Category: Banking, insurance and finance

Published today, June 14th, Presidential Decree 11,563/23 attributes to the Central Bank of Brazil (BACEN) the jurisdiction to regulate, authorize and supervise the provision of virtual asset activities.

Effective on June 20th, 2023, the Decree will allow BACEN to rule, among other issues, on authorization rules for the functioning and operation of virtual asset service providers.

The Decree does not apply to assets representing securities and safeguards the jurisdiction of the Brazilian Securities and Exchange Commission (CVM) concerning these assets.

With the publication of the Decree, Brazil is making progress in institutionalizing the crypto-asset sector.

It is expected that the BACEN will present for public consultation a set of norms to regulate the activities and operation of virtual asset service providers, including topics such as authorization for operation and minimum capital stock, performance limits, and the intersection with the players of the traditional financial system.

In a note published on the CVM website, the agency clarifies that the operating authorization for virtual asset service providers to be granted by BACEN, under Law 14,478/22, does not cover activities with securities digitally represented in the form of tokens.

The CVM also reinforces that secondary operations involving tokens characterized as securities must be carried out by management entities of organized markets authorized by CVM. Any use of the operating authorization to be obtained before BACEN following Law 14,478/22, Decree 11,563/23 and further regulations to be issued by BACEN will not be allowed.

Finally, CVM emphasizes that it will invest efforts to develop new rules for the constitution and administration of organized securities markets, including tokens, considering the results obtained with the experiences of the regulatory Sandbox.

Category: Banking, insurance and finance

Law 14,478/22, also known as the “Crypto-assets Law” or “Legal Framework of Crypto-assets”, inaugurates a new phase of the cryptoeconomy in Brazil, bringing more legal security to market participants and, therefore, more strength to this sector.

The statute brings institutionality to a booming sector in Brazil, thus creating relevant material conditions for developing the local market.

The drafting of the legal framework was widely discussed in the Brazilian National Congress and with technical authorities, such as the Central Bank of Brazil (Bacen) and the Brazilian Securities and Exchange Commission (CVM). The statute creates two definitions that will act as touchstones for the entire sector: the concepts of virtual assets and virtual asset service providers.

Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Dogecoin stand out among the virtual assets described by the Crypto-assets Law. The virtual asset service providers category includes exchanges and custodians of virtual assets.

Both definitions are of fundamental importance for the consolidation of the crypto economy in Brazil, as the rules of conduct, procedure, and accountability of the various economic players operating in the sector will be based on them.

Furthermore, the Crypto-assets Law assigns a Federal Public Administration entity the duty to create specific rules for virtual asset service providers. It will be up to the entity, which must be indicated by the Executive Branch, to authorize the operation of virtual asset service providers, among other things.

Participants in the national and international crypto-asset market interested in doing business in Brazil are getting prepared for the issuing of the statute that will define the regulatory authority and the debate the issuing of further regulations.

Until the regulatory entity is appointed and regulations are  published, however, the main provisions of the law will have little practical effect. For example, the provisions that determine the need for authorization for the operation of the virtual asset service providers in Brazil will not have practical application until the regime for its authorization is laid down.

Until regulations are enacted and come into force, only the principles and norms of consumer and criminal law will have immediate effect.

It is important to remember that the scope of the Crypto-assets Law is also limited, even after the regulations are issued. Although it has been dubbed the Legal Framework for Crypto-assets, the statute does not cover all types of crypto-assets.

The draft brings a restrictive definition of virtual assets, excluding from its scope some forms of crypto-assets widely adopted in the market, such as NFTs – non-fungible tokens. The commercialization of these assets continues to be governed, depending on the case, by the general regime of Civil and Consumer law mostly.

The same goes for tokens representing assets that have features of securities. The Legal Framework for Crypto-assets rightly excludes such assets from its scope, as they are already subject to capital market legislation and norms issued by CVM.

The new Crypto-assets Law comes into force shortly after the European Union adopted rules on the crypto-assets market. On May 16, the regulation known as MiCA (Markets in Crypto-Assets) came into force, which is part of a European Union package to promote technological development, with financial sustainability, fostering innovation and consumer protection, helping to integrate and harmonize the local rights of the block.

With similar provisions, the Legal Framework for Crypto-assets, in Brazil, and the MiCA, in the European Union, will bring more protection to participants in the crypto asset market in the respective jurisdictions, with imposition of transparency and implementation of governance and a specific structure for issuers and service providers, including compliance with anti-money laundering rules.

The entry into force of the Crypto-assets Law is an important step towards the consolidation of the crypto-assets market in Brazil. We continue to monitor and await, along with the market, the issuance of the statute to indicate the regulatory authority and the start of the debate on the publication of further regulations.

Category: Banking, insurance and finance

In times of constant innovation, cryptocurrencies and other crypto-assets occupy the center stage of our financial future, bringing promises of great investment opportunities with the use of blockchain technology. As with any new frontier, however, these opportunities also bring new challenges – in this case, regulatory challenges.

This is where the International Securities Organization (IOSCO) comes into play. This international body, responsible for ensuring the integrity of the securities market at a global level, will serve as a compass in the exploration of this new financial territory.

In May, IOSCO published a series of recommendations on the regulation of crypto-assets. We take the opportunity to address the institution´s role and the importance of its recommendations for regulating crypto-assets, both in the Brazilian context and in the global scenario.

What is IOSCO?

IOSCO is an institution that brings together  regulators of securities from around the globe. Recognized as the global standard-setting body for the securities industry, it was founded in April 1983 with the mission to develop, implement, and promote adherence to internationally recognized standards of regulation of securities.

This commitment translates into efforts to protect investors and sustain fair, efficient, and transparent markets while addressing systemic security risks.

The organization also carries out crucial actions to improve investor protection and boost confidence in the integrity of these markets. This is done by strengthening the exchange of information, cooperation to monitor misconduct, and supervision of markets and market intermediaries.

Recently, IOSCO opened a consultation on a series of recommendations regarding the regulation of crypto-assets, whose comments should be sent by the beginning of the fourth quarter of this year. Published on May 23, these guidelines address critical issues at the intersection of fintech and securities regulation. They could shape the regulation and oversight of crypto-assets in jurisdictions worldwide..

IOSCO's recommendations

The recommendations addressed  by IOSCO are principle-based, focused on results, and targeted at activities performed by crypto-asset service providers (CASPs).

The document has a total of 18 recommendations, divided into nine chapters. To deal with the main risks identified, the entire lifecycle of crypto assets is considered, analyzing each of its phases or aspects from beginning to end.

These recommendations cover a wide range of activities in capital markets involving CASPs, from crypto-asset offering, admission to trading, continuous trading, settlement, market surveillance, and custody to marketing and distribution – both oriented and not oriented toward retail investors.

The recommendations emphasize the need to intensify cooperation between regulators and propose parameters for cooperation, collaboration, and response to cross-border challenges in the application and supervision of standards to Iosco members.

This includes regulatory arbitrage issues arising from global activities involving crypto-assets and conducted by CASPs offering their services – often remotely – in multiple jurisdictions. It is important to note that the recommendations do not cover activities, products, or services rendered in ​​decentralized finance (DeFi).

Iosco's report also addresses operational and technological risk management, and distribution to the retail public. It also includes comments on stablecoins, crypto-assets designed to maintain a stable value.

The document contains three annexes that further clarify the subject. Annex A presents issues for consultation and encourages an open and collaborative dialog on cryptocurrency regulation. Annex B surveys recent events in the crypto market and provides a current and relevant overview of the sector. Finally, Annex C details IOSCO's objectives and principles in securities regulation and serves as the basis for the proposed recommendations.

Importantly, IOSCO plans to publish a consultation report with proposed recommendations on the DeFi space by September of this year.

The perspective of Brazilian regulators

In Brazil, the Law 14,478/22, known as Legal Framework of Crypto-assets, already offered basic guidelines for the regulation of virtual asset service providers. This statutewas regulated on June 13, 2023 by the Decree 11,563/23, which established the competence of the Central Bank of Brazil (Bacen) to, among other attributions, regulate the provision of virtual asset services in Brazil

The provisions of the statute do not, however, apply to assets representing securities. The competence to absorb the recommendations made by IOSCO and establish the regulation of crypto-asset service providers that are considered securities, in this case, will be up to the Brazilian Securities and Exchange Commission (CVM).

