Publications

Category: Infrastructure and energy

On the eve of the end of the government and with frustrated expectations regarding the advance of Bill No. 6,407/2013 (the Gas Bill), President Michel Temer enacted on December 17, Decree No. 9,616 in order to amend Decree No. 7,382/2010, which regulated Chapters I to V and VIII of the Gas Law.

The measure came as a result of the many debates held between industry and government agents and after various initiatives developed over the last few years. In general terms, the amendments envisaged in the decree are in line with the provisions of the Gas Bill and the proposals presented as part of the Gas to Grow (Gás para Crescer) initiative, thus laying the general foundations for structuring the natural gas industry and leaving the regulation of specific topics to the National Petroleum, Natural Gas, and Biofuels Agency (ANP).

The decree gives continuity to the strategic guidelines for the design of the natural gas market published by the National Council of Energy Policy (CNPE) in 2016 and seeks to meet the expectations of the market players. Its main objective was to flexibilize regulatory and legal criteria and procedures related to the natural gas industry, in addition to granting the ANP greater regulatory autonomy so that the changes necessary for the development of the natural gas industry may be implemented continuously.

With the new decree, gas pipelines that do not fit into the definitions of the modes of disposal, transportation, or transfers may be classified according to the criteria established by the ANP.

The regulatory agency is in charge of establishing the criteria of autonomy and independence in the exercise of the transport activity for both new transporters and for existing transporters. The objective is to promote free competition, transparency of information, non-discriminatory access to pipelines, and efficient use of facilities.

Criteria and procedures for the expansion (extension and construction) of Brazil's pipeline network were made more flexible. Some provisions in the public call notice and the bidding process were repealed. Thus, the provision that established that the criterion for the selection of the winning bid would be the lowest annual revenue was deleted, which, in turn, would correspond to the annual amount to be received by the carrier for the provision of the transportation service. The provisions dealing with the reference pipeline, used to define maximum annual tariffs and revenues, considered for purposes of public call for bids and concession bids, were also repealed.

Specifically regarding the bidding document, the decree revoked provisions regarding the mandatory items that should accompany the technical proposal, namely: preliminary pipeline design; description of the equipment to be incorporated into the infrastructure; material specification; local content ratio; list of shippers who signed a commitment agreement in the public call process; among others.

With respect to third-party access to transportation pipelines, the decree provides that the tariffs for the transport activity are to be proposed by the carriers and approved by the ANP in accordance with the criteria established by the agency. The previous wording stated that the ANP would establish both the criteria for the definition of the amounts due from third parties interested in accessing the pipeline as well as the form of payment and its allocation.

One of the most significant changes brought by the decree, however, was the provision regarding natural gas transportation systems, defined as those formed "by interconnected transmission pipelines and other facilities necessary to maintain their stability, reliability, and safety, in accordance with the ANP’s regulations", as defined in the Gas Bill. Again, the ANP was responsible for the specific regulations regarding the transportation system. The transportation services will be offered in the entry-exit model, whereby entry and exit capacities may be contracted for independently. There was great expectation in the industry regarding the treatment of the topic since the beginning of the debates, in the middle of 2016.

The decree expressly stipulates that the new entry-exit model for natural gas transportation services will not affect the rights of carriers with contracts currently in force. In addition, the ANP may establish "incentives" in relation to the maximum revenue allowed for transporters so as to adjust current transportation contracts to the new modality.

Regarding access to essential infrastructure (gas pipelines, natural gas processing and treatment units, and LNG liquefaction and regasification terminals), a provision was included in the decree to provide that refusal of access that constitutes anti-competitive behavior will subject the agent to the sanctions applicable in accordance with Law No. 15,299/2011 (the Cade Law). The ANP was received the attribution to establish guidelines for facility owners and operators in order to develop common access codes in conjunction with the agency.

With respect to the treatment of free consumers, one of the most sensitive issues in the natural gas industry today, the decree merely stated that "the Federal Government, through the Ministry of Mines and Energy and the ANP, shall liaise with the States and with the Federal District for the harmonization and improvement of standards related to the natural gas industry, including in relation to regulations with respect to free consumers." The wording suggests that an additional effort will be required by the Federal Government in order to ensure free consumer regulations in the states.

