regarding the matter of goodwill, a topic that probably involves discussions of higher amounts at Carf, the CSRF's 1st Panel did not approve either of the two proposed precedents: the first tried to consolidate that documentary proof of the bais of future profitability should be contemporary with the acquisition of the investment; the second, in turn, sought to endorse disallowance whenever the goodwill amortization expense originated from an intragroup transaction. This latest proposal had already been tabled at the 2018 en banc meeting and was rejected again.
The CSRF’s 2nd Panel en banc also did not approve the proposal that the rules on receipt of PLR should be established in an agreement signed before the beginning of the calculation period, a recurring topic and quite controversial in the discussions held at Carf.
Some of the approved precedents represent taxpayer-friendly understandings at the Council. The new Carf Precedent No. 149, in line with CSRF's repeated case law, states that undergraduate or graduate scholarships granted to employees shall not be integrated into the social security contribution salary, in cases where the entry points to, as the sole reason for the requirement, the fact that the aid relates to higher education.[5] Also beneficial is the restatement of law in Carf Precedent No. 143, which provides for other forms of proof of withholding tax in addition to the income statement: “proof of withholding income tax deducted by the beneficiary in determining income tax is not done exclusively through the withholding slip issued in its name by the payer of the income."
However, understandings unfavorable to taxpayers were also consolidated, such as the statement that one must include the Withholding Income Tax (IRRF) in the calculation basis for the Contribution for Intervention in the Economic Domain (Cide), through Carf Precedent No. 158, a debate that has long been held among the oanels of the 3rd Section.[6]
Another topic that resulted in a precedent refers to the initial term for counting the statutory limitations period of article 173 of the National Tax Code (CTN) in the drawback regime. It shall coincide with the first day of the fiscal year following the end of the period of thirty days following the deadline for the export repurchase and resale agreements.[7]
The approval of the 33 new precedents materializes what has already been observed in recent years in the context of federal administrative litigation: a strong tendency to adopt measures that speed up the trial and reduce the backlog. However, the consolidation of an understanding into a precedent, of mandatory observance in judgments, is a measure that should be adopted with caution, so that there be no undue restriction in the field of discussion.
[1]What draws attention in the data is the number of precedents approved in comparison with the total number of proposals submitted. In 2018, 21 precedents of a total number of 32 proposals under discussion were approved. Even with a significant increase in the total number of proposals submitted, from 32 to 50, the percentage of precedents approved remained stable, from 65.6% to 66% this year.
[2]35th proposal: the rules for receipt of Profit Sharing (PLR, referred to in Law No. 10,101/2000, should be established in the agreement signed before the start of the calculation period.
[3]28th Proposal: the deduction of goodwill amortization by future profitability is subject to proof of its economic basis, which, in accordance with the original wording of paragraph 3 of article 20 of Decree-Law No. 1,598, of 1977, occurs by means of documentation contemporary with the acquisition of the investment, with demonstration being inadmissible by means of a document prepared after the acquisition.
32nd Proposal: the disallowance of goodwill amortization expense that was generated internally for the economic group, without any expenditure, should be maintained.
[4] 18th Proposal: interest on equity calculated on prior year's equity accounts is non-deductible.
[5] Carf Precedent No. 149: undergraduate or graduate scholarships granted to employees, at a time prior to the effectiveness of Law No. 12,513, of 2011, shall not be integrated into the contribution salary, in cases where the entry points to, as the sole reason for the requirement of the social security contribution, the fact that the aid relates to higher education.
[6] Carf Precedent No. 158: Withholding Income Tax (IRRF) calculated on amounts paid, credited, delivered, used, or remitted, every month, to those residing or domiciled abroad, as compensation for obligations assumed, is included in the basis for calculating the Contribution for Intervention in the Economic Domain (Cide) referred to in Law No. 10,168/2000, even if the source of the payment assumes the financial burden of the tax withheld.
