Category: White-Collar Crime

Presented on April 24 by Senator Augusta Brito (PT/CE), Bill 2.091/23 (PL 2.091/23) introduces five new criminal types in Law 6.385/76 (Capital Markets Act) aiming at  fighting capital markets frauds.

According to the justification contained in the bill's text, the attempt to create new criminal types is motivated by the lack of "specific offenses" and "enforcement" of the existing regulatory provisions.

Also, according to the justification, a recent situation involving a retail company would have occurred for two main reasons:

- concealment of information to analysts, investors, audit firms and the Brazilian Securities and Exchange Commission (CVM); and

- repeated failures by directors, managers, officers, executives, board members and independent auditors to fulfill their duties.

The goal of PL 2.091/23, therefore, would be to insert in the Brazilian criminal legislation adequate mechanisms to punish actions and omissions and to introduce duties for agents with management positions in capital markets.

The proposal is to include eight new articles (articles 27-F to 27-M) in the Capital Markets Act, to introduce  the following crimes:

- Inducement to error in the capital market

"Art. 27-F: To induce or maintain in error an investor, shareholder or competent government department, regarding the operation or financial, accounting or equity situation of the company:

Penalty - imprisonment, from 1 (one) to 4 (four) years, and fine."

The conduct punishable will be defrauding and acting to give the investor or the regulatory agencies a misleading  view regarding the company's operational or financial situation. The legislator's idea is that criminalization would contribute both for inspection purposes and to ensure investor protection, considering the principle of publicity of publicly traded companies.

- Accounting fraud

"Art. 27-G Fraud in accounting or auditing, inserting non-existent operations, inaccurate data or not including operations effectively carried out:

Penalty - imprisonment, 2 (two) to 6 (six) years, and fine."

Similarly to the previous crime, conducts that falsify the true situation of the company, with the inclusion of false or inaccurate information about accounting and financial operations, are criminalized. To incur in  this crime it would not be enough to present erroneous data, it would also be necessary the specific intention of defrauding the company's accounting or auditing.

- Improper Influence

"Art. 27-H. Exerting improper influence on audits, by means of coercion, manipulation, fraud or by any other means:

Penalty - imprisonment, from 1 (one) to 4 (four) years, and fine."

Under this crime, the conduct of coercion, fraud, or manipulation that may cause deviation in audits conducted to verify the veracity of accounting and financial statements would be criminalized. Again, not only company managers can be held responsible for this provision, but there is also the possibility of punishing auditors.

- Ideological falsehood in manifestation

"Article 27-I. Omitting information or providing it falsely or differently than it should be provided to alter the truth about a fact that is legally or economically relevant for the purposes of this Law:

Penalty - imprisonment, from 1 (one) to 5 (five) years, and fine."

According to this crime, the falsification or omission of information that must be provided by the company would be criminalized, provided that it deals with an economic or legally relevant fact. Thus, the omission or falsification of information that must be disclosed in communications to the market, for example, would be prohibited. This is a specific figure of the crime of misrepresentation in which, in addition to the criminally relevant omission or misrepresentation, it is also necessary to have the specific intention of altering the truth of the facts covered by the Capital Market Act.

- Unfaithful administration

"Art. 27-J. Damaging the interests of shareholders or investors by not diligently performing the duties imposed by law:

Penalty - imprisonment, from 2 (two) to 6 (six) years, and fine.

Sole Paragraph. If the crime arises from negligence:

Penalty - imprisonment, from 1 (one) to 3 (three) years, and fine."

With this crime, directors and managers of companies that do not fulfill their duties of care, diligence, information, suitability, technical qualification, financial capacity, among others, causing damage to shareholders and investors, may be criminally liable. The failure to comply with these various duties may occur both intentionally, with the aim of harming shareholders and investors, and by negligence, carelessness and imprudence.

In addition to the crimes, PL 2.091/23 expressly lists, in article 27-K, the subjects that have the legal duty to act, to the limit of their responsibility, in case they identify the conduct typified in the previous articles, they are:

• directors;
• managers;
• administrators;
• executives;
• directors (de facto or de jure);
• independent auditors; and
• consultants and securities analysts

Article 27-L, on the other hand, provides for increased penalties (from half to double) for the conduct typified in the PL if they have severe effects, such as:

• shaking of confidence in the national financial system;
• number of victims; and
• value of the undue advantage or loss suffered by the victims.

In cases of recidivism, the penalty may be applied up to three times.

Finally, article 27-M determines the effects of a conviction for any of the crimes described above:

• the inability to exercise a business activity;
• the impediment to holding a position or function in a board of directors, fiscal council, executive board, or management; and
• the impossibility to manage a company by mandate or business management.

These effects must be presented in the condemnatory sentence and will be communicated to the Public Registry of Mercantile Companies.

As is the guiding principle of criminal law, which is expressly stated in PL 2.091/23, not only those responsible for the management of companies may be held criminally liable, but also any third party that contributes to the practice of the conduct described in the criminal types mentioned, such as independent auditors, consultants, and securities analysts.

It is also noted that the proposed crimes are broad and require complementation by concepts provided in other rules, as is common in the so-called "white-collar" crimes. The crimes described in articles 27-I, 27-J and 27-M, for example, make reference to duties or parameters regulated not only by the Capital Market Act, but also by rules and resolutions of other bodies, such as the CVM.

There are also many applicable punishments, considering that there is already the possibility of civil and administrative liability. The crimes provide for sanctions that present a very extensive variation. In case of conviction for the conduct typified in PL 2.091/23, there will be not only the imposition of a criminal fine but also restrictive penalties that can be increased up to three times, in addition to disqualification or impediment to exercise a position or function in a board of directors for an indefinite period.

Category: Banking, insurance and finance

The Central Bank of Brazil (Bacen) and the National Monetary Council (CMN) published on Tuesday, May 23, the Joint Resolution 6/23. It provides for the sharing of data related to evidence of fraud by financial institutions, payment institutions, and other institutions authorized by Bacen to carry out transactions with one another.

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

Who is subject to the rule?

• Financial institutions, payment institutions and other institutions authorized to operate by Bacen.

• Administrators of purchasing consortia are expressly excluded from the scope of the resolution.

• Institutions subject to the rule may participate in the sharing system both in terms of registration and access to registered data and information.

What must be shared?

• Information identifying those who allegedly have carried out fraud or attempted to do so, according to available probable cause, when applicable. This verification, in turn, should occur from procedures and criteria defined and documented by the institutions in a way that is detailed and compatible with their risk profile, legislation and regulations in force. This includes, as a minimum requirement, the verification of data from systems, registers and other databases available for consultation.

• The description of probable cause of the occurrence or attempt of fraud.

• Information identifying the institution responsible for registering of the data and information.

• The data of the recipient account and its holder if there has been a transfer of funds or payment.

The registry does not apply to confidential data and information - in the terms expressed in specific legislation - related to probable cause of laundering or concealment of assets, rights and valuables, and financing of terrorism.

Is it necessary for the customer to consent?

• Institutions must obtain prior and general consent from the customer with whom they have a relationship to record their data and information for the purpose of processing and sharing information on probable cause of fraud under the terms of the resolution.

• Consent may be included in the agreement signed between the customer and the institution, in a highlighted 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.

How will data be shared?

The resolution provides for the implementation and use of an electronic system that allows, as a minimum requirement, for the registration of data and information on probable cause of occurrence or attempted fraud identified by the institutions, as well as their alteration, removal and consultation.

• Sharing must also observe 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 them, it is worth mentioning 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 the system functionalities to be executed.

• Institutions must also adopt control mechanisms to ensure effective compliance with the resolution, including the definition of processes, tests and audit trails, metrics and indicators, as well as the 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, concerning the contracting of data processing and storage and cloud computing services).

Roles of Bacen

• Institutions must share with Bacen documentation about the electronic system and compliance with the requirements applicable to its implementation - including security, data protection and interoperability.

• The data shared by the system and the documentation containing the criteria and procedures for identifying the person possibly responsible for the fraud attempt must remain available for ten years.

• Data, records, and information about the application of the system's control mechanisms must remain available for five years from each application of the controls.

• Bacen may adopt the necessary measures for executing the resolution, such as establishing additional functionalities for the electronic system, observing the minimum content expected, 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: Tax

The Federal Supreme Court (STF) concluded, on March 17, the judgment of Extraordinary Appeal 796.939 / RS (Theme 736 of the General Repercussion) in the virtual plenary. At the time, the Court analyzed the constitutionality of the isolated fine of 50% provided for in article 74, §§ 15 and 17, of Law 9,430/96.

Under the terms of the law, the taxpayer who ascertains a credit related to a tax or contribution administered by the Federal Revenue that can be refunded or reimbursed – including credit resulting from a final court decision – may use it to offset his/her own debts, due or yet to fall due, within five years of the undue payment (article 168 of the National Tax Code – CTN).

This procedure is subject to the analysis and approval of the Revenue Revenue. If the body does not recognize the claim of credit, even partially, it will formalize the rejection of the tax reclaim or the non-approval of the offset made.

In case of non-approval, the amounts subject to offset will be charged, plus interest and a 20% moratorium fine (article 61, paragraph 2, of Law 9,430/96). This decision paves the way for administrative litigation and allows the presentation of a manifestation of nonconformity with suspensive effect (article 74, paragraph 9, of Law 9,430/96).

In addition, in a separate procedure, the Federal Revenue Service draws up a tax assessment notice to demand the collection of the isolated fine of 50% on the credit that originated the offset request not approved (Law 12,249/10), with interest accrual (article 74, §17, of Law 9,430/96).

The isolated fine is launched indistinctly, when there is no legal grounds for the penalty, and even before the final term of the administrative proceeding in which the legitimacy of the offsetting procedure is discussed.

The tax legislation itself determines that the taxpayer presents an offset request for subsequent approval by the Tax Authority, but, at the same time, establishes the imposition of a punitive fine on any debt that may not be approved.

What was discussed, in addition to the creditory right, is that the application of an isolated fine in these situations represents a double penalty of the taxpayer, in breach of the right to full defense and to a fair hearing, as well as the right of petition provided for in article 5, XXXIV, paragraph "a", of the Federal Constitution.

In that sense, it was argued that the isolated fine represents an undue political sanction that aims to prevent the taxpayer from recovering the amounts unduly collected from the Tax Authorities, constituting a confiscatory practice by the Public Administration, which is prohibited by the Federal Constitution (article 150, inc. IV, of CF/88) and by Precedents 70, 323 and 547 of the Federal Supreme Court.

The procedure would present an obstacle to the right to recover taxes improperly collected, capable of generating a very high financial risk to the taxpayer who acted in good faith when determining indebtedness before the Federal Revenue and proceed with the offset of such amounts, as provided for in the tax legislation.

Not for any other reason, §17 of the law, in its original wording^[1],  determined that the penalty should be applied only to taxpayers who utilized the offsetting request as a means of evading the collection of amounts owed, acting in bad faith, deceit, fraud or simulation.

In many cases, the non-approval of the offset results from the non-recognition by the tax authorities of rectifications in the fiscal bookkeeping (DCTF and SPED Fiscal – ECF and EFD-Contributions) by the taxpayers, for mere mistake in the calculation basis.

The isolated fine, therefore, ends up discouraging the rest of the taxpayers who, in good faith, present offsetting requests, exercising the right to recover amounts unduly paid.

Thus, it was neither reasonable nor proportionate to impose the penalty, which does not aim to discourage the taxpayer from practicing undue offset, but, in fact, to increase tax collection and punish bad taxpayers.

In line with the understanding mentioned above and confirming the Court's historical position on this matter, in the judgment of RE 796.639/RS, STF dismissed the Extraordinary Appeal of the Federal Attorney, for recognizing as unconstitutional both the already repealed §15 (Law 13.137/15) – relating to the application of an isolated fine on the rejected restitution requests – and the current §17 of article 74 of Law 9.430/96, in terms of the vote issued by Minister Rapporteur Edson Fachin.

Unanimously, the following thesis of judgment was established: "It is unconstitutional the isolated fine provided for by law to be levied on the mere denial of approval of tax offset request because it does not consist of an unlawful act with the ability to provide automatic pecuniary penalty."

As the rapporteur pointed out in his vote, the mere non-approval of the tax offset does not consist of an unlawful act capable of motivating a tax sanction. Thus, there is a clear lack of correlation between the 50% fine and the administrative offsetting request, since this is considered a legitimate exercise of the taxpayer's right of petition. In addition, the correlation violates due process and good faith.

On the same date, the judgment of the Direct Action of Unconstitutionality 4,905 (ADI 4,905), by the rapporteurship of Justice Gilmar Mendes, was also concluded. By a majority of votes, §17 of Law 9,430/96 was declared unconstitutional. It was understood that "the application of an isolated fine for the mere non-approval of an offset request, without being characterized by bad faith, falsehood, intent or fraud, violates the fundamental right of petition and the principle of proportionality".

Given this outcome, if the taxpayer is faced with the non-approval of an offset formalized before the Federal Revenue, only the moratorium fine of up to 20% provided for in article 61, caput and paragraph 2, of Law 9,430/96 will apply.

Considering that the Supreme Court, so far, has not modulated the effects of the decision, the precedent should be applied to all cases involving the imposition of the fine for non-approval of offsetting requests. The taxpayer may also claim the refund of amounts unduly paid in the last five years, under the terms of Law 9,430/96.

^[1] Art. 18. The official release referred  to in article 90 of Provisional Measure 2.158-35, of August 24, 2001, shall be limited to the imposition of an isolated fine due to the non-approval of compensation declared by the taxable person in the cases in which the practice of the offenses provided for in articles is characterized. 71 to 73 of Law 4.502,  of November 30, 1964.  (Text given by Law 11.051/04)

Art. 18. The official release referred to in Article 90 of Provisional Measure 2.158-35, of August 24, 2001, shall be limited to the imposition of an isolated fine due to non-approval of the compensation when the falsity of the declaration submitted by the taxable person is proved. (Text given by Law 11.488/07)

Category: Infrastructure and energy

The Federal Constitution instituted the Financial Compensation for Mineral Exploitation (CFEM) – more commonly known as "mining royalties" – as a consideration for the economic use of mineral resources (Union assets) to be collected by the National Mining Agency (ANM).

Currently, its collection is not only up to the holders of mining rights that carry out the mining activity, as originally conceived, but, more specifically:

• to the first purchaser of mineral extracted under the small scale mining consent;
• the purchaser of mineral auctioned off at public auction; and
• to those who exercise, for consideration or free of charge, the activity of exploitation of mineral resources on the basis of the rights of the original holder.

The current regime, introduced by Law 13,540/17, lists distinct situations that represent the taxable event of CFEM, based on the wording given to items I to V of article 2 of Law No. 8,001/90, all of them related to the exploitation of mineral resources.

Among these hypotheses, in two of them the amount due is calculated directly on the result of the commercialization of the production of the mining companies. This is what is provided for in items I and III, which determine the collection on the revenue from the sale and export of mineral production. [1]

In both cases, CFEM ends up following a typical methodology of indirect taxes that act on trading activities. Although it is not a tax, but a public price,[2]  the collection is also calculated on revenues, causing its economic effect on the sale price of the production.

In fact, the mechanics of tax charges that affect sales, whether of a tax nature or not, tend to obey a pattern, in which the value destined for the public treasury ends up being incorporated to the product price and borne by the purchaser.

The similarity between the institutes is also revealed to the extent that the legal entity responsible for CFEM acts as a kind of intermediary between the collecting agency (ANM) and the purchaser, since the amount of the charge, initially received by the mining company, is subsequently transferred to the public entity, not being incorporated into the company's assets.

The systematics described above leads to the reflection on whether CFEM could be considered part of the revenue of the explorer of the mining company or if it would be a simple cash inflow, as ICMS was interpreted by the Federal Supreme Court (STF) in the judgment  of Extraordinary Appeal 574.706, which resulted in the thesis of removal of ICMS from the calculation basis of PIS and Cofins.

On that occasion, the ministers recognized that the state tax would represent only a transitory cash inflow, to be transferred to the public entity, which is the final receiver of the cash. Therefore, it would not represent an equity income capable of generating revenue and, therefore, it was understood by the impossibility of composing the calculation basis of federal contributions.

As is well known, the prevailing legal understanding served as a basis for the emergence of subsidiary theses, or "offshoots", which claim the exclusion of other items from the calculation basis of PIS and Cofins. There are cases, for example, of judgments of the Federal Court of São Paulo[3] and the Federal Regional Court of the 3rd Region,[4] who admitted the exclusion of PIS and Cofins from their own basis, based on the line of rationale established in the Theme 69.

In this context, it seems appropriate to argue that, similarly to ICMS and other indirect taxes, CFEM does not constitute revenue of those who receive it, since these resources remain for a certain time in the possession of the individual and then are transferred to the treasury, which appropriates them definitively.

In addition, the requirement of PIS and Cofins on CFEM can be interpreted as a double burden imposed on mining companies that, in addition to the consideration for ore exploitation, would be subject to an increased tax burden.

Therefore, in our view, there is good evidence to support the exclusion of that item from the calculation basis of PIS and Cofins due by the companies exploiting mineral resources. In this scenario, it is observed that mining companies obliged to pay CFEM may, in given circumstances, seek alternatives to mitigate the tax impact by judicially questioning the obligation of this charge.

[1] Art. 2 The CFEM rates shall be those listed in the Annex to this Law, subject to the limit of 4% (four percent), and shall incur: (Wording given by Law 13.540, of 2017)

I - in the sale, on the gross revenue of the sale, less the taxes levied on its commercialization; (Included by Law 13,540, of 2017)

(....)  III - in exports, on the calculated revenue, considered as calculation basis, at least, the parameter price defined by the Brazilian Federal Revenue, based on article 19-A of Law 9,430, of December 27, 1996, and in the complementary legislation, or, in the event of non-existence of the parameter price,  the reference value shall be considered, subject to the provisions of §§ 10 and 14 of this article; (Included by Law 13,540, of 2017) Term

[2] As reaffirmed by the jurisprudence of the Supreme Court, most recently in ADI 4.146, of October 9, 2019.

[3] Writ of Mandamus 5003772-59.2021.4.03.6100, judged by the 14th Federal Civil Court of São Paulo, on August 11, 2021.

[4] TRF 3rd Region, 4th Class, ApReeNec - Appeal / Reexamination required - 5022842-67.2018.4.03.6100, rel. federal judge Andre Nabarrete Neto, judged on December 19, 2019, summons via system. Date: January 20, 2020

[5] Art. 3 From the amount calculated in the form of article 2 the legal entity may deduct credits calculated in relation to: (...) I - goods acquired for resale, except in relation to the goods and products referred to: (...) II - goods and services, used as inputs in the provision of services and in the production or manufacture of goods (....) §1 Subject to the provisions of § 15 of this article, the credit shall be determined by applying the rate provided for in the caput of article 2 of this Law on the value: I - of the items mentioned in items I and II of the caput, purchased in the month;

[6] According to the rules of article 3, paragraph 2, II, of Law 10,833 and article 3, paragraph 2, II, of Law 10,637/02.

[7] Appeal/Remittance Required – 08173623420204058300. Organ: Federal Regional Court of the 5th Region. Rel., Federal Judge Marcos Antonio Garapa De Carvalho (summoned). Tried July 20, 2021.

Category: White-Collar Crime

Law 14,540/23, promulgated on April 3, 2023, establishes the Program for the Prevention and Confrontation of Sexual Harassment and other Crimes against Sexual Dignity and Sexual Violence within the scope of the Public Administration, direct and indirect, federal, state, district and municipal.

Published in the Official Gazette on April 4, 2023, the law applies to all public entities and private entities that provide public services through concession, permission, authorization, or any other form of delegation.

The initiative shows the growing concern of the government with integrity issues.

The Program uses as parameters for the characterization of violence provided for in Law 14,540/23 the definitions of sexual crime contained in the Criminal Code and other crimes inserted in special laws, such as  Law 11,340/06 (Maria da Penha Law) and  Law 13,431/17 (Law of Guarantee of the  Child or Adolescent Victim or Witness of Violence).

The goals of the Program are:

• To prevent and address harassment and other forms of violence;
• To train the Public Administration agents in preventing and solving cases of violence; and
• To implement educational campaigns on harassment and other forms of violence.

To achieve these goals, the law sets the following guidelines:

• Clarification to Public Administration agents about the elements that characterize harassment and other forms of violence;
• Provision of educational and informative materials with examples of conduct that can be characterized as sexual harassment or other crime against sexual dignity, or any other form of sexual violence, in order to guide the actions of public agents and society in general;
• Implementation of good practices for the prevention of the conducts covered by the Program;
• Dissemination of relevant legislation on the subject and public policies for the protection, reception, assistance and guarantee of the victims’ rights;
• Disclosure of reporting channels accessible to servers, agencies, entities, and other actors involved;
• Establishment of procedures to forward complaints, ensuring confidentiality and due process; and
• Creation of training programs, in the face-to-face or distance modality, with specific mandatory content addressing victims' health, legal developments, victims' rights, mechanisms and whistleblowing channels ,and existing legal instruments for prevention and confrontation of sexual harassment and other violence.

The Program also contains provisions to provide efficiency to the prevention and mitigation of sexual violence by setting  practical measures, such as:

• Duty to report by any person who becomes aware of conducts related to  sexual harassment or violence ;
• Investigation and punishment of retaliation of victims, witnesses, and investigators; and
• Registration, physical or electronic, for five years of frequency of the training initiatives given, by all agencies and entities covered by the Program.

The monitoring of the development of the Program will be carried out by the Executive Branch, in order to subsidize the planning of future actions and the analysis and achievement of its objectives and guidelines.

The law shall enter into force on the date of its publication. However, its application to private entities is subject to the specific regulation of the matter by the federative entity responsible for the concession, permission, authorization or delegation.

Category: Infrastructure and energy

The National Electric Energy Agency (Aneel) approved, on February 14 of this year, the new Arbitration Convention of the Electric Energy Trading Chamber (CCEE), at the 4th Ordinary Public Meeting of the Board of Directors of 2023.

The text, which had been approved at the 68th Extraordinary General Meeting, becomes mandatory for CCEE and its agents, pursuant to article 44, sole paragraph of Aneel Normative Resolution 957/21^[1].

The new convention is applicable to all arbitration proceedings instituted since March 1 of this year, pursuant to article 3 of Ratifying Resolution 3,173/23. ^[2] Its objective is to modernize the resolution of disputes in the electricity sector, especially to provide greater legal certainty and freedom to the agents operating in the segment.

There are novelties in relation to the rules previously in force, such as the plurality of chambers, the clarification on the delimitation of the conflicts that must be submitted to arbitration, the possibility of requiring the provision of guarantee in the context of the dispute and the creation of a repertoire of jurisprudence.

In response to the request of agents who pleaded for the plurality of arbitration chambers that could also decide disputes arising from the CCEE Arbitration Convention, the FGV Mediation and Arbitration Chamber will no longer have exclusivity for the resolution of disputes within the scope of the CCEE. Now, any approved arbitration chamber can be elected by the agents of the CCEE. At the time of writing, Camarb, CBMA, Ciesp-Fiesp and CAM-CCBC had already integrated the list of arbitration chambers approved by the CCEE.

The new arbitration convention further clarifies that arbitration is dispensable in bilateral conflicts that do not affect the rights of third parties and do not affect the operations of the CCEE. Nor are measures to collect amounts delinquent by agents or non-agents mandatory, which can be pleaded through the courts. This clarification is salutary and seeks to resolve doubts that hovered over the need to submit to the arbitration agreement of the CCEE disputes of a mere private nature that do not have repercussions on the operations of the CCEE.

The provision that the delivery of monetary guarantee may be required by the arbitral tribunal, in the event that the arbitration has a potential impact on other agents, complies with the principles of market security, in particular in the context of the expansion of transactions in the free energy market.

In addition, the creation of a repository of jurisprudence is welcome, with the approved arbitral chambers obliged to create a public repository of menus of the decisions of the disputes involving the agents of the CCEE, respecting the privacy of the parties and the confidentiality attributed to the procedures.

Given the exponential arrival of new players in the energy sector, it is possible that the number of conflicts between free consumers (wholesalers and retailers), traders and retail traders – who will be governed by the new rules – will increase. According to data provided by CCEE, "the number of agents associated with CCEE has been growing significantly since 2016, reaching in 2022 the mark of 13,386 registrations, a growth of 10.6% compared to 2021."^[3]

In this context, the modernization of the convention, in addition to conferring greater autonomy and legal certainty to the parties, opens the door to the gradual opening of the power free market and, above all, moves towards the increased development of arbitration in the power sector.

It is worth remembering that the new convention repeals the Ratifying Resolution 531/07, previously in force. Only the arbitral proceedings that were in progress and/or the acts and facts that occurred during its validity remain under the rule of the old convention.^[4]

^[1]    Art. 44. The Agents of the CCEE and the CCEE shall resolve, through the Arbitration Chamber, all disputes involving available rights, under the terms of the Law 9,307, of September 23, 1996, in the following cases: I – conflict between two or more CCEE Agents that does not involve matters under the direct competence of ANEEL or, in the event of dealing, has already exhausted all administrative instances regarding the object of the matter in question; II – conflict between one or more CCEE Agents and CCEE that does not involve matters under the direct competence of ANEEL or, in the event of treatment, has already exhausted all administrative instances regarding the subject matter of the matter in question; and III – without prejudice to the provisions of a specific clause in the CCEARs, a conflict between CCEE Agents arising from Bilateral Contracts, provided that the event giving rise to the divergence arises from the respective contracts or from Marketing Rules and Procedures and has repercussions on the obligations of the contracting agents within the scope of the CCEE. Single paragraph. The Arbitration Agreement is an integral part of this Marketing Convention, as well as binding on all agents of CCEE and CCEE, as provided for in §§ 5, 6 and 7 of article 4 of Law 10,848 of 2004.

^[2]    Art. 3 This Resolution enters into force on March 1, 2023.

^[3]    Balance of Consumption and Generation 2022. Analysis of generation and consumption between the energy contracting environment, in the comparison between the years 2022 and 2021 <https://www.ccee.org.br/web/guest/dados-e-analises/estudos-especiais>. Accessed 22.03.2023.

^[4]    Art. 2, sole paragraph, of Ratifying Resolution 3,173/23: "The acts and facts that occurred during the validity of Ratifying Resolution No. 531, of August 7, 2007, remain governed by it, including the ongoing arbitration proceedings instituted in its validity."

Category: Environmental

Approved by the Legislative Power and sanctioned by the President after more than seven years in discussion, Federal Law No. 14,133/21 finally entered into force on April 1^st 2023, replacing the previous Federal Law No. 8,666/93.

After two years of vacatio legis, it can be said that the legislator opted for the creation of an innovative law from an environmental standpoint. Although it could have promoted  greater advances in several points, in the environmental field Federal Law No. 14,133/21 reinforces and brings harmony to a complex system of environmental policies in Brazil, making them more effective and guaranteeing greater legal security.

In line with the objectives established in the Federal Constitution of 1988, which established the defense of the environment as a fundamental right and basic principle of Brazilian economic order, under the terms of its articles 225 and 170, item VI, the new norm addresses the environmental and sustainability issues in  in a practical way , since it determines more specifically the environmental aspects that must be taken into account during Brazilian bidding proceedings.

Among the main changes introduced by Federal Law No. 14,133/21, eight points deserve to be highlighted with regard to its environmental variable:

1. In the preparatory phase, bidders must prepare a descriptive technical study of the possible environmental impacts and respective mitigating measures, including issues involving reverse logistics and consumption of energy and natural resources (article 18, paragraph 1, XII).
2. It will be possible to require the bidder to obtain environmental licenses, provided that such a hypothesis is provided for in the public notice (article 25, paragraph 5, I).
3. Priority will be given to the procedures for environmental licensing of engineering works and services before environmental agencies that are part of the National Environmental System – Sisnama (article 25, paragraph 6).
4. The criteria of best sustainable price will be used ^[1] (art. 34, paragraph 1).
5. It will be mandatory to comply with standards related to environmentally appropriate final disposal of waste, mitigation and compensation of environmental impacts and use of products, equipment and services that demonstrably reduce the consumption of energy and natural resources in bids for contracting works and engineering services (art. 45, I, II and III).
6. It will be possible to establish variable remuneration in the contracting of works and services – including engineering – linked to the bidders performance based on goals, quality standards and sustainability criteria (art. 144);
7. It will be allowed the exemption from the bidding proceedings of services of collection, processing and commercialization of recyclable or reusable municipal solid waste conducted by associations or cooperatives formed by low-income individuals; and
8. It will be possible to justify delay in environmental licensing procedures – due to circumstances beyond the control of the bidder – to change the contract and restore its economic and financial balance or extinguish it (art. 124, §2 c/c art. 137, VI).

As for the last point, Federal Law No. 14,133/21 intends to pacify the recurring discussions in the Judiciary regarding the impracticability of execution of contracts and bidding schedules, due to the complexity of environmental licensing procedures in the country.

Departing from the generality of the previous rule^[2],  Federal Law No. 14,133/21 – by placing environmental licensing as a determining variable in claims for economic and financial rebalancing or termination of contracts – adopts the majority understanding of the jurisprudence of the national courts, ensuring the balance of bidding contracts and the legal certainty of bidders.^[3]

At first, the new Federal Law seems to have managed to achieve a tenuous balance between the guarantees of environmental protection and the needs of the public interest (be it economic, social, political or cultural).

Armed with a spirit that reflects the global trend of requiring enterprises and entrepreneurs to get closer and closer to environmental, social and governance criteria, Federal Law No. 14,133/21unveils a scenario in which enterprises that show interest in winning bidding proceedings must increasingly adapt to environmental legislation in order to ensure a healthier and more efficient panorama of public procurement.

^[1] When dealing with the criteria for judging the bidding, it is established the possibility of giving preference to goods and services that have less environmental impact on the production process – provided that they are objectively measurable – to the detriment of the logic of the lowest price.

^[2] Established by article 65, II, "d" of Federal Law No. 8,666/93.

^[3] As a direct reflection of the new law, in bids whose responsibility for environmental licensing falls to the Public Administration, prior environmental licenses – when applicable – must be obtained by the public power before the disclosure of the notice (article 115, paragraph 4).

Category: Infrastructure and energy

Law 14,514/22, published on December 29, 2022, brought in two relevant changes to the mining sector: the possibility of establishing liens on exploration permits and a new set of rules applicable to research, mining, and marketing and sale of substances, ores, and nuclear minerals.

The new law, which was focused on changing the rules regarding the state-owned company Indústrias Nucleares do Brasil S.A. (INB) and the exploration of nuclear minerals and ores, also changed other rules in the mining sector.

Among them is the inclusion of article 92-A into Decree-Law 227/67 (the Mining Code). The new article expressly establishes the possibility of lien and offering as collateral of research authorizations, mining concessions, mineral licensing, mining permission, and the right to continue after the expiration of the research authorization and before the granting of the mining concession.

The offer of mining rights as collateral, a very important issue for the sector, was regulated by the National Mining Agency (ANM) through Resolution ANM 90/21, after a long period in which the subject was regulated only by Opinion JT-05. This opinion, binding on the entire Federal Administration because of its presidential approval, addressed only the possibility of creating a pledge and concluded that the lien would only apply to mining concessions.

As discussed in a prior article, the publication of ANM Resolution 90/21 brought about new possibilities and defined the mechanics for the creation of liens on mining rights as a collateral for the raising of funds by their holders, even without expressly addressing the possibility of lien on permits for research authorization or mining licenses.

With the inclusion of the new article 92-A in the Mining Code, it is expected that the ANM will publish supplementary regulations in order to receive the innovation brought about by the legislative change, which adds legal security to financing transactions in the mining industry and meets a long-standing request of the sector's players.

Changes also affect the nuclear minerals sector

As per the terms of article 1 of Law 4,118/62, the Federal Government has a monopoly on research, mining, enrichment, reprocessing, industrialization, and trade of nuclear minerals and ores and their derivatives, nuclear elements and their compounds, fissile and fertile materials, radioactive substances, and nuclear by-products.

In Brazil, mineral reserves belong to the Federal Government and can only be explored by private entities by means of concessions, licenses, or by the old legal concept of the manifested mine, extinct with the separation of ownership of the soil from that of the subsoil as of the Federal Constitution of 1934, but which remains in our legal system in observance of the principle of vested rights.

The new Law 14,514/22, together with Law 14,222/21, orders that if the holder of a right allowing exploration of mineral reserves identifies the occurrence of nuclear elements (such as, for example, uranium, thorium, plutonium, and others as determined by the competent authority), it must notify the ANM, the new National Authority for Nuclear Safety (ANSN), and the INB, pursuant to article 4 of Law 6,189/74.

INB, in turn, will evaluate the technical and economic feasibility of the nuclear mineral resources and determine how it will be explored, according to the criteria summarized below.

• If the economic potential of the nuclear elements found in the reserve is greater than that of the other substances researched or mined in the same deposit, the exploration of the deposit's resources may only be carried out through a partnership between INB and the company holding the concession (relationship subject to control of the benefits by the INB) or through expropriation of the mining rights by the INB (subject to prior compensation to the holder of the mining right).

• If the economic potential of the nuclear elements found in the reserve is lower than that of the other substances researched or mined in the same deposit, the mining right will be kept with the original holder.

In this case, if the use of the nuclear element is considered technically and economically feasible, the parties shall determine a way to deliver this nuclear element included in the mined ore to the INB according to a rule to be established in a future regulation.

If the benefits of the nuclear elements found are considered technically and economically unfeasible, the mining right holder must dispose of them in accordance with applicable environmental laws.

The new legislation, therefore, does not make clear the possibility that a private entity may freely and individually (without the INB's participation in the production or commercialization chain) explore and commercialize nuclear minerals.

There is, however, a sign that the INB may enter into contracts with private legal entities and remunerate them by means of the right to commercialize ores associated with nuclear ores or minerals, in addition to the right to purchase the product of mining with previously authorized exportation (in a form still to be defined in a future regulation), besides other forms established in a contract between the INB and the private entity.

This possibility is a legislative innovation, which should be further clarified by future regulations and a market practice to be developed.

There is also no clarity on the type of arrangement that can or should be established between the mineral rights holders and the INB for production and commercialization.

Considering that future laws are expected to regulate how the INB will receive elements intrinsic to the ores extracted by private entities, possibly new rules on the subject will be created so that the state-owned company can negotiate certain arrangements with private entities to allow greater participation in the production and commercialization of nuclear ores.

For more information, see the Mining Industry team and Machado Meyer's Banking, Insurance and Finance practice.

Category: Real estate

A pioneer in the regulation of the topic in Brazil, São Paulo Municipal Law 17,853 (Law 17,853/22), which regulates establishments made up of sets of industrial kitchens, popularly known as dark kitchens, went into effect on November 30, 2022.

Approved by the City Council in a second and definitive vote and promulgated by Mayor Ricardo Nunes, the law stems from Bill 362/22 - proposed and filed by the Municipal Executive. The text also amends the wording of the article regarding noise limits imposed on large events and shows, provided for in the law that provides for the use and occupation of the soil in the City of São Paulo (Law 16,402/16).

A dark kitchen is a business model consolidated in countries like the United States, United Kingdom, and India. The concept involves equipping a conglomerate of kitchens and selling these spaces to various restaurants that work exclusively with a delivery service. In parallel, services are offered that range from maintenance and cleaning of the space to centralization of digital order platforms, which facilitates day to day operations.

The growth of dark kitchens in several predominantly residential neighborhoods in the City of São Paulo had been causing various nuisances - noise pollution, the presence of many drivers and delivery motorcycles at the