- Category: Environmental
Brazil is considered a country with natural characteristics favorable to agribusiness. With its 8.5 million square kilometers, it is the largest country in South America, the fifth largest in the world, and it has the potential to expand its agricultural capacity without the need to harm the environment. In addition, it has different types of climates, good soil conditions, water, relief, and sunlight, aspects that contribute to its position as the second largest producer of biofuels in the world.
According to data recently released by the National Agency of Petroleum, Natural Gas, and Biofuels (ANP), production by sugar and ethanol plants reached the unprecedented mark of 4.29 billion liters throughout 2017.
In this scenario and considering Brazil’s advances in relation to renewable energy sources initiatives, Law No. 13,576, which created the National Biofuels Policy (RenovaBio), was approved on December 27 of last year. Corresponding regulations were enacted by Federal Decree No. 9,308, published on March 16.
RenovaBio’s aim is to stimulate the production of biofuels, such as ethanol, biodiesel, biogas, biomethane, and bio-kerosene, through tax incentives and targets to reduce greenhouse gas emissions.
The energy sector believes that, with RenovaBio, Brazil will create favorable conditions for private investment, thereby favoring Brazil's energy efficiency and development potential. In addition, the policy encourages conservation of the environment, as it seeks to balance the pillars of sustainability by means of an adequate energy efficiency ratio and reduction of greenhouse gas emissions in the production, selling and distribution, and use of biofuels, including life cycle assessment mechanisms.
It is worth remembering that, on September 21, 2016, Brazil ratified the Paris Agreement, which was approved by the 195 members of the United Nations Framework Convention on Climate Change (UNFCCC), and committed itself to reducing emission levels by 37% for greenhouse gases (GHG) by 2025 and by 43% by 2030 (based on 2005 levels).
In this context, the implementation of RenovaBio will be guided by the decarbonization targets to be stipulated by the government and promised for the second half of 2018. The objective is to improve the carbon intensity of the Brazilian fuel framework over a minimum period of ten years. The annual mandatory goal will be broken down into individual goals for each current year. They will be applied to all fuel distributors in proportion to their participation in the sale and distribution of fossil fuels in the previous year.
These goals will dictate the pace of expansion of the biofuels market and how financial agents will respond to the stimulus to generate new domestic investments.
Law No. 13,576/2017 also provides fines of up to R$ 50 million for fuel distributors that do not comply with what was established. Verification of compliance with the individual targets will be done through the presentation of decarbonization credits (CBIOs) by the distributors.
CBIOs are generated based on the production of qualified renewable fuels: the lower the carbon emission in relation to large-scale renewable energy productivity, the more producers and distributors will be rewarded with these credits, which can be used as compensation for greenhouse gas emission surpluses in compliance with the mandatory targets. In this way, CBIOs serve as a stimulus to the production of biofuels, guiding a mechanism to improve the RenovaBio framework.
The law also created a certification for biofuels, which is a condition for the generation of a CBIO and will be granted to both producers and importers that meet the parameters related to the reduction of GHG emissions. These parameters take into account the biofuel’s entire life cycle and its differential in relation to fossil fuels.
The trend is that, throughout 2018, the metrics for the implementation of the policy as a whole will be regulated, thereby increasing the participation of the various sectors related to the generation and destruction of biofuels. It is hoped, therefore, that the strengthening of RenovaBio will help Brazil meet the targets set out in the Paris Agreement.
- Category: Real estate
The draft of the bill is quite comprehensive and addresses issues ranging from specifics for certain regions in the city to various technical adjustments. The purpose of the revision, according to the city government, is to promote adjustments in the Zoning Law in order to adapt the existing legal provisions to the actual city, without changes to the land uses, the densification coefficients, and the principles proposed by the Master Plan (MP).
Among the proposals of the bill, it should be highlighted the temporary discount of 30% granted over the value of the onerous grant (“outorga onerosa”), which is a financial compensation for developers to construct buildings beyond the basic building potential and up to the limit of the maximum utilization coefficient. The goal is to encourage such developments in the city and, as framed by the municipal executive, raise the gross revenue of the Urban Development Fund (Fundurb), whose funds are intended for urban improvements in the most vulnerable areas of the city.
According to the city government, the current values of the onerous grants were stipulated during the economic boom in Brazil and no longer reflect market price , therefore, in need to be revised. Civil entities question whether a generalized discount is necessary since the MP already provides economic incentive for the development of projects at specific areas of the City, which are specifically those which the strategy envisioned by the master plan seeks to develop.
Another relevant modification is the exclusion of the height limit for buildings located in mixed areas. It aims in reducing the overall cost of the development, which would be passed on to the final consumer in the form of a reduction in the unit price. The argument is that building a higher single tower instead of two or three lower ones results in savings with the structural part of the building (foundations, elevators, water system, engine room), as well as a better use of the ground floor and underground.
The bill provides for the creation of the institute of the "concept building", which proposes a mechanism that will allow the granting of incentives in the form of discounts the onerous grant for those buildings that adopt sustainable initiatives considered financially feasible and immediately applicable to the projects. The MP currently has the environmental quota mechanism, which, although quite innovative, is still recent and needs further regulations for its effective application. The city government alleges that the fulfillment of the environmental quota has resulted in controversial obligations for the developers, such as the need to construct water retention reservoirs of enormous proportions.
The zoning review proposal also makes relaxes the minimum allocation of percentages of areas constructed under the classification HIS-1 - Social Interest Dwellings in range 1 (from 0 to 3 minimum wages) in Special Zones of Social Interest (ZEIS). Under the current master plan, residential and non-residential developments uses located in ZEIS must allocate a minimum of 60% of their total constructed area to HIS-1 designation. With the proposed change, this minimum can be up to 50% if the entire project is intended for social housing. This will allow greater profitability for developers in projects of this type, thereby stimulating supply for the demand in this market section.
Despite the city government's efforts to speed up the process of revision of the zoning law, which has been criticized by various civic entities that plea for greater participation in the management of the process, there is still a long way before any of these proposals actually come into force.
The contributions received until March 30 must be reviewed by the city and eventually incorporated in the bill, which will then be presented to the City Council for review of admissibility, submission to committees, and voting. If approved, the text will proceed for promulgation by the mayor and enactment, when it will finally take effect.
- Category: Banking, insurance and finance
The CVM board confirmed on January 30, 2018, a decision rendered by its technical department (Superintendência de Registro de Valores Mobiliários - SRE) in the sense that the cryptocurrency Niobium Coin should not be characterized as a security. This confirms the understanding that the initial offering of the Niobium Coin (Initial Coin Offering - ICO) is not within the CVM’s scope of jurisdiction and, therefore, does not require registration of the issuer and offering with the local authority.
CVM concluded that the Niobium Coin should not be treated as a security since the acquirers of the cryptocurrency would not receive any type of compensation from a third party, considering the provisions of item IX, article 2, of Law No. 6,385/76 ("when offered publicly, any other securities or collective investment contracts that generate the right to participation, partnership, or compensation, including as a result of the provision of services, whose income comes from the efforts of the entrepreneur or third parties").
Named a utility token, Niobium Coin can be purchased only through bitcoins or ethereums and there is no right to compensation for its purchasers (one of the criteria necessary to be characterized as a security), even if there is an expectation of profit (in the secondary market). Holders of this asset may use it only to pay for services purchased on the cryptocurrency trading platform of the São Paulo Digital Corporate Currencies Exchange (Bolsa de Moedas Digitais Empresariais de São Paulo – Bomesp), when it is developed and implemented.
