Category: Infrastructure and energy

The National Electric Energy Agency (ANEEL) recently concluded Public Hearing No. 37/2017, which sought support for the proposed alteration of the power limit for minigeration distributed from a water source, as provided in Normative Resolution (REN) No. 482/2012.

REN 482/2012 established the legal framework for distributed generation in Brazil and created the Electric Energy Compensation System. It allows a consuming unit to receive credits from the local distributor for the surplus energy it produces based on renewable sources, qualified cogeneration, or hydroelectric sources. This credit can be used to offset future debits in the energy consumption account.

Despite industry criticisms that the amendment in question should be made within a broader review of the regulatory framework of the Electric Energy Compensation System, the public hearing resulted in the publication of Normative Resolution No. 786, of October 17, 2017.

The changes introduced by REN 786/2017 are summarized in amendment 2 of article 2 of REN 482/2012, in order to: (i) increase the installed capacity of power plants from renewable sources to between 75 kW and 5 MW, differentiation between hydroelectric sources and other renewable sources, connected in the distribution network through facilities of consuming units; (ii) prohibit classification as microgeneration or as distributed minigeration of generating plants that have already been registered, granted, licensed, or authorized, or have entered into commercial operation or have their electric energy accounted for under the CCEE or committed directly with a concessionaire or permission holder of electric power distribution, and it is up to the distributor to identify these cases; and (iii) ensure that the foregoing prohibition does not apply to projects that have filed a request for access prior to the publication of this regulation, pursuant to Section 3.7 of Module 3 of Prodist (Procedures for Distribution of Electric Power in the National Electric System).

Considering only the proposal to change the limits imposed on hydroelectric power plants in order to standardize them with other renewable sources, it is important to say, first, that the concept of a power plant in the form of distributed mini-installed capacity was originally characterized by installed generation capacity of greater than 100 kW and less than or equal to 1 MW for hydroelectric sources. However, REN 687, of November 24, 2015, extended the power range to 75 kW up to 3 MW for hydroelectric sources. The same resolution also sought to ensure legal certainty by providing for a revision of REN 482/2012 by December 31, 2019, the main reason for the criticisms presented at the public hearing.

The proposed regulatory change followed the legislative change implemented by Federal Law No. 13,360/2016, which amended article 8 of Federal Law No. 9,074/1995 by increasing from 3 MW to 5 MW the power limit of concessions, permissions, or authorization, a scenario that would require mere notice to the Ministry of Mines and Energy and Aneel.

However, despite the legislative effort to facilitate the development of electric power generation projects of up to 5 MW, reinforced by Federal Law No. 13,360/2016, popular participation in Public Hearing No. 37/2017 pointed to the need to maintain regulatory stability. Of the 91 contributions received from 51 stakeholders, private individuals, and public entities, 50 of them emphasized this topic, trying to avoid having a change in the potential of admitted hydroelectric power be characterized as urgent. The idea was to await the broader reform of the Electric Energy Compensation System, scheduled for 2019.

In reviewing the contributions presented at the public hearing, Distribution Services Oversight Board - SRD/Aneel concluded, as expressed in Technical Note No. 0098/2017-SRD/Aneel, of September 6, 2017, that: (i) despite the need for mere registration of a generation project of up to 5 MW established by the new wording of Federal Law No. 9,074/1995, the Electric Energy Compensation System created by REN 482/2012 would not be bound to the power limit defined for waiving a grant; (ii) raising the hydroelectric distributed minigeration limit does not require distributors to adapt their systems to accommodate such plants or reduce their market; and (iii) it is necessary to create transition rules for existing or registered power plants or those that have had their energy accounted for in CCEE or committed to distributors that are not entitled to fit within the systematic framework brought in by REN 786/2017.

Other issues that went outside of the topic of the public hearings were disregarded, totaling 37% of the contributions submitted to ANEEL.

In short, the priority given to meeting specific demand by changing the power dedicated to distributed minigeneration has gone beyond the expectations of some industry participants and interested parties as regards the moment and form of implementation. They preferred for this change be made in the context of a broader reform of the regulatory framework of the Electric Energy Compensation System. Broadly speaking, however, the change pleased many participants engaged in distributed generation projects.

Category: Tax

Since the Federal Police launched Operation Zelotes in 2015, which unveiled corruption cases in the Administrative Tax Appeals Board (CARF), the body has undergone several institutional changes, such as a change in its directors, changes in internal rules, reduction in number of panels, among other measures that sought to reformulate the body's procedure for deciding cases.

Even with all the changes made in favor of technical improvement in CARF, the manner of conducting proceedings and some of the procedures provided have been questioned. A significant increase in lawsuits requesting a stay of judgments in administrative proceedings and modification of decisions on the grounds of procedural errors was experienced.

This becomes very clear when analyzing the numbers. The number of applications for writs of mandamus filed in 2014 against CARF's acts was insignificant. However, in 2016, after the restructuring of the agency, approximately 150 applications for writs of mandamus were filed to challenge a variety of administrative acts. And from January to August of this year, there have been more than 180 applications for writs of mandamus.

The president's casting vote and the lack of parity between representatives of the Tax Authority and taxpayers in the composition of the panels are the points most often raised in hundreds of suits filed.

According to the taxpayers’ arguments, there is a breakdown of equal treatment under the law in the decisions since the casting vote is given to the chief judge of the panel, who is, by legal determination, always a representative of the Tax Authority. Supported by an empirical survey by the Tax Studies Center of the Getúlio Vargas Foundation on CARF's decisions issued until June 2016, taxpayers demonstrate that almost 100% of tax assessments are upheld by the Superior Chamber of Tax Appeals when the so-called casting vote comes onto the scene, thus evidencing that the director representing the Tax Authority almost always stands against the taxpayer. Faced with relevant questioning on the part of the taxpayers, the Brazilian Bar Association (OAB) filed Direct Action of Unconstitutionality No. 5,731 in order for the Federal Supreme Court to rule definitively on the constitutionality or lack thereof of the casting vote. The suit is still awaiting a decision, but it already reflects a possible need to change CARF's recent internal rules, which have clearly caused distortions in the decisions. Regarding this same issue, the Federal Public Prosecutor's Office submitted a brief favorable to the taxpayer seeking the granting of an injunction in writ of mandamus No. 1002344-58.2017.4.01.3400. This may reinforce the need for reform of CARF's internal rules of procedure. Failure to comply with the parity between the directors representing the Tax Authority and the taxpayers, provided for in article 23 of the CARF's internal rules, is also the subject of controversy. The absence of directors representing taxpayers in CARF makes the composition of some groups unequal. In the Judiciary, taxpayers argue for the observance of articles 18 and 24 of CARF's internal rules, which provide for the appointment of alternates in cases of vacancy, impediment, interruption of office, leave, or absence of a director. On this point, it is known that the Judiciary has already granted preliminary injunctions favorable to taxpayers, ordering a stay of CARF's judgments in which there is no composition of parity until an alternate representing the taxpayers is summoned. Regarding this issue, the confederations, which are responsible for nominations to CARF to fill the vacancies of directors representing taxpayers, suggest that the recent decision to bar CARF's directors from having the right to practice law has diminished the number of professionals interested in serving at the body. In conclusion, it is found that the Judiciary is exercising true oversight over the legality of the administrative acts, guaranteeing the effective application of the principles that guide the public administration and guarantee to taxpayers legal certainty in decisions on their tax claims. The current scenario, of constant interventions by the Judiciary in CARF’s decisions, suggests the need for changes in that administrative body. With the stay of judgments and reforms of decisions, CARF loses its strength and still more cases pending judgment accumulate, contrary to the Tax Authority's interest in collection.

