Category: Capital markets

The CVM released on Wednesday, May 31, CVM Resolution 184/23, which implemented specific changes to CVM Resolution 175/22 (Regulatory Framework for Funds) and introduced nine new normative schedules referring to several categories of investment funds.

In addition to the general rule and the rules for FIFs (Normative Schedule I) and Credit Rights Investment Funds (FIDC) (Normative Schedule II), exhibits dealing with the following categories of investment funds have been included:

• Normative Schedule III: Real Estate Investment Funds (FII)
• Normative Schedule IV: Equity Investment Funds (FIP)
• Normative Schedule V: Market Index Investment Funds (ETF)
• Normative Schedule VII: Privatization Mutual Funds (FMP-FGTS)
• Normative Schedule VIII: National Film Industry Investment Funds (Funcine)
• Normative Schedule IX: Incentivized Equity Mutual Funds (FMAI)
• Normative Schedule X: Cultural and Artistic Investment Funds (Ficart)
• Normative Schedule XI: Welfare Funds
• Normative Schedule XII: Investment Funds in Credit Rights of Social Interest Projects (FIDC-PIPS)

Normative Schedule VI will be promulgated later and is reserved for the rule of the Fund for Investment in Agribusiness Production Chains (Fiagro).

It is worth noting that pension funds do not constitute a specific category of investment fund like the others, but their content has been addressed in a separate schedule to better systematize the rules.

CVM Resolution 184/23 brings in other adjustments to CVM Resolution 175/22, such as the obligation to disclose to shareholders the voting policy at meetings of securities holders. In addition, there was a textual refinement, replacing the term "socio-environmental" by "social, environmental, or governance". A section dedicated to individual planned retirement funds has also been added in the Financial Investment Funds (FIF) rule.

There was no need for a Regulatory Impact Analysis or public hearings on the new resolution, as the changes to the regulations were not substantial. The texts reflect the general rules contained in CVM Resolution 175 and were revised under Decree 10,139/19, which provides for revision and consolidation of all rules issued by the agency.

However, during the process of reviewing and consolidating the new regulatory schedules, opportunities for improvement were identified in the FII, FIP, and ETF rules. For this reason, the CVM reported that, as a next step, it intends to modernize the rules applicable to such funds, taking into account the suggestions received from market participants. The regulatory update of these funds should be part of the CVM's agenda for 2024.

The entry into force of the new regulatory framework for investment funds is scheduled for October 2, 2023. The adaptation of the entire investment fund industry in operation must take place by December 31, 2024, except for FIDCs in operation, which need to adapt by April 1, 2024.

Find out more in our e-book on the topic:
The details of CVM's new regulations on Investment Funds

See other CVM guidelines on the subject in the articles:
Regulatory framework for investment funds: nnew guidelines from the CVM

Regulatory framework for funds: new guidelines from the CVM

Category: Banking, insurance and finance

The Central Bank of Brazil (Bacen) and the National Monetary Council (CMN) published on Tuesday, the 23rd, Joint Resolution 6/23, which provides for the sharing of data related to indications of fraud by financial institutions, payment institutions, and other institutions authorized by Bacen to operate among themselves.

The rule aims to reduce the asymmetry of information between these institutions by establishing a minimum list of data and information that must be shared by them in their internal procedures and controls for prevention of fraud.

Who is subject to the rule?

• Financial institutions, payment institutions, and other institutions authorized to operate by Bacen.
• Consortium administrators are expressly excluded from the scope of the resolution.
• Institutions subject to the rule will be able to participate in the sharing system both at the point of registration and at the point of access to the data and information registered.

What should be shared?

• Those who supposedly carried out or attempted to carry out the fraud, according to the available evidence, where applicable. This determination, in turn, should be based on procedures and criteria defined and documented by the institutions in a detailed manner and compatible with their risk profile, legislation, and regulations in force (including, at a minimum, verification with data contained in systems, registers, and other databases available for consultation).
• A description of the indications that fraud has occurred or has been attempted. 
• The institution responsible for recording data and information.
• Details of the recipient account and its holder in the event of transfer or payment of funds.

The record does not apply to confidential data and information, under the terms expressed in special legislation, related to evidence of commission of the crimes of laundering or concealment of assets, rights, and valuables and financing of terrorism.

Does the customer need to consent?

• Institutions should obtain from customers with whom they have a relationship prior and general consent to record their data and information, for the purpose of processing and sharing information on indications of fraud under the terms of the resolution.
• Consent may be included in the contract between the client and the institution, in a prominent clause, or obtained through another valid legal instrument. In both cases, the documentation must be made available to Bacen.
• The provisions of the resolution do not remove the duty of confidentiality, protection of personal data, and free competition to be observed by the institutions.

What will sharing look like?

• The regulation provides for the implementation and use of an electronic system that allows, at a minimum, registration of data and information on indications of occurrence or attempted fraud identified by the institutions, as well as alteration, deletion, and consultation
• Sharing must also comply with the principles listed in the standard, which include security and privacy, as well as full and non-discriminatory access by institutions to the system's functionalities.
• Joint Resolution 6/23 also establishes security, data protection, and interoperability requirements to be observed by the institutions. Among the requirements, it is worth highlighting the need to identify and segregate the data recorded by means of physical or logical controls, as well as to adopt a single and common communication standard that allows execution of the system's functionalities.
• Institutions should also adopt control mechanisms to ensure effective compliance with the resolution, including definition of processes, tests and audit trails, metrics and indicators, as well as identification and correction of any deficiencies.
• The institution may hire third parties to provide the data sharing service, remaining responsible for compliance with the resolution and for observing the applicable regulations (mainly Bacen Resolution 4,893/21, on the contracting of data processing and storage and cloud computing services).

Bacen's role

• Institutions should make documentation on the electronic system and compliance with the requirements applicable to its implementation - including security, data protection, and interoperability - available to Bacen.
• The data shared by the system and the documentation containing the criteria and procedures for identifying the possible perpetrator of the fraud attempt should be available for ten years.
• Data, records, and information on application of the system's control mechanisms should remain available for five years, from each application of the controls.
• Bacen may adopt the measures necessary for implementation of the resolution, such as establishing additional functionalities for the electronic system, observing the minimum content provided, and detailing the parameters on service level agreements in the execution of the functionalities.

Compliance with the provisions of Joint Resolution 6/23 does not exempt the institution from the responsibility to carry out procedures and controls for fraud prevention provided for in the regulations in force or to report information on fraud to the competent authorities, as provided for by law.

Category: Agribusiness

Brazilian agriculture is a global reference in productivity and contributes directly to the country's economic development. The sector was mainly responsible for the strong GDP growth in the first quarter of 2023, as released by the IBGE.

This scenario requires the State to establish measures to promote agribusiness through tax incentives, public policies, and facilitated financing structures, among other types of subsidies.