The publication of the decree brings about new momentum for the industry, which expects intense regulatory activity from the ANP in the coming months in order to implement the measures necessary to put the changes into effect.

Category: Labor and employment

The need to create specific breastfeeding areas for employees of shops is a matter that has not yet been settled among the panels of the Superior Labor Court (TST). In September, over a few weeks, the court handed down judgments in diametrically opposed terms, in two cases whose claims were identical: the creation of space for safekeeping, security, and assistance for shop employees.

In a decision published on September 10, the 8th Panel of the TST ruled that shopping malls are not required to create such spaces and that it is incumbent on the employers (the stores in them) to meet that specific need. A few days later, on the 19th, the 2nd Panel of the same court issued a decision exactly to the contrary, published on the 28th, stating that the shopping mall "should ensure a place for breastfeeding for shop employees."

The matter is relevant as it may also apply to similar public spaces such as airports, commercial buildings, community markets, and shared offices.

Section 389, paragraphs 1 and 2, of the CLT establishes that every enterprise, in establishments where at least 30 female employees over 16 years of age work, must have an appropriate place for their children to stay during periods of breastfeeding:

“Article 389 - All companies are required to:
(...)
Paragraph 1 - Establishments in which at least thirty (30) women older than sixteen (16) years of age work shall have an appropriate place where employees are allowed to keep their children under supervision and assistance during periods for breastfeeding.
Paragraph 2 - The requirement of paragraph 1 may be met through district daycares maintained, directly or through agreements, with other public or private entities, by the companies themselves, under a community regime, or by the SESI, SESC, LBA, or trade union entities."

The heading of the article is intended for "companies." On the other hand, paragraph 1 establishes the obligation based on each "establishment." As paragraph 1 is found within article 389, the legislator’s idea was to think of each establishment of the company, since if a company has establishments in various localities in Brazil, it would not be imaginable to think only of the number of 30 employees in the company’s total.

In the context of judicial decisions, the 8th Panel, in the judgment on the appeal submitted in case number 1487-13.2015.5.23.0002, ruled that there was no obligation on the part of the shopping mall to establish a place for breastfeeding, on the grounds that "the shopping mall assumes only general obligations as to the safety of workers, provision of toilets, and places for meals, but specific labor obligations derive from the employment contract entered into between the individual business establishments and their workers."

The decision also states that "such an obligation is intended exclusively for the real employer, as is drawn from an exegesis of article 389, paragraphs 1 and 2 of the Consolidated Labor Laws” and that it would be an "improper procedure to add all the employees of the stores to those of the shopping mall for this purpose."

Differently, the decision by the 2nd Panel of the TST rendered in the judgment on an interlocutory appeal in a bill of review (case No. 131651-27.2015.5.13.0008) was a little more extensive. The main argument for entering a judgment against the shopping mall was the principle of the social function of the company and article 227 of the Constitution of 1988 (CF/88).

It was also argued that the controversy cannot be an obstacle to the realization of the right vindicated and that "for the shop owner, the lessee of the 'commercial space', almost no freedom is assigned, everything is rigorously directed towards a standardization of facilities, actions, and procedures necessary to the ends of the collective enterprise." That is to say, for the 2nd Panel, "it is not, therefore, as the appellant claims, a mere lease agreement, but rather a relationship in which there is a strong interference by the respondent in the activity of the shop owners." In this same sense, it was argued that "shopping malls are, in fact, a commercial supra-establishment", acting in a "supra-business activity."

Moreover, according to the appellate decision, the judgment is based on structural subordination in the network and not on the economic group between the shopping mall and the stores:

"There is, therefore, among the employees of the shop owners and the condominium what the legal doctrine calls structural subordination in the network, thus justifying, also under this viewpoint, the liability of the respondent. That is, it is not liability based on the recognition of the existence of an economic group, as the appellant alleges."

Finally, the judgment pointed out that the law should be interpreted on the basis of the current context, such that it obliges establishments, and not companies, with more than 30 employees to provide space for breastfeeding.