Confirmation of the understanding of the technical area by the CVM board is very interesting, as it opens space for new initial offers of cryptocurrencies in Brazil and serves as a reference for the market. However, it is important to make it clear that any ICO of these assets, when characterized as securities, may be followed by various undesirable legal consequences, such as criminal punishment of those responsible for the issuance.[1]
The decision has no other precedents in the world and shows that CVM is following the development and application of new technologies in the capital market. It remains to be seen whether, like equity crowdfunding, new rules and mechanisms will be created in order to enable public offers of cryptoassets that are characterized as securities (such as equity tokens).
Regardless of the current discussions on cryptocurrencies in the Chamber of Deputies (Bill No. 2.303/2015), there is no doubt that the technology behind ICOs can transform the way funds are raised in Brazil, bringing various benefits to the capital market. However, it is necessary to establish clear and effective rules for securities to be offered publicly with the necessary protection for investors (and, of course, without restricting the use of innovative technologies).
1. Under the terms of Law No. 7,492 (White Collar Law), the penalty may be confinement of 2 to 8 years and a fine.
- Category: Infrastructure and energy
History of the facts
The judicial battle began as a result of an enforcement lawsuit filed by BTG, an unsecured creditor, against OSX, the foreign owner of the vessel FPSO OSX 3 (FPSO), which is subject to a mortgage in Liberia, the flag State of the FPSO. In order to secure satisfaction of the debt, seizure of the FPSO was ordered. After becoming aware of the decision that ordered the seizure, Nordic came before the court to report that the vessel was already subject to a mortgage duly registered in Liberia as collateral for the issuance of OSX 3 bonds in the Norwegian capital market, amounting to US$ 500 million. Nordic claimed, acting as the trustee of the bondholders, priority rights over the proceeds from any sale of the asset. The trial court refused to grant the petition to recognize the validity of the foreign mortgage and ordered the proceeding to continue. Nordic then appealed to the São Paulo Court of Appeals, giving rise to a great debate involving issues of public and private international law. The case was later taken to the STJ, which granted partial relief to the claim, having recognized the effectiveness in Brazil of the mortgage registered with the registry of the country of the vessel’s flag.The Dispute
The mortgagor, pleading priority of its claim over the proceeds from any judicial sale of the FPSO, argued that (i) the Liberian mortgage met all legal requirements to be valid; and (ii) due to the impossibility of registering this mortgage with the Brazilian maritime registry (which only registers ownership and liens attaching to vessels flying the Brazilian flag), it was registered in the Registry of Deeds and Documents of Rio de Janeiro as a mere precaution, in order to make it publicly known (and despite the fact that this is unnecessary for the validity or effectiveness of the security). Such arguments brought about a wide-ranging debate regarding the recording of ownership and liens involving foreign vessels. The main issues surrounding the dispute are summarized below.
Registration of the mortgage in the country of registration of the vessel
The mortgagor argued, against the understanding that the maritime mortgage should be registered in Brazil for it to become valid, that such a requirement was impossible to fulfill, since the vessel itself does not enjoy Brazilian nationality and, therefore, cannot be registered in Brazil. The United Nations Convention on the Law of the Sea (1982), known as the "constitution of the seas", not only because of the wide range of subjects related to the law of the sea, but also because of its broad international acceptance, established a framework according to which States shall impose the necessary requirements to grant nationality to vessels and maintain a registry of all vessels authorized to fly their flag. In Brazil, where the Convention was ratified in 1987 and entered into force in 1995, the Maritime Tribunal is assigned this registration function. The requirements for the valid creation of mortgages are therefore usually governed by the country where the vessel is registered. In addition, Brazil is a party to the Brussels Convention and the Bustamante Code, which provide for the extraterritorial effectiveness of liens and mortgaged attached to maritime property, as long as they are duly formalized in their original registry. For this reason, the mortgage validly created in Liberia should be attributed full effect in Brazil. According to the TJSP, the Brazilian legal system, incorporating the Brussels Convention and the Bustamante Code, indeed recognizes the validity of maritime mortgages registered in foreign jurisdictions, provided that the other country is also a member State of these treaties. Thus, since Liberia is not a party to them, the decision disregarded the Liberian mortgage. However, in a special appeal, the reporting judge expressed his opposition to this understanding, otherwise considering the mortgage valid as per article 278 of the Bustamante Code, according to which "maritime mortgages and privileges established in accordance with the law of the flag State shall have extraterritorial effects even in those countries whose legislation does not recognize or regulate such mortgages or privileges” and article 1 of the Brussels Convention, which recognizes that the mortgages “upon vessels … duly effected in accordance with the law of the Contracting State to which the vessel belongs, and registered in a public register either at the port of the vessel’s registry or at a central office, shall be regarded as valid and respected in all the other contracting countries." According to the judge, article 248 of the Bustamante Code is clear in establishing the extraterritorial effects of foreign maritime mortgages effected and registered in accordance with the law of the Country of the flag (law of the place where the ownership of the vessel is registered). Thus, recognition of the validity of the mortgage should be irrespective on whether the country of recording is a member of the convention.
FPSO’s legal status
Among the most controversial grounds for the TJSP's reasoning is the fact that the court did not recognize the status of the FPSO as chattel for the purposes of applying paragraph 1 of article 8 of the Introduction to Brazilian Law. According to this article, the law applicable to chattel carried with its owners should be that of the owner's domicile. In the case under analysis, OSX 3, owner of the FPSO, was based in the Netherlands. Therefore, Dutch law should apply (which recognizes the validity of the Liberian mortgage).
The polemic understanding of TJSP held that, although Brazilian law recognizes the status of vessels as movable assets (articles 478 of the Commercial Code and 82 of the Civil Code), the FPSO was subject to a 20-year charter under which it would be kept anchored in a stationary position for a long time. This was considered enough for the court to rule out the applicability of paragraph 1 of article 8 of the Introduction to Brazilian Law. As a consequence, this conflict of laws would not be solved by the application of such rule, but rather by the application of the law of the place of the property. The STJ decision, in turn, expressly recognized that the FPSO is a vessel and, as such, a movable asset, regardless of whether it is destined to be anchored for a long period of time at the same place. However, despite having explicitly addressed the issue, STJ failed to assess the applicability of article 8 of the Introduction to Brazilian Law to the case, having focused its decision on the effects of international treaties in Brazil.
Existence of an international custom recognizing extraterritoriality of maritime mortgages
The mortgagor had argued in its favor, further, that there was an international custom sufficient to create a rule of international law (under article 38(b) of the Statute of the International Court of Justice) which should be respected by Brazil. To prove its point, the mortgagor brought before court legal opinions produced with respect to various jurisdictions where the maritime mortgage granted abroad would be recognized. The TJSP, however, understood that the evidence brought by the mortgagor was not sufficient to demonstrate the existence of customary international law. The STJ’s ruling did not address this issue either, even though it recognized the existence of a custom according to which the financing of maritime property heavily relied on mortgages as security for creditors.