This is the case of ICMS Agreement 100/97, approved by the National Council for Finance Policy (Confaz). The agreement offers the following tax incentives for various agricultural inputs:

• exemption from ICMS due on internal operations, as provided for in its third section; and
• 60% reduction of the ICMS calculation basis due on interstate transactions, under the terms of the first section.

In order to enjoy the tax benefits mentioned, as provided for in subsection II of Section Five of ICMS Agreement 100/97, states may require taxpayers to comply with two requirements:

• a substantive one, expressed in the deduction of the amount corresponding to the ICMS exemption from the price of the goods; and
• one of an instrumental nature, materialized in a demonstration of the respective deduction in the tax invoice.

Regarding the instrumental requirement, the legislation of each state regulates the specific procedures for demonstration of the deduction in the tax invoice (such as indication in the "Additional Information" field of the amount exempted, etc.)

However, in recent years, state revenue services have assessed taxpayers on the grounds that there is no proof of passing on of the deduction in the price of the products, even in cases where the irregularity identified is related only to compliance with the instrumental requirement (i.e., demonstration of the deduction on the invoice).

A relevant question then arises as to how to prove that the tax benefit has been passed on in the chain. This is because both ICMS Agreement 100/97 and the state laws that absorbed it did not expressly establish a form or procedure for proving that there was an effective deduction of the ICMS exempted from the price of the goods sold.

In an objective reading of subsection II of section five of the agreement, it would be defensible to conclude that it would be sufficient to fulfill the instrumental duty of demonstrating the deduction on the invoice to prove the deduction of the ICMS exempted.

It should be noted, however, that it is not being stated that the only way to prove that the ICMS exempted was passed on to the purchaser would be through the instrumental duty to indicate the deduction on the invoice - not least because this obligation is not confused with the substantive duty of ICMS Agreement 100/97.

Even in cases where the instrumental duty of demonstrating the amount of the deduction on the tax invoice has been fulfilled, there is a new tendency for tax authorities to sometimes resort to other evidence to question the actual deduction of the exempted ICMS (regardless of compliance with the instrumental duty).

In these cases, in the tax authorities' view, there is a risk that the taxpayer had raised the original net price of the transaction to artificially deduct the exempted ICMS. The agency's claim is that the tax benefits of ICMS Agreement 100/97 were not been passed on, but rather internalized by the seller in its profit margin.

From an analysis of the precedents related to this topic, it appears that this scenario tends to occur in cases where the tax authorities identify different prices in domestic transactions (exempt from ICMS) and interstate transactions (subject to reduction in the calculation basis). Exempt sales would be more costly than those partially exempted by the reduction of the tax basis.

Given these indications, the tax authorities choose to assume - without any verification or even knowledge of the commercial and market variables of the transactions or even of the agricultural sector as a whole - that the taxpayer failed to comply with the substantive requirement of passing on the economic advantage of the ICMS tax benefit.

The tax authorities, therefore, reverse the burden of proof to require the taxpayer to demonstrate actual deduction of the amount corresponding to the tax exempted from the price of the goods, disregarding all other variables that influenced the pricing of the transactions compared (in particular, the existence of a potential stock exchange quotation - whose variation is inherent to the business).

This understanding could lead to new assessments related to the application of other tax incentives conditioned on demonstration of the transfer of the benefit in the chain - as an example, one could mention ICMS Agreement 87/02 as an example, which grants exemption from ICMS on transactions with drugs and medicines destined for bodies of the federal, state, and municipal direct public administration.

In our assessment, in respect of legality and tax typicality, the burden of proving non-existence of transfer of the ICMS deduction per ICMS Agreement 100/97 remains with the tax authorities, who intend to disregard that the taxpayer applied the tax benefit.

In the same sense, the scholarly writings of Professor Paulo de Barros Carvalho elucidates that "the law establishes the need for the administrative legal act to be duly substantiated, which means that the tax authorities have to offer conclusive proof that the event occurred in strict conformity with the generic provision for the normative scenario."^[1]

As a consequence, "[i]f the taxpayer contests the grounds of the tax assessment issued by the tax authorities, the burden of showing the unfoundedness of this objection returns, again, to the tax authority, which will have to prove the legal inadmissibility of the objection, causing the requirement to remain."^[2]

In concrete terms, we have identified a tendency for tax authorities to increase the evidentiary burden in tax assessments in such cases. It is required that the taxpayer be able to provide sufficient evidence to demonstrate not only the actual passing on of the tax deduction to purchasers, but also the rationality of the differences between the prices charged, in order to rule out a presumption of improper application of the ICMS benefit.

Therefore, in cases of allegation of non-compliance with actual transfer of the incentive in the chain, through reduction in the price of the goods, we recommend that taxpayers analyze their operations to be able to offer evidence and arguments that prove to the tax authorities the existence:

• of different prices for different operations (including justification); and
• of the transfer of the tax benefit to the respective purchaser of the products.

^[1] CARVALHO, Paulo de Barros. The theory of evidence in administrative tax proceedings and the use of presumptions. Instituto Brasileiro de Estudos Tributários [“Brazilian Institute of Tax Studies”]– IBET.

^[2] Ibid.

Category: Agribusiness

The National Bank for Economic and Social Development (BNDES) added rural credit (BNDES Rural Credit) to its financing options in 2020. BNDES Rural Credit is an unsubsidized financial product that uses BNDES funds to support agricultural activities - including fishing, aquaculture, forestry production, and agro-industrial activities. This support is provided through the granting of financing for both funding and investment, both for investment projects and for one-off acquisition of machinery and equipment.

Among the operations that can be financed through BNDES Rural Credit are the following:

• fixed and semi-fixed investment projects in goods and services directly related to agricultural activity;
• individual purchases of machinery and equipment for use in agricultural activities; and
• financing for the funding of agricultural and livestock activities.

In the last three years, BNDES Rural Credit has already approved the release of R$ 11.2 billion in credit, distributed in more than 25 thousand transactions. In total, 98% of these transactions are targeted at micro, small, and medium-sized enterprises, which represents 90% of the total funds to be invested.

BNDES Rural Credit can be requested by:

• individuals who are farmers and resident and domiciled in Brazil;
• legal entities that are farmers with headquarters and management in Brazil; and
• cooperatives of farmers, with headquarters and administration in Brazil. In this case, in order to apply, potential borrowers of BNDES Rural Credit must seek a financial institution accredited by BNDES (the financial agent), which will provide the necessary documentation, analyze the possibility of granting the financing, and negotiate the applicable guarantees.

More than 70 institutions can act as financial agents. These include public and private banks, regional development banks, cooperative banks and credit unions, as well as automakers' banks.