The controversy is complex. To interpret in an expansive manner the applicability of section 389 of the Consolidated Labor Laws would result in other consequences in the labor sphere, especially when the concept of an "establishment" is expanded. Thus, sites including various companies could be compelled to meet apprentice quota, PCD [Persons with Disability Quota], set up an SESMT [Occupational Safety and Medicine Service], and an Internal Accident Prevention Committee (CIPA), according to the number of workers in those locations, even if they are not direct employees of the company that owns the structure.

Although section 227 of the Constitution ensures, as a matter of priority, to children all the fundamental rights provided for constitutionally, this constitutional provision does not show itself to be sufficient to conclude that section 389 of the Consolidated Labor Laws is intended for those who are not the real employer.

Such a conclusion is reached especially considering that the concepts of employer and establishment cannot be expanded by the judge beyond the labor conceptualization of the terms.

After all, section 389 of the Consolidated Labor Laws covers the "company." In turn, section 2 of the same law considers as an employer to be "the individual or collective company which, assuming the risks of an economic activity, hires, pays, and directs the personal provision of services." In addition, by establishment is understood, according to section 74 of the Consolidated Labor Laws, each place for provision of services, unlike the entire enterprise, which would be considered as being a "company."

Considering that shopping malls (or airports, commercial buildings, port complexes, common markets, and shared offices) would not pay nor direct the personal services of the employees of the companies, whose establishments are located in the interior of their enterprise, the decision by one of the panels of the TST could be legally opposed in view of these arguments.

Category: Tax

On April 7, 2018, the State of São Paulo published Complementary Law No. 1,320, of April 6, 2018 ("LC No. 1,320/2018"), resulting from Bill No. 25/2017, which establishes the Program for Stimulating Tax Compliance, “Compliance Program", defining principles for the relationship between taxpayers and the Tax Administration, as well as establishing rules for tax compliance.

By means of the principles established in article 1 of LC No. 1,320/2018 (simplification of the state tax system, good faith, and predictability of the Public Administration’s conduct, legal certainty and consistency in the application of tax legislation, publicity and transparency in the disclosure of data and information, and fair competition among economic agents), the Compliance Program aims at the following guidelines and actions:

I - facilitate and encourage self-regulation and tax compliance;
II - reduce compliance costs for taxpayers;
III - improve communication between taxpayers and the Tax Administration;
IV - simplify tax legislation and improve the quality of taxation by promoting, among other actions

According to article 5 of LC No. 1,320/2018, the Treasury Department of the State of São Paulo, for the implementation of the actions set forth in the Compliance Program, will sua sponte classify taxpayers into the following categories: "A+", "A”, “B”, "C”, "D", and "E” and" NC "(Not Classified), based on the following criteria:

(i) overdue ICMS tax liabilities;
(ii) consistency between bookkeeping or declarations and the tax documents issued or received by the taxpayer; and
(iii) profile of the taxpayer's suppliers, according to classification in the same categories and by the same classification criteria set forth in Complementary Law no. 1,320/2018.

According to the Complementary Law, for each criterion, the taxpayers will be classified into the categories, in descending order of conformity, considering all their establishments, subject to the forms and conditions to be established in regulations. The application of the classification criteria will only take into account the triggering events that occurred after the date of publication of LC No. 1,320/2018, and may take into account the taxpayer's business size and segment of the economic activity.

LC No. 1,320/2018 determines that the taxpayer’s classification, in any of the categories provided, will be reviewed periodically, according to regulations (which have yet to be published).

Taxpayers in a non-active registration situation, in the form and conditions established in regulations, will be classified into category "E". As regards the category NC, it will be transitory: (a) due to the need for gradual implementation of the classification system; (b) upon the commencement of the taxpayer's activities; (c) in the case of a supplier established abroad; and (d) other scenarios defined in the regulations.

Regarding the publicity of the classification, taxpayers will be informed in advance of the classification assigned to them, which will be available for public consultation on the electronic portal of the São Paulo State Treasury Department. Taxpayers may oppose the disclosure of their tax classification on the website, in which case their classification will not be prejudiced by said opposition.