• The CVM already has some regulations on the subject, such as: CVM Guidance Opinion 40, which consolidates the agency's understanding of the rules applicable to crypto-assets that are securities, with the aim of ensuring greater predictability and security and fostering a favorable environment for the development of crypto-assets, with integrity and adherence to relevant constitutional and legal principles;
• Circular Letter 4/2023/CVM/SSE, which deals with the characterization of “receivables tokens” or “fixed income tokens” as securities;
• the sparse legislation regarding the implementation of the Regulatory Sandbox.

IOSCO's recommendations will certainly serve to guide the CVM's specific regulation on the subject, enriching the discussion on the nature and classification of crypto-assets, in addition to helping to establish guidelines for adequate investor protection.

These new parameters proposed by the institution should encourage the creation of efficient and responsive regulation, which stimulates innovation and market integrity, without losing sight of preventing illegal activities and maintaining the stability of the financial system.

The consolidation of these rules can therefore not only bring more legal certainty to investors and companies operating in the sector, but also encourage the growth and internationalization of the crypto-assets market in Brazil.

Importance of Iosco recommendations for the regulation of crypto assets

The importance of these recommendations for the regulation of crypto-assets in Brazil and around the world is immense. The growing popularity of crypto-assets has brought major challenges for regulators. The need for a global and coordinated regulatory approach has never been greater.

IOSCO's recommendations can serve as an important roadmap for regulators around the world – including Brazil – to develop and adapt their regulatory frameworks to deal with the evolving crypto-assets market.

In addition, the initiative seeks to limit the risk of regulatory arbitrage, which occurs when market participants take advantage of differences between regulations in different jurisdictions.

This is particularly important in the crypto-assets market, which is global in nature. In sectors like this, regulatory differences can lead to serious risks, including systemic ones.

IOSCOS's actions point to a future in which the regulation of crypto-assets will become increasingly homogeneous and consistent globally, with a unified approach on the subject, more protection for investors and the safe and sustainable growth of this important segment of the financial capital market.

Reading the recommendations is therefore essential for regulators, private investors, and other participants in the crypto-asset market, as they are a compilation of what to expect in the future in the regulatory environment in Brazil and around the world.

Category: Tax

In the judgment of the Direct Action for Constitutionality^[1] 49 (ADC 49), the Supreme Constitutional Court (STF) ruled that the levy of ICMS on transfers between establishments of the same entity is unconstitutional.

According to the judgment, ICMS credits related to input supplies must be maintained, and the states must introduce mechanisms for the transfer of ICMS credits in interstate supplies until 1 January 2024, given the modulation of the ADC 49 decision effects.

In light of this judgment, the Senate has presented the Bill of Complementary Law (BoL) n. 332/18, which aims to amend the Complementary Law n. 87/96 (ICMS Law) to establish:

• the non-levy of ICMS on transfers of goods of the same owner;
• the maintenance of ICMS credits related to input supplies; and
• the right to transfer ICMS credits between origin and destination.

Approved by the Senate on 9 May 2023, the BoL has been sent to the House of Representatives for discussion and a vote.

According to the proposed amendments, the ICMS Law will expressly enshrine the non-levy of ICMS on transfers between establishments of the same entity, and the right to maintain ICMS credits. In addition, the amendments establish that, in interstate transfers, the credits must be guaranteed by the destination state, in accordance with the interstate rates provided for by the Senate (4%, 7% or 12%), the origin of the goods, and the origin- and destination state.

Any positive balance between the credits recorded in relation to input supplies and the credits transferred to the destination shall be ensured by the state of origin.

The BoL also establishes that taxpayers may choose to consider transfers a taxable event, observing the rates determined in the legislation for internal output supplies and the rates provided for by the Senate for interstate output supplies.

The provision to tax transfers as a taxable event is relevant to enable the enjoyment of tax incentives already granted. This is an aspect of concern for taxpayers after the judgment of the ADC 49, given the potential incompatibility with the calculation system (especially when the tax base of the benefit refers to the outstanding ICMS payable amount in the calculation period) or even the unfeasibility of such system.

Making the judgment of the ADC 49 suitable with the system of tax incentives is especially delicate, as it could give rise to complex legal discussions about eventual violation of a right secured to taxpayers, who took on and fulfilled onerous obligations for the enjoyment of tax incentives. This because, in the case at hand, any inapplicability of the incentives would not result from a unilateral revocation on the state’s end, but rather from a Court decision determining the non-levy of the tax.

In addition, the option for taxpayers to tax the transfer may also be relevant to accommodate the supplies subject to the ICMS substitution regime (ICMS-ST), given that the absence of debit (own-ICMS) in the interstate output supply could result in a lack of balance when calculating the ICMS-ST that is due to the destination state.

It is also worth mentioning that the provision of the ICMS Law that establishes specific criteria for the definition of the tax base of transfers (article 13, paragraph 4) has been revoked.

The correct definition of the tax base of transfers is important, as it can directly affect the measurement of ICMS credits to be transferred to the destination state. The issue can lead to disputes and trigger credit disallowances and tax assessments.

In the absence of a specific provision for the tax base of transfers, the residual rules provided for in article 15 of the ICMS Law may, in principle, be applicable.

We recommend that companies evaluate the need for updating the criteria for defining the ICMS tax base according to the possible new legal parameters.

The new provisions of the ICMS Law, if approved by the House of Representatives, will take effect from 1 January 2024, in compliance with the modulation of effects determined by the STF.

^[1] A request filed before the Supreme Constitutional Court aiming for the declaration that certain legislation is constitutional.

Category: Infrastructure and energy

At the end of the first quarter of 2023, Brazil still has one of the highest real and nominal basic interest rates in the world. Adding to this the turbulence that the international economy is going through in a post-pandemic and war scenario, with high inflation and rising interest rates even in the most developed countries, infrastructure financing in Brazil is experiencing an especially challenging moment.

Credit is essential for all sectors of the economy, including households. However, without credit, especially in the form of project finance, infrastructure projects entrusted to the private sector will not be viable. And investment in infrastructure plays a relevant role in economic growth, since the availability and quality of transportation, energy, and telecommunications infrastructure, among others, are requirements for the growth and competitiveness of other sectors of the economy.

Not by chance, reduction of interest rates is one of the biggest concerns of the new government.

Several factors explain the high value of the Selic (the basic interest rate in Brazil), with emphasis on the country's fiscal situation and how it is viewed, with greater or lesser distrust, by the market.

On the other hand, one of the main factors responsible for the even higher interest rates on credit transactions carried out in the financial market is the high risk of default, which is directly related to the availability and efficiency of collateral.

On June 1, 2022, the Chamber of Deputies approved Bill 4,188/21, which seeks to improve the collateral system in Brazil. Initiated by the Executive Branch, the bill had contributions from associations representing various market segments and is awaiting consideration by the Federal Senate, where it should have priority.

Guarantees can contribute to greater availability of credit and to cheapening it, as well as to performance of contracts and legal certainty in general. Improvements, therefore, are more than welcome, especially in Brazil, where the reaction of the Legislative Branch to correct inefficiencies or legal gaps is usually slow, and consolidation of case law to overcome interpretative doubts is equally slow.

The bill intends, for example, to eliminate inefficiencies and uncertainties of the real estate fiduciary sale system that have persisted for more than 25 years, since the advent of Law 9,514, of 1997!

Among them is the discussion of whether the rule in paragraph 5 of article 27 of the law would imply automatic extinguishment of the secured debt, in the event of a second auction of the property sold in which there was no bid equal to or greater than the value of the debt, even if the fiduciary sale agreement expressly excludes this extinguishment.

Some judicial precedents already point to lawfulness of the removal of the extinguishing effect, when expressly agreed upon in relations between companies, and not between individuals. However, these precedents are still far from being settled case law.

And what are the other improvements proposed by Bill 4,188/21?

The main new features are:

• discipline of the specialized collateral management service, in charge of collateral management institutions - GGI;
• discipline of the collateral agent;
• recognition of the legal possibility and the more detailed discipline of successive fiduciary sales or assignments over the same asset;
• broader improvement of the process of extrajudicial enforcement of the fiduciary sale of real property; and
• recognition of the legal possibility and discipline of extrajudicial foreclosure of mortgages.

The specialized collateral management service and collateral management institutions - IGGs

This is undoubtedly the biggest innovation of the bill, which creates the concept of an IGG, a legal entity under private law responsible for specialized management of collateral, which should be regulated in more detail by the National Monetary Council (CMN).

Although it does not qualify as a financial institution and is prohibited from conducting activities that are exclusive to such institutions, an IGG will be subject to regulation, authorization, and supervision by the Central Bank.