Category: Capital markets

Like what occurred in the Industrial Revolution in the nineteenth century, the world is now facing a new revolution, where technology has transformed traditional ways of working, moving, and living, at a speed that is difficult to follow.

Just as Uber and AirBnB have shockingly transformed the transportation and hospitality markets, with costs and practices never before offered, the same is now envisaged for business financing options. Although it is a historically conservative area, as it deals directly with individual savings, the market has increasingly sought alternative, simplified, and cheap financing solutions.

In this context, crowdfunding arose. In Brazil, crowdfunding was recently regulated by the Brazilian Securities Commission (CVM) through Ruling No. 588/17. It is a simplified form of access to the capital markets for small companies, not listed on the stock exchange, through the issuance and public distribution of securities via an electronic investment platform. CVM has eliminated the need for prior registration and, thereby, exempted the issuer from various formalities and distribution costs.

However, the biggest crowdfunding revolution has to do with other aspects: the potential for penetration into a much wider investor market and the risk that this investment might pose to investors.

Unlike offers made by private equity or venture capital funds (through FIPs), where only the most sophisticated investors are admitted, crowdfunding can reach investors through very easy to use electronic platforms, retail investors in general, including small, non-sophisticated investors who do not participate in the universe of public offerings in Brazil.

As far as investment risk is concerned, crowdfunding enables non-sophisticated investors to contribute resources to developments that are still very premature, where there are many uncertainties about their viability and success. If, on the one hand, it creates an opportunity for return at multiples more attractive than other traditional forms of investment, on the other hand, there is also the real risk of total loss of the capital invested.

As a measure to mitigate this risk of capital loss, CVM has set the maximum amount of investment by an unsophisticated individual investor to only R$ 10,000 in several crowdfunding offers carried out per calendar year.

While it is recognized that this limitation is intended to protect small investors, it can be argued that it also inhibits product development and possibly risk mitigation itself. After all, if individual investors could make a bigger investment, they would be able to diversify their portfolio among various smaller companies (with different projects, entrepreneurs, and industry sectors), thus reducing the risk of total loss of the consolidated investment.

By limiting investment to only R$ 10,000, CVM induces concentration into one or a few ventures, possibly reducing the interest of investors with this profile in allocating part of their capital in startups and similar projects.

There is, therefore, doubt about crowdfunding's real ability to expand its market penetration, with the risk that it may become a simplified tool for more sophisticated investors traditionally accustomed to the universe of venture capital and private equity and for whom the limit of R$ 10,000 does not apply. It is an issue that will only be answered with the passage of time and the consolidation of the product in our market.

This problem has been observed in more developed markets such as the United Kingdom and the United States of America, where crowdfunding has served as a platform for more sophisticated players.

Category: Tax

May costly tax benefits be canceled at any time and with retroactive effect? A remarkable case in this respect, which we discuss in depth in this article, involves benefits granted on the basis of the legislation that created the now extinct Sudene (Northeast Region Development Authority), succeeded by Adene (Northeast Region Development Agency) and, later, by Nova Sudene.

Created in 1959 by Law No. 3,692, Sudene's purpose was, since its inception, to implement an auspicious Northeast Region development plan, aiming to reduce regional and social inequalities, which was also worth mentioning in article 3, III of the 1988 Federal Constitution: "The fundamental objectives of the Federative Republic of Brazil are: (...) III - to eradicate poverty and substandard living conditions and to reduce social and regional inequalities.”

In 1998, Law No. 9,690 changed the area of ​​coverage of Sudene to also include within the concept of the "Northeast Region" the Jequitinhonha Valley and the North of the State of Espírito Santo.

After three years, Provisional Presidential Decree No. 2,156/2001 extinguished Sudene and created Adene with the same nature as a federal autonomous entity, giving again a new format to the so-called "Northeast Region" and including in the priority area the State of Espírito Santo and the Mucuri valley, in the State of Minas Gerais, among other municipalities.

Six years later, in a new response by the legislator, Complementary Law No. 125/2007 extinguished Adene and created Nova Sudene, once again changing the area to receive priority treatment, called by law the "Northeast Region."

Nova Sudene's area of ​​activity is different from all others, as the Municipality of Governador Lindenberg only became part of the Regional Development Plan with Provisional Presidential Decree No. 2,156/2001, remaining in the Nova Sudene configuration, in addition to several new municipalities of the State of Minas Gerais that were incorporated.

It is important to clarify that all reports that grant benefits after the termination of Sudene were issued by their Inventories, that is, not only the reports prepared for the companies located in the south of the State of Espírito Santo, but also all those issued to beneficiary companies located in the Northeast Region, which followed a similar form and procedure and were promulgated by the same competent authority.

The Inventory was created by the Ministry of National Integration when Adene still existed. Therefore, Sudene and Adene never coexisted. It was the Inventory that issued all reports for grants for Adene. The agency itself has never even questioned the competence of Sudene’s Inventory to issue reports, which were issued on the basis of the two provisional presidential decrees, in particular on article 1, paragraph 4, of Provisional Presidential Decree No. 2,199-14/2001, already transcribed above, and articles 1, 2, 3, I, and 11, paragraph 2, of Provisional Presidential Decree No. 2,156-5/2001, which are from exactly the same day.

The activity of interpretation presupposes differentiating prescriptive statements conveyed by laws from the concept of a legal norm. To interpret is nothing more than to extract or construct the content, meaning, and scope of legal norms based on the contact of the interpreter with the legal texts.

There can never be a consideration or interpretation of a legal rule decoupled from the other rules that are part of the legal system. In a certain sense, there cannot be any interpretation that is not systematic. It is positive law here and now, or considered at a given historical moment, taken fully into account, respecting its hierarchical structure of principles and rules.

A systematic analysis shows that Sudene, Adene, and Nova Sudene succeeded in time without overlapping functions, since in reality they had the same nature as an autonomous entity of the federal government.

Whether called an authority or agency, the primary purpose of these governmental entities has always been to promote the sustainable development of the Northeast Region. All of them fulfilled the constitutional design provided for in article 3, item III, to eradicate poverty and marginalization and reduce regional and social inequalities, as well as the provisions of articles 170, VII, 151, I, and 43 of the Federal Constitution.

It is important to note that the physical area of ​​the nine states that make up the Northeast Region of Brazil was never confused with the legal design of the area covered by these entities, ever since Sudene was created. The change in name of these entities is absolutely irrelevant. What has always been sought was "to study and propose guidelines for the development" of a special DNA, greater than those nine states of the federation.