In relation to the classification criteria, the rule in question states as follows:

(i) Regarding the first classification criterion (overdue ICMS obligations), article 7 of LC No. 1,320/2018 states that this will occur due to delay in the payment of the tax, such that the taxpayers with an tax obligation overdue by more than 2 months cannot be classified into the category "A+", and the taxpayer will be classified into category "D" when the obligation is pending for more than 6 months. Classification into the other categories will occur in the interval between the categories "A+" and "D".

Tax debts with suspended enforceability or subject to full collateral provided in court, or at a small amount fixed in regulations, will not be considered. In the event that a debit, previously suspended, loses said condition, it will be incumbent on the taxpayer to prove reinstatement of the suspension of enforceability at any time.

(ii) Regarding the second classification criterion (consistency), LC No. 1,320/2018 determined in its article 8 that the relationship between the amounts indicated in the tax documents issued and received by the taxpayer and those regularly recorded in the tax books or declared will be considered.

Taxpayers with 98% consistency will be classified into the category "A+” and taxpayers with less than 90% consistency will be classified into category "D". Classification into the other categories will occur in the interval between the categories "A+" and "D".

Taxpayers who agree with the divergence pointed out by the Tax Administration may request additional time for correction of their systems and procedures, noting that, in the event that the request is granted, and provided that the correction has been made within the time limit indicated by the Tax Administration, the divergence will not prejudice the taxpayer's classification.

(iii) Regarding the third classification criterion (suppliers), article 9 of LC No. 1,320/2018 determines that classification will consider the percentage of goods and services taxed by ICMS from suppliers classified into the categories of the Complementary Law.

Taxpayers with at least 70% of the total value of their entries from suppliers classified into the "A+" or "A" categories, and a maximum of 5% in the "D" category, will be classified into the "A+" category. Taxpayer with less than 40% of the total value of their entries from suppliers classified into the categories "A+", "A" or "B", or more than 30% into category "D” will be classified into category "D".

Supplier classified into category "NC" will not be considered for the purpose of the classification provided in the head paragraph of this article unless there is a relevant concentration of suppliers in that category in relation to the same taxpayer, in the form and conditions established in regulations.

In the case of taxpayers established in other Brazilian States that provide services and merchandise to taxpayers established in the State of São Paulo, the State Revenue Service may establish a separate procedure for registration and for electronic transmission of information, which shall be provided directly by the supplier itself or by means of an agreement entered into between the Revenue Service and the body responsible for the Tax Administration of the supplier and shall be used exclusively for criterion to classify the supplier. In the event of failure to transmit supplier information, classification into category "D" will be automatically adopted.

For taxpayers who collect state tax based on the Special Unified Tax Collection and Contributions Due from Micro-Companies and Small Enterprises - National Simple System, established by Complementary Law No. 123, of December 14, 2006, the regulations may establish parameters for conformity and respective forms for calculation different from those established for other companies.

Among the actions for self-regulation, the Revenue Service will institute the Preliminary Tax Analysis ("AFP"), which consists of analytical or field work by an Income Tax Agent, without the purpose of drawing up an infraction notice or imposing a fine. At the discretion of the Revenue Service, taxpayers may be notified of the finding of an indication of irregularity, in which case they will be exempt from penalties provided for in the legislation, provided that the irregularity is cured within the time limit.

The Preliminary Tax Analysis procedure does not constitute a start of an audit and does not rule out the spontaneity of the taxpayer. However, it should be noted that AFP's incentives do not cover cases of tax suits arising from a judicial order or duly established fraud.

Under the terms of the LC in question, depending on their classification, taxpayers will be entitled to the following benefits from the State:

(i) A+

· Access to the Prior Tax Analysis proceeding;
· Authorization for accrual of accumulated debt, observing simplified procedures;
· Effect of the refund referred to in article 66-B of Law No. 6,374/89 (presumed taxable event), observing simplified procedures;
· Authorization to pay ICMS for the tax substitution of goods originating from another Brazilian State, whose taxable amount has not been withheld in advance by means of compensation in an escrow account, or collection via a special form by the 15th of the following month;
· Authorization for payment of ICMS over the importation of merchandise from abroad by means of compensation in escrow account;
· Renewal of special treatment granted under Article 71 of Law No. 6,374/89, observing simplified procedures;
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures;
· Transfer of accumulated debt to a non-interdependent company, observing simplified procedures, in the form and conditions established in regulations, provided that it is generated in period of jurisdiction after the publication of this complementary law, subject to the annual limit established in regulations.