[7] Carf Precedent No. 156: in the drawback regime, of the type suspension, the initial term for counting the five-year limitations period for a time-bar on the right to post suspended taxes is the first day of the fiscal year following the end of the thirty-day period following the deadline for the performing the repurchase and resale exports, per the terms of article 173, I, of the CTN.
- Category: Litigation
Law No. 9,307/96 (the Arbitration Law), which regulates arbitration in Brazil, has provided in its article 1, paragraph 1, since the changes introduced by Law No. 13,129/15, that the "direct and indirect public administration may use arbitration to settle disputes concerning alienable property rights."[1] It was already possible, therefore, to submit for arbitration disputes between private and public entities over compensation amounts due to an act of expropriation (which clearly concern alienable property rights).
The challenge was in putting into operation the choice to submit to private jurisdiction, especially in negotiating an arbitration commitment with the Public Administration, an instrument whereby, under the Arbitration Law, the parties may, after the conflict has arisen, declare their choice to use this means of dispute settlement in cases where there is no arbitration commitment that already binds them.
As for mediation, Law No. 13,140/15 only governs the initiation thereof between private parties, therein regulating, with respect to disputes with the Public Administration, a procedure for self-resolution of litigation before the chambers of prevention and administrative resolution of conflicts created and/or existing within the scope of the Public Advocacy bodies.
It is in this context that the Law No. 13,867/19, published on 27 August of this year, comes as good news for private parties who may have properties expropriated by the government and disagree with the amount offered as compensation.
Introducing salutary changes to Decree-Law No. 3,365/41 (the Expropriation Decree), Law No. 13,867/19 gives private parties the right to opt for arbitration or mediation when there is disagreement as to the compensation amounts due from the government by reason of expropriation, via a procedure that appears to be simple.
According to the new system, now provided for in articles 10-A and 10-B of the decree-law, the government must, as a first step in the dialogue with the private party, notify the owner with one offer of compensation, which must contain: (i) a copy of the act of declaration of public utility; (ii) the plan or description of the assets and their boundaries; (iii) the amount of the offer; and (iv) the express provision that the owner has 15 days to accept or reject the offer, with silence being interpreted as rejection.
Upon receipt of the notice, the private party has three options. It may:(i) accept the offer and enter into an agreement with the government; (ii) reject the offer (or even remain silent as to its terms), and wait for the public entity to initiate legal action against it (pursuant to article 11 of the Expropriation Decree); or (iii) initiate a lawsuit, arbitration, or mediation if it disagrees with the compensation offered by the Government.
That is to say, more than provide to private parties the power of choice between these two effective dispute resolution alternatives, Law No. 13,867/19 imposed a very different system from that provided for in the prior article 10 of the Expropriation Decree. [2] It imposes on the government, before the adoption of any judicial measure, the obligation to send to the owner an offer of payment of compensation as a way to reach an agreement, valuing the transaction, still in the administrative sphere, as a measure to be primarily sought by the expropriating public entity.
Also pursuant to the terms of article 10-B of the Expropriation Decree, when opting for mediation or arbitration, the private party must indicate one of the bodies or institutions specialized in the aforementioned alternative methods of dispute resolution that have been previously registered by the entity responsible for the expropriation. The legal mandate says nothing regarding how this indication must occur, but it is recommended for the private party to, once the choice has been made, notify the government indicating the institution responsible for administering the procedure to be initiated.
Regarding the costs of arbitration or mediation, one should call attention to the presidential veto of paragraph 5 of article 10-B which was found in Bill No. 10,061/18. The provision established that the "arbitrators' fees are advanced by the government and, at the end of the proceeding, shall be paid by the losing party or proportionally, as established in the regulations of the agency or institution responsible."
With its exclusion from the text of the law, there is no doubt that the arbitrators’ fees, as well as all other expenses (administrative costs, hearing expenses, expert witnesses and experts, for example) should be borne by the parties in accordance with the rules of arbitration and/or mediation of the institution appointed.
Law No 13,867/19 is applicable to all expropriations occurring as of August 27 (its date of publication). Thus, for the changes brought in by it to have full practical effectiveness, the process of registering the mediation and arbitration chambers must be regulated and initiated shortly by public entities, with the disclosure of a list of institutions that may be appointed by the private party.