Over time, at the initiative of the legislature, Sudene has grown or shrank in size in accordance with the need to protect human beings in the course of developing its action plan.

The Northeast Region development fund, of an accounting nature, created by article 3 of Provisional Presidential Decree No. 2,156/2001 and to be managed by Adene, with the purpose of securing funds for investments in the priority region, established that at least 3% of the funds ​obtained should be applied in the State of Espírito Santo without any indication of a restriction on geographic location, whether in the municipalities in the north or in the south.

It is impossible to contemplate a regional development agency without the existence of a source of financial resources to support it. One thing is tied to the other. It is in function of a development plan that a fund of resources is created.

In turn, article 2 of article 11 of Provisional Presidential Decree No. 2,146/2001 stated that "Adene's area of ​​activity is defined in article 2 of this Provisional Presidential Decree," which included, without restriction, all the municipalities of the State of Espírito Santo.

With that being the case, how could article 1 of Provisional Presidential Decree No. 2,199/2001 be interpreted in such a way that only the municipalities located in the area of ​​the extinct Sudene, namely those in the northern region of Espírito Santo, obtain the tax benefit of up to 75% of the income tax and additional non-refundable amounts, calculated over operating surplus?

The entities, regardless of their given name, only succeeded each other in time, with constant and normal mutations in the area considered as deserving of priority treatment, in the terms advocated by the Federal Constitution.

With Provisional Presidential Decree No. 2,146/2001, once again, the semantic content of the word Northeast Region was changed. And by logical imposition it was no longer possible to issue grants of incentives for an area (that of the extinct Sudene) that was in disharmony with the area considered, under the current legislation, as a priority and legitimate part of a regional development plan.

Therefore, it would be illegal not to issue grants of incentives establishing for tax benefits for companies located in the southern region of the State of Espírito Santo in order to prove compliance with the requirements established by law, since the activity of the Administration is bound.

The incentive modality treated here is the basis for the promotion of areas chosen by the legislator as lacking a development plan in order to combat social and regional imbalances, and this kind of benefit is only granted to companies that prove they meet predetermined conditions.

But that is not all. In addition to the above conditions, there is still a series of onerous conditions established to be respected by the companies after the concession, such as: (i) prohibition on distribution to partners of the value of the tax that is no longer collected due to reduction or exemption; and (ii) the need for the company to establish a capital reserve, which can only be used to absorb losses or to increase capital stock.

In addition, the benefits have a certain term of validity. These are, therefore, exemptions that impose requirements granted for a certain period of time.

Even if one were to insist on the allegation that the reports issued under Adene are invalid, they could no longer be subject to revocation or annulment years after their receipt by beneficiaries. This is because the STF's own Precedent 473 does not apply to the case in the manner intended by the adverse party, since, as seen, it has had legal consequences in the sphere of bona fide third parties who assumed bilateral obligations with the state, and these subjective rights must be respected.

Moreover, since it is a benefit that comes with requirements, revocation and annulment are forbidden by reason of preclusion of the possibility for the Administration to choose one or another interpretation, even if such behavior is the measure that seems to the Administration to be the most convenient and timely discretion.

On the other hand, even if it could be considered an error on the part of the Administration, that is, that the interpretation initially adopted was not the best or the most appropriate one, it is already well known that an error of law cannot serve as grounds for annulment of administrative acts (articles 145, 146, and 149 of the National Tax Code - CTN), which, in this case, are linked. Positive law is assumed to be known to the Administration.

One must insist, in the name of the great principle of legal certainty affirmed in article 2 of Law 9,784/99: even if the reports were rife with illegality, it would be forbidden for the Administration to cancel them, thereby imposing the duty to abide by them. Whoever cancels grants of incentives for benefits that also impose requirements three years after they were enjoyed may end up doing so at the end of the total period of enjoyment of the incentive, with retroactive imposition of interest, monetary correction, and fines. The legal certainty and good faith of the beneficiaries would be compromised. Under such conditions, no company would assume requirements for benefits and live with the element of surprise in the event of future cancellation.

The annulment of the grants of incentives also implies an offense against articles 178 and 179 of the CTN, given that it is an incentive (a) for a certain period of time and (b) granted under conditions that impose requirements.

The impossibility of invalidating the grants of incentives for conditional benefits and for a certain period ensures the very survival of this kind of incentive, thereby protecting, by way of indirect consequence, the public interest.

Category: Labor and employment

Ordinance No. 1,129 of the Ministry of Labor and Employment (MTE) has caused real upheaval. On the one hand, the new rules have received praise, since they have abandoned inaccurate definitions from the previous rules, conferring on market players greater legal certainty and on companies, the possibility of properly defending themselves in investigations. On the other hand, legal irregularities and political opportunism are raised, for which reason the Federal Public Prosecutor's Office (MPF) and the Public Prosecutor's Office for Labor Affairs (MPT) have recommended revocation of the Ordinance. These are also the arguments underlying the Allegation of Non-compliance with a Fundamental Precept (ADPF) filed by the party named Rede Sustentabilidade and the Direct Suit of Unconstitutionality (ADI) brought by the Democratic Labor Party (PDT), both of which shall have their opinion drafted by Justice Rosa Weber, of the Federal Supreme Court. On October 24, Weber granted the petition for a preliminary injunction in the ADPF, ordered full suspension of Ordinance No. 1,129, requested information from the Minister of Labor and Employment, and subpoenaed the Attorney General's Office and the Solicitor General's Office to express their opinions. The decision is subject to a referendum by the Plenary Session of the Federal Supreme Court, but already produces erga omnes binding effects, that is to say, all courts and people must observe its terms, even if they are not parties to the ADPT. Another effect of the preliminary injunction is the revival of the articles of Interministerial Ordinance No. 4, of May of 2016, which had been revoked by Ordinance No. 1,129. Among them are those that establish a) the jurisdiction of the Department of Labor Inspection (SIT) to include the name of employers in the "dirty list" of slave labor; b) the list of minimum obligations that must be included in consent decrees (TAC) signed with the MTE; c) obligatory notice to the MPT to allow its participation in the execution of TACs; d) the rule that even if a TAC is signed, the employer is registered in the "dirty list", although for a shorter period than those that do not sign the consent decree; and e) updating the "dirty list" at any time. With the suspension of Ordinance No. 1,129: a) the definitions of slave labor for the purposes of inclusion in the "dirty list" are those provided for in Normative Instruction No. 91 of SIT; b) it is no longer necessary that inspection by labor tax auditors have the police authority present, who will file a Police Report; and c) notices of infraction need not necessarily contain photographs that show each irregular situation found; copies of all documents that demonstrate and prove forced labor, exhaustive working hours, degrading conditions or work in conditions analogous to slavery, nor a detailed description of the situation found, with a mandatory approach to the existence of armed security other than for the protection of the property, impediment to workers’ movement, servitude by debt, and the existence of forced or involuntary labor by the worker. All these innovations had been brought in by the suspended ordinance. Following Justice Weber's decision to suspend the Ordinance, SIT released the latest "dirty list" of slave labor on the MTE’s website on October 27. The inclusion of an employer in this list may imply damage to its image, restriction on obtaining financing from financial institutions, breach of contracts with commercial partners whose compliance rules prevent them from maintaining relationships with listed companies, and devaluation of the company’s shares, among other adverse impacts on operations and business.