(ii) A

· Access to the Prior Tax Analysis proceeding;
· Authorization for accrual of accumulated debt, observing simplified procedures;
· Effect of the refund referred to in article 66-B of Law No. 6,374/89 (presumed taxable event), observing simplified procedures;
· Authorization to pay ICMS for the tax substitution of goods originating from another Brazilian State, whose taxable amount has not been withheld in advance by means of compensation in an escrow account, or collection via a special form by the 15th of the following month;
· Authorization for payment of ICMS over the importation of merchandise from abroad by means of compensation in escrow account;
· Renewal of special schemes granted under Article 71 of Law No. 6.374/89, with simplified procedures; and
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures.

(iii) B

· Authorization for the appropriation of up to 50% of the accumulated debt, observing simplified procedures, in the form and conditions established in regulations;

· Authorization for the payment of ICMS over the importation of merchandise from abroad, by means of compensation in an escrow account; and
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures.

In accordance with article 17 of LC No. 1,320/2018, there will be a regulation to discipline and measure the benefits of the Program for each category, depending on the length of stay in each category.

The drawing up of a notice of infraction and imposition of a fine that establishes willful conduct, the occurrence of fraud, or the practice of concealing of assets by the taxpayer will entail suspension of the benefits provided for in this chapter for the following periods: (i) up to a maximum of 1 year, if the respective tax debt is subject to extinction or agreed-upon installments that are being regularly fulfilled; (ii) up to a maximum of 2 years, which will be terminated in the event of a final decision favorable to the taxpayer at the administrative level. Hindrance of an audit or recurrence in the commission by the same taxpayer of an irregularity already indicated by the Tax Administration may also entail suspension of the benefits for a maximum period of 1 year, according to the regulations.

Noncompliant debtors will be subject to the Special Framework for the fulfillment of tax obligations, in the form and conditions to be established in regulations, thus considered to be the taxable persons who: (a) have declared and unpaid ICMS debt in relation to 6 calculation periods, whether or not consecutive, in the previous 12 months; (b) have ICMS debts registered as non-performing debt totaling more than 40,000 UFESPs and corresponding to more than 30% of their net equity, or more than 25% of the total value of the transactions of outsourced services rendered in 12 previous months.

For the purposes of calculating the noncompliant debtor, debts with suspended enforceability or subject to full collateral given in court will not be considered. If the taxable person is not in activity during the period indicated in items "a" and "b" above, the sum of up to 12 previous months will be considered.

The Special System for the fulfillment of tax obligations may consist, individually or cumulatively, of the following measures:

· The obligation to provide periodic information regarding the transaction or provision to be performed;
· Change in the calculation period, in the time limit and in the form of tax collection;
· Prior and individual authorization for issuing and recording tax documents;
· Freeze on the use of tax benefits or incentives related to ICMS taxes;
· Permanent duty of Tax Income Agent in the place where the ICMS audit is to be carried out to oversee the transaction or provision of services, tax documents, and other element related to the taxpayer’s condition;
· Requirement of proof of the entry of the merchandise or goods, or the receipt of the service for the appropriation of the respective debt;
· Assignment of the responsibility for the withholding and collection of ICMS due for subsequent transactions with goods subject to the tax substitution system, even if previously taxed or reported in the tax document relating to acquisition of the merchandise, in which case the appropriation will be accepted as a credit against the tax shown to have been collected in previous transactions;
· ICMS tax due, including that which is due by way of tax substitution, for each transaction or provision of services, at the time of the occurrence of the taxable event, observing at the end of the calculation period the system for offsetting the tax;
· Payment of ICMS due to tax substitution, until the moment of entry of the goods into the territory of São Paulo, in the event of liability for tax substitution
· Assigned to the recipient of the goods;
· Centralization of ICMS payments due into one of the establishments;
· Suspension or institution of deferral of ICMS payments;
· Inclusion in a special tax audit program;
· Requirement of periodic presentation of economic, equity, and financial information;
· Disqualification of credentials, qualifications, and special systems.