On April 17 of this year, BNDES and the Ministry of Agriculture and Livestock (MAPA) launched a fixed-rate rural financing line in dollars (BNDES Rural Credit in Dollars), to give Brazilian farmers a financing alternative linked to the US currency.

In a context of exchange rate volatility and economic uncertainties, BNDES Rural Credit in Dollars has emerged as a new financing option to mitigate the risks associated with exchange rate fluctuations. This line of financing offers farmers the opportunity to hedge against possible devaluations of the Brazilian Real, as their revenues are often tied to exports.

In all, the BNDES will offer R$2 billion for the acquisition of agricultural machinery and equipment, considering monetary correction linked to the exchange rate variation, plus an interest rate of 7.59% per year (fixed rate).

In addition to the new BNDES Rural Credit in Dollars line, whose remuneration is composed of the fixed rate, BNDES Rural Credit has three other possibilities of basic financial costs in the formation of the final rate for financing:

• the Selic rate;
• the BNDES long-term rate (TLP); or
• the BNDES fixed rate (TFB).

The total terms of BNDES Rural Credit in Dollars range from 25 to 120 months, with a grace period of up to 24 months. To obtain financing, the borrower must meet specific criteria, such as:

• have revenues in US dollars or pegged to the US currency, which should be ascertained by the financial agent;
• have the ability to pay;
• earmark the funds for rural activities; and
• comply with legal and regulatory requirements.

BNDES Rural Credit in Dollars provides farmers with greater financial predictability, allowing for long-term planning and strategic decision-making with more security. In addition, it contributes to attracting international investors interested in participating in the Brazilian agricultural market, stimulating the development of the sector.

It is essential, however, that potential borrowers of BNDES Rural Credit carefully assess, together with the financial agent, the risks involved in this type of financing, such as possible exchange rate variations and the need for protection against dollar fluctuations.

In summary, BNDES Rural Credit in Dollars should supplement BNDES Rural Credit and potentially increase the productivity of the Brazilian agricultural market by granting credit to farmers and farm cooperatives with revenues in dollars or pegged to the US currency. A financing option that will allow farmers and farm cooperatives to purchase essential equipment.

Category: Tax

One of the first measures adopted by the new government, in January of this year, was the promulgation of Executive Order 1,160/23, which reinstated the casting vote as a tiebreaker criterion in judgments by the Administrative Council for Tax Appeals (Carf). The executive order repealed the rule contained in article 19-E of Law 10,522/02, which provided for a decision favorable to taxpayers in the event of a tie in the judgment.

EO 1,160/23 also increased the threshold for voluntary appeals before Carf from 60 to 1,000 minimum wages. Thus, controversies that do not exceed this amount will be decided in the sole and final instance by the Regional Judgment Office (DRJ), without the possibility of taking the dispute to the appellate level of administrative tax litigation, Carf.

Despite producing immediate legal effects, EO 1,160/23 encountered a lot of resistance, both in the Brazilian Congress and in society in general, during its process of conversion into law. The validity period of the executive order - 60 days, extendable for another 60 days - ends on June 1 of this year. Thus far, the text has not been put to a vote, which indicates that the rule will not be converted into law and will cease to have effect.

Presentation of Bill 2,384/23 by the federal government

In this context, the government presented in the Chamber of Deputies, on May 5, Bill 2,384/23 (Bill 2,384/23). Like EO 1,160/23, the bill proposes return of the casting vote as a tiebreaker criterion in Carf judgments. In other words, another attempt to resume the scenario of resolving disputes with the prevalence of the vote of the chairman of the panel.

Bill 2,384/23 contains six articles. Article 1 regulates the proclamation of the result of judgments in the event of a tie, in the same terms as those contained in EO 1,160/23 and with reference to the rule contained in paragraph 9 of article 25 of Decree 70,235/72.^[1] Article 5, in line with the first article, expressly repeals the rule in article 19-E of Law 10,522/02 (tie-breaker favorable to the taxpayer).

The other provisions deal with other topics:

• Article 2 proposes that the Federal Revenue Service make available methods for self-regularization of main and ancillary obligations;
• Article 3 provides that the Federal Revenue Service must classify taxpayers by degree of tax compliance, based on criteria such as registration regularity; good standing in the payment of taxes due; and accuracy of information provided in returns and bookkeeping, among others;
• Article 4 brings in the provision, also already contained in EO 1,160/23, to increase the limit of jurisdiction for filing voluntary appeals with the Carf from 60 to 1,000 minimum wages.

This last measure, although it tends to reduce the backlog of cases at Carf, limits access - especially for individual taxpayers and taxpayers with smaller tax debts - to the appellate level of tax administrative litigation, the only one in which the judgment is carried out in equal composition, which allows greater debate on the issues.

As a rule, the processing of a bill takes longer than it does for executive orders, which have a special and faster process, subject to the requirements of relevance and urgency. It goes through subject-matter committees, where the matter is debated by members of congress and there can be further reflection on the subject.

Thus, in view of the forthcoming expiration of EO 1,160/23 and the known longer processing of the bill, the government presented to the Chamber of Deputies, based on article 64, paragraph 1, of the Federal Constitution, a request for Bill 2,384/23 to be processed under an urgent procedure, which dispenses with some internal formalities.

The Chamber of Deputies has 45 days to consider the request for urgency. After this deadline, all other legislative deliberations in the Chamber will be halted, with the exception of those with a constitutionally determined deadline, until the vote is concluded. The Chamber of Deputies has until June 20 to respond regarding the request for urgency for Bill 2,384/23, at the risk of blocking the agenda from the following day.

It is worth remembering that, as of July 18, congressional recess begins, lasting until July 31, as provided for by article 57 of the Federal Constitution.

The fact is that, as of June 1, the rule provided for in EO 1,160/23 loses validity, returning to the previous rule, provided for in article 19-E of Law 10,522/02, which, as mentioned, in the event of a tie vote at Carf, provides for a final decision favorable to the taxpayer.

Proceedings of ADIs 6.399, 6.403, and 6.415 at the STF

It is worth remembering that, at the Federal Supreme Court (STF), direct actions of unconstitutionality ("ADIs") 6.399, 6.403, and 6.415, are being processed, challenging the formal and substantive constitutionality of article 19-E of Law 10,522/02.

The judgment of the ADIs began in a plenary session on March 24, 2022, with a partial score of six votes for the constitutionality of the legal provision questioned. The judgment was interrupted by a request for review of the record by Justice Nunes Marques.

Last May 16, the Justice released the suits for judgment, and they can be scheduled at any time. If the judgment of the ADIs occurs before the approval of Bill 2,384/23, its outcome will define whether the tie-breaker rule in favor of taxpayers with the Carf will continue to be applied.

If Bill 2,384/23 is approved before judgment of the suits, the tie-breaking rule applicable in Carf judgments will be the one provided for in the bill, since it repeals article 19-E of Law 10,522/02.