The need for prior registration of arbitration institutions by the Government is not new in our legal system. This system was also adopted by the Federal Government, within the scope of Law No. 13,448/17, which deals with extension and rebidding of the Investment Partnership Program (PPI) contracts; and by the states of Minas Gerais (Law No. 19,477/11), Rio de Janeiro (Decree No. 46,245/18), and São Paulo (Decree No. 64,356/19), which already regulated the use of arbitration to resolve conflicts with the Direct Public Administration and its instrumentalities and entities.
The Attorney General’s Office of the State of Rio de Janeiro makes available on its website[3] a list of institutions already duly registered. In Minas Gerais, the chambers must be found in the General Registry of State Suppliers.[4] In São Paulo, there is news that registration has started and that the list will soon be released.[5] At the federal level, no information on registration was found. With respect to the other entities, it is important to pay attention to the publication of executive acts governing the registration process and lists indicating the mediation and arbitration chambers that may be elected.
The changes introduced by Law No 13,867/19 to the Expropriation Decree is of paramount importance because, in addition to improving the administrative stage, of the expropriation process, allow the private party to opt for the procedure it believes more appropriate for the case in order to determine the compensation, thus promoting greater speed and more legal certainty.
[1] This change in the text of the law only reflected in the law an already established position of the case law regarding the matter.
[2] Article 10 of the Expropriation Decree provided (and still provides) that “[the] expropriation shall be performed via agreement or legal action within five years from the date of issuance of the respective decree and shall expire after the lapse thereof. " Read on its own, in the absence of the current articles 10-A and 10-B, the provision gave the public entity a choice between seeking a friendly settlement and immediately filing a judicial suit. There was no legal preference for settlement, and it was possible, under this old regime, for the Public Administration to move the machinery of the Judiciary unnecessarily, filing a dispute against an owner willing to accept the compensation offered.
[3] https://www.pge.rj.gov.br/entendimentos/arbitragem
[4] https://www.cagef.mg.gov.br/fornecedor-web
[5] For now, the arbitration chambers that administer arbitration proceedings in which the state of São Paulo is a party may be looked up here: http://www.pge.sp.gov.br/arbitragens/arquivos/arbitragens.pdf.
- Category: Infrastructure and energy
Resolution No. 4,751 of the National Monetary Council (CMN), issued on September 26, regulated the possibility of settlement through redemption and offer of redemption of debentures supported by Law No. 12,431/11, which deals with raising funds for infrastructure investment projects. This scenario was prohibited under the terms of subsection II of the sole paragraph of article 1 of that law.
The change offers more security for companies to issue this type of security, as they can better manage their debt without being exposed to inflexible debt in the Brazilian capital markets.
To perform the early redemption provided for in the resolution, the issuing company must meet all of the following requirements:
- The weighted average term of the payments elapsed between the issue date and the settlement date of the debentures must be greater than four years, calculated in accordance with CMN Resolution No. 3,947/11;
There must be an express provision in the Indenture Instrument regarding the possibility of early settlement of the debentures and regarding the criteria for determining the amounts to be paid to debenture holders upon settlement;
The prepayment fee is less than or equal to the sum of the government bond rate yielded by the same debenture index with the duration closest to the debenture duration on the early settlement date, with the spread over the federal government bond rate remunerated per the same index as the debenture with a duration closest to the duration of the security on the issue date; and
There must be provision in the Indenture for possible early settlement dates at intervals of not less than six months between them and the calculation formula that will be used at the time of settlement.
The latter two requirements may be disregarded if debentureholders representing at least 75% of outstanding debentures approve the settlement. This approval must be formalized by means of a resolution at a meeting of debentureholders or accession to the purchase offer made by the issuing company, in compliance with the rules issued by the Brazilian Securities and Exchange Commission (CVM).
The early settlement must be performed via the total early redemption of the same series (infrastructure) debentures, and partial early redemption is not allowed.