The application of the Special System mentioned above will be preceded, as provided for in paragraph 2 of Article 20 of the aforementioned LC, by a duly substantiated opinion, as will be set forth in regulations to be published.

Pursuant to article 26, LC No. 1,320/2018 shall enter into force on the date of its publication.

Category: Infrastructure and energy

In accordance with a "strategic reflection" process that redefines its central role in financing transactions to a profile that is more complementary to the capital market, BNDES has announced new financing conditions that establish priority areas for development of Brazil’s infrastructure, with smaller spreads and longer grace and amortization periods, aiming at the promotion of target sectors of the economy.

The changes in the bank's operational policies arise at a time when the Long-Term Rate (TLP), a substitute for the TJLP and responsible for this redefinition of BNDES's role, enters the initial validity phase, as announced last semester.

The new BNDES financing conditions will be based on two main points:

1. Smaller spreads in the priority sectors of innovation, public safety, sanitation, alternative energy, environment, professional qualification, and waste treatment, a list that could be changed after the bank’s strategic repositioning period.

In these priority cases, in projects above R$ 20 million, the fall in annual spread rates will be from 1.7% to 0.9%. In other sectors, the average reduction was lower, from 1.7% to 1.3%. However, spreads were not reduced in all cases: loans for working capital in large companies, for example, registered the most significant increase, to 2.1%; and

1. Longer grace and amortization periods for financing of infrastructure projects, especially for the railways, highways, waterways, and urban mobility sectors. They will be raised from 20 to 34 years. In alternative energy projects, ports, airports, export, and regional development, periods can reach 24 years. Financing in education, health, safety, telecommunications, and waste will have a 20-year term, while the working capital period was maintained at 5 years.

In redefining its role, BNDES has increasingly supported micro, small, and medium-sized enterprises. Its maximum stake in all financing lines in this segment can now reach 100%. For incentive projects for large companies, even in priority sectors, participation will reach only an 80% ceiling, while in other projects it will be limited to 60%. These participation percentages will be based not only on the financeable items, but will also take into account the overall value of the projects, following what is already being done by the market.

If, on the one hand, the TLP represented an initial loosening of the role of the development institution in relation to the capital markets, with the adoption of a greater profile of collaboration with commercial banks, on the other hand, the benefits of smaller spreads and time periods although they do not represent a diametrically opposite measure, indicate a movement to suppress possible loss of BNDES’s position that this loosening represents in the infrastructure financing sector.

As an important part of both the infrastructure sector and the capital markets, BNDES has a significant influence on the national economy. For this reason, the market yearns for the conclusion of the institution’s strategic reflection in order to know what course the new BNDES conditions will take to establish a firm long-term policy based on sound directives and support for clearly necessary expansion of the infrastructure sector.

The new BNDES president, Dyogo Oliveira, who took office in early April, indicated the course to be taken with the conclusion of this strategic reflection. While some of the new financing conditions indicate a possible balance in the institution's position vis-à-vis the TLP, the new president stated that the subsidized interest phase has already fulfilled its role in the national economy. Thus, with the conclusion of this process of reflection, BNDES is expected to maintain the TLP guidelines, that is, to strengthen and develop the capital markets, with the institution's share of financing in infrastructure. This would open space for other agents, thereby optimizing and properly mobilizing private financial resources for the most effective structuring of infrastructure projects.

Category: Infrastructure and energy

Antaq contemplated the main changes brought in by Decree No. 9,048/17 in relation to private port terminals (TUPs) in Normative Resolution No. 20/2018, published in May of this year, and revoked the previous resolution on the subject (Resolution No. 3,290/14).