If EO 1,160/23 expires without being converted

What happens to cases that were judged by the Carf applying the casting vote during the period in which the provisions of the executive order were in force?

In such cases, the Brazilian Congress has the prerogative to issue, within 60 days, a legislative decree to regulate the legal effects generated during the validity of the executive order.

If no such decree is issued, article 62, paragraph 11, of the Federal Constitution provides that legal relations constituted and arising from acts performed during its validity will continue to be governed by what was established in the executive order.

Thus, during the few months of EO 1,160/23, the cases that were judged by the Carf applying the casting vote, in principle, will have their results maintained - even if there are other arguments to litigate the validity of the executive order.

The regulation by Congress is therefore extremely necessary to avoid perpetuating an absolutely unfair situation in the treatment of taxpayers who had their appeals included in the Carf's judgment agenda during the term of the executive order and those who did not have cases included in the agenda during this period. Tie votes would generate exactly opposite resolutions.

Regarding Bill 2,384/23, what is expected?

The urgent procedure indicates that, by the end of the first semester, it is possible to have a position from Congress on this government initiative. Perhaps this will allow for some stability in the administrative judgment environment.

In the dispute over the definition of tiebreaker criteria applicable in Carf judgments, the government entered into an "arm wrestling" contest with taxpayers, contrary to the most recent movements that suggest more dialogue and rapprochement between tax authorities and taxpayers, through self-regularization and tax compliance projects.

Beyond the tie-breaking criteria with the Carf, however, there is much to be rethought in the structure of administrative tax litigation. But that is a scene for the next chapter, or rather, the next article.

^[1] Article 25. Decisions on cases demanding taxes or contributions administered by the Federal Revenue Service are assigned:

Paragraph 9. The offices of chairman of the panels of the Superior Tax Appeals Chamber, its panels, and the special panels shall be held by board members representing the National Treasury, who, in the event of a tie, shall have the casting vote, and the offices of vice chairman, by representatives of taxpayers. (Included by Law 11,941/09)

Category: Real estate

Several media outlets recently aired a video showing a former athlete living in the São Conrado neighborhood of Rio de Janeiro assaulting a deliveryman. The condominium of the aggressor accused of racism reported that the episode was not isolated. Other occurrences had already been reported, which weighed in the decision, on April 12, to expel the condominium member, as it believed violent acts represent antisocial behavior.

Whether or not the defendant owns the unit she occupies is immaterial for the purposes sought by the condominium. The right to property is not absolute and is limited, for example, by neighborhood rights and condominium rules. Both a tenant, if the property is rented, and the owner himself can be penalized for inappropriate practices. This is because the legislation aims to curb abuses in the exercise of individual property rights, which could pose risks to the community in relation to safety, health, and peace.

Some factual circumstances, however, must be considered when analyzing whether the claim to expel a condominium member for antisocial behavior is valid. The first of these is the need for the conduct complained of to generate difficulty living in the building, considering the discomfort of the neighbors and possible media repercussions. Episodes that trigger demonstrations, for example, can obstruct access to the building, create difficulties for residents to come and go, and give the place a bad name.

It is then incumbent the condominium to impose the penalty provided for in its bylaws for inappropriate behavior. In the event of repeat offenses, article 1,337 of the Civil Code that, with a resolution of 3/4 of the remaining owners, the fine can be increased up to ten times the amount allocated to contribute to the condominium expenses, according to the seriousness of the faults. It is worth remembering that condominium members who have been fined have the right to challenge the penalty.

If the penalty, even if increased, does not have the expected effect of obliging the condominium member to avoid repeating the antisocial practice, a current in the courts has been using the Pronouncement 508 of the V Civil Law Working Group, held in 2012, to authorize as an extreme measure exclusion of the condominium member from the building. This must occur after a meeting that decides to file a lawsuit for this purpose, ensuring the guarantees inherent to due process of law and a broad defense.

These were the steps followed in another recent case of violence generated by racism, which occurred in a residential condominium in the city of São Paulo against a comedian. Earlier this year, the condominium filed an action seeking expulsion of the condominium member for antisocial behavior. The judgment in this case may serve as an important precedent for consolidation of case law on the subject.

Also because there is an interpretation in the Judiciary that the construction of Pronouncement 508 was not imported into the law, which is why expulsion of an antisocial condominium owner is not possible due to the absence of a legal provision. Thus, the only alternative for punishment of cases such as the one reported in Rio de Janeiro is application of successive fines, increased up to the legal ceiling.

The possibility of expulsion does not imply loss of ownership of the property, but rather the right to live together in the space. The condominium member vacates the property due to lack of social behavior appropriate for living in the condominium. If he is owner of the unit, he continues to have his other rights intrinsic to ownership - to enjoy and dispose of the thing - assets. In other words, an indirect sanction of the need to sell or lease the property is applied.

It is worth questioning, however, whether the repetition of harmful conduct and successive penalties are indispensable requirements for expulsion of the condominium member, when it comes to acts of violence, racism, and other serious and intolerant conduct. Currently adopted, this interpretation sometimes prevents severe or, above all, effective punishment of the offender.

The discussions promoted by this and other cases can be a path to positive changes in the debate on the exclusion of condominium members for racism in a deep and broad way. With the recent change in the Racial Crime Law in 2023 (Law 14,532/23) and gradual social advances, it may be that the Judiciary will adopt a more energetic response to finally curb repetition of this type of behavior in condominium life.

Category: Real estate

The Tax on the Transfer of Real Estate (ITBI) is a tax of great controversy as to its generating fact in different situations. One of the controversial issues is the collection made by municipalities on real estate payment operations in real estate investment funds (FII), a topic not yet pacified by the Brazilian courts.

The discussion whether or not there should be payment of ITBI in these transactions occurs mainly because it is a municipal tax. This causes the rules for collection to vary according to the location of the property paid.

In February of this year, in a judgment held in the records of AREsp 1,492,971, the 1st Panel of the Superior Court of Justice (STJ) confirmed the understanding of the Court of Justice of São Paulo (TJ/SP) and determined the payment of ITBI in operations of this nature.

In the judgment, the understanding that prevailed among the Justices who are members of the 1st Panel of the STJ that "the acquisition of real estate for the equity of the real estate investment fund, operationalized by the issuance of new quotas of the condominium and effected directly by the administrator of the fund, configures, to all evidence, transfer for consideration of immovable property, characterizing the fact that generates the ITBI (...)".

In the case that gave rise to the judgment, a company that manages FIIs filed a writ of mandamus against the municipality of São Paulo, alleging illegality in the collection of the ITBI on the operation of payment of the real estate to the assets of the FII.