An IGG will act on its own behalf when establishing, registering, managing, valuing, and enforcing collateral, but for the benefit of creditor financial institutions. It will also assume fiduciary duties not only vis-à-vis these institutions, but also vis-à-vis the borrowers in the secured transactions and the provider of the collateral. Breach of these duties will result in personal liability for the IGG.

With such a high level of regulation and responsibilities, it is questionable whether we will have companies willing to take on this role.

The IGG differs from a mere collateral agent. The latter is a well-known figure in the market, especially abroad (collateral agent). In Brazil, although not so widespread and reserved for more complex transactions, the collateral agent is equivalent to a simple agent of creditors holding collateral, acting in their exclusive interest and with a scope of action, rights, and obligations defined in a contract signed with them.

The IGG was designed to play a different role. In contrast to the collateral agent, the initiative to contract the IGG would, as a rule, not be taken by the creditor agent, but by the individual or legal entity interested in holding an asset, usually indivisible, linked to multiple potential credit transactions.

As one potential use of this service, imagine an individual who has only one property to pledge as collateral. In theory, it could even be a family asset, since the bill, among its general provisions, also amends the legal framework for family assets, to remove exemption from foreclosure whenever the asset is voluntarily offered as collateral by its holder, regardless of the nature of the secured obligation.

Suppose, then, that this individual, at first, sees the need to take out financing that represents only 10% of the value of the property. Instead of tying 100% of their single, undivided property to the loan, which would represent an undesirable overcollateralization and could create a barrier to any future loan transactions, the individual will hire a IGG to manage the security interest on the property.

The security interest on the property will then be registered in the name of the IGG, and it will be permitted in the respective contracting instrument of the IGG to link multiple credit transactions to this collateral within the maximum term of the contract and up to the maximum total amount equivalent to the value of the property, as independently assessed by the IGG.

Once a financial institution agrees to grant credit to the individual in question, it would link its credit to the collateral under the management of the IGG, consuming at that time, in relation to the total collateral, only the maximum amount of credit granted and apparently without the need for any addition to the security interest already registered in the name of the IGG in the competent public register.

The individual would be free to contract new credit transactions in the future, until the total value of the security interest, as assessed by the IGG, is exhausted. In addition, as the originally linked transactions are amortized, this would open up more space for new credit transactions.

The collateral managed by the IGG, as a mere service provider, and registered in its name would not be confused with its own assets. Therefore, they would not be liable for any obligations of the IGG, but would constitute separate assets.

Risks and benefits of the proposal

The market will need time to assimilate this novelty, but the figure of the IGG has merit and could optimize the use of assets pledged as collateral, enabling a greater number of credit transactions at a lower cost.

However, the change is not immune to risks, in particular the risk of a supervening decrease in the original appraised value of the asset, after that original value has been backed by credit transactions that have fully consumed it. In this case, any supervening reduction in the value of the asset pledged as collateral, or even the original overestimated valuation, will mean a shortfall in collateral, to be shared proportionally among all creditors, unless an order of priority is stipulated among them.

Perhaps because it anticipated this possible scenario, the bill authorized the IGG to provide personal guarantees, which would secure the credit precisely when the collateral it manages is insufficient. Likewise, the bill establishes that the CMN may regulate the possibility for the IGG to acquire existing credit rights, including those linked to the collateral.

While these authorizations may, on the one hand, mitigate the risk of insufficient collateral under management, on the other hand, they may create the risk of conflict of interest that the project is concerned with avoiding by preventing the IGG from engaging in activities that are exclusive to a financial institution.

In any case, having understood the purpose of the IGG, it does not seem that it can be of much use in the context of infrastructure financing. It is of the essence in project finance transactions, typical of the infrastructure sector, that financial agents have the leading role in structuring security interests. For this context, the provisions regarding collateral agents will have greater application.

The IGG seems to have been designed for simpler and more standardized credit transactions, so much so that it is limited to transactions in the national financial system. Credit transactions in the capital market or with foreign lenders were excluded from its application from the outset.

As the explanatory memorandum of the bill shows, IGGs have the potential to facilitate the operations of cooperatives, fintechs, and small financial institutions, institutions that do not necessarily require collateral that is individualized or that they structured.

Collateral agents

The concept of the collateral agent is not new, but express regulations regarding it will be very welcome.

In project finance transactions, where there is often a need for different senior or subordinated financing agents to share collateral, the appointment of the collateral agent by these agents was already common, even in Brazil.

With caveats applicable to certain assets, not being a regulated activity (unlike with IGGs), any legal entity can act as a collateral agent. Among the exceptions, it is worth mentioning the receipt and custody of financial funds on deposit, which is an activity exclusive to financial institutions, as well as administration or management of investment funds, which requires authorization from the CVM.

In public-private partnerships, it is also common to appoint collateral agents to hold securities, receivables, or assets as collateral for the public consideration due to the private partner. In this case, the appointment of the collateral agent must meet the requirements set out in the PPP notice or in the draft concession agreement and its exhibits.

Due to these frequent uses, we already contended for, in 2018, the convenience of a legal system for collateral agents.^[1]

In fact, in any of these contexts, until an express framework is approved, the collateral agent will not be free from undesirable questions. Even if all are defensible, the mere existence of doubts and questions contradicts the ultimate purpose of collateral, which is to provide certainty and predictability.

Strictly speaking, if its role is justified on the sole basis of a power of attorney, the collateral agent should act on behalf of the principal, and not on its own behalf. But this is not the practice: the collateral agent usually receives and registers collateral in its name, without the necessary indication of all beneficiaries of the collateral.

In this respect, the commission would be the most appropriate typical contract for the collateral agent to act on its own behalf but in the interest of the principal. However, the typical commission contract, as provided for by articles 693 et seq. of the Civil Code, seems to limit its use to the context of the acquisition or sale of goods, which does not exactly fit with the receipt, management, and enforcement of collateral.

But even if the concept of collateral agent is based on an atypical engagement, which would not be prohibited, the absence of a clear regulations may raise doubts in a scenario of execution of the security interest or for the agent's liability regime. The proposed regulations is therefore very timely to give more certainty to the role of the collateral agent, including in the context of project finance.

Successive sales and fiduciary assignments of the same asset

Bill 4,188/21 came in good time to confirm the possibility of successive fiduciary sales, as already admitted without further doubt for mortgages.

With some interpretative effort, it was already possible to defend the legality and validity of "second or third degree" fiduciary sales.

In a perfectly feasible line of reasoning, it was contended that the fiduciary could dispose of its residual rights over the asset already disposed of in a fiduciary capacity at an earlier time, including the right to regain full ownership of the asset, after discharge of the secured debt.

The bill uses another basis, but with equivalent effect: that it is lawful for anyone to dispose of future property. Even if, in this case, the fiduciary ownership in favor of the fiduciary creditor is only perfected with subsequent acquisition of the asset by the fiduciary debtor, the effectiveness of the sale will be retroactive to the date of registration of the security interest (article 1361, paragraph 3, of the Civil Code).

Although the bill has brought this express confirmation only in the context of the fiduciary sale of real estate, its reasoning seems perfectly applicable to the fiduciary sale or assignment of any other asset or right.

The proposal has good potential for application even in infrastructure financing, as it is not uncommon in this market to require collateral with different degrees of priority in favor of subordinated creditors. Although it was already possible to defend the legal viability of second-degree fiduciary sale, the risk of disputes could not be ignored.

Improvements to enforcement of the fiduciary sale of real property

Another novelty to be highlighted in the bill is the objective provision that, in a second auction, the property fiduciarily sold may be sold for up to 50% of the value assigned to it in the fiduciary sale agreement. This removes the subjectivism from the concept of an arm’s length price.

And, as already referenced above, if the sale is made for a price lower than the debt, the debtor will remain liable for the difference, ruling out automatic discharge.

It is also interesting to introduce a provision to deal specifically - and with less room for doubt - with execution of a claim secured by more than one real property fiduciarily sold.

Extrajudicial execution of mortgages

The bill also proposes to amend Law 9,514/97 to extend the alternative of extrajudicial execution to mortgages, which is not currently allowed under the Civil Code.

This possibility could be useful in various segments, including infrastructure financing. Extrajudicial execution tends to offer greater speed and efficiency to the process of forced execution of the asset, removing the slowness and litigiousness of the judicial route.

Other changes

The bill also brings in other more specific changes. It now expressly admits the creation of a security interest on mining rights other than the mining concession, such as on the right to a research authorization permit, licensing right, and mining permit.

It also aims to abolish Caixa Econômica Federal's monopoly on civil pledges.