Published in May of last year, Decree No. 9,048/17 amended the provisions of Decree No. 8,033/13, thereby introducing substantial changes to the regime applicable to public and private port terminals. With the objective of promoting immediate investments in the maintenance, construction, and modernization of Brazilian port terminals, some new mechanisms were provided for the benefit of potential private investors in order to give greater legal certainty to investments in the industry.

To that end, the decree relaxed industry regulations and debureaucratized some operating rules applicable to public and private terminals, which imposed a series of restrictions on the ordinary operations of tenants and authorized agents.

Due to the process of inspection of acts arising from Decree No. 9,048/17, currently in progress before the TCU, there were doubts as to the applicability of some provisions brought in by the decree. However, in May of this year, Antaq spoke on the changes regarding private terminals by contemplating them in its regulations.

The table below summarizes the main changes brought about by Decree No. 9,048/17 and contemplated in Normative Resolution No. 20/2018.

Category: Tax

A topic has been provoking debates in the administrative tax sphere in the State of São Paulo: the drawing up of infraction notices and impositions of fines (AIIM), based on article 84-A of Law No. 6,374/89, to disregard acts and legal transactions carried out by taxpayers.

This legal provision provides for the possibility that the tax authority may "disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the taxable event or the nature of the elements creating the tax obligation."

The tax authorities of the State of São Paulo maintain that article 84-A of Law No. 6,374/89 finds its basis for validity in the provisions contained in article 116, sole paragraph, of the National Tax Code (CTN), also known as the general anti-tax evasion rule .

Article 116 of the CTN was introduced by Complementary Law No. 104, of January 10, 2001 (LC 104/01). Its objective is to reiterate, in the scope of tax law, the illegality of feigned legal transactions, in the following terms:

Article 116 - Except as provided by law to the contrary, the tax triggering event shall be deemed to have occurred and to have its effects apply: (...)  Sole paragraph. The administrative authority may disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation, subject to the procedures to be established in an ordinary law.

The sole paragraph of article 116 of the CTN is the subject of a Direct Action of Unconstitutionality (ADI No. 2446) by the National Confederation of Commerce. In summary, it is argued that: (i) the provision violates the principle of legality and legal certainty, inasmuch as it enables the administrative authority to disregard legal transactions even though carried out per the terms of the law; (ii) there is a breach of the principle of separation of powers insofar as the administrative authority is authorized to institute and collect taxes in the place of the legislature; (iii) the subject to be legislated is under the purview of private law (article 109 of the CTN), and the tax legislature cannot change it; and (v) at a maximum, the rule set forth in the provision would establish taxation based on the final intention of the transaction, which would lead to the requirement of a tax by analogy, which is forbidden by article 108 of the National Tax Code (CTN). This ADI has been awaiting a decision by the Federal Supreme Court since 2001, and the written opinion is currently yet to be prepared by Justice Carmen Lúcia.

Apart from the debate regarding the constitutionality of this provision, in analyzing literally the norm published in article 116 of the CTN, it is found that it is not self-applicable, as it grants the ordinary law the competence to establish procedures that should be observed by the tax authorities in disregarding acts or legal transactions carried out by taxpayers, a law that does not exist as of the present moment.

This automatic inapplicability of the aforementioned article is reinforced by Opinion No. 1,257/2000 of the Committee on Economic Affairs of the Federal Senate, which, when approving Draft Complementary Law Bill No. 77 (converted into Complementary Law 104/01), expressly stated that the provision inserted in article 116 of the CTN is not self-applicable: "It is important to point out that the measure now being deliberated shall not be self-executing, as it shall depend on an integrating law to set the limits of the prerogative conferred on the Tax Administration." To corroborate this understanding, the Superior Court of Appeals (STJ), in the decision on Special Appeal No. 1,107/518/SC, concluded that it was impossible to reclassify legal acts and transactions, "since article 116, sole paragraph, of the CTN is a rule of limited effectiveness, devoid of a law in order for it to produce effects."

As a result of this scenario, there were numerous attempts by the Executive Power to introduce into the legal system, through Presidential Decrees (such as MP 66/02), the conditions and limits for “reclassification," for tax purposes, of lawful legal transactions. The reaction of the National Congress was immediate and resulted in the non-conversion into law of the articles of MP 66/02 that dealt with the matter. Even so, the tax authorities have been trying to apply principles similar to those of MP 66/02, regardless of whether or not they are provided for in the tax legal system.