Other issues not addressed by the courts
Since the TJSP ruled out the application of article 8, paragraph 1 of the Introduction to Brazilian Law and ordered the application of the law of place of the property, another relevant issue was raised by the unsecured creditor: the fact that the location where the FPSO was anchored was not subject to Brazilian sovereignty and, therefore, to the application of territoriality as a connecting factor to justify the supremacy of Brazilian legislation.
In fact, the unsecured creditor claimed that the FPSO was located in the Exclusive Economic Zone, where Brazil does not exercise sovereignty, but only enjoys sovereign economic rights over its natural resources. This would make it impossible to automatically apply Brazilian law without a closer examination of the rules of conflicts of laws. However, this issue was examined by neither the TJSP nor STJ in their reasoning. In addition, the fact that FPSO was flying a flag of convenience was also debated, based on the argument that there was no genuine link with the country of registry. This issue was raised against the mortgagor in order for the vessel to be considered Brazilian for all purposes, since neither the FPSO nor its owner had any connection with the flag State, Liberia. TJSP considered this matter irrelevant for the outcome of the dispute and STJ did not examine it either.
Advantages of the STJ’s decision
- Category: Real estate
The good standing of the use of physical spaces in public waters is as important for some enterprises as the good standing of the recording of the ownership of real estate in the respective real estate registry.
Currently, the installation and use of nautical structures in federal public waters in Brazil is regulated by Ordinance No. 404/2012 of the Bureau of Federal Property Management (SPU Ordinance 404). It defines which structures are subject to regularization of possession by means of entering into an onerous assignment agreement with the SPU. Port infrastructures built over water are conceptually included among these nautical structures.
There is much debate about the legality of this ordinance, especially regarding the possibility of charging for the use of public waters, which is already under judicial review by direct unconstitutionality claim ADI 4819, filed by the Brazilian Association of Port Terminals with the Federal Supreme Court. Notwithstanding the judicialization of this issue, the Ministry of Transport, Ports, and Civil Aviation and the Ministry of Planning, Development and Management have sought to organize the procedure to bring into good standing the use of public waters in port projects, which is timidly evidenced by the publication of the Interministerial Ordinance No. 1, of April 18, 2017.
It turns out that, in the reality of Brazilian private port enterprises, obtaining regulations for the procedure for requesting the use of public waters at new terminals is only one of the steps to solve the challenges that port operators face. SPU Ordinance 404 can no longer address the reality of these terminals and, especially, the peculiarities of port and shipping activities.
First of all, SPU Ordinance 404 is not clear as to the amount to be paid for the use of public waters. The normative text refers to a public price list that is difficult to access, which prevents interested parties from identifying in advance the cost of using public waters.
Secondly, SPU Ordinance 404, which is not focused specifically on port projects, but rather on all situations that require the installation of nautical structures in federal public waters, is not clear in its division of what nautical structures are and what structures used merely to support shipping activity are. For example, interested parties who need to build anchoring structures should not only request the approval of the maritime authority, since it is an activity linked to shipping, but also request the onerous assignment of the respective federal public waters to the SPU, even if the installation of structures is carried out to ensure greater safety for shipping and anchor depth of its vessels and other shipping companies that operate in the region.
The major challenge in this context is to have a rule that guarantees legal certainty to entrepreneurs and clearly indicates how much it will cost, which structures are subject to SPU approval, which structures are subject to onerous assignment, and which structures are merely related to shipping activity, for this reason, under maritime jurisdiction. It is also important that the rule should state which cases require public bidding (and when it is not necessary) and the criterion used to assign space to one operator and not another, especially when the terminal is already authorized by the Ministry of Transport, Ports, and Civil Aviation.
In this scenario, the rule that deals with the possession of public waters, which, it is worth reiterating, is as relevant as the possession and ownership of the respective properties, must accompany the reality of the activities it affects. In the case of port terminals, in particular, the major challenge is to clarify the division among competent authorities, which is already enough to justify the promulgation of a specific rule on this topic.
Meanwhile, companies in the industry face serious difficulties in complying with applicable land regulations and operating in a compliant manner, which creates operational uncertainties and legal uncertainty for the sector.
- Category: Litigation
The decision issued by the Superior Court of Justice (STJ) relating to Special Appeal No. 1.634.851-RJ presents important definitions regarding the duty of cooperation between retailer and manufacturer in remedying defects in consumer goods. The specific case questioned the policy of a retail company to conduct exchanges of products purchased by the consumer only within three business days after the direct sale. The retail company claimed that, after that period, it would be incumbent on the manufacturer alone to remedy any defect in the product and, therefore, it sought to exempt itself from liability. The STJ reviewed a decision by the Rio de Janeiro Court of Appeals (TJ-RJ), which established the existence of a duty on the part of retailers to receive the products within the legal time limit to try to bring back into good standing the defect indicated by the consumer, thereby sending himself the product for technical assistance. In this sense, the TJ-RJ mentioned the 30-day deadline established by the Consumer Protection Code (CDC) to remedy defects in products. According to the TJ-RJ, joint liability among all members of the consumer chain would also imply the duty of retailers to assist consumers in obtaining the repair of products. In other words, retailers who sell directly to consumers should bear the burden of forwarding the product to the manufacturer for proper service. The STJ dealt with the interpretation of article 18 of the CDC in view of the limitation provided in article 26 of the CDC in order to determine whether retailers have this duty. In conclusion, for the STJ, yes, retailers do have this duty of cooperation, as the burden to repair the product should not fall on the consumer. Even in situations where technical assistance is provided in the very same city, this would not exempt the retailer from the duty to send the product for technical assistance. The opinion also mentioned civil liability for the intolerable unjustified loss of useful time by the consumer, a theory adopted by some legal scholars, who consider traveling to the technical assistance location and time without the consumer good to be indemnifiable damages. Even though the STJ does not expressly accept this theory in the opinion, the mere mention causes a reflex for retailers to be attentive to this topic. In summary, the STJ understands that retailers must intermediate the relationship between consumer and manufacturer, as they have a legal duty to ensure the suitability of the product offered for consumption. In this sense, consumers must choose the alternative to exercise their right: whether directly with the manufacturer or with the intermediation of the retailer. In any case, despite the decision unfavorable to the retail company, the STJ maintained the decision by the TJ-RJ regarding the claim for collective moral damages, which were considered not due. The decision should be understood as a necessity for retailers to foresee such scenarios when negotiating with manufacturers. Whenever possible, supply contracts should provide for: (i) compensation or reimbursement of costs arising from handling products from the retailer to the manufacturer; (ii) the replacement of goods by the retailer when the 30-day deadline for remedying the defect set forth in the CDC applies; or (iii) a provision to hold the retailer harmless in the event of suits brought by the consumer because of product defects that should be remedied by the manufacturer. Relevant articles of the Consumer Defense Code:
Article 18. Suppliers of durable or non-durable consumer products shall be held jointly and severally liable for defects in quality or quantity which render them unfit or unsuitable for their intended use or for their reduction in value, as well as for those defects that arise from a disparity with the description provided on the container, on the packaging, labeling, or advertising message, subject to the variations due to its nature, and the consumer may demand replacement of the defective parts.
Paragraph 1. If the defect is not remedied within a maximum period of thirty days, the consumer may, alternatively and at his discretion, demand: I - replacement of the product with another of the same type, in perfect conditions of use;
II - immediate return of the amount paid, monetarily adjusted, without prejudice to any losses and damages;
III - proportional reduction of the price.