Among other matters foreign to the central topic of security interests and with a special chance of review in the Senate or presidential veto, we highlight the proposal to reduce to zero the withholding income tax, with respect to income paid or credited to a beneficiary resident or domiciled abroad, produced by any debt securities publicly distributed by a legal entity governed by private law other than financial institutions, by FIDCs, or even by financial notes, without further requirements or conditions.

Bill 4,188/21 is far from offering a comprehensive solution to all the inefficiencies and challenges existing in our collateral system, in its various modalities and market segments, but it certainly demonstrates concern and commendable progress. It is hoped that it will be approved with the urgency that the issue deserves.

^[1]ENEI, José Virgílio Lopes. Guarantees of Performance of the Public Administration to Contractors in Public-Private Partnerships. São Paulo: Almedina, 2018.

Category: Tax

Brazil introduced Provisional Measure No. 1152 on December 29, 2022, updating its transfer pricing rules to align more closely with international standards, especially as the country evaluates its integration with the OECD.

The new rules, which will become mandatory starting in 2024, address controlled transactions, comparability analysis, and the selection of the most appropriate method. They also regulate transactions involving intangibles, intra-group services, cost-sharing contracts, and transactions concerning debt and guarantees.

Taxpayers have the option to adopt the new regulation as early as 2023. We have prepared this ebook with insights from our partners on the main impacts of applying the new rules, the transactions covered within their scope, and the contentious issues. Take a look!

Category: Banking, insurance and finance

The Brazilian Congress is currently processing Bill 2,551/23 (Bill 2,551/23), forwarded by the federal government to simplify the procedure for issuing debentures. This will require changes to Law 6.404/76.

Bill 2,551/23 is part of the financing simplification and red tape cutting initiative prepared by the Bureau of Economic Reforms of the Ministry of Finance. According to the bill's explanatory memorandum, the proposed legislative changes seek to reduce costs related to fundraising by companies, as well as to provide more liquidity to securities and dynamism to the capital market.

The main changes proposed include:

Corporate Approvals

• Non-convertible debentures issued by publicly-held or privately-held companies may be approved at a board of directors or executive board meeting, without the need for a general meeting (as is the case with other debt instruments).

The amendment should speed up the process of issuing debentures, especially for companies whose rules for convening and calling to order general meetings provide for longer deadlines.

Filings and other requirements

• Exemption from the mandatory filing of debenture indentures with commercial boards.

It will be incumbent on the Brazilian Securities and Exchange Commission (CVM), for publicly-held companies, and the federal government, for privately-held companies, to regulate the form of registration and disclosure of the indenture and the corporate act approving issuance of debentures.

Quorum for resolutions at general meetings of debentureholders

With due authorization of the CVM, the quorum for resolutions to amend the conditions of the debenture indenture may be reduced if:

• the issuer is a publicly-traded company;
• the reduced quorum is mentioned in the call notices;
• the reduced quorum is adopted only upon third call; and
• the debentures are dispersed in the market, i.e. no debentureholder may hold directly or indirectly more than half of the debentures.

In addition to the aforementioned changes, Bill 2,551/23 provides for the exemption of the opening of a book of registration of debentures with the commercial registry, as well as the possibility of separating the interest charged as remuneration from the nominal value of the debentures(strip).

The basic text of the bill is still subject to amendments suggested by members of congress. The initial proposal, however, seems to simplify and streamline the process of issuing debentures, which is still undergoing adaptations resulting from approval of the new regulatory framework for public offerings, in force since January of this year.

Category: Tax

Scheduled for July 1, 2023, the deadline for the entry into production of eSocial labor lawsuit events was again postponed, as the Federal Government reported in a note issued on June 30, without the definition of a new date.

In addition to seeking to meet several requests for postponement made by private sector entities, the postponement of the labor lawsuits events was planned so that the new date of entry into production coincides with the replacement of GFIP by DCTFWeb.

Although it has not yet officially defined a new deadline for the beginning of the obligation to send the information regarding labor lawsuits, the schedule presented by the Ministry of Labor in Letter SEI 55194/2023/MTP, issued in response to the request for postponement of the Federation of Industries of the State of Minas Gerais (FIEMG), indicates as the deadline for entry into production the day 1 October 2023.

Category: Tax

Section 1, paragraph 1, of Law 9,873/99, establishes a limitation "in the administrative proceeding, paralyzed for more than three years, pending judgment or order”, determining its ex officio cancelation. In the scope of tax law, reaching the statute of limitations is one of the hypotheses of extinction of the tax charges, according to Section 156, item V, of the National Tax Code (“CTN”).

The applicability of this provision to tax credits, however, is a highly controversial matter. According to the current jurisprudence of the Superior Court of Justice (“STJ”), there is no statute of limitations in the course of a tax administrative proceeding. The Federal Revenue Service of Brazil (“RFB”), in turn, tries to extend this reasoning to credits arising from penalties provided for in customs legislation, that is, customs charges.

For the RFB, it is not appropriate to talk about statute of limitations in the administrative proceedings discussing customs charges - even if the proceeding has been paralyzed for over three years. The main argument of the RFB’s rationale is that customs charges seek to assist the collection of Import Tax (“II”) and Export Tax (“IE”). Due to this ancillary nature, administrative proceedings aiming at the collection of such penalties should follow the same treatment given to the collection of tax credits.

The understanding held by the RFB has prevailed in the Federal Administrative Council of Tax Appeals (“CARF”), that has even issued a binding Ruling^[1] establishing that the statute of limitations foreseen in Law 9,873/99 is not applicable in the tax administrative proceeding:

CARF’s Ruling No. 11

Approved by the Plenary in 2006

The statute of limitations to administrative proceedings is not applicable in tax administrative proceedings. (Council Session of 06/07/2018, Published on 06/08/2018).

Precedents:

• Judgment 103-21113, of 05/12/2002;
• Judgment 104-19410, of 12/06/2003;
• Judgment 104-19980, of 13/05/2004;
• Judgment 105-15025, of 13/04/2005;
• Judgment 107-07733, of 11/08/2004;
• Judgment 202-07929 of 22/08/1995;
• Judgment 203-02815 of 23/10/1996;
• Judgment 203-04404 of 11/05/1998;
• Judgment 201-73615, of 24/02/2000; and
• Judgment 201-76985, of 11/06/2003.

Although the precedents supporting this Ruling dealt exclusively with tax matters, CARF has routinely and repeatedly applied its understanding in cases dealing with customs matters, which may suggest a supposed equivalence between the tax and the customs charges within the federal public administration.

See, for example, the recent understanding held in the judgment 3402-010.219, held on March 21^st, 2023:

"SUBJECT: ANCILLARY OBLIGATIONS Calendar-year: 2008

(...)

STATUTE OF LIMITATIONS IN ADMINISTRATIVE PROCEEDINGS. It is inappropriate to argue for the statute of limitations in the tax administrative proceeding, and the matter has already been faced by CARF’s Ruling 11.

(...)

6. STATUTE OF LIMITATIONS IN ADMINISTRATIVE PROCEEDINGS

CARF’s Ruling 11 sets the inapplicability of the statute of limitations in the tax administrative proceeding.

'CARF’s Ruling No. 11 Approved by the Full in 2006 The intercurrent limitation period does not apply in the tax administrative process. (Binding, according to ME Ordinance 277/18). Precedents: Judgment No. 103-21113, of 05/12/2002 Judgment No. 104-19410, of 12/06/2003 Judgment No. 104- 19980, of 13/05/2004 Judgment No. 105-15025, of 13/04/2005 Judgment No. 107-07733, of 11/08/2000 4 Judgment No. 202-07929, of 22/08/1995 Judgment No. 203-02815, of 23/10/1996 Judgment No. 203-04404, of 11/05/1998 Judgment No. 201-73615, of 24/02/2000 Judgment No. 201-76985, of 11/06/2003'.

No reason to the Appellant."

Although customs law and tax law are deeply intertwined, they are not to be confused, as they are supported by different normative regimes. The Ministry of Economy itself has already made this division in Ordinance 260, of 2020 (“ME Ordinance 260/20”)– and in the judgments resulting from it. In the ME Ordinance 260/20, it was established that Section 19-E of Law 10,522/02 (which determines the untying vote in favor of the taxpayer and was inserted by Law 13,988/20) would only be applicable to tax charges, and not to customs matters.

Nonetheless, the position recently presented by STJ in Special Appeal 1,999,532/RJ rekindles the debates and gives strength to the understanding held by the taxpayers – which, so far, was rejected by CARF.