The new rules apply to debentures issued after publication of the resolution, which entered into force on September 26.
- Category: Environmental
Recent environmental accidents in Brazil have generated intense legislative debates, including with respect to changes to the law that establishes the elements of environmental crimes. On June 25 of this year, the Chamber of Deputies approved Bill No. 2,787/19 (PL 2,787/19),[1] which, among other provisions, establishes the elements of the crime of ecocide. The main justification for approving the text was that criminal law on disasters of this type supposedly still proves to be fragile.
After approval by the Chamber of Deputies, PL 2,787/19 was referred to the Senate Environment Committee. Last September 11, Alessandro Vieira, rapporteur of the proposal, approved the bill with an amendment.[2]
In legal scholarship, ecocide is the term used to refer to any “extensive damage that causes the destruction or loss of one or more ecosystems in a given territory, whether by human agency or other causes, to such an extent that the enjoyment of the right to peace, health, and quality of life for the inhabitants of that territory have been severely compromised.”[3]
The origin of the concept of ecocide is social pressure to punish environmental disasters of great repercussion both in Brazil and abroad. The potential elements of the crime are the result of a certain societal dissatisfaction with the legal treatment given to environmental accidents that cause extensive damage, even though there is liability based on conduct usually typified as an environmental infraction.
PL 2,787/19 intends to amend Law No. 9,605/98 (the Environmental Crimes Law) by inserting the elements of the crime of ecocide as follows: “to cause an ecological disaster by atmospheric, water, or soil contamination, significant destruction of flora or slaughter of animals, which generates a state of public calamity.”
The Environment Committee has amended this wording so as to provide that the state of public calamity must be recognized by the Federal Government and/or the States.
As proposed by the bill, anyone who causes an environmental disaster meeting the elements of ecocide shall be subject to imprisonment from 4 to 12 years and a fine. Willful misconduct is provided for, with a penalty of 1 to 3 years and a fine.
The bill also seeks to establish that, in the event that the accident causes the death of people, it is possible to apply the penalty of ecocide regardless of application of the sanctions for the crime of homicide.
The effectiveness of this type of provision will depend on the practical application of the administrative procedure and the criteria that will be used to characterize an ecological disaster of great repercussions.
We believe that, even in situations of a strong reaction from the public, the judiciary should seek to review cases considered as “ecocide” in an impartial manner, deliberating on the penalty in a reasonable and proportionate manner and avoiding allowing social pressures to influence the application of harsher penalties.
In addition to the elements of the crime of ecocide, the bill aims to modify the amounts of fines for administrative environmental offenses, also provided for in the Environmental Crimes Law. If the text is approved, the minimum amount of fines will rise to R$ 2,000, while the maximum will be R$ 1 billion.
The bill is now proceeding to the Constitution and Justice Committee and, subsequently, to the Senate floor, and is due to return to the Chamber of Deputies for a second review in the event that the proposed amendments are approved.
In the event of approval of inclusion of ecocide in the environmental liability system in force in Brazil, it is expected that the environmental authorities will not bring charges for this crime unreasonably, only as a more severe form of punishment for situations that already necessarily have a legal treatment provided for by the laws and regulations in force.
[1]https://www.camara.leg.br/propostas-legislativas/2201529
[2] https://www25.senado.leg.br/web/atividade/materias/-/materia/135651
[3] HIGGINS, Polly. Eradicating Ecocide: laws and governance to stop the destruction of the planet. 2 ed. London: Shepheart-Walwyn, 2015, p. 62 – free translation from the Portuguese translation, English original not available at time of publication).
- Category: Labor and employment
The seven public civil actions filed by the Public Labor Prosecutor’s Office (MPT) against Brazil’s main banks for alleged liability for their clients' social and environmental risks are beginning to unfold.
The case actually began in 2016, when the MPT instituted a prosecutorial procedure to monitor the Social and Environmental Responsibility Policies (PRSA) required by Resolution No. 4,327/14, of the National Monetary Council (CMN), in relation to the main banks operating in Brazil.