According to the administrator, the transferred fiduciary property should be considered only a security right. Thus, it would be immune to the collection of the ITBI, according to what is established by the Federal Constitution (CF) in its article 156, item II.^[1] The administrator also claimed that the transfer of the property to the assets of the FII would not constitute a transfer of ownership, since the fund does not have legal personality.

The judgment, therefore, revolved around two legal grounds:

• the existence of tax immunity on the right in rem of guarantee (Article 156, II, of the CF); and
• the absence of transfer of ownership of the property in its payment to the FII, since the fund cannot be the holder of rights and obligations because it does not have legal personality (Article 35, II, of the National Tax Code).

The judge in the case rejected the administrator's requests, as he interpreted that the former owners no longer had a direct relationship that allowed them to exercise rights over the properties and received in return the social quotas of the FII. There would have been a costly transfer of ownership, an operation subject to the ITBI.

The magistrate understood that the paid-up property became the property of the FII, even if the registration is formally made in the name of the administrator of the FII, as a fiduciary owner, since the FII has the legal nature of a closed condominium and does not enjoy legal personality.

This understanding was maintained by the São Paulo Court of Appeals, which led to the filing of a special appeal to the STJ.

Issue may end up being analyzed in the Supreme Court

Although there is an infraconstitutional aspect in the discussion about the ITBI generating fact in the payment of real estate to the FII patrimony, it is undeniable that there is also a constitutional aspect in relation to the existence or not of tax immunity in this operation. With this, it is possible that the issue will be examined by the Federal Supreme Court (STF).

In May, inclusive, the issue was presented in the Supreme Court. In a monocratic decision in Case 1,434,753, Justice Rosa Weber denied the follow-up to an extraordinary appeal that dealt precisely with the tax immunity of Article 156, II, of the CF in the payment of real estate in FII.

The decision, however, was made for strictly procedural reasons. With this, the Justice did not come to address the merits of the issue.

Another discussion revolves around the collection of ITBI in the change of the FII administrator. That is, to record the change of administrator – transfer of fiduciary property – in the real estate registry, characterizes ITBI taxable event?

We believe not, because, as provided for in article 11, paragraph 4, of Law 8,668/93, the succession of the administrator constitutes only a transfer of fiduciary property for the purpose of managing the fund's assets. The operation does not generate a transfer of ownership.

If this issue is taken to the Judiciary, it will be necessary to analyze whether the position of the 1st Panel of the STJ in AREsp 1,492,971 will influence the judge's assessment of the possibility of charging ITBI in cases of mere change of administrator of the FII, even if they are legally different situations.

There are already decisions that recognize that the succession of the fiduciary property of real estate that is part of the FII patrimony does not constitute a transfer of ownership (REsp 1.521.383/RS).

About all this discussion, we understand that, in the future, operations involving the payment of real estate in FII will probably be taxed by the competent municipality. The ITBI will be calculated based on the value of the properties transferred and may reach up to 5% of the value of the property, depending on the rate applied by the municipality in which the property is located.

It is essential, therefore, that, before carrying out the operation, the municipal legislation is analyzed to verify the hypotheses of incidence of ITBI and the value of any charges. Thus, it will be possible to define the most efficient structure, considering various business and legal aspects – including tax.

There is also another point that deserves attention: the changes brought about by the new regulatory framework for investment funds (CVM Resolution 175/22). Established by the Brazilian Securities and Exchange Commission (CVM), the framework should enter into force on October 2 of this year and the changes may generate new discussions about the incidence of ITBI in operations involving FIIs.

^[1] Constitution. Art. 156 [...] II – transmission "intervivos", in any capacity, by means of a onerous act, of immovable property, by nature or physical accession, and of rights in rem over immovable property, except those of guarantee, as well as assignment of rights to its acquisition.

Category: Infrastructure and energy

The National Civil Aviation Agency (Anac) took an important step in the regulatory modernization process earlier this year, when it published Ordinance 10.219/SIA, prepared by the Superintendence of Airport Infrastructure.

The ordinance provides for the experimental regulatory environment related to topics of interest to the superintendence and aims to encourage innovation in the areas of operational safety and civil aviation security and facilitation (AVSEC).

The initiative also aims to increase competition between companies, stimulate internationalization and attract investment. It also enhances the regulatory framework so that it can contemplate changes in the civil aviation sector brought about by the adoption of new technologies.

The ordinance establishes rules so that participants can compose the regulatory sandbox portfolio and creates procedures for the Superintendence of Airport Infrastructure to monitor the projects. In this testing environment, market agents and regulatory bodies will be able to work together to develop new technologies and obtain subsidies for the formulation of regulations more adjusted to the activities of the airline industry.

The concept of regulatory sandbox was introduced into Brazilian legislation by Complementary Law 182/21, which established the legal framework for startups and innovative entrepreneurship. The standard has enabled the creation of experimental regulatory programs (regulatory sandbox) to make the application of standards more flexible in controlled and specific contexts, which helps to stimulate research, development and innovation.

The use of the regulatory sandbox allows regulated entities to carry out their activity under less bureaucratic rules and more appropriate to their different business models. The flexibility of regulations in specific cases and in a controlled context is the main advantage brought by this testing environment.

The possibility of adapting the standards to the characteristics of the activity developed by regulated entities helps to stimulate the creation of innovative projects and brings more freedom to the market.

The regulatory sandbox also contributes to reducing costs and maturation time of products, as well as accelerating the learning curve of the regulatory bodies themselves.

In civil aviation, the first term of admission to this test environment was signed in April this year. That was when Anac signed an agreement with Vinci Airports to enable the implementation of an innovative system of lighting taxiways, landing and takeoff with individual sources of photovoltaic energy at the airports of Tabatinga and Tefé, in the state of Amazonas.

Initiatives like this can greatly contribute to the development of the Brazilian airline industry, especially in areas that use state-of-the-art technology, such as remotely piloted aircraft (RPAS and drones) and electric vertical take-off and landing vehicles (eVTOLS).

Because they use advanced technology and in a constant process of updating and transformation, RPAs and eVTOLs often end up on the margins of industry regulation. With the regulatory sandbox in civil aviation, new models of drone operations and technological solutions will be able to be tested, which will help to develop a suitable regulatory framework to regulate the operation of these aircraft models.

Category: Infrastructure and energy

On June 22, the Ministry of Mines and Energy (MME) published Ordinance 737/GM/MME, which announced the Technical Note 14/23 for public consultation. The Note presents guidelines for treating electric power distribution concessions with a final term between 2025 and 2031. Considering the significant number of concession contracts reaching their final terms, the energy sector eagerly awaiting the new rules.

The technical note suggests the establishment of two minimum criteria that will guide the analysis of any requests for extension:

• efficiency of the energy supply quality verified over the concession years, to be measured based on frequency indicators and interruptions duration; and
• concession’s economic and financial management efficiency.