On May 9 of this year, when judging the Special Appeal 1,999,532/RJ, the First Panel of the STJ, unanimously, acknowledged the administrative nature of the fine imposed for delay in the registration of information by the carrier in the Integrated Foreign Trade System (Siscomex) (foreseen in Section 107, item IV, subparagraph ‘e’, Decree-Law 37/66). Thus, the three-year statute of limitations, established in Law 9,873/99, became applicable to these cases.

According to the Judges, compliance with customs obligations aims at "ensuring compliance with the rules relating to foreign trade." Any gain in regards to tax obligations shall be considered as an indirect benefit of the customs duty. Therefore, the nature of the fine established in Section 107, item IV, subparagraph ‘e’, Decree-Law 37/66 is of a custom obligation and therefore, is unequivocally of administrative nature, not tax.

Faced with this conclusion, the Judges decided for the applicability of the statute of limitations due to understanding that "the fines in question have a strictly administrative character, since they result from violation of a rule without direct relevance to the supervision and collection of the Export Tax" (emphasis in the original).

Although this is a precedent of only one of the STJ Panels and does not have binding effects to the public administration or to the judiciary, it is undoubtedly an extremely important decision, since  it reopens the way for taxpayers to raise discussions about the distinction in the treatment given by the Public Administration in tax and customs matters.

It is up to taxpayers, rethinking the strategy in this new jurisprudential scenario, to follow the development of this new phase of debates. Special Appeal 1,999,532/RJ  may be the turning point in the discussion on the classification and treatment of tax and customs charges in CARF.

^[1] Under the terms of the Ministry of Economy 277, of 2018 (“ME Ordinance 277/18”), Ruling 11 began to have binding effects on the federal Public Administration.

Category: Environmental

As a result of the conversion process of Provisional Measure 1,151/22, Federal Law 14,590/23 was enacted on May 24, amending provisions of three important rules related to carbon credit projects in forest areas – mainly public forests subject to forest concessions through bidding – and other environmental services in conservation units. The three amended rules are:

• Federal Law 11.284/06, which provides for the management of public forests for sustainable production;
• Federal Law 11.516/07, which provides for the creation of Chico Mendes Institute for Conservation of the Biodiversity (ICMBio); and
• Federal Law 12.114/09, which creates the National Fund on Climate Change (FNMC).

Changes in the Public Forest Management Law (Federal Law 11.284/06)

The first relevant change implemented by Federal Law 14,590/23 in the Public Forest Management Law refers to the definition of forest concession. In addition to the onerous delegation of the right to practice sustainable forest management activities for the purpose of exploiting products and services in a management unit, forest concession now encompasses the delegation of forest restoration and exploitation of products and services in management units that are specified in the object of the concession contract, through bidding (Art. 3, item VII, Law 11.284/06).

As highlighted by § 1 included in article 3 of the aforementioned law, the concession modalities set forth in the Public Forest Management Law should not be confused with concessions of services, areas or facilities of conservation units.

The definition of management unit was also extended. In addition to being understood as the "perimeter defined from technical, sociocultural, economic and environmental criteria, located in public forests, object of a Sustainable Forest Management Plan, and may contain degraded areas", the management unit now encompasses areas "used for forest restoration activities or exploitation of other services and products".

The degraded areas considered for the definition of the perimeter, which previously should be destined for recovery by means of forest plantations, are also no longer conditioned to this objective (Art. 3, item VIII, Federal Law 11.284/06).

These changes extend the previous definitions and allow more areas to be considered in forestry projects.

Prohibitions on granting rights under the forest concession were also edited by Federal Law 14,590/23. The following items were excluded:

• access to genetic heritage for purposes of research and development, bioprospecting or collection-building;
• exploitation of fishery resources or wildlife; and
• commercialization of credits arising from avoided carbon emissions in natural forests.

With the change, granting of such rights became authorized.

Federal Law 14,590/23 also stated the possibility for the concession agreement to provide for the transfer of ownership of carbon credits from the granting authority to the concessionaire during the concession period.

It also allowed the right to market certificates representing carbon credits and associated environmental services, except for areas occupied or used by local communities (Art. 16, § 2, Law 11.284/06). Under previous provision, the right to trade carbon credits could only be included in the object of the concession in case of reforestation of degraded areas or converted to alternative land use.

Inclusion of the exploitation of non-timber forest products and services in the object of the concession agreement is also authorized, provided that the activity is carried out in the respective forest management units (Art. 16, § 4, Law 11,284/06). The exploitation of non-timber forest products and services should be regulated by specific rules.

The rules related to environmental licensing for sustainable use of management units have also been edited.

With provision given by Federal Law 14,590/23, exploitation of native forests and successor formations in public domain now depends on licensing from the competent environmental authority of the National Environmental System (Sisnama), upon prior approval of the Sustainable Forest Management Plan, according to Federal Law 12,651/12 (Forest Code). Concessions for conservation and restoration are exempt from environmental licensing.

Another innovation of Federal Law 14,590/23 was to allow the concessionaire to promote the operational unification of sustainable forest management activities in forest management units, continuous or not, when granted to the same concessionaire, provided that the areas are located in the same conservation unit or concession lot.

Operational unification must be carried out by means of an amendment to the concession agreement and will allow the draft of a single Sustainable Forest Management Plan for all management units, besides unifying forestry operations (Art. 27, §§ 5 and 6, Federal Law 11.284/06).

Changes in the law that provides for the creation of ICMBio (Federal Law 11.516/07)

In accordance with the changes implemented in the Public Forest Management Law, Federal Law 14,590/23 also amended Federal Law 11,516/07, which provides for the creation of ICMBio.

The changes implemented by Federal Law 14,590/23 made it possible for the management authority of the conservation unit to grant, alone or jointly, the:

• transfer of ownership of carbon credits from the granting authority to the concessionaire during the concession period, as well as the right to market certificates representing carbon credits and associated environmental services; and
• exploitation of non-timber forest products and services, provided that it is carried out in the respective forest management units, in compliance with provisions of Federal Law 8,987/95, according to regulations (Art. 14-C, § 5, Law 11,516/07).

The new law also allows concessions in conservation units to contemplate in their object the right to develop and market carbon credits and environmental services according to regulations to be established by specific regulations.

Changes in the law that created FNMC (Federal Law 12.114/09)

Federal Law 14,590/23 also updated Federal Law 12,114/09, which creates FNMC. The application of FNMC resources in repayable financial support, which previously occurred by means of granting of loans, through the operating agent, now occurs through the financial instruments used by the financial agent.

Federal Law 14,590/23 expanded opportunities for investors in the sector due to the new developments for carbon credit projects in forest areas.

The definitions that already existed were expanded to encompass a greater variety of assets in forest concessions and allow the exploitation of other non-timber activities. It also made it possible to transfer ownership of carbon credits from the granting authority to the concessionaire during the concession period. This may further increase interest in the exploitation and market of forest carbon credits.

Category: Succession planning

The structuring of investments abroad through trusts - whether for succession, financial purposes or for definitive exit from Brazil - requires a careful assessment by Brazilian tax residents. This is because there is no express recognition of trusts in Brazilian legislation and the potential tax impacts from the perspective of Brazilian tax residents.

In summary, a trust is a contractual arrangement whereby the settlor transfers the ownership of certain assets and rights to a third party – namely as "trustee" -, who will be responsible for managing the assets and rights (transferred by the settlor) and assigning the trust´s assets to the beneficiary (or beneficiaries).

Although there is no specific legislation and consolidated case law analyzing the tax treatment of trusts from the perspective of Brazilian tax residents, the Brazilian Revenue Service (“RFB”) has already formally expressed its opinion in COSIT Consultation Procedure N. 41/2020. The RFB understood that the income received by a Brazilian tax resident (widow) as the beneficiary of a trust constituted abroad (by his deceased husband) would be subject to Individual Income Tax in Brazil (“IIT”), as ordinary income.

More recently, São Paulo´s Tax Authorities (“SEFAZ-SP”) expressed for the first time their understanding regarding the levy of Estate and Gift Tax (“ITCMD”) on the transfer of rights and assets from a settlor, a Brazilian resident, to an irrevocable trust.

On April 4, 2023, SEFAZ-SP published the Response to Tax Private Ruling N. 25,343/2022 understanding that the transfer of assets and rights by a settlor to trustee is, in essence, a donation and, therefore subject to ITCMD levy under the terms of Section 4 of State Law N. 10,705/2000 (which provides for ITCMD levy on donations by a donor resident or domiciled abroad).