Category: Corporate

The Brazilian Corporation Law (Law 6,404/1976) provides, in article 4, for the possibility of incorporation of publicly-held or privately-held corporations. These corporations are distinguished from the other companies provided for in the Brazilian legal system in several respects, especially due to their for-profit nature, that is, by the fact that generating profits takes priority over the personal characteristics of their shareholders.

On the other hand, and contrary to what happens in companies not subject to delectus personae, we see that companies subject to delectus personae, as is the case of limited liability companies, are generally characterized by their intuito personae nature, which takes into consideration the people who are its partners and who, in theory, will contribute their skills and personal characteristics to the success of the company.

However, the Brazilian reality shows the use of privately-held corporations by small groups of people, usually a family, to achieve various goals, among which are tax planning, succession, or the greater freedom and legal security that this type of company offers. In such companies, personal relationships among shareholders or their contributions to the corporation are relevant, and the desire to form a corporation (affectio societatis) stands out as the core of the corporation. The intuito personae nature, traditionally attributed to companies subject to delectus personae, predominates, and the "capital" element of the institute of anonymity moves into the background.

In this context, courts ran into the need to apply the Brazilian Corporation Law differently for publicly-held and privately-held corporations, taking into account their individual characteristics. Thus, judgments on corporate matters involving corporations with an eminently for-profit purpose are very different from judgments on matters for corporations where affectio societatis prevails.

Based on this, the Superior Court of Justice (STJ) was obliged to formulate innovative understandings in relation to corporations with privately-held capital, extending to them application of the legal regime characteristic of limited liability companies, as provided for in the Brazilian Civil Code (Law No. 10,406/2002), which is characterized by predominance of affectio societatis.

On this point, although there is no corresponding provision in the Brazilian Corporation Law, we would like to emphasize the understanding brought in by the STJ in order to consider the breakdown of affectio societatis (i.e., the lack of willingness to remain associated) as a cause for partial dissolution of privately-held corporations, as per precedents of that court (e.g., REsp 1.321.263/PR, EREsp 1.079.763/SP, EREsp 111.294/PR, REsp 917.531/RS, REsp 247.002/RJ, and REsp 1.129.222/PR). It should be noted that the Brazilian Corporation Law only provides for the mechanism of total dissolution of the corporation in the event that its shareholders do not wish to continue with its corporate activities.

Based on the principle of social function and preservation of the company contemplated in the Federal Constitution (articles 5, items XIII and XXIII, 170, items II-IX, and the sole paragraph of article 186) and established in the Company Reorganization Law (Law No. 11,101/2005, article 47), partial dissolution of privately-held corporations became widely applied by Brazilian courts, with support from the STJ.

Accordingly, taking into account the social function of the company, one avoids completely dissolving it, factoring in the interests of the various stakeholders involved: partners, workers, suppliers, and society itself. Undoubtedly, it is a better solution than the legally envisaged alternative, since total dissolution would lead to the closing down of the corporations's activities, thereby leaving to their own luck employees, suppliers, the public and even the shareholders who wish to maintain the company’s productive activities.

The main argument that has been used to request partial dissolution of privately-held corporations is supported by the possible existence of the intuito personae nature of these companies, since the choice of this type of company may not necessarily be restricted to the pursuit of profit, but based on attributes capable of giving its participants certain benefits.

In this sense, the STJ has constructed the understanding that partial dissolution of a privately-held corporation is possible in two scenarios: (i) breaking of the affectio societatis; and (ii) lack of profit or non-distribution of dividends for a long period. However, these scenarios are not exhaustive: in order to grant partial dissolution, all other aspects of the case must also be observed.

Therefore, partial dissolution of a privately-held corporation, due to the absence of any provision expressed in the Brazilian Corporation Law, must be pled before the Judiciary and, therefore, determined by means of a judgment.

Category: Labor and employment

Law No. 12,761/2012 established the Worker Culture Program and created the cultural voucher, which was later given a regulatory framework by Decree No. 8,084/2013 and establishes that joining the program and granting this benefit are optional for employers.

The program seeks to guarantee, expand, and foster the access of Brazilian citizens to cultural goods and services, thereby providing the population the ability to fully exercise its social rights to culture and stimulating the generation of work, income, and employment through the democratic development of the culture economy.

The benefit of the cultural voucher consists of a monthly amount of R$ 50.00, cumulative, to be provided by the employer to workers with an employment relationship. It is not classified as salary and is not factored into remuneration for any effects. Therefore, it is not subject to social security contribution and is not included in the income tax calculation basis or for FGTS deposits.

The program is primarily intended for employees who earn up to five minimum wages. Those who have remuneration higher than this limit can only receive the cultural voucher if the company guarantees the service to all employees with lower remuneration, according to article 7 of Law No. 12,761/12.

The provision of the cultural voucher will depend on prior acceptance by the worker, who may reconsider his decision at any time. For this reason, companies that choose to provide this benefit must ask employees for their written acceptance. In this document, it is advisable for companies to state the value of the benefit and also whether any portion of it will be deducted from employees opting in, since article 15 of Decree No. 8,084/2013 allows employers to discount it from employee’s remuneration, and article 16 requires the discount in the following percentages:

I) Article 15 - Workers with remuneration up to five minimum wages:

• Up to one minimum wage - 2%.
• Above one and up to two minimum wages - 4%.
• Above two and up to three minimum wages - 6%.
• Above three and up to four minimum wages - 8%.
• Above four and up to five minimum wages - 10%.

 
 II) Article 16 - Workers with remuneration of more than five minimum wages:

• Above five and up to six minimum wages - 20%.
• Above six and up to eight minimum wages - 35%
• Above eight and up to ten minimum wages - 55%.
• Above ten and up to twelve minimum wages- 70%.
• Above twelve minimum wages: 90%

It is important to clarify that the benefit is intended for the worker, called a user, and preferably must be provided by a magnetic card, and payment in cash is prohibited.

In order for the user/employee to be entitled to the benefit, the employer (company providing the benefit) must register in advance with the Ministry of Culture, which authorizes the employer to distribute cultural vouchers to its employees. The voucher will be produced and marketed by operating companies, which are legal entities registered with the Ministry of Culture and authorized to operate in this industry, and should be used at accredited establishments.

By fiscal year 2017, calendar year 2016, amounts spent on purchasing cultural vouchers could be deducted from the Corporate Income Tax (IRPJ) due from the beneficiary company taxed using the actual profit tax regime. The deduction was limited to 1% of income tax due based on actual quarterly profit or actual profit calculated in the annual adjustment.

Considering that the validity of this tax incentive has expired, Draft Bill No. 6233/2016, which intends to extend it until 2021, is pending before the Chamber of Deputies. The procedure is conclusive, that is, the draft bill will be voted on only by the committees designated to review it, thereby dispensing with a resolution by the full chamber. It loses its conclusive nature, however, if there is a dissenting decision among the committees or if, regardless of whether it is approved or rejected, there is an appeal signed by 51 deputies seeking a review of the matter by the full chamber.