Regarding the service provision quality, MME proposes that the criteria be the same as those currently applied by the National Electric Energy Agency (Aneel) to characterize concessionaire’s contractual default, under articles 3, 4, and 9 of Annex VIII of Aneel Normative Resolution 948/21.

MME also brought up for discussion the inclusion of other mechanisms to mitigate the risks of discontinuity of public services. These mechanisms are the requirement of:

• a recovery plan approved by Aneel; and
• the proof of the technical capacity in distribution concessions management by the new controller in case of shareholder control exchange, as would occur in a new bid proceeding.

Technical Note 14/23 also mentions the financial contribution requirement for the concessions’ extension. The MME’s proposal is to allocate these resources to energy efficiency measures, such as improvements in lighting systems, digital meters popularization, investments to combat non-technical losses (energy theft), and photovoltaic panels installation in communities subject to water insecurity.

MME also foresaw the early extension possibility. In the case of concessionaires that have expressed their interest in the renewal before the new rules’ publication, MME will give 60 days to rectify or not the application. In cases where the concession is not extended, the compensation for the unamortized assets will continue to be calculated by Aneel based on the current methodology (Remuneration Regulation Base – BRR).

The technical note does not contemplate a proposal for a normative act, only general guidelines on extending concession contracts. These guidelines will be discussed between the granting authority and the sector agents through public consultation.

From the legal perspective, some of the main points of attention involve the concessionaries’ technical and economic-financial capacity measurement, the treatment of those requests that have already been submitted, and those that are to come, considering the concessions’ final date, the requirement of counterpart for the extension and the new context of innovation and technology in which the new distribution concessions are inserted.

This important debate should be closely monitored in the coming months. The new extension rules for energy distribution concessions definition will represent an important indicator for the distribution market’s future in Brazil and will serve as a precedent for other concessions in other public service segments.

Category: Real estate

The City of Rio de Janeiro published, at the beginning of May, Decree 52.436/23, which regulates the Complementary Law 252/22 and the new procedure for the sale of public real properties in the municipality (hereinafter referred to in this article as just “Property” or “Properties”). The new rules seek to facilitate the disposal of part of the Properties currently underutilized, idle, or deteriorated and promise to generate new resources for the municipal cash, heat the construction industry and attract private investment to the local real estate market.

The main advance is the application of the Proposed Property Acquisition (PPA) – provided for in Federal Law 14.011/20 – which brings private investors closer to the available Properties. The advertisement of the Properties will be in the official gazette of the municipality and on the digital platform licitaimoveis.rio with their registration data, location, minimum value of the purchase offer, requirement of documentation, and photographs of the lands or buildings.

Interested parties may submit an acquisition proposal through a request to the Executive Superintendence of Real Estate Assets using the model available on the City Hall's website. The application does not oblige the Public Administration to dispose of the Property or generates subjective rights for the interested party in the acquisition.

In the event of a favorable manifestation of the transaction, according to criteria of convenience and opportunity, the stage of pricing the chosen Property is available to initiated, which will depend on an updated appraisal report (maximum six months).

If the valid appraisal report is pending, the interested parties will have to pay all the costs to present such document, prepared by a qualified professional, to be approved by the Special Evaluation Committee of the Municipal Department of Finance and Planning.

The appraisal reports carried out by (i) entities of the Public Administration with the main activity of urban or real estate development or (ii) banks or other public company do not need the mentioned approval, as well as in case of agreements signed with organs or entities of the federal, state or municipal Public Administration.

The next step is the sale of the Property for the evaluated value through bid  or auction in up to two sessions, the second with a discount of up to 25% of the appraisal value.

On equal terms with the winner of the public bid, the assignee of the real or personal rights, the lessee, and the original interested party in the acquisition that paid for the evaluation of the Property may acquire it.

If more than one interested party holds preemptive rights and there is no agreement between them, a drawn will define the buyer. If the interested party who paid for the appraisal of the Property is not the actual buyer, the costs with the emission of such diligence will be reimbursed - limited to 0.2% of the value of the Property evaluated.

The eventual frustration of the second attempt at bid  or auction will imply the release of the Property for direct sale to any interested party, maintaining the discount of a maximum of 25% of the appraisal value, with the participation of real estate brokers.

The sale of the Property may be satisfied in up to 36 installments upon payment of a signal of at least 10% of the purchase price.

The importation of the federal procedure for the sale of those Properties represents an effort by the City Hall to requalify idle or underutilized buildings and lands and attract new investments for Rio de Janeiro.

The new policy is aligned with the Reviver Centro program, a plan for the urban, cultural and economic recovery of the City Center. The initiative may represent an opportunity to generate new business, which will occupy these Properties acquired at attractive prices, in addition to heating up the local construction sector.

However, some aspects can inhibit the interest of potential buyers. It will be necessary to consider the investment of time and money in the appraisal report and with the real estate due diligence, without guarantee of the purchase due to prior public bid or auction to sell the Property. It is also necessary to consider the mentioned existence of preemptive rights of third parties.

Thus, although the new process allows the sale of properties in attractive conditions, investors will need to evaluate the delay in the purchase and the possibility that it will not materialize.

Category: Real estate

In the judgment of the Special Appeal 2.059.278/SC (REsp 2.059.278/SC), which took place at the end of May, the Superior Court of Justice (STJ) issued a decision in favor of the condominiums on the possibility to execute and to auction properties in default with the condominium quotas, even if these properties are recorded with fiduciary alienation resulting from financing for acquisition.

The decision is unprecedented because, historically, the STJ has always positioned itself in the sense of not allowing the pledge and auction of the property for condominium debts, in cases where the property was the object of fiduciary alienation to guarantee its acquisition.

The understanding was that the responsibility for paying the condominium expenses would fall on the fiduciary debtor as long as he was in direct possession of the property. In other words, it would be a debt of the debtor, not liable to be satisfied with the foreclosure of the property that, in a resolute character, temporarily ceased to be part of his patrimony.

The charge could only be assigned to the fiduciary creditor (usually banks or financial institutions) after the consolidation of ownership for them. This understanding also aligns with Law 9,514/17 (Law of Fiduciary Alienation), to the extent that, in the event of consolidation of the property by default of the debtor, the fiduciary creditor receives the property in the state in which it is, even with the previous condominium debts, since these debts are obligations of a propter rem character – that is, are tied to the property.

In contrast to the already consolidated guidance, the STJ held that the rights of the fiduciary owner should not override the rights of the common owner. Thus, the property can now be pledged and auctioned in case of debt with the condominium.

The decision of the STJ, in a way, consolidates the understanding expressed in some state courts (such as the Courts of Justice of São Paulo, Rio Grande do Sul, Goiás and Mato Grosso do Sul), which have been issuing decisions allowing the pledge and auction of the property whose acquisition was guaranteed by fiduciary alienation of the property itself.