SEFAZ-SP supported their understanding on the argument that the intention of the settlor when transferring the assets and/or rights to the trust is not to protect such assets or make a financial invest, but to transmit these assets to the beneficiary (or beneficiaries) by an “act of liberality”.

In addition, SEFAZ-SP upheld that the rule of Section 4 of State Law N. 10,705/2000 would be applicable in the concrete case even though the Federal Supreme Court (STF) had adopted a different position on the Extraordinary Appeal N. 851,108 and, more recently, on the Direct Unconstitutionality Action by Omission N. 67 (judged in June 2022 - “ADO 67”). On ADO 67,  STF stipulated a deadline of 12 months for the Congress to publish a complementary law with general rules defining the incidence of ITCMD on donations and inheritances instituted abroad in light of the provisions of Section 155, item III, paragraphs "a" and "b" of the Brazilian Federal Constitution (CF/88).

From a practical point of view, the adoption of the understanding of SEFAZ-SP would result in the anticipation of taxation for the moment of constitution of a trust with the transfer of assets and/or rights from a settlor to trustee and their attribution to the beneficiary. However, there are cases where the attribution of assets and rights of the trust to the beneficiary may be subject to conditions or counterparts, or the amount that will be attributed to the beneficiary is not yet defined.

Therefore, in doing so, SEFAZ-SP has not considered in their analysis the characteristics, purpose and essential elements of a trust. In the case of revocable trusts, for example, in which the settlor may retain the right to dispose the trust and recover all the assets and rights transferred to it, it would not make sense to tax the transfer of assets that, from a legal standpoint, were not definitively assigned to the trust.

This reasoning applies to contractual arrangements in which a condition is imposed for the release of assets and rights to beneficiaries, such as the death of the settlor, which may postpone the moment of collection of ITCMD.

Currently, there are two bills pending in the National Congress. Bill N. 4,758/20, which aims to introduce and regulate the fiduciary contract, and Complementary Law Project N. 145/22 (Bill N. 145/22), which aims to regulate the tax treatment of trusts from the perspective of income tax, ITCMD and ITBI in Brazil.

If Bill N. 145/22 is converted into law with the current wording, taxpayers may have legal grounds for not adopting the understanding of SEFAZ-SP, since the Bill expressly establishes that the simple transfer of assets and rights from a settlor to trustee for the formation of the trust´s assets will not be a triggering event for ITCMD.

In addition, according to the Bill, only when the beneficiary acquires the unconditional and immediate right over the trust's assets – not subject to term or condition to access any portion of assets under the trust – will a donation be configured.

More recently, the Federal Government published Provisional Measure 1,171/23 (PM 1,171/23), which deals with the taxation of IIT on income and gains obtained by Brazilian tax residents in financial investments, controlled entities (including investment funds and foundations) and trusts abroad (click here see the analysis of PM 1,171/23).

From the perspective of PM 1,171/23, trusts incorporated abroad will be considered transparent for tax purposes, despite their characteristics, such as revocability or irrevocability.

Under the terms of the provisional measure, the assets and rights transferred to the trust must remain within the patrimonial sphere of the settlor (a Brazilian tax resident) for the purpose of the Individual Income Tax Statement (“DIRPF”). As a consequence, the income earned by the trust's portfolio is attributed to the settlor and must be declared (and the income tax collected) in the respective DIRPF.

It is worth mentioning that Section 7, item I, of PM 1,171/23 establishes that the assets and rights transferred to the trust remain under the settlor´s ownership after the creation of the trust. The beneficiary becomes the owner at the moment the trust distributes to the beneficiary or when the settlor dies, whichever occurs first.

Therefore, it seems to us that the intention of PM 1,171/23 is to establish the taxation of any income from the trust at the level of its settlor, without, however, adequately addressing the nature of the trustee´s and beneficiary´s mandatory right based on the possible characteristics of this type of contractual arrangement – such as revocability or irrevocability.

Despite the controversies on the subject, the introduction of rules applicable to trusts is on the radar of the Federal Government and the Legislative Branch. The processing of bills and PM 1,171/23 may result in major advances in the definition of the tax aspects involved in the institution of said contractual arrangement for structuring investments abroad and succession planning.

Category: Tax

The Supreme Court concluded, on June 12, the trial of motion for clarification filed in the extraordinary appeal 400,479 (RE 400,479), whose objective was to define the scope of the concept of billing for companies in the insurance sector in the period prior to the beginning of the validity of Law 12,973/14 (January 1, 2015).

Companies operating in the insurance sector are subject to the calculation of PIS and Cofins in the cumulative regime, pursuant to article 8, item I, of Law 10,637/02 and article 10, item I, of Law 10,833/03, respectively.

Until the enactment of Law 12,973/14, Article 2 of Law 9,718/98 established that the basis of calculation of PIS and Cofins was the invoicing of the legal entity.

In the trial of extraordinary appeals 346,084, 358,273, 357,950 and 390,840, the Supreme Court decided that the concept of billing, until Constitutional Amendment 20/1998 (which authorized the institution of contribution on gross revenue), included revenues from the sale of goods, rendering services or a combination of both.

Based on the premise established in the trial of these extraordinary appeals, concluded in 2005, there remained doubt about the scope of the concept of billing for companies in the insurance sector, since they do not sale goods nor provide services.

In the trial of RE 400.479,^[1] the STF clarified that companies in the insurance sector, although their activity does not include the sale of goods or rendering services, should submit their typical business revenues to taxation to PIS and  Cofins.

The prevailing position, led by the retired minister Cezar Peluso, emphasizes that the expression billing should be interpreted in the sense of understanding the revenues from "the set of businesses or operations developed by these companies in the performance of their typical economic activities."

He concludes: "the proposal that I submit to the Court is, therefore, to recognize that one should tax, only, and in a precise way, what each company earns by reason of the exercise of the activities that are its own and typical, while giving it purpose and reason for being."

It is inferred, therefore, that, although the premiums received by insurance companies are not characterized as a price for the acquisition of a good or rendering service, such amounts are included in the amount of revenues earned by the companies in this segment (operating revenues) and, consequently, are subject to taxation by PIS and Cofins.

On the other hand, any other revenues earned by insurance companies that are not related to their typical activity will not be taxed by PIS and Cofins.

In this case, revenues expressly excluded from the calculation basis must also be considered, in accordance with article 3, paragraph 6, item II, of Law 9,718/98 (indemnities corresponding to claims incurred and actually paid, less amounts received as coinsurance, reinsurance, salvaged and other reimbursements).

These legal provisions that provide for hypotheses of exclusion from the basis of calculation were not the subject of discussion in this case.

In our view, from the premise signed by Minister Cezar Peluso, it is possible to interpret that the revenues from the financial investments of the amounts destined to the constitution of technical reserves would not be subject to taxation by PIS and Cofins, mainly because such income would not be derived from the typical activities of companies in the insurance sector. However, it is important to note that this specific point was not expressly addressed by the winning vote, which is why we cannot rule out interpretation to the contrary.

In the vote-view delivered by Minister Dias Toffoli, the issue of financial revenues from the application of the values of technical reserves was expressly addressed and it was pointed out that its constitution is a legal imposition, as a condition for the exercise of business activity. For this reason, the revenues earned from these financial investments would not fall under the concept of billing, ruling out the incidence of PIS and Cofins.

Minister Luís Roberto Barroso followed Minister Dias Toffoli on this point as well. Minister Edson Fachin, on the other hand, differed in the part of the financial revenues from the application of technical reserves, because he understood that this topic was not raised in the lower courts.

There is the possibility of filing an appeal precisely for clarification on this specific point.

Therefore, for the period prior to the beginning of the validity of Law 12,973/14 (that is, until December 31, 2014), the Supreme Court defined that, for insurance companies, the values of premiums make up the concept of billing and must be included in the calculation basis of PIS and Cofins.

^[1] We point out that our comments are based on the draft votes made available, which should be confirmed after the publication of the judgment, as they may undergo some change.

Category: Labor and employment

In our article on Law 14,611/23, which deals with equal pay and compensation criteria between women and men, we highlighted that the main innovation of the new law is the obligation to publish a biannual transparency report on pay and compensation criteria by legal entities governed by private law (companies, foundations, associations, etc.).

The report is the realization of one of the aspects of the social pillar of ESG practices. Due to the impacts in case of non-compliance, it is essential that companies take great care in preparation and publication of the report.