On May 3, 2017, the Cultural Committee unanimously approved the opinion, which will now be reviewed by three committees: Finance and Taxation, Constitution, and Justice and Citizenship.

The benefit may be terminated by the employer at any time, as it is not incorporated into the employee's remuneration for any purpose, as provided for in item I of article 11 of Law No. 12,761/12.

Category: Labor and employment

On November 14, 2017, three days after the Labor and Employment Reform coming into effect, President Michel Temer issued a Provisional Measure amending the original bill sanctioned on July 14th, 2017.

Complying with the commitment assumed during the legislative process of approving the Bill of Law, the Provisional Measure issued by President Temer addresses the main controversial changes of Federal Law No 13.467/2017, which caused a national uproar over the last 3 months.

Among those points, we highlight the following ones:

1. Amendments to the rules regarding the calculation of compensation of non-material damages, aiming at unlinking compensations from employees’ salaries;
2. Possibility of implementing 12x36 shifts solely through collective bargaining agreements, except in the health sector, in which it may be individually negotiated;
3. Amendments to the rules regarding work of pregnant women, limiting the possibility of working under unhealthy conditions;
4. Amendments to the rules regarding the hiring of independent contractors in order to prohibit the imposition of exclusivity obligation;
5. Specific regulation of intermittent employment contracts, in order to cover open gaps of the original bill;
6. Clarification of the duties and activities that will be performed by the commission of employees on their representation; and
7. Implementation of limits for the payment of allowances and premiums without salary nature.

Although the Provisional Measure immediately comes into effect as from its issuance and publication (i.e. as of November 14, 2017), its transformation into a Federal Law relies on the approval by the Legislative. Therefore, Brazilian National Congress will have 60 days, renewable once for equal term, to approve, amend or reject the Provisional Measure presented by the President.

In the event of such voting taking longer than 45 days, the Provisional Measure will lock up the voting agenda of the house of representatives, which can only resume its regular schedule after voting the Provisional Measure.

After being approved by the Brazilian National Congress, the Provisional Measure returns for the final sanction by President Temer, after which the Provisional Measure will come into effect as a Federal Law.

On the other hand, in the event of being rejected by Brazilian National Congress or not approved within 120 days, Brazilian congressmen will be responsible for drafting a legislative decree to settle the effects of the Provisional Measure for the period it was effective.

The Provisional Measure maintained the non-obligation of paying union dues to labor unions. Thus, after the Labor and Employment Reform, union dues will continue not being mandatory.

Machado Meyer Advogados will continue following the development of this matter and its possible outcomes.

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Category: Labor and employment

Territorial jurisdiction in the Labor Courts, that is, the place where the labor claim must be filed, is defined based on the location of the provision of services, with the two exceptions provided for in paragraphs 1 and 2 of article 651 of the Consolidated Labor Laws (CLT), regarding employees who are commercial or traveling representatives and employees who carry out their activities at a place other than where they were hired. The current CLT provides for the possibility of submitting a defense to jurisdiction and its form of procedure, but it is silent regarding the form of arguing lack of jurisdiction with respect to the Court to which the suit was assigned, that is, it does not specify whether the defense should be submitted in the defendant’s answer itself or in a separate motion or at what moment in time the allegation of lack of jurisdiction must occur, and for this reason the Brazilian Code of Civil Procedure (CPC) is applied secondarily, pursuant to article 76 of the CLT. The CPC of 2015, in its article 64, states that lack of jurisdiction, whether absolute or relative, must be alleged as a threshold issue in the defendant’s answer, thereby altering the rule of the previous code, according to which lack of jurisdiction should be presented in the form of a motion, submitted in a separate brief. This scenario, however, will be altered by the labor reform, since the CLT, with the enactment of Law No. 13,467/2017, will contain specific rules regarding the form, deadline for submission, and procedure for the defense of lack of territorial jurisdiction, bringing in provisions different from those set forth in the CPC and applied to date in Labor Procedure due to the omission in existing labor legislation. According to the new articles of the CLT, the defense of lack of territorial jurisdiction must be submitted before the hearing, within five days from the receipt of service of process by the respondent company and in a separate brief, which should explicitly state the existence of the defense, as amended by article 800 of the CLT: "Article 800.  If there is a defense of lack of territorial jurisdiction within a period of five days from service of process, before the hearing and in a brief that indicates the existence of this defense, the procedure established in this article shall be followed." In addition to the provisions mentioned above regarding the deadline and the form of, the labor reform establishes a new procedure for handling the defense of lack of jurisdiction in the labor sphere. According to a new rule, once the defense of lack of territorial jurisdiction has been submitted, the case shall be stayed until the defense is decided, and the judge shall summon the other parties to respond within the common deadline of five-days, scheduling a hearing for the production of oral evidence, if deemed necessary. After the decision on the defense of lack of territorial jurisdiction, the case will return to be processed as normal, with the designation of a hearing and submission of the defendant’s answer. In light of the provision for a stay in the proceeding pending a judgment on the defense, it is important to note that any allegation of relative lack of jurisdiction for merely dilatory purposes may be considered litigation in bad faith, and the company may be subject to a fine. In this context, it is of the utmost importance that companies be especially attentive to the new deadline for filing a defense of lack of territorial jurisdiction, which is short and begins with the receipt by the company of service of process for the labor claim, in order to avoid preclusion of the opportunity to argue it.