Article 26. The right to complain about obvious or apparent defects expires in:
I - thirty days in the case of provision of non-durable goods and services; (...)
- Category: Infrastructure and energy
The Ministry of Mines and Energy (MME) submitted to the President of Brazil a proposed bill (PL) relating to the reform of the electric sector and covering a variety of significant changes to the sector that have long been awaited. The final text of the bill is the result of discussions held under Public Consultation No. 33/2017, undertaken by the MME with widespread participation by the entire sector. The proposed changes cover a number of issues, but here we will address only two issues: (i) the new policy for granting subsidies to renewable energy sources; and (ii) the change in the rule of occupation of rural areas by foreigners, an obstacle also observed in other sectors, but which in the electric sector is of greater importance due to regulatory requirements that developers prove their right to use the area to be used by the projects. Regarding the first topic, it is important to highlight that the subsidies to which the PL refers are discounts granted to certain projects and applicable to Tariffs for the Use of the Electric Transmission (Tust) and Distribution Systems (Tusd). Current legislation provides that, pursuant to Article 26, paragraph 1-A, of Law No. 9,427/96, projects based on solar, wind, biomass, and qualified cogeneration sources, whose power injected into the systems is greater than 30,000 kW and less than 300,000 kW, are entitled to a discount of at least 50% on these tariffs. According to the same provision, this percentage is established by Aneel, in Normative Resolution No. 77/2004, which establishes a 50% discount for projects based on renewable sources and whose characteristics fit within the specifics of the subsections of Article 2 of that Resolution. Subsequently, its fourth paragraph establishes a differentiated and specific percentage for projects based on solar sources that went into commercial operation before December 31, 2017. They are entitled to a discount of 80%, applicable in the first ten years of operation, and 50% in subsequent years. With the proposal, MME intends to institute a new regime for granting these subsidies (Article 6 of the PL’s proposal), according to which the discounts will continue to be granted after the reform, but under two new conditions: (i) a requirement for consideration to the beneficiaries consistent with the purpose of the subsidy; and (ii) subjection to access criteria that consider environmental issues and the social and economic conditions of the target public. This possible change, however, has raised concerns on the part of current grant recipients, as the new scheme may be more rigorous. In this sense, according to the PL's explanatory memorandum, in event of approval of the bill, grants granted before December 31, 2020, would maintain the right to discount in the current framework until the end of their deadlines. Any extensions, however, would occur under the new framework. This provision is in line with one of the basic elements of the vision for the future on which the reform is based: the protection of existing contracts, which is emphasized throughout the PL’s explanatory memorandum. This is due to the need to balance the necessary reform of the sector with the maintenance of legal certainty for sector participants, and also establish appropriate transitional rules for relations established during the transition period in order to reduce the risks of judicial disputes with respect to the issue. Thus, the reduction in subsidies sought by the PL does not mean extinction of the discounts currently granted, but rather a search for greater supervision and control over the subsidies, as the new framework maintains the possibility of a discount, but only conditions it on pre-established criteria, which allows for greater oversight by the public administration. In this manner, it can exercise its regulatory role without ceasing to incentivize renewable sources. With regard to the proposal to amend Law No. 5,709/71, which regulates the acquisition of rural properties by foreigners, the PL's text sought to overcome a situation that has lasted for almost a decade. The excitement arises from the interpretation conferred by Opinion No. LA-01/2010 of the Federal Attorney-General’s Office, which reinvigorated the restrictions provided for in Law No. 5,709/71 with respect to Brazilian companies controlled by foreign capital. Until then, they were excluded by an earlier opinion issued by the Federal Attorney-General's Office, issued in 1994, on the grounds that equating Brazilian companies with majority ownership by foreign capital to foreign companies, as done by Law No. 5,709/71, was not preserved by the Federal Constitution of 1988. Thus, since 2010, Brazilian companies controlled by foreign capital have restrictions on the acquisition and rental of rural properties, which, in short, limits the rural area to be occupied and requires prior authorization from the National Institute for Colonization and Agrarian Reform (Incra). In the electricity sector, such restrictions have culminated in almost insurmountable obstacles, since, in the vast majority of cases, generation projects are implemented in rural areas and, on the other hand, foreign investors are also large in number. In this context, and considering that proof of the right to use the area is a regulatory requirement for the implementation of such projects, many companies have started to use legal instruments not included in the restrictive interpretation by the Attorney-General’s Office, such as in the case of assignments of the right of use, granting of surface rights, or other arrangements of a similar nature, which make the process more complex, whether from a tax, contractual, or recording point of view. Thus, Article 2 of the PL's proposal provides for an amendment to Law No. 5,709/71 so as to allow the acquisition of rural properties by a Brazilian legal entity controlled by a foreign individual or legal entity. The permission is conditional on the use of the property exclusively to carry out the activities of generation, transmission, and distribution of electric energy. If approved, the PL will therefore allow Brazilian companies with foreign capital to freely acquire rural properties necessary for the implementation of projects in the electricity sector, thus making it considerably easier to develop such projects. Although positive, the change does not provide for the removal of the same restrictions with respect to rural leases or the issue of properties located in border strips, as the latter restriction arises from an express provision of the Federal Constitution. In summary, the proposal brings in changes aimed at modernization of the sector. The bill stems from a growing desire of the public power to modernize the Brazilian energy grid, which it seeks to achieve through changes that allow for a reduction in regulatory and legislative obstacles. The ultimate goal is to encourage the development of the Brazilian electricity sector and, in particular, to maintain the growth of renewable energy sources in the Brazil's energy grid.
- Category: M&A and private equity
Mergers and acquisitions (M&A) are the result of a very complex process, the conduct of which is dictated by the objectives and the interests of the parties. However, with the maturation of the Brazilian market, some practices end up being similar, such as is the case, for example, in the negotiation phases or in the format adopted to formalize the will of those involved. Among the documents used to formalize what will be the beginning of negotiations that will culminate in an M&A transaction, the parties customarily enter into a confidentiality agreement, memorandum of understanding, term-sheet, or letter of intent, among other documents. The objective is to establish the preliminary bases of the deal, predominantly the scope of the transaction, the terms and conditions that should guide future negotiations, and the initial terms of the legal relationship to be constructed.
The preliminary document is not a contract, and is, in principle, a non-binding instrument that lists the terms to be defined later between the parties.[1] However, its non-binding nature does not represent an absolute guarantee of exemption from liability of those involved, since, at this preliminary stage, parties run the risk of being compelled to compensate the counterparty (reparatory relief) or even complete the transaction (specific performance).
Therefore, in addition to accurately and completely documenting the initial premises with a non-binding nature, it is also recommended that one consider the conduct of the parties during the negotiations with respect to the preliminary documents, considering that their liability may stem both from the terms of a document as well as their behavior. In other words, it is especially relevant for the parties to act with trust, loyalty, and good faith in their relationship in order to avoid the possibility that one of them may be able to subsequently argue violation of the principles of objective good faith and raise the prohibition on contradictory behavior (venire contra factum proprium or “objection to one’s own acts”), or claim breach of trust or legitimate expectation created in the other party.[2] If such behaviors are found, it could lead to penalties pursuant to the terms of Law No. 10,406, of January 10, 2002, as amended (the Brazilian Civil Code).
There are, however, certain measures that can be undertaken to mitigate the risks of the parties’ liability in the event that the deal does not come to completion.