In addition to implementing the guidelines for the PRSA, the resolution establishes the requirements to be met by financial institutions in social and environmental actions both in relation to their own businesses and in relation to deals entered into with interested parties, that is, companies that consume the products and services offered.
According to the MPT, the intent of Resolution No. 4,327/14 is to require financial institutions to plan actions to prevent or remedy the supply of credit to enterprises involved in the exploitation of slave labor, child labor, or serious violations of health and safety standards. However, during the proceeding initiated, the agency found that the social and environmental responsibility actions announced by the financial institutions investigated did not correspond to reality and were not converted into concrete actions.
Given the outcome of the investigations and after fruitless negotiations with the banks involved, in May of this year the MPT filed seven public civil actions in the Labor Courts against these institutions, arguing that the guidelines provided for by the resolution had not been met. The actions are based, among other things, on the idea that if the financial institutions had compelled the companies benefiting from their services and products (especially credit) to comply with social and environmental responsibility policies, many disasters would not have occurred.
This responsibility was imputed by the MPT to the main banks operating in Brazil, as the social and environmental engagement of the beneficiary clients was supposedly based exclusively on operating licenses issued by environmental agencies and voluntarily disclosed documentation, without any questions into labor issues or checks into serious violations of labor rights, for example.
In this context, the seven public civil actions filed sought, in short, to demand that the institutions: (i) prepare new social and environmental responsibility policies in order to ensure effective identification of the social and environmental risks to which clients and users of the products are exposed; (ii) no longer used voluntary disclosure as the sole source for identifying social and environmental risks; and (iii) include social and environmental obligations in credit agreements.
However, Resolution No. 4,327/14 does not rule out voluntary disclosure as a source of identification of social and environmental risks by financial institutions, and does not provide for the inclusion of social and environmental obligations in credit agreements, which may have a great impact on the limits on the MPT's actions and the responsibility of companies and financial institutions for the social and environmental risks to which their clients and users/consumers are exposed.
This same discussion was already raised in November of 2018, when Federal Decree No. 9,571 was published, which directed companies to monitor their entire operation, including the production chain, to promote human rights not only within the scope of their own employees. At the time, in the first article written in the Legal Intelligence Portal regarding the topic, we emphasized that, until then, the justification used by the oversight bodies, notably the MPT, to impute corporate liability for the chain of production was based on principles, encompassing the Federal Constitution, international conventions, the Civil Code, and the Consumer Defense Code, among others. However, we anticipated that, although companies could voluntarily comply with the guidelines provided, the MPT would begin to use the decree as a legal basis, and no longer a principle, for imputing liability for the chain of production.
A few months later, the MPT filed the seven public civil actions, with requests directly related to the liability of the institutions for the social and environmental risks of their clients and users. Once again, the MPT imputed an obligation not provided for by law to the parties involved in the transaction.
That is, although the MPT did not expressly mention Federal Decree No. 9,571/2018 in the public civil actions filed, the fact that the agency has used a more specific rule causes the imputation of liability to companies throughout the transaction and even risks exposed to by clients and users become even more recurrent by the oversight bodies, based on the presumption of liability established for the first time in Federal Decree No. 9,571/2018, even though there is no provision of law on the matter.
In any case, it is important to consider that Resolution No. 4,327/14, used to support the MPT's claim, has a more limited scope than that attributed to it by the oversight body, which may still generate important debates on the subject.
In August of this year, the public civil actions filed by the MPT registered their first development: the Labor Courts declared their lack of subject-matter jurisdiction to adjudicate the matter in one of them, on the grounds that review of the violation, or lack thereof, of the norms relating to social and environmental responsibility policies is the responsibility of the Federal Courts of common jurisdiction, as it involves rules related to actions of a social and environmental nature that would impact on the National Monetary System, in the interest of the Federal Government.
This means that the debate regarding the imputation of liability to companies throughout the transaction may still persist also in the Federal Courts of common jurisdiction, such that Federal Decree No. 9,571/2018 may have only indicated the future behavior of the oversight bodies both in the labor sphere as well as in the civil sphere.