Category: Infrastructure and energy

Presidential Provisional Measure No. 800/2017, popularly known as the “Highways PM,” establishes rescheduling of investments as a new regulatory tool for federal highway concession contracts. Subject to future regulation by the Ministry of Transport, Ports, and Civil Aviation, the measure seeks to solve the problem of concentration of investments in the first years of the concession, in the light of the fall in demand for road services. The problem is especially evident in the contracts of the 3rd Concessions Stage conducted by ANTT (National Ground Transportation Agency). Per the template for these contracts, the programming of the investments was oriented mainly based on the delivery of the works in the short term. The supervening lack of users suggests, however, that the financial structure of concessions should synchronize the investments with the factors affecting highways’ income generation, of which the cash flow serves the debt. Under this aspect, pursuant to Paragraph 8 of Article 1 of the PM, investments in segments with higher concentration of demand, determined based on ANTT technical criteria, should be prioritized in the rescheduling. The head paragraph is sufficiently clear in emphasizing, however, that rescheduling may not compromise the service level requirements and the technical parameters originally established in the concession contracts awarded to the concessionaires. The rescheduling instrument is a document that will establish a new investment schedule for concessionaires for a term of up to 14 years. Its execution is conditioned on a prior demonstration of the economic and financial sustainability of the project until the end of the term of duration of the concession contracts. In order for the instrument to be signed, the concessionaire must also express an interest in adhering to the financial rescheduling within one year from the date of publication of the PM. Once the administrative procedures have been completed, a contract addendum will be signed, informing the suspension of the investment obligations falling due and the corresponding fines. The silence on fines resulting from investment obligations overdue and in default leads to the interpretation that the rescheduling is not intended to waive breach of contract, but rather to prospectively consider the conditions for provision of service originally defined. By opting for the rescheduling investments, the concessionaires will be, under the terms of the PM, barred from filing for the concessions´ new bidding procedures, as provided for in Chapter III of Law No. 13,488/17. The remedies are, therefore, not cumulative. In addition, in spite of the change in the conditions and the time limits of the financial obligations imposed on the concessionaires, the PM imposes the maintenance of financial balance in the concession contract. To this end, it envisaged three contractual mechanisms, applicable on a case-by-case basis. These are: i) a rate and tariff reducer, ii) reduction in the contract’s term of duration, or iii) a combination of both. These mechanisms should be used so that the relationship between the charges and financial rights of each party to the concession contract remains unchanged, despite the new investment schedules. In view of this, the regulation of the Ministry of Transport will be essential in governing these mechanisms. The PM notes, in any case, that effective application of the rate and tariff reducer, which will culminate in reduction in the IRR (Internal Rate of Return) of the concessionaire, will be conditioned to the end of the new investment schedule. Only at the end of the renegotiated period, therefore, will the new remuneration rate be calculated based on the present value of the discounted amount, considering, via simulated model, immediate application of the reducer. In the event that the rescheduling agreement is not signed, after the addendum suspending the original investments, the effects of the latter will be interrupted and the adjustments and corrections originally provided for in the concession agreement will be applied whenever called for. In sum, the PM has great potential to avoid recurrence of concession contracts "devolution", already found to have occurred in at least one precedent within the scope of the 3rd Concessions Stage. Its technical bias may anticipate new sources or volumes of revenue and delay the fulfillment of certain investment obligations, which, from the perspective of financial realism, have become unfeasible under the current demand for road services.

Category: Infrastructure and energy

The Municipality of São Paulo approved its Privatization Plan, which had been awaited since the first months of the new administration, when ideas about the privatization of municipal companies and other assets, as well as concessions for services and public goods, were frequently disclosed (See First and Second Steps of the Municipal Privatization Program). Covered by Law No. 16,703/2017, sanctioned on October 4, the plan will be performed by the Municipal Committee for Privatization and Partnerships (SMDP).

Concessions and permits for the following public services, works, and assets are authorized: (i) a system for collecting urban passenger transportation fares; (ii) Paulista Municipal Market - Mercadão and the Kinjo Yamato Market; (iii) parks, squares, and planetariums; and (iv) removal and lots for vehicle parking. Some of these projects are already under study via expression of interest proceedings conducted by the municipality.

There was concern in predicting some conditions for the authorized granting. As an example, charging for admission to open areas of public parks is prohibited, as are any encumbrances to those organizing peaceful meetings held there. A right of preference, under equal conditions, is also assured to current licensees that operate at municipal markets and stores.

At the same time, the law provides for privatization modalities that may be adopted for other projects, which will in due time be authorized through other municipal laws. Among the modalities are atypical scenarios, such as cooperation and management of activities, goods or services, and, in a more generic and indefinite manner, other forms of partnerships and associations, corporate, and contractual relationships.

The plan authorized inversion of the phases for qualification and winning bids in public tender procedures for privatization, therein referencing the National Privatization Plan (Federal Law No. 9,491/1997). As a result, it was determined that the auction modality would be adopted when the privatizations involved the divestiture of an equity interest, sale or lease of assets, total or partial dissolution of companies, concession, permits, or authorization of public services, as well as encumbrances on municipal real estate.

In the process of structuring privatizations, receipt of contributions from interested parties is authorized, including through public hearings and consultations and expression of interest procedures from the private initiative.

In spite of the fact that the instruments of privatization thus far authorized do not impose any burden on the municipality, the law authorized the creation of accounting funds, restricted accounts, or other financial instruments seeking to provide public guarantees and any remuneration due to private partners. In addition, funds may be contributed to municipal companies or investment funds that have as their specific purpose the provision of guarantees of the monetary obligations assumed by the municipality as a result of partnerships created with private initiatives.

Permits will be formalized by means of the appropriate instrument. Although, at least at the municipal level, the debate regarding the nature of the act granting the permits has not been resolved, the law sought to mitigate its precariousness. In this sense, it was provided that, when a permit is revoked, the permit holder is entitled to compensation. Under the law, this indemnity corresponds to the portion of investments linked to the activity not amortized or depreciated according to an act or permit agreement instrument and the schedule previously approved by the municipality.

With regard to supervision of contracts signed to follow the plan, the municipality may engage auditing assistance, such as an independent verifier or other specialized persons. The novelty of the law, in this regard, was its provision that private partners in projects may directly contract the independent verifier, as long as the municipality gives its assent.

The intent to provide efficiency and align with best practices in the management of public services is especially demonstrated by the provision for an evaluation of the concessionaire's performance, as well as the permission to adopt guidelines, standards, and procedures for multilateral agencies or international financial organizations, when supported by financing instruments entered into with these entities.

The law also ratifies the application of alternative means of dispute resolution, such as mediation and arbitration, for concession agreements and other understandings entered into under the plan.

It is worth mentioning, finally, the changes introduced in Law No. 16,211/2015, which governs bus terminal concessions in the municipality. In addition to changes in the duration of concessions, terminal concessionaires are required to build social housing to be donated to the municipality for the purpose of social leasing. They will occupy the equivalent 5% of the computable constructed area of ​​the terminal or lot awarded, even if in a location outside the concession. For licensing the construction works or expansion of the terminals, the use of the Urban Intervention Project (PIU), a new urban policy instrument set forth in the Strategic Master Plan of 2014, is extended and replaces the specific urban development plan, thereby confirming the strategic role of PIU in municipal urban planning.

In short, the Privatization Plan reinforces the active role that the City Council also exercises in programs for private participation in municipal infrastructure and public services. Despite the Executive's leading role in structuring, bidding, hiring, and inspecting the projects, the law only confirms that, in São Paulo, some of these initiatives simply cannot do without special authorizations and legislative guidelines.

Category: Corporate

Limited liability companies are finally expressly authorized to issue preferred quotas. Normative Instruction No. 38/2017 of the Department of Corporate Registration and Integration (DREI), among other innovations, changed the wording of item 1.4, II, letter "b", of the Manual for the Registration of Limited Liability Companies to ensure this. The change should favor the structuring of certain businesses and assure to limited liability companies other investment and financing modalities for their activities, which will increase the preference given to the use of this corporate type, which has less legal formalities than a corporation. Preferred quotas are those that confer on their holders equity advantages and/or special privileges not attributed to other quotas, accompanied, in most cases, by limitations on voting rights. The possibility of issuing preferred quotas in limited liability companies has been controversial since the entry into force of the new Civil Code on January 10, 2002. Although the Civil Code is silent as to the possibility of issuing these quotas, some legal scholars have come to understand that the issuance of preferred quotas should not be compatible with the intuitu personae nature of limited liability companies. Responsible in the past for providing the guidelines to be followed by the boards of trade, the National Trade Registration Department (DNRC), upon issuing Normative Instruction No. 98/2003, expressly prohibited the issuance of preferred quotas by limited liability companies and as a result it used to be common practice to have the registration of corporate acts involving the issuance of these quotas by limited liability companies denied by the boards of trade. Only recently, with the issuance of Normative Instruction No. 38/2017 by the DREI, which replaced the DNRC, this understanding was modified. Said instruction also admitted, in limited liability companies, the possibility of quotas held in treasury, among others institutes previously restricted to corporations.