First of all, as mentioned above, special attention must be paid to the terms in which the preliminary document itself is drafted in order to avoid the risk of it constituting a preliminary contract or pre-contract that allows the other party to require the final contract to be signed, pursuant to article 463 of the Brazilian Civil Code.[3]
At this point, it is necessary to draw a distinction between the preliminary documents and the preliminary contracts provided for in the Brazilian Civil Code (articles 462 to 466). Preliminary contracts, as a rule, oblige the parties to enter into another contract, which will be the principal contract. Preliminary documents do not, in principle, involve commitments by or obligations for the interested parties. Their purpose is only to guide the preliminary negotiations stage and define the conveniences and interests of the parties.[4]
Secondly, it is also necessary to consider the conduct of the parties and the communications maintained between them during the entire negotiation phase. It is important to avoid unreasonable disruption of the negotiations and to maintain at all times a conduct characterized by cooperation and loyalty, aimed at achieving the economic and social objectives desired with the transaction. This reduces the risk of pre-contractual liability on grounds of breach of the principle of objective good faith.
This principle is intended to govern contractual relations and must be respected at all stages of formation of the contract, including during the preliminary or negotiation stages. Thus, the duty to respect objective good faith has given new contours to the freedom to negotiate and to the principle of the autonomy of the will (pacta sunt servanda), thus relativizing the legal effects of clauses such as the non-binding effect clause. In other words, the classic principle of freedom of contract, which allows parties to decide freely on whether or not to enter into contracts that are not prohibited by the legal system,[5] must be interpreted in the light of the modern principle of good faith, as guided by current contract law.[6]
However, despite the cautions that may be undertaken, determining whether binding effect shall be given to a preliminary document is a controverted issue in the legal system and depends on a review of the concrete circumstances of each case.
In the context of an M&A transaction, in which the parties signed a non-binding memorandum of understanding, the São Paulo Court of Appeals denied a claim for compensation by one of the parties for costs incurred in the due diligence process and loss of opportunity negotiated with other potential buyers, on the following grounds: (i) the parties negotiated on equal terms, as they were advised by specialized law firms and international consultancies; (ii) various communications between the parties showed that non-binding effect was an important condition for both parties; (iii) the principles of good faith and loyalty were respected, and breach of the legitimate expectation of the selling party through acts of the buyer that could give rise to confidence that the deal would be effectively carried out was not established; and (iv) there was no evidence of loss of a business opportunity (TJSP - Appeal No. 0005452-31.2013.8.26.0100, opinion drafted by appellate judge Carlos Alberto Garbi, 2nd Chamber Specialized in Business Law, adjudicated on December 14, 2016).
In turn, the Rio de Janeiro Court of Appeals has ruled that termination of a memorandum of understanding, without just cause, if proved, obliges the discontinuing party to reimburse the expenses incurred by the counterparty during the structuring phase of the transaction (TJRJ - Appeal No. 0009297-72.2013.8.19.0001, opinion drafted by appellate judge Juarez Fernandes Folhes, 14th Civil Chamber, adjudicated on December 7, 2016).
In light of the above, it is recommended that (i) the non-binding clause clearly and unequivocally express that the preliminary document is not binding; (ii) the parties reserve the right to terminate the negotiations unilaterally at any time; (iii) the parties take certain precautions in the exchange of communications, in order that in the future they will not be used as documentary evidence to establish the binding nature of the deal and breach of good faith due to violation of ancillary duties such as, for example, those of loyalty or cooperation between the parties; and (iv) particular attention be given to the terms and form in which the preliminary document is drafted.
1. GOMES, Orlando. Contratos [“Contracts”]. Rio de Janeiro: Forense, 2007. p. 68.
2. In relation to the duty of trust and honesty, Principle of Law and Order No. 363 of the Federal Judicial Council states that: "The principles of honesty and trust are matters of public order, and thus the injured party is only obliged to demonstrate the existence of the breach of such principles."
3. Article 463. Upon conclusion of the preliminary contract, in compliance with the provisions of the preceding article, and provided that there is no buyer’s repentance clause, either party shall have the right to demand the execution of the definitive agreement, thus providing a time limit for the other party to do so.
4. PEREIRA, Caio Mário da Silva. Instituições de direito Civil [“Institutions of civil law”], vol. III, 15th ed. Rio de Janeiro: Forense, 2011. p. 69.
5. ZANETTI, Cristiano de Sousa. Responsabilidade pela Ruptura das Negociações [“Liability for Breakdown off Negotiations”]. São Paulo: Ed. Juarez de Oliveira, 2005, p. 82.
6. NEVES, Karina Penna. Deveres de consideração nas fases externas do contrato: responsabilidade pré e pós-contratual [“Duties of consideration in the external stages of the contract: pre-and post-contractual liability”]. São Paulo: Almedina, 2015, p. 124.
- Category: Tax
Although it is part of the Base Erosion and Profit Shifting (BEPS) Project to counteract multinationals’ tax planning that uses the loopholes of the international system to reduce their overall tax burden, Brazil has not signed the Multilateral Instrument (MLI) to implement the changes suggested in bilateral treaties to avoid the double taxation (double tax treaties) in the form of a single negotiation. In the case of Brazil, the policy adopted thus far is the individualized amendment of each of the existing double tax treaties through new bilateral ones, which is also one of the possibilities provided by the BEPS Project, conducted by the Organization for Economic Cooperation and Development (OECD) and the Group of 20 (G-20). To commence this process, Brazil signed, on July 24, 2017, the protocol of amendment to the bilateral agreement entered into with Argentina on May 17, 1980. In addition to other measures for alignment with the OECD and United Nations (UN) models and the treaty enforcement policies of one or other country, the text of the protocol can be seen as the beacons of the Brazilian position within the scope of the BEPS Project, which are:
- Inclusion of the intention to avoid double non-taxation, as in situations of tax evasion and avoidance, and to restrain situations of abuse of the treaty;
- Mention of the objective of cooperation in tax matters, one of the pillars of the BEPS Project;
- Introduction of the concept of "person closely related to a company”, a relationship of control of a person over a company, of a company over a company, or of companies under common control;
- Modification of the list of scenarios that do not qualify as permanent establishment, including the situation of "maintaining a fixed place of business solely for the purpose of carrying out, for the enterprise, any other activity" of an auxiliary and preparatory nature;
- Introduction of the concept of a dependent agent, one who serves in one of the signatory States on behalf of a company of another signatory State and enters into contracts in the name of the company, with respect to goods of that company or for the provision of services by that company;
- With respect to the distribution of dividends, to qualify for the reduced income tax rate at 10%, the following requirements must be fulfilled: hold at least 25% of the company's capital for at least 365 days, including the dividend payment day;
- With regard to methods to avoid double taxation, an amendment was put in place to adopt the credit system to replace the exemption in Brazil for dividends from companies in the same group in Argentina and exemption in Argentina for all types of taxable income received in Brazil;
- Access to the mutual agreement procedure in any of the signatory States;
- Access to the mutual agreement procedure to discuss situations of abuse of the double taxation agreement;
- Implementation of the resolution achieved through a mutual agreement procedure regardless of the deadlines provided in domestic legislation;
- Adoption of the Principal Purpose Test (PPT), on the basis of which the benefits of the double tax treaty will not be applicable whenever it is reasonably concluded that obtaining such benefits was one of the main objectives of the transaction under the agreement;
- Limitation of benefits of the double taxation agreement to situations where a company resident in a signatory State which has received income from the other signatory State has more than 50% of its actual holding held by a beneficial owner non-resident of the first signatory State (an exception for the event that that company exercises substantive economic activity in the country in which it is resident); and
- Introduction of an anti-abuse clause for permanent establishments located in a third State.