These decisions are based on two main points:

• in the risk-taking of the fiduciary creditor through the covenant with the fiduciary debtor; and
• in the protection of the community, since the other condominium owners were paying for the unit in default.

However, due to the mismatch of the decisions of the state courts with the jurisprudence of the STJ until then consolidated, the case of a condominium in Santa Catarina was taken to the Court. At the time, the STJ issued the decision contrary to its own jurisprudence in favor of the fiduciary creditors.

When analyzing the arguments presented, the STJ also focused on the social issue, considering that the default harms other residents.

The STJ's change of understanding also reflects the protection of collective rights in overlap with individual interests. The court used objective and actual economic factors as the criterion for its decision.

There is still no evidence to state whether the decision rendered in REsp 2.059.278/SC is isolated or whether, with it, the STJ signals the possibility of changing its position and rediscussing the issue.

Therefore, we recommend that fiduciary creditors review their preventive debt default measures when agreeing to fiduciary alienation agreements and reassess the risks to be imputed in their negotiations. We also suggest analyzing the cases with pending issues that are in progress, to verify the possibility of alternatives that satisfy the condominium credits, without prejudice to the credit to be received due to the fiduciary alienation.

Category: Tax

The House of Representatives approved, in plenary session on July 7, the Bill of Law 2.384/23, which resumes the casting vote at the Administrative Tax Court (Carf). The approved text is the replacement suggested by the rapporteur, Mr Beto Pereira (PSDB / MS).

The Bill of Law, an initiative of the President, was being processed under an emergency regime and was blocking the agenda of the plenary, according to constitutional determination. It was presented after the end of the validity of Provisional Measure 1.160/23, which had resumed, in January, the casting vote at Carf.

These are the main points addressed by the substitute approved by the House of Deputies:

• The resumption of the casting vote in Carf. Under the terms of the initial wording of the Bill of Law, the tie-breaking vote in the Carf judgments must be declared by the president of the judging panel, which is always a representative of the National Treasury.

• The rapporteur added to the text of the Bill of Law the provision for the exclusion of penalties, interest and possible representation for criminal purposes to proceedings whose result is favorable to the Public Attorney by casting vote. The change promoted by the rapporteur stems from partial acceptance of an agreement made between the government and the Federal Bar Association at the beginning of the year.

• The payment of the tax credit determined by casting vote may be made, with the reduction of fine and interest, through the use of NOLs (for both IRPJ and CSLL), including from controlled or controlling company.

• The qualified penalty in cases of evasion, fraud and collusion is limited to 100% and, depending on the taxpayer's compliance history, can be reduced to 1/3 or no longer applied. The percentage of 150% will be applicable only in cases of recidivism.

• The limit of 60 minimum wages is maintained for the purpose of filing a voluntary appeal to Carf. The original wording of the Bill of Law included an increase of this threshold to one thousand minimum wages.

• The possibility of conducting oral argument in trials held at first instance. Until then, the trials held in the first instance were not public, neither was it possible for the representative of the taxable person to follow up the discussions of the oral defense.

• Dismissal from the presentation of a guarantee, until the judgment, for the judicial discussion of the tax credits resolved favorably to the Public Attorney by casting vote, provided that the taxpayer proves the ability to pay the tax credit under the terms defined in the law.

• Provision, during the four months following the conversion of the bill into law, of special conditions for the payment of tax credits not yet constituted. The goal is to encourage regularization by taxpayers.

Regarding the resumption of the casting vote and the reduction of penalties and interest in judgments decided by this mechanism, the bill makes reference to the tax administrative proceeding, but does not make it clear whether such changes will also be applied to customs proceedings.

Another point that draws attention is the lack of isonomy upon granting of benefits to cases of up to 60 minimum wages. By the provision of the bill, only cases that reach Carf will have the reduction of penalty and interest if the result is favorable to the Public Attorney by casting vote. The benefit is no longer granted to the cases of lower values judged at the first instance.

After the consolidation of the substitute approved by the plenary of the House of Representatives, the project will be submitted to the analysis by the Senate. Due to the request for urgency, the proposal must be analyzed within 45 days, counted from the date of receipt. After this period, all other legislative deliberations of the Senate will be suspended until the analysis of the bill of law (according to article 64, paragraph 2, of the Federal Constitution).

The legislative recess will take place between July 18 and 31, which may interfere with the consideration of the text by the Senate.

Category: Tax

The Tax Reform was elected as a priority to unlock Brazil's economic growth and improve the business environment. The proposal already approved in the House of Representatives seeks to unify the main consumption taxes and create a simpler and fairer taxation model.

In this ebook, we summarize what you need to know about the text of the Tax Reform to be considered by the Senate and how Machado Meyer can help you identify the impacts of possible changes for your business.

Category: Real estate

The Strategic Master Plan (PDE) outlines principles and guidelines for São Paulo's urban development policy, aiming to order the development of the city's social functions and socially fair and ecologically balanced use. Check out what will change with the revision of the PDE, sanctioned by the Mayor Ricardo Nunes' signature at the end of June 2023.

Category: Real estate

The configuration of residential developments in the city of São Paulo has been undergoing a transformation over the last few years. This is due to the management, urban development and, particularly, regarding the assumptions  of the Municipal Strategic Master Plan (PDE) and the law of parcel, use and occupation of the land, known as the Zoning Law.

In 2014, the PDE outlined São Paulo's urban development policy, to order the development of the city's social roles and socially just and ecologically balanced use. Among its strategic objectives was to accommodate urban growth in underutilized areas, endowed with infrastructure and that were in the vicinity of the public transport network.

The PDE also provided for the revision of  the Zoning Law, having as one of its guidelines the focus on real estate production to drive local commerce through active facades on the ground floor of the buildings. The Zoning Law was eventually enacted in 2016 and regulates public and private action on the forms of land use of the city, focusing on a planned, functional, environmentally sustainable and democratic growth.

To accommodate urban growth and foster the approximation of workplaces and housing, the Zoning Law implemented, in the regions of the so-called structural axis of urban transformation (Eixos de Estruturação da Transformação Urbana) – places near the bus lanes and along train and subway stations – construction incentives for real estate developers, establishing as a requirement the mixed use of the developments.

One of the benefits brought by the law is not to compute the areas of non-residential use, since they add up to 20% of the computable built area of a mixed-use development, thus waiving the payment of onerous grant.

Another incentive is the better use of parking spaces provided they are located in the structural axes, the legislation deems not computable the area of up to one parking space per housing unit of residential use and up to one parking space every 70m² of area built for non-residential use.

Given these incentives, what was seen in the São Paulo landscape was the proliferation of mixed developments in these axes, with residential and non-residential buildings co-existing in the same land – especially the studios (small apartments), next to luxurious residential developments and with larger footage.

The challenge occurs at the moment of the literal interpretation of the articles on which these legal advantages are based.