Not only is it necessary to carry out prior analysis to check for any inconsistencies before drafting the document, but it is also essential to exercise caution in how salary information is disclosed.

The information in the report should allow for an objective comparison between salaries, wages, and the proportions of directorship, management, and senior management positions filled by women and men. This information must also be disclosed in accordance with the General Data Protection Act (LGPD) and the competition law obligations applicable to companies.

In relation to the LGPD, the publication of data must be done after a balanced assessment of the purpose established in the disclosure of the reports^[1] and identification of the data strictly necessary for this purpose.^[2] Publishing unnecessary data may expose the company to the risk of violating the legal protection of personal data and lead to penalties.

Law 14,611/23 itself, in its article 5, defines what information is required by establishing, in its paragraph 1, that the reports will contain "anonymized data" and "information that can provide statistical data".

The purpose of the new standard, therefore, is not to know "who specifically receives how much", but to allow objective comparison and statistical measurement of the criteria adopted, in order to conclude whether or not there is a pay gap between women and men.

From a competition point of view, although Law 14,611/23 does not refer to competition obligations related to the disclosure of employee salaries, the Administrative Council for Economic Defense (Cade) has already expressed the understanding that the exchange of sensitive information between competing companies may constitute an infringement of the Competition Law, due to the possibility of leading to parallelism or coordination of action in the market, with effects similar to those of a cartel.

In general, specific information - current or future - on the performance of companies' activities, which may eliminate uncertainty in the decision-making process of those who receive it and is not available from public sources, is considered sensitive from a competition law perspective.

In this context, employee salaries are expressly treated as competitively sensitive information in the gun jumping guide published by Cade.

How, then, could companies publish pay transparency reports without violating the rules of the LGPD and competition law? One possible legal solution would be to draw up reports using mathematical ratios to compare wages paid to women and men.

This methodology is already used by companies in the United States and Europe to compare salaries paid according to organizational levels. There are also Brazilian companies that already use this methodology in their sustainability reports.

However, adjustments must be made: from a legal point of view, companies cannot apply mathematical ratios considering only the organizational level and the positions held by employees based on an average salary.

In Brazil, all the legal requirements set out in article 461 of the Brazilian Labor Law (CLT) must be considered by companies, which makes the analysis much more detailed. Mathematical ratios should be used to compare wages paid to women and men who are in legally comparable situations. This is because, if companies do not observe the legal criteria for wage differentiation, there will be a distortion in the pay equity ratio between women and men.

Companies should assess which people are in legally comparable positions and then apply mathematical ratios to allow comparison. If there are no people in comparable situations, the company should clarify this fact.

The report should therefore be adapted to the reality of each company.

This legal solution, however, considers the absence of a legal provision and rules regulating the procedures to be used for the preparation of the pay transparency report, in accordance with Law 14,611/23. If the federal government publishes specific regulations, companies must follow these guidelines.

^[1] Principle of finality - Article 6, I, LGPD.

^[2] Principle of necessity or ideal of data minimization - Article 6, III, LGPD.

Category: Banking, insurance and finance

The Superintendence of Securitization Supervision (SSE) of the Brazilian Securities and Exchange Commission (CVM) published, on July 5, Circular Letter 6/2023/CVM/SSE (OC 6), with the objective of complementing the manifestations contained in Circular Letter 4/2023/CVM/SSE (OC 4) on the possible characterization of tokens of receivables and fixed income tokens (together TR) as securities,  either because they can characterize securitization operations (according to Law 14,430/22) or be considered collective investment contracts (according to Law 6,385/76).

OC 6 also brings new explanations about OC 4 and points out how the previous understanding can directly or indirectly affect the tokenization of some sorts of cinancial assets – such as Bank Credit Notes (CCB), Bank Credit Notes Certificates (CCCB) or Real Estate Credit Notes (CCI). It also clarifies aspects of a crowdfundingin Brazil.

Below, we make a brief summary on the main points covered in OC 6 and how these topics can affect tokenization in Brazil.

Differences between securitization operation and collective investment agreement

 SSE clarifies that it is possible that a certain type of TR is considered a collective investment contract, without necessarily being included as a securitization operation

In this case, the offeror of the TR would not exempt  from complying with the applicable rules on the public offering of securities, but would be exempt from the need to make the offer via securitization company.

SSE clarifies that this can happen when, cumulatively:

• there is a public offering of a single credit right, via an instrument of assignment or other modality, without co-obligation or other form of risk retention by the assignor or by a third party;
• the cash flow of the credit right flows directly to investors, with minimal interference from the assignor or third parties to enable the transfer of the flow;
• there are no predetermined mechanisms for the replacement, repurchase or reversal of the credit right assigned, nor any co-obligation for the implementation of the collective investment agreement offered;
• there are no previously contracted service providers, such as those equivalent to custody, bookkeeping, depositary, fiduciary agent, ordinary collection of the credit right offered or monitoring or follow-up service; that is, there is no "packaging" of the credit right with services, but the direct sale; and
• In case of default, it is up to the investor to adopt judicial or extrajudicial measures, case in which the investor may, directly at his expense, hire collection agents.

In this sense, the perfect and finished sale of a single asset (true sale) can mischaracterize the securitization operation. It is necessary, however, to assesswhether the other characteristics of the TR make it a collective investment contract – in which case the rules on the public offering of securities should  apply.

SSE's considerations about the possible characterization of a securitization operation are quite positive for the tokenization market in Brazil, as they bring strongerpredictability and legal certainty to the offerors of tokens backed by credits or credit rights. From now on, the offerors will be able to orient themselves on a more solid basis on the need or not to support their operations through a securitization entity.

Some sorts of financial assetsAdvancing in the discussion of OC 4, the SSE clarifies that the understanding expressed therein does not apply to some sorts of financial assets such as CCB, CCCB and CCI, when the requirements of article 45-A of Law 10,931/04 are met.

By express legal provision, the issuance and marketing of such financial assets are outside the regulatory perimeter of the CVM. However, SSE clarifies that, if an investment opportunity is backed by a basket of some of these asssets, it is possible that the operation is characterized as a collective investment contract or securitization operation, both subject to the jurisdiction of the CVM.

SSE clarifies that the basket may correspond to the public offer of a single asset that represents or corresponds to  more than one CCB, a CCCB or a CCI. In these cases,  SSE points out that it is possible to have a mismatch between the cash flow derived from the assets and the value corresponding to the collective investment contract, causing the contract offered not to correspond to the assets themselves, but to the investment that is backed by those assets.

SSE's considerations on the tokenization of financial assets is positive for the market, as they bring predictability and legal certainty to those interested in offering tokens backed by theseassets.

Simplification of the public offering of receivables tokens in the crowdfunding  model

By issuing OC 4, SSE advised that, up to the volume of R$ 15 million, securities issued by securitization companies can be tokenized and publicly offered through crowdfunding platforms, under the terms of CVM Resolution 88/22 – crowdfunding regulation  – thus making use of a simpler regulatory regime for public offerings compared to that provided for in CVM Resolution 160/22.

To enable these securitization operations to comply with the regulatory limits of the issuer's annual gross revenue (applicable, in general, to the small business company in the scope of crowdfunding, under the terms set forth in article 2, item VII and paragraph 2, of CVM Resolution 88/22), the SSE clarified that, in securitization operations involving tokens, these limits could be based on separate equity.

This separate equity would be constituted through the institution of the fiduciary regime by the securitizing company, and not necessarily the securitizing company in the condition of issuer of the  security. That is, the issuer, for the purposes of CVM Resolution 88/22, would be the separate equity of the issuance of the tokens.

However, in the edition of OC 4, SSE had understood that this guidance would not apply to issuances concentrated in only one debtor or debtors that are related parties to each other – including debtors of the assets backing the securitization operation.

This understanding, however, has  been amended by OC 6. SSE now admits that the separate equity can be considered as an issuer for the purposes of CVM Resolution 88/22, including in concentrated issuances.

This means that the separate equity, and not the securitizing company or the debtor(s), is equated with the issuer, when it comes to meeting the requirements of crowdfunding regulation, among which the following stand out:

• annual gross revenue limit of R$ 40 million or, in relation to the economic group, R$ 80 million;
• maximum amount of funding of R$ 15 million;
• sum of total uptake; and
• 120-day interval between public offerings.

In addition, the limitations regarding the maintenance and transit of investor funds in crowdfunding  offerings provided for in article 5, paragraph 1, items (i) to (iii),^[1] of CVM Resolution 88/22, in a direct interpretation, create a prohibition for the crowdfunding platform  and its partners to constitute a securitization company to issue the tokens and offer them on this platform.