In light of these elements of the protocol, it can be concluded that the most significant changes are those that seek to counteract abuse of treaties and non-taxation situations, mainly by including the PPT, which brings in a subjective analysis to the scenarios for application of the double taxation agreement, in line with the interpretation currently adopted by the Brazilian Federal Revenue Service (RFB), which considers the “business purpose" or the "real intention of the parties" in transactions. Regarding the changes in the permanent establishment qualification, there will apparently be no significant changes in Brazilian tax policy, as this criterion of withholding tax is not used by the domestic rule. With regard to dispute settlement methods, Brazil maintained its position of not adopting mandatory and binding arbitration. The inclusions made in the protocol regarding the mutual agreement procedure represent only alignment with the minimum standards of action 14 of the BEPS Project. In this context, although Brazil has committed itself to guaranteeing access to the mutual agreement procedure in cases involving the application of transfer pricing legislation, the adoption of a system of fixed margins under Brazilian law may in practice make resolution of a conflict unfeasible. The Brazilian government did not adopt all the solutions proposed by MLI in negotiating the double tax treaty with Argentina. Recommendations have been elected that essentially maintain Brazil's tax policy. Along these lines, an article was included in the protocol to equate technical service and administrative assistance to royalties, calling for the application of withholding tax, under the terms of Interpretative Declaratory Act of the General Coordination of Taxation (Cosit) No. 5/2014. The protocol is currently under review y the Chamber of Deputies and, after its approval, will be sent to the Senate and for enactment by the President of the Republic for it to become part of the Brazilian legal system.
Cooperation between Bacen and Cade for joint action in cases involving the National Financial System
- Category: Competition
The memorandum deals with the jurisdiction of each agency and establishes rules and procedures that must be observed in the interaction between them.
The provisions on the need to file mergers with both Bacen and Cade are highlighted, and each agency will conduct its own review through a specific process and according to a joint regulation on the terms and conditions to be enacted by them. Transactions may be consummated only after conclusion of the review of both agencies. However, in cases where there is a risk to the soundness and stability of the National Financial System (BNF), Bacen will inform Cade and may unilaterally clear the transaction, although in relation to only one of the markets involved,[1] and Cade is charged with adopting the basis for the Bacen decision in its review.
Regarding antitrust violations, Bacen and Cade undertake to report to each other any activities that may constitute anticompetitive conduct. In addition, Cade should consult Bacen before imposing penalties for anticompetitive conduct on markets and entities regulated by Bacen.
The Memorandum of Understanding also provides for greater sharing of information and data among the agencies, releasing guidelines, training, seminars, and joint studies.
Considering that the document establishes the possibility of revising regulations to make the actions of the agencies compatible, it is important to monitor the enactment of the next standards related to subjects that may impact not only on the application of the Antitrust Law by Cade, but also the implementation of the recent Law No. 13,506/2017, which brought in new rules for administrative sanctioning process in the scope of action of Bacen and the Brazilian Securities and Exchange Commission (CVM).
However, the signing of the memorandum of understanding represents an important step towards ensuring greater legal certainty and predictability in the implementation of competition protection in the banking market.
1. The national financial system is composed of four markets, each regulated by specific norms and agencies: banking market (Law No. 4,595/1964), capital market (Law No. 4,728/1965 and No. 6,385/1976), private insurance market and capitalization (Decree-Law No. 70/1966), and supplementary pension market (Complementary Law No. 109/2001).
- Category: M&A and private equity
The Federal Government's PPIs - Overview
In March 2017, the federal government announced the launch of a new round of concessions from the Investment Partnership Program (PPI). The estimate is that about R$ 45 billion in investments will be raised, and the main targets are the energy, transportation, and sanitation sectors.[1] In all, 35 power transmission lots (distributed in 17 states), two highway concessions, 11 port terminals, five railways, and 14 sanitation projects were announced.
Subsequently, in July 2017, the government announced a program in the amount of R$ 11.7 billion in credit facilities for financing and supporting infrastructure works and concessions in several states and municipalities. As in the previous program, investments in works in the sanitation, urban mobility, lighting, and solid waste management sectors will be considered priorities. Again, in August 2017, the government announced its intention to sell 14 airports (including Congonhas-São Paulo), 11 electric power companies (including the Eletrobrás system), 15 ports, two highways, and the Casa da Moeda, among other important assets.
The government's main objective in launching these programs is to overcome the economic crisis, which has lasted from 2014 and resulted in a reduction in Brazilian GDP of 3.8% in 2015 and 3.6% in 2016.[2] The expectation is to finance the works through funds made available by Caixa Econômica Federal and Banco do Brasil, amounts deposited by the FGTS, and, especially, through partnerships with the private sector. For this reason, the vehicles used by private investors to provide funds in these projects stand out, with the main one being the Infrastructure Investment Fund (FIP-IE).
FIP-IE was created in 2007 during the Lula government, at a time of significant incentives for the development of Brazil's infrastructure sector. Ten years later, in another movement to develop the sector, the FIP modality focused on infrastructure is gaining in importance, with new regulations by CVM and tax advantages.
FIP-IE
FIPs, vehicles used by investors to generate profits through the purchase of securities of corporations and limited liability companies, are generally regulated by CVM Instruction 578, of August 30, 2016 (ICVM 578). It is an investment in variable income organized in the form of a closed-end condominium, whose units can only be redeemed at the end of their duration or if their liquidation is resolved in a meeting of unitholders.[3]
One of the main requirements of ICVM 578 for an FIP to acquire a stake in a particular company is for the fund to effectively participate in the decision-making process of the invested company, with an influence on the definition of its strategic policy and its management, including via appointment of members of the board of directors.
The criteria for participation in the decision-making process of the invested company are not clearly delimited by law. It may occur in a number of ways, such as: (i) by holding shares that are part of the respective control block; (ii) by the execution of a shareholders' agreement; or (iii) by adopting a procedure that assures the fund effective influence in the definition of its strategic policy and management. There is, therefore, no definite rule on how the FIP should influence the decision-making process of a company. Confirmation of whether this requirement has been met is done on a case-by-case basis.
In addition to the general rules mentioned above, ICVM 578 reflected and regulated in detail the creation of the various specific categories of investment funds, such as FIP - Seed Capital, FIP - Emerging Companies, FIP - Multistrategy, and FIP-IE. Specifically in relation to FIP-IE, ICVM 578 did not innovate and replicated the articles set forth in the former CVM Instruction No. 460/2007 (repealed by ICVM 578) and reflected the provisions of Law No. 11,478/2007 (Law 11,478).
The FIP-IE (together with the FIP - Intensive Economic Production in Research) was instituted by Law 11,478 and has as its object, under the terms of the law, investment in Brazilian territory in new infrastructure projects. For the purposes envisaged therein, the law considers "new infrastructure projects” to be those implemented by companies specifically created for this purpose in the areas of (i) energy; (ii) transportation; (iii) water and sanitation; (iv) irrigation, and (v) other areas considered priorities by the Federal Executive Branch. Investments may also be made in the expansion of existing projects, implemented or in the process of being implemented, provided that the investments and the results of the expansion are segregated through the organization of a special purpose company.