According to the Zoning Law, land use and occupation are divided into broad categories, residential and non-residential. The non-residential category (R) has subcategories, including subcategory R1, whose nature is that of non-residential use compatible with the residential neighborhood. Among the uses foreseen in the NR1 subcategory are those related to lodging and housing services, the so-called R1–12.    

The definition of subcategory R1–12, however, carries a semantic load that generates uncertainties for the real estate market, investors and legal operators.      

The expression "housing", contained in the legal text, was interpreted by some as legal permission for the establishment of permanent residence in NR units, especially in the studios, which spread in the vicinity of the São Paulo subway and train stations.

For others, the legislature's intent was only to authorize certain groups of activities in R1–12, but only for a temporary stay and with commercial, institutional or service characteristics, typical of non-residential real estate.    

Currently NRs are a reality and, to prevent them from becoming land stock, they end up being used as permanent housing, and not transitory.

Deemed as NR units, these studios do not yet fall under the assumptions of subsidized financing, which also does not seem to be an attraction for an ordinary buyer. The result is that this type of unit, in general, becomes an option for real estate investors.

In addition, the price of the studios does not contradict the rationale of the market. Land closer to train, subway or bus lanes in São Paulo is already, by nature, land with a more expensive square meter, which rules out any kind of democratic transformation or correction of inequalities intended by the law.

Faced with the interpretative doubt  and the volume of studios NRs  that      are now part of the São Paulo landscape, what is characterized is a production of units in large scale, integrated to the use R1–12 and driven by the benefits of the Zoning Law, but that were not well absorbed by the public to which they are intended. Currently they are the object of survey by the market, which intends to have both legal certainty and financial return.    

The challenge is huge and some options are being tested, such as the use  of long stay  and short stay leases, with housing added to services (as a service), in order to try to rule out the residential characteristics of a non-residential product.

Both the PDE and the Zoning Law are constantly revised to clarify, adjust, or correct misuse of purpose. It is in progress, for example, the proposal to revise these instruments, which began with the interim review of the PDE (approved in the 2nd vote by the City Council and awaiting the mayor's approval). The Zoning Law will be the next to be reassessed, with relevant impacts for new real estate developments in the city, including mixed-use ones. One of the goals is to remove some incentives to try to curb the construction of more compact units, especially those with the amount of square meters less than 30m².

It is understood that the provisions of the PDE and the Zoning Law, which, by nature, are already lengthy and complex, depend on further regulation, both to meet the intention of the legislator and bring legal certainty to operators and investors, and even to accommodate the new interfaces between the legislation and the living and dynamic organism that is the city.

Category: Labor and employment

Signed on July 3rd by President Luis Inácio Lula da Silva, Law 14,611/23 establishes that the equality of wage and compensation criteria between women and men will be mandatory in cases of work of equal value or in the exercise of the same position.

Over the last few weeks, since the bill was approved by the Senate and sent for presidential signature, the issue has generated great debate and speculation among companies about what the real impacts resulting from the new law will be.

According to an article published by Reset, Santander recently released a report on the gender pay gap at companies listed on the Ibovespa Index. There are also several other studies - including public ones - that deal with the subject, considering only the amount of wages paid to men and women who occupy the same organizational level (coordinators, officers, etc.).

From a strictly legal point of view, however, these studies are not sufficient to confirm any existing gender wage differences at companies. In order to legally identify this fact, the data compared must consider all the legal requirements set forth in article 461 of the Brazilian Labor Law (CLT):

• identity of position;

• work of equal value, with equal productivity and equal technical perfection, provided to the same employer and in the same business establishment;

• difference in length of service for the same employer not exceeding four years; and

• difference in time in the position not exceeding two years.

In other words, legal analysis cannot take into consideration only the name of the job or the organizational level to compare salaries between women and men.

It is even fully legitimate for officers in different positions to earn different salaries, regardless of gender: the chief legal officer may earn a different salary than the chief financial officer, who, in turn, may earn a different salary than the chief operating officer. In these cases, there is no problem or violation of the rules of the CLT and Law 14,611/23, regardless of whether the positions are held by men or women.

Law 14,611/23 did not change the existing equal pay rules. It has, however, exposed companies to more severe legal consequences in the event of violations of the above-mentioned requirements and, consequently, to greater financial risks.

Moreover, by establishing the obligation to publish a semi-annual report on salary transparency and compensation criteria, it gives more visibility to possible inequalities.

This obligation is, without a doubt, the most important new feature introduced by the new law. Because of this, companies must conduct legal analyses considering their specificities and the work characteristics of each of their employees, in order to ascertain whether or not there is wage inequality between men and women.

This study, which should be carried out with the active participation of the companies' legal departments, will be essential to identify any legal risks and correct preparation of the salary transparency report and compensation criteria.

We detail below the new items introduced by Law 14,611/23:

Obligation to publish salary transparency report

Private legal entities (companies, associations, and foundations, for example) with 100 or more employees must publish, every six months, a report on salary transparency and compensation criteria.

The reports should contain anonymized data and information that allow for an objective comparison between salaries, compensation, and the proportion of management positions filled by women and men, accompanied by information that can provide statistical data on other possible inequalities arising from race, ethnicity, nationality, and age.

If unequal pay or compensation criteria are identified, the private legal entity must present and implement an action plan to mitigate the inequality, with targets and deadlines. The participation of labor union representatives and employee representatives in the workplace must also be assured.

In the event of non-compliance, an administrative fine of up to 3% of the employer's monthly payroll will be applied, limited to 100 minimum wages.

Increased fine for companies in the event of wage discrimination

In the event of proven wage discrimination due to sex, race, ethnicity, origin, or age, in addition to payment of wage differences, the employer will be responsible for paying an administrative fine equivalent to ten times the value of the new monthly wage due to the person discriminated against (the fine will be doubled in the event of recurrence). Until then, the fine was one regional minimum wage, doubled in the event of recurrence.

Payment of the fine and salary differences due to the employee discriminated against does not rule out the right to an action for moral damages.

Measures to guarantee equal pay for women and men

Law 14,611/23 establishes the following measures to guarantee equal pay and compensation criteria between women and men:

• establishment of salary transparency mechanisms and remuneration criteria;

• increased monitoring against wage discrimination and pay criteria between women and men;

• availability of specific channels for complaints about pay discrimination;

• the promotion and implementation of diversity and inclusion programs in the workplace that include training of managers, leaders, and employees on the subject of equity between men and women in the labor market, with measurement of results; and

• fostering of the training of women to enter, remain in, and rise in the labor market on equal terms with men.

The new law, however, does not define who will be responsible for implementing each of the above measures. Increased enforcement against pay discrimination is certainly an obligation of the Executive Branch. The other measures, on the other hand, could be implemented by both public and private entities.