Until an ordinary law is issued on the subject, it is not necessary to speak of an anti-tax evasion rule and, consequently, of disregarding of acts or legal transactions carried out by taxpayers on the grounds of dissimulation by any State.

That being the case, until an ordinary law is issued on the subject, it is not necessary to speak of an anti-tax evasion rule and, consequently, of disregarding of acts or legal transactions carried out by taxpayers on the grounds of dissimulation by any State.

In order to disrupt all this discussion and bring more legal uncertainty to taxpayers, some taxing entities, such as the State of São Paulo, considered themselves competent to deal with the matter delegated by the sole paragraph of article 116 of the CTN, probably under the cloak of article 24 of the Federal Constitution.

In fact, this constitutional provision sets forth concurrent jurisdiction between the Federal Government and the States to legislate on tax law. However, the first paragraph of the same provision clearly states that, within that jurisdiction, it is incumbent on the Federal Government to lay down general rules. Furthermore, in the second and third paragraphs of the same constitutional provision, States have additional jurisdiction over this matter and may exercise full legislative authority in the event of omission by the Federal Government.

The rule of the sole paragraph of article 116 is clearly defined as a general rule, as it is inserted within Title II - "Tax Obligations", Chapter II - “Tax Triggering Events", of the National Tax Code. Article 146, III, "b" of the Federal Constitution states that it is incumbent on complementary law to govern "tax liabilities, credits, the statute of limitations, and lapse."

In theory, it would even be possible to support the supplementary jurisdiction of the States to regulate the sole paragraph of article 116 of the National Tax Code (until the eventual occurrence of a federal law on general rules, where the effectiveness of state law would be suspended, in accordance with the fourth paragraph of article 24 of the Federal Constitution). Exclusively from this point of view, article 84-A of Law No. 6,374/89 could, in theory, be found to have some basis for constitutionality.

However, upon examining the wording of that legal provision, it appears that the ordinary legislature went far beyond what was theoretically assigned to it:

"Article 84-A. The tax authority may disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation. (Article added by Law No. 11,001, of December 21, 2001, São Paulo Official State Gazette of December 22, 2001)"

This article allows the administrative authority to disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event. That is, absolute competence is assigned, and based on entirely subjective criteria, to disregard the legal transactions, which diverges from the command contained in the sole paragraph of article 116 of the CTN.

This is because, even if using supplementary jurisdiction, the direction of the sole paragraph of article 116 of the CTN was to the effect that the ordinary legislator should institute and regulate procedures to be followed by the administrative authority in order to disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation.

This is not, however, the content of article 84-A of the law of São Paulo State. There is no procedure provided for by law to be followed by the administrative authority for this situation. The state law simply gives the administrative authority full competence to disregard legal transactions, when it is charged with establishing procedures.

In our opinion, if neither the CTN, which is a complementary law by nature and has exclusive authorization from the Federal Constitution to provide general rules on taxation, has conferred on the administrative authority the competence to disregard legal transactions without a law that establishes procedures in this regard, a state law could not do so. That is, the ordinary legislator has assigned solely and only the competence to define the procedures to carry out the act of initiation which may disregard acts or legal transactions. Such an assertion is even more robust if the supplementary competence of the state legislature for this purpose is considered acceptable.

Although the legal provision that is the subject of this debate has existed in São Paulo legislation since 2001, it has seen little practical use by the administrative authorities in carrying out tax assessments. However, more recently, we noted the issuance of infraction notices based on article 84-A in order to disregard an act or legal transaction validly implemented and demand ICMS over the transaction understood as effectively carried out.

In our opinion, assessments by the São Paulo tax authorities based on article 84-A of Law No. 6,374/89 are clearly illegal and, sooner or later, will be definitively canceled because they are based on an invalid provision, thus jeopardizing the pillars of tax law, such as compliance with the principle of strict legality and the guarantee of legal security and certainty of the law.