The close relationship between this investment vehicle and the Investment Partnership Program created by the federal government is therefore evident.
As required by Law No. 11,478, the special purpose companies provided for therein must necessarily be organized as corporations, either publicly or privately-held. In addition, the law requires that at least 90% of the equity of the FIP-IE be invested in shares, warrants, debentures, whether convertible or non-convertible into shares, or other securities issued by special purpose companies that invest in the sectors mentioned above. Thus, a maximum of 10% of the portfolio can be allocated to other investment modalities, always observing the other limits set forth in ICVM 578.
FIP-IEs must have a minimum of five unitholders, each of which may not hold more than 40% of the units issued by the FIP-IE or earn an income of more than 40% of the fund's total income.
Similar to ICVM 578, Law No. 11,478 requires that the FIP-IE participate in the decision-making process of invested companies with effective influence in the definition of its strategic policies and management, notably through the appointment of members to the board of directors, the holding of shares that are part of the respective control block, the execution of a shareholders' agreement, the execution of an agreement of a different nature, or the adoption of a procedure that assures the fund effective influence in the definition of its strategic policy and management.
Pursuant to the same law, income earned from the redemption of FIP-IE units, including when arising from the liquidation of the fund, is subject to the application of withholding income tax at a 15% rate over the positive difference between the value of redemption and cost of acquisition of the units. In the case of the sale of FIP-IE units, the gains will be taxed: (i) at a zero (0%) rate, when earned by individuals in transactions carried out on the stock exchange or off the stock exchange; (ii) as a net gain, at a 15% rate, when earned by a legal entity in transactions carried out on or off the stock exchange; and (iii) at a zero (0%) rate, when paid to a beneficiary resident or domiciled abroad, whether an individual or group, that carries out financial transactions in Brazil in accordance with the rules and conditions established by the National Monetary Council, except in the case of a beneficiary resident or domiciled in a country with favored taxation, pursuant to article 24 of Law No. 9,430, of December 27, 1996. In the case of redemption or amortization of units by an individual, the income is exempt from withholding tax and the annual tax adjustment return for individuals.
As can be seen, through tax advantages, the federal government is aiming to stimulate investments in infrastructure projects by individuals (retail investors) and foreign investors (with the entry of capital into Brazil).
As of December 2017, only 21 FIP-IEs were registered with the CVM. The funds that publicly offered their units, however, constitute less than half of that number. Despite the low representativeness of the IFP-IEs found until then, an increase is expected in the activity of this type of investment vehicle in 2018, considering the relevant infrastructure assets recently placed into the federal government's privatization program. FIPs-IEs and infrastructure-sponsored debentures are therefore interesting alternatives for raising private funds for the implementation of government programs.
2. According to information from the World Bank, available at: http://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GDP.MKTP.KD.ZG&country=BRA#. Accessed on: December 12, 2017.
- Category: M&A and private equity
Individuals and legal entities resident, domiciled or with headquarters in Brazil, as provided for in tax law, must report to the Central Bank of Brazil, on an annual basis, the assets and amounts held by them outside the country. The reporting is mandatory to those holding assets abroad (assets and rights, including corporate interests in companies, fixed-income securities, shares, real properties, deposits, loans, investments, among others) amounting to or exceeding the equivalent to US$100,000 (one hundred thousand US Dollars), on December 31, 2017.
Furthermore, the individuals and legal entities mentioned above must also deliver to the Central Bank of Brazil an additional quarterly report relating to assets held abroad on March 31, June 30 and September 30 of each year, in case the total amount of such assets amounts to or exceeds the equivalent to US$100,000,000 (one hundred million US Dollars).
The report referring to December 31, 2017 must be delivered by means of the Brazilian Capital Abroad (CBE) reporting form available in the internet website of the Central Bank of Brazil at: www.bcb.gov.br, from February 15th, 2018 through 6PM of April 5th, 2018.
The manual containing detailed information about the content and requirements of the reporting is also available in the website of the Central Bank of Brazil.
The late delivery, lack of reporting, or the submission of false, inaccurate or incomplete information subjects the violator to the imposition of a fine by the Central Bank of Brazil of up to R$250,000 (two hundred and fifty thousand Brazilian Reais).
(CMN Resolution 3,854, of May 27, 2010, BCB Circular 3,624, of February 6, 2013, BCB Circular 3,830, of March 29, 2017 and BCB Circular 3,857, of November 14, 2017).
- Category: Intellectual property
- Category: Litigation
In this context, debates on the statute of limitations for suits for public corruption are of extreme relevance insofar as they represent one of the main issues raised in defense by public agents and third-party beneficiaries of acts of public corruption, with significant repercussion also in the scope of public civil actions.
Before the recognition of the general repercussion of the matter via an en banc decision by the Federal Supreme Court (STF) in 2013, controversies regarding the application of the sanctions provided for in the Public Corruption Law (Law No. 8,429/92) were understood to be of an infra-constitutional nature, such that indirect offense against the Federal Constitution did not allow for the admissibility of extraordinary appeals.
Having overcome debates on the nature of the matter, in 2016, the STF validated the understanding that suits involving unlawful actions against the treasury may be time-barred upon reviewing Extraordinary Appeal No. 669.069/MG, which was admitted based on the general repercussion regime. The court explained, however, that the guidance contained in the judgment does not apply to reimbursement of damages to the treasury due to the commission of acts of administrative corruption, which was found not to be subject to a time-bar by virtue of the interpretation of the rule set forth in article 37 of the Federal Constitution.
In other words, the STF understands that the no-time-bar rule for suits for reimbursement to the public treasury has exceptions (including suits for reimbursement of damages for misconduct characterized as public corruption and suits arising from criminal offenses).
The Superior Court of Justice (STJ), in the wake of the STF's ruling, established a position that suits for reimbursement of damages to the treasury due to acts of public corruption cannot be not time-barred.
With regard to civil penalties and sanctions (removal from office, civil fine, prohibition against contracting with the Public Authorities, prohibition on receiving benefits/tax incentives), the understanding settled under the scope of the STJ is that the limitations period is five years, and that limitations period runs as of the actual holding of the position by the public agent.
That is, with regard to the civil penalties under the Public Corruption Law, it is possible to argue for the limitations period of five-years, including for companies that are beneficiaries of the alleged corrupt act. Thus, it is possible to avoid the severe penalty of prohibition on contracting with the public authorities and to receive tax benefits and incentives after the expiration of five years.
Finally, it is worth discussing the STJ's understanding on tolling the statute of limitations on suits for public corruption, which is recognized as of the mere filing of the suit within a period of five years, counted from the end of the term of office of the commissioned position or a position of trust, even if the defendant's summons is effected after that time limit.
- Category: Infrastructure and energy
In this article we analyze which situations call for companies providing public aviation services to submit their corporate acts for the approval of the National Civil Aviation Agency (ANAC) before they are filed with the competent board of trade.
Aviation services in Brazil are divided into two modalities: (i) public, which comprise specialized public aviation services and the services of public transportation of passengers, cargo, or mail, whether scheduled or not, domestic or international, such as those provided by airlines or by air taxi companies; and (ii) private, performed without remuneration and for the benefit of the aircraft operator, including sports activities, transportation reserved for the owner or operator of the aircraft, or specialized services provided for the exclusive benefit of the owner or operator of the aircraft.[1]
Unlike other companies subject to the regulations established by the Civil Code (Law No. 10,406, of January 10, 2002) and by the Brazilian Corporation Law (Law No. 6,404, of December 15, 1976), companies operating public aviation services must also observe the provisions of the Brazilian Aeronautical Code (Law No. 7,565, of December 19, 1986, or CBA) and Resolution No. 377, of March 15, 2016, and Ordinance No. 616, of March 16, 2016, both issued by ANAC.
As a result of these provisions, certain corporate acts of companies providing public aviation services must be submitted to ANAC for approval before they are filed with the competent board of trade.
The joint interpretation of articles 5 of Resolution 377 and 185 of the CBA allows us to conclude that, currently, only acts resulting in certain changes in ownership, corporate-type conversion, merger, or spin-off require prior approval by ANAC.
In this sense, Resolution 377 excludes the obligation to obtain prior approval for changes in constitutional documents unrelated to corporate ownership, corporate-type conversion, merger, or spin-off. Therefore, such documents can be submitted directly to the competent board of trade for filing. Acts exempted from prior approval must be forwarded to ANAC within 30 days after being filed with the board of trade.
When necessary, ANAC'S approval must be requested using the form provided as an exhibit to Ordinance 616.
Due to the implementation by ANAC of the Electronic Information System (SEI), the whole process of approval of corporate acts is electronically performed. Thus, ANAC'S consent ceased to be demonstrated by means of a stamp physically affixed to the relevant document and is now formalized by a letter digitally signed by the technician responsible for the approval. This letter must be sent to the board of trade along with the document to be filed.
A copy of the document filed with the board of trade must be sent to ANAC within three months of receipt of ANAC's approval.
In case of noncompliance with the legal requirement of prior approval by ANAC, the company may be ordered to pay a fine or have its authorization or concession to act as a provider of public aviation services cancelled.
1. Articles 175 and 177 of the Brazilian Code of Aeronautics (Law No. 7,565, of December 19, 1986)
- Category: Tax
Last year was special for the Administrative Council of Tax Appeals (Carf). The period began with heated discussions (and many lawsuits) questioning the productivity bonus of tax auditors [1] and ended with the joining of the representatives of the Brazilian Treasury in the strike for regulation of the bonus.
And 2018 started in an equally troubled manner. The first sessions of the judicial panels and the Superior Chamber of Tax Appeals were marked by extensive and unfulfilled agendas, either due to the cancellation of meetings due to the strike, or due to the impossibility of deciding cases due to lack of time.
Administrative problems aside, the importance of this administrative adjudicatory body is uncontested. With a more and more overwhelmed and time-consuming judiciary, having a quick and technical resolution, and a less burdensome one (without court fees and any order to pay attorneys’ fees), is a boon to taxpayers.
In practice, however, the path through administrative proceedings is not free of its own thorns. There are limitations in the decisions issued by the administrative authorities, which cannot rule on the unconstitutionality of rules. In addition, the resumption of Carf’s activities in 2015, following the outbreak of the Zelotes operation, was felt in the form of a harshening of decisions and an increase in tax victories for the Tax Authorities.
2016’s figures released by the agency [2] indicate that, in absolute terms, the taxpayer was victorious in 52% of the claims, while the Brazilian Treasury won 48%, an only slightly lower level. [3] Carf has not yet released the 2017 numbers (the annual report should be published soon), but if one keeps the same methodology for benchmarking, the proportion should not vary by much.
Analysis of this form of calculation, however, requires attention. It takes into account the total number of voluntary and special appeals decided, without considering whether an eventual victory by the taxpayer at the trial level, if modified by the Superior Chamber of Tax Appeals, represents a failure of the claim in the administrative sphere as a whole, that is, the percentage is not based on the final result of the case, but rather on the number of decisions rendered, including those that were modified.
Moreover, when we analyze the percentage of victories in large cases and more complex tax theories involving significant sums, the taxpayer's losses seem more evident. Throughout 2017, the Brazilian Treasury was successful in practically all debates involving the application of transfer pricing legislation in cases of goodwill amortization. The same occurred in the interpretation of Law No. 10,101/00 for the purposes of classifying payments to employees as Profit Sharing (PLR) and in various cases relating to the calculation of the PIS and Cofins calculation basis, just to name a few.
Relevant taxpayer victories were not so numerous. Among the decisions for the year, two cases are worth mentioning that relate to a topic of first impression before the 1st Panel of the CSRF (responsible for reviewing suits relating to IRPJ and CSLL, among others) - the deductibility, for the purposes of IRPJ and CSLL, of expenses with the payment of PLR, when there is an accusation of noncompliance with the requirements of Law No. 10,101/2000, and the consequent misclassification of such amounts as profit sharing. For different reasons, the two cases that dealt with the issue culminated in favorable results for the taxpayer and in cancellation of the tax assessment.
The 2nd Panel of the CSRF (which has jurisdiction to review matters arising from the application of social security contributions, among other issues) ordered cancellation of the tax assessment of companies that granted private pension plans only to part of the employees and managers. It was understood by unanimous vote that Complementary Law No. 109/01 eliminated the requirements of Law No. 8,212/91 (which required the provision of a pension plan to all employees and managers so that there was no application of social security contributions) and thus struck down the interpretation raised in the tax assessment.
Also in 2017, the 3rd Panel of the CSRF (responsible for the decisions involving issues of PIS and Cofins contributions, among others) settled its favorable opinion to the taxpayer with respect to the possibility of appropriating the PIS and Cofins credit on freight paid in the transfer of products between establishments of the same owner.
Even with timid victories for taxpayers, Carf is a reference body in tax matters. Decisions issued by the 15 lower court panels of the body and by the three panels of the Superior Chamber of Tax Appeals, and, more recently, by extraordinary panels,[4] are of undeniable importance for an examination of federal tax legislation.
The court continues to be the scene of important debates involving issues of great factual complexity and high amounts at issue. Considering the possible change in the composition of the adjudicatory panels, it can be assumed that taxpayers may achieve different results in litigation on topics for which they are not successful today. Some terms of office of board members are about to end and there are several vacant positions pending appointment of a board member. Carf has 146 full members, 120 in the lower panels and 26 on CSRF panels. Today, there are eight vacant positions with the lower panels and another four on the CSRF panels.
In 2018, it is expected that effective regulation of the productivity bonus will put an end to the strike that affected the organization, such that all the decisions can be resumed with the prospect of important debates and victories.
1. Initially instituted by Presidential Decree No. 765, of December 29, 2016, converted into Law No. 13,464, of July 10, 2017.
2. CARF Decisions Report - January to December of 2016, published on the website: http://idg.carf.fazenda.gov.br/noticias/2017/carf-divulga-relatorio-das-decisoes-proferidas-de-janeiro-a-dezembro-de-2016
3. Table 1 - Appeals decided by appellant and result of the appeal - published on the website: http://idg.carf.fazenda.gov.br/noticias/2017/relatorio-julgamento-2016-v3.pdf
4. Extraordinary panels are responsible for deciding cases involving up to 60 minimum wages.