SSE brings an alternative to remove this restriction on token securitization operations carried out through a crowdfunding platform. The CVM department makes it clear that securitization companies can be constituted by the platform itself, provided that the issues are carried out with the constitution of separate equity in accordance with the legislation and regulations applicable to securitization operations.

The regulator's interpretive effort translates into simplification of the public offering procedure of  tokens of receivables to enable and stimulate the use of crowdfunding regulation  for this purpose. The norm was not designed for tokens of receivables, but it is currently being put forward as a legal alternative to facilitate the distribution of these tokens in the Brazilian market.

^[1] Art. 5, § 1, of CVM Resolution 88/22: "The amounts transferred by investors may not be transferred through current accounts: I – maintained in the name of the platform; II – maintained in the name of partners, administrators, and persons linked to the platform; III – maintained in the name of companies controlled by the persons mentioned in items I and II of this paragraph; (...)"

Category: Tax

In recent years, although the Superior Court of Justice (STJ) has established theories on the use of performance bonds or bank guarantee as security in tax litigation, taxpayers still face legal uncertainty regarding the effects of presenting judicial performance bonds and bank guarantee in tax foreclosures. The doubt arises especially regarding the possibility of a subsequent protest of the Outstanding Debt Certificate (CDA) and registration in the Informative Register of Unpaid Debts of the Federal Public Sector (Cadin).

In recent judgments, the 2nd Panel of the STJ^[1] has ruled that guarantees of tax executions by bond, bank guarantee, and/or real estate, by itself, does not legally prevent the protest and/or inclusion in Cadin, "unless, for another reason - as in the case of interim judicial relief (article 151, IV and V, of the CTN) -, the tax credit has its enforceability suspended."

Also in relation to the case law, we can mention the sole-judge decision of Justice Gurgel de Faria, according to which "the provision of a performance bond, although it authorizes the issuance of a Debt Certificate with Effects of Clearance (CPD-EN), is not a cause for suspension of enforceability of the tax credit and, therefore, does not prevent the tax authorities from proceeding with the protest of the CDA and from registering the debtor's name in a register of defaulters."

It is thus seen that the 2nd Panel of the STJ, whose understanding has been applied in sole-judge decisions by some justices who are part of the 1st panel,^[2] takes a position finding for the possibility of protesting the CDA, even in the event that the debt is guaranteed by a bond. The reasoning adopted is supported by the traditional case law that this type of guarantee does not suspend the enforceability of the tax debt.

In the opinion of the 2nd Panel of the Superior Court, suspension of the protest of an obligation described in an enforceable instrument and/or removal of the taxpayer from Cadin would be intrinsically linked to the express suspension of enforceability of the tax debt, provided for in article 151 of the National Tax Code (CTN). This measure would have the power to remove the situation of default for all purposes and allow the taxpayer to obtain tax clearance certificates, preventing its inclusion in Cadin and/or protest of the enforceable instrument.

This understanding impacts on taxpayers who intend to or already use performance bonds and/or bank guarantees for the purposes of guaranteeing tax foreclosures. In addition to bringing about serious implications for business activity, the position of the 2nd Panel of the STJ highlights the legal uncertainty that these taxpayers may face due to the divergent interpretations of the Judiciary on the effects of the attachment of these guarantees.

In practical terms, if the judge, when analyzing the guarantee offered, does not expressly mention suspension of the enforceability of the tax debt, the taxpayer may be surprised by the protest of the CDA or even by its registration in Cadin, even with the debt guaranteed by performance bond and/or bank guarantee.

If there is a suitable guarantee, the tax administration is fully protected in the event of success in the claim, which even hollows out - or should hollow out - its interest in adopting any other constrictive measures.

The protest of CDA and registration in registers of defaulters, therefore, in our view, represents another coercive means to collect the debt, which implies offense to the social function of the company, private property, good faith, and the principle of morality. They also offend the principles of reasonableness and proportionality, as well as the principle of least burdensomeness.

In addition, in view of the presentation of a suitable guarantee, there is no legal provision that the effects of suspension of enforceability of the tax debt are exclusive to the scenarios contained in the CTN.   There is no prejudice to the tax authorities, since the debt is fully secured.

Despite these precedents, the discussion is far from being closed, since there are strong arguments that support the impossibility of protesting the CDA and registration in Cadin, based on credit guaranteed by performance bond and/or bank guarantee. In any case, it is important to follow the position of the Judiciary, especially the future decisions of the STJ on the subject.

^[1] REsp 1.796.295/ES, REsp 1.775.749/SC, internal interlocutory appeal in the motion for clarification in REsp 2.001.275/PB.

^[2] Motion for clarification in REsp 1,923,413, REsp 1930057; REsp 1.930.057; and AREsp 2.159.394.

Category: Real estate

The new version of the Minha Casa, Minha Vida program, instituted by Executive Order 1,162/23 was recently regulated by Decree 11,439/23, replacing the Casa Verde e Amarela program established under the previous government.

The new program aims to serve up to two million families by 2026. Key objectives include:

• expand the supply of housing for low-income populations in urban and rural areas;
• resume and finalize the stopped works, with requalification of housing units currently irregular and use of public resources already invested; and
• support the sustainable development and modernization of the program, to expand its reach and increase the quality of production of new households.

One of the attractions for investors in the sector was the broadening of the target audience compared to previous parameters. The new Minha Casa, Minha Vida program will serve families living in urban areas with a gross monthly income of up to R$ 8,000^[1] and in rural areas with an annual gross income of up to R$ 96,000.^[2][3] Among the three urban bands, we highlight the increase in the gross family income ceiling of Urban Band 1 from R$ 1,800 to R$ 2,640, a significant increase of 47%. It is speculated that the government subsidy for Urban Band 1 will reach 95% of the property price.

Regarding the economic subsidy of the program, Ordinance 146/23 of the Ministry of Cities increased the previous limit as follows:

• R$ 140 thousand for operations with funds from the Residential Lease Fund (FAR) and the Social Development Fund (FDS); and
• R$ 60 thousand for operations of the National Rural Housing Program (PNHR).

The grant offered by the Federal Government will provide savings for construction companies on the commercial costs of a standard project. The new limits will include expenses for building, construction of a septic or wastewater treatment solution, implementation of technical assistance, social work, as well as amounts related to activities carried out by the operational manager and financial agent.

The new Minha Casa, Minha Vida program also provides, in addition to the sale, the possibility of assignment, rental, lease, and donation of housing units to beneficiary families and/or federal entities, whether or not financed. The transaction may be carried out under a subsidized or unsubsidized contract, in whole or in part, without prejudice to other compatible legal transactions, which enhances the range of real estate transactions available.

In order to give more agility and flexibility to operations carried out through the new program, the following amendments were made to Federal Law 6,015/73 (Public Records Law). With the change, for public registry purposes, it will no longer be necessary to have witnesses and notarize private contracts formulated by financial institutions that operate with real estate credit and are authorized to enter into private instruments with the nature of a public deed.

Law 14,382/22 has also been amended to allow electronic statements relating to real estate produced by financial institutions dealing in real estate credit to be submitted to the electronic real estate registry. These institutions will have the obligation to file the contractual instrument in a separate file, dispensing with intermediate agents and procedures. This makes real estate transactions less costly and more convenient.

The executive order will have until June 13, 2023, to be converted into law, which will depend on approval by the Chamber of Deputies. However, the rules that do not require subsequent regulations are already in force and effective. Although there are still rules to be defined and regulated, the possible impact for construction companies operating in this field is promising. It is worth monitoring possible updates in the coming weeks.

^[1] The following bands are considered for families living in urban areas: a) Urban Band 1 - gross monthly family income up to R$ 2,640; b) Urban Band 2 - gross monthly family income from R$ 2,640 to R$ 4,400; and c) Urban Band 3 - gross monthly family income from R$ 4,400.01 to R$ 8 thousand.

^[2] Families living in rural areas are considered to be the following: a) Rural Band 1 - annual gross family income up to R$ 31,680; b) Rural Band 2 - annual gross family income from R$ 31,680.01 to R$ 52,800; c) Rural Band 3 - annual gross family income from R$ 52,800.01 to R$ 96 thousand.

^[3] For the purposes of inclusion in the income brackets, the calculation of the gross family income value will not consider the temporary benefits of an indemnity, social assistance, or social security nature, such as sickness benefits, accident aid, unemployment insurance, Continuous Cash Benefit (BPC), and benefits of the Bolsa Família Program or others that may replace them.