It is worth mentioning, however, that the DREI expressly established the supplementary regulation of limited liability companies by Law No. 6,404/76 (Brazilian Corporations Law), in the event of adoption of any institute specific to corporations, whether or not the company’s articles of association so provide. For the DREI is sufficient the existence of preferred quotas to characterize the supplementary regulation by the Brazilian Corporations Law.

Category: Labor and employment

Law No. 13,467/2017 amended article 2 of the Consolidated Labor Laws (CLT), which deals with the concept of an economic group, and included paragraph 3 which expressly states that the mere identity of partners does not constitute an economic group. To constitute a group, it is necessary to demonstrate that the following requirements have been met simultaneously: (i) integrated interest; (ii) effective communion of interests; and (iii) joint action of the member companies.

There is no doubt that the legislative amendment was intended to soften the many judicial decisions that applied the concept of an economic group broadly, such as by creating theories like the "de facto economic group," according to which it was enough that absolutely different companies operated at the same site and for the same economic purpose for the existence of an economic group to be decreed. It was also common to take the position that the communion of interests in positioning for market dominance and operating systems would call for application of the economic group theory.

This intent of the legislator was made quite clear in the opinion of Senator Ricardo Ferraço, which was presented to the Committee on Economic Affairs and approved by the Federal Senate:

“I must point out that many harmful judicial decisions invoke not the law, but principles or theories, such as the so-called 'structural subordination theory,' in order to innovate in the legal system. There is a profusion of suits recognizing employment relationships and labor liabilities between employees, of company A and, employer, company B, merely because B and A belong to the same productive chain. Are there any legal provisions for such judgments? No. Does this prevent judges from creating standards over and against Congress? Again, no. Legal certainty is a constitutional principle, and what it requires, among other guarantees aimed at people in general, is stability for the past, comprehensibility in the present, and predictability for the future.

(...)

Equally worthy of note is the wording of paragraph 3 in article 2 of the Consolidated Labor Laws given by the draft bill, which provides that the mere identity of partners is not enough to characterize an economic group; rather, one must demonstrate integrated interests, effective communion of interests, and joint action of the companies. The Labor Judiciary currently takes a different position, thereby generating great legal uncertainty since a company may have to bear the labor costs of another, which is an understanding that deserves to be confronted. Once again, we emphasize: legal uncertainty discourages formal employment and discourages private sector investment (which in turn is also a catalyst for jobs)."

However, although the legislative intent is correct from a legal point of view, not least because the CLT dates back to 1943 and corporate relationships/structures are increasingly complex and intricate, it is true that, in the manner that the amendment to article 2 of the CLT was drafted, companies will not necessarily have the much sought after legal certainty.

This is because, besides the fact that the expressions "integrated interest," "effective communion of interests," and "joint action" are indeterminate legal concepts, the current paragraph 3 of article 2 of the CLT may end up being applied in some situations where it would not be applied today, such as genuine franchise agreements.

The predominant understanding of the labor courts is in the direction of excluding any type of liability between franchisor and franchisee in cases where there is a true franchise relationship, under the terms of Law No. 8,955/94, that is, when the franchise agreement is not misapplied (where there is no interference and/or direct management by the franchisor in the franchisee's business).

However, considering the current definition of economic group brought in by Law No. 13,467/17, it is possible that the labor courts may begin to interpret franchisors and franchisees as belonging to the same economic group, in that they unequivocally maintain among themselves "integrated interest,” “communion of interests,” and "joint action."

In addition to franchise agreements, it is possible to cite as other examples of this situation trademark licensing agreements or even lease agreements, depending on how they are structured.

We note that the labor courts will ultimately be charged with interpreting the generic concepts contained in the new text of the law. The logical consequence will be the most varied of legal interpretations, until standardization is implemented by the Superior Labor Court.

In other words, the legal certainty intended by lawmakers and so necessary for companies to be able to carry out their economic activities predictably will not be achieved with the approval of the Labor Reform as easily as expected.

Nonetheless, it is true that Law No. 13,467/2017 has already made great progress by explicitly removing the establishment of an economic group based solely and exclusively on identity of partners, which, in many cases, entailed a real abuse of rights.

Category: Real estate

Federal Law No. 13,476/17, published on August 29, may have a major impact on the relationship between creditors and debtors in default when the asset is subject to a secured fiduciary sale in guarantee (alienação fiduciária em garantia). A result of the conversion of Provisional Presidential Decree No. 775/15, the new law amended the rules of Federal Law No. 9,514/97, which governs the Real Estate Financing System (Sistema de Financiamento Imobiliário) and established the fiduciary sale in guarantee of real estate in Brazil (AFG).

In its article 9, Law 13,476 is exhaustive in excluding the applicability of paragraphs 5 and 6 of article 27 of Law No. 9,514 in the case of properties given in guarantee in transactions resulting from credit line contracts. As a result, in cases of foreclosure on an AFG in transactions resulting from such contracts, if the amount raised after the second auction of the property is not sufficient to pay off the secured debt, the debtor will continue to be obliged to pay the remaining balance.

The credit line contract is used for transactions in which there is not only a single disbursement linked to a given loan/financing, as occurs in a conventional housing finance mortgage. Disbursements are carried out by means of releases (referred to in Law 13,476 as "derivative transactions") that are only given by the creditor if and when requested by the debtor. The debtor has a certain pre-approved credit line and decides whether or not to use it in its entirety. In addition, the conditions stipulated in the agreement must be complied with, for example, by issuing instruments (such as bank credit certificates - CCBs) representing each release of credit from the credit line, after the due establishment of security interests, including an AFG.

In turn, under a common real estate financing agreement the release of the amount the loan is carried out in a single disbursement to the debtor so that he can acquire a given real estate. The amount released by the financial institution is used as a means to pay off a transaction previously agreed upon with a third party (a purchase and sale, for example). On the other hand, in credit line agreements, the AFG is given as a means of securing new releases, without them being necessarily linked to the acquisition of a specific property or previously defined project.

The AFG was introduced in Brazil with a focus on housing finance. However, Federal Law No. 10,931/04 extended the scope of Law No. 9,514 to contractual obligations in general, which could also be secured through the use of AFGs. Because of its origin, therefore, Law No. 9,514 aimed at protecting the purchasers of properties for housing purposes, which is why paragraphs 5 and 6 of article 27 remained intact, as they protects the debtor since they guarantee the complete discharge of the debt, even if the amount raised after the second auction of the property is not enough to settle all of it.

The debate on the applicability of paragraphs 5 and 6 of Law No. 9,514 is not recent. The issue was already debated in a more direct and extended manner with the change introduced to the Civil Code by Law No. 13,043/14, which defined fiduciary property as collateral for real estate subject to the general rules applicable to pledges, mortgages, and antichreses. Included among such rules is the liability of the debtor for payment of the remaining balance of the debt in the event of "insufficient" funds raised in an auction. However, Law No. 13,043 noted that special legislation (for example, Law No. 9,514) would continue to apply when it was specific, as in the circumstance discussed here. This final provision for differentiated treatment in specific situations has generated such conflict with Law No. 9,514, in view of the possibility that that law continues to be applied due to its specificity.

Therefore, due to the recent novelty brought in by Law No. 13,476 and its express statement of applicability to credit line contracts, in addition to the conflict between Law No. 9,514 and Law No. 13,043, it is still not possible to determine whether it will eventually be applied extensively in cases where the credit line contracts and the respective AFG result from an instrument which is distinct from the one effectively opening the credit line.

In our understanding, the amendments to Law No. 9,514 brought in by Law No. 13,476 apply strictly to credit line agreements, and not to other types of financing agreements, especially real estate financing. In any case, it is important to assess the behavior and interpretation of the new rule by the courts in order to identify the practical scope of the new law.

Category: Competition

This year, the Administrative Court of the Administrative Council for Economic Defense (Cade) has already rejected 50% more M&A transactions than in the almost five-year period between 2012, when the current Antitrust Law entered into force, and 2016. This increase is a clear sign of the greater rigor the agency is using in the exercise of its function of controlling market structures.

Between 2012 and 2016, Cade rejected only the acquisition of Solvay Indupa by Braskem in 2014 and the acquisition of Condor Pincéis by Tigre in 2015. This year, three other transactions have already been rejected because, in the opinion of the agency, they raised competitive concerns that could not be ruled out by any measure proposed by the parties involved.

The first of these was the acquisition of Estácio Participações by Kroton Educacional. The transaction represented the union of two of Brazil's largest private higher education institutions, thereby resulting in a high level of concentration in the distance and face-to-face higher education market in various cities. In this case, Cade highlighted the growing movement towards concentration in the education sector since, in the last five years, Kroton alone had reported 19 transactions and Estácio reported 7.

The second was the acquisition of the fuel distributor Alesat by Ipiranga. Cade concluded that merging companies would impact on regional fuel distribution markets and would also create concerns in the resale market that would require a remedy that would result in divestiture of all of Alesat's assets in problem markets. The decision was influenced by the characteristics of the distribution and resale markets, which might induce coordination between companies, a fact reflected in the history of cartel investigations in the sector.

The third transaction rejectedwas the acquisition of JBJ Agropecuária by Mataboi Alimentos. According to Cade, the transaction would result in high levels of concentration in the markets for cattle processing and wholesale trade in raw bovine meat in Brazil and would generate significant risks to competition. This conclusion was based on the relationship of the JBJ's owner and partner with JBS’s controlling shareholders (a leader in the market affected by the transaction). In Cade's view, companies could be seen as being part of the same de facto economic group, which market power would be expanded by virtue of the transaction.

Also under review by the Cade's Court are three other transactions challenged by the agency’s General Superintendency with a recommendation for rejection. In the cases of the acquisition of Liquigás Distribuidora S.A. by Companhia Ultragaz S.A. and Votorantim Siderurgia S.A. by ArcelorMittal Brasil S.A., the main concerns are again related to the incentives that the acquisitions could generate for coordinated practices, due to the history of conduct already found in the past by Cade in the Liquefied Petroleum Gas (LPG) and steel distribution sectors, respectively. In turn, in the case of Bayer's acquisition of Monsanto, the risks would include, among others, the high levels of concentration generated in the market for transgenic soybeans and cotton (biotechnology), possible reduction of rivalry in the development of transgenic events in the world, and reduction of incentives for innovation in the industry.

These precedents indicate the need for companies involved in complex transactions to, from the outset of the negotiations, assess the "Cade risk" and possible measures to ensure conditional approval of the deal. According to recent Cade signaling, the remedies proposed by the parties must be well-defined, effective, and easily implemented and enforced.

Category: Litigation

International transactions, especially those carried out en masse through electronic commerce, and Brazilians’ interactions with foreigners nowadays occur with a similar level of ease as domestic transactions. As a consequence, controversies resulting from these deals and interactions arise at a speed never experienced before. The number of international disputes, which is to say, disputes involving individuals or legal entities from different countries and/or obligations executed or enforceable abroad, have grown not only in number but also in complexity. Thus, the advance of globalization stresses the need to modernize the procedural rules in Brazil that govern international conflicts. Until the new Code of Civil Procedure (NCPC) came into force in March 2016, international civil proceedings were governed by the Rules of Introduction to Brazilian Law - LINDB (Decree No. 4,657/1942) and by the former Code of Civil Procedure of 1973. These rules, however, did not contain clear answers for all situations, and the case law on the subject was contradictory, which created an environment of legal uncertainty for foreign parties doing business in Brazil. In order to keep up with developments in transnational disputes, the NCPC brought in some innovations that, although belated, help to systematize and consolidate sparse rules and judicial rulings on this matter. Among the innovations brought in, one of the most relevant concerns the possibility for Brazilian parties to choose a foreign court to settle disputes arising from their contractual relations. The choice of the court that will have jurisdiction over disputes arising under an international contract is certainly one of the most controversial issues in International Procedural Law. Historically, Brazilian courts have been reluctant to accept that parties to a contract, in the exercise of their private autonomy, may opt out of Brazilian jurisdiction, in favor of a foreign jurisdiction. The prevalence of the parties' will in the choice of a foreign court was, for decades, understood in Brazilian case law as an offense to the sovereignty of the Brazilian State, an understanding that fortunately fell apart with the enactment of the NCPC. With the NCPC, the legislator expressly provided in article 25 for the possibility that the parties may choose a foreign court to adjudicate disputes arising from international contracts, the wording of which is clear in providing that "the Brazilian judicial authority does not have jurisdiction to hear and adjudicate suits when there is a contractual provision in an international contract choosing the exclusive jurisdiction of a foreign court, argued by the respondent in its defense". In other words, as of the entry into force of the NCPC, the existence of a choice of foreign forum clause may be raised by the respondent in its defense to support a motion to dismiss the matter without a resolution on the merits due to lack of jurisdiction of the Brazilian Judiciary. This provision does not apply, however, to cases in which the law establishes the exclusive jurisdiction of the Brazilian Judiciary: lawsuits involving (i) real estate in Brazil; and (ii) succession or division of assets (arising from divorce, separation, or dissolution of a stable union) in relation to goods located in Brazil. Finally, it should be emphasized that this innovation also ended an important inconsistency of the 1973 Code of Civil Procedure, which, simultaneously provided for the dismissal of a proceeding without a judgment on the merits in case an arbitration agreement is argued by any of the parties in their defenses (article 267, VII) but had no provisions with respect to the dismissal of the lawsuit based on a foreign forum clause. Thus, the innovation brought in by the NCPC has remedied an important gap in legislation, thereby bringing Brazilian International Procedural Law closer to international trends and, therefore, introducing greater legal certainty for foreign investors in the Brazilian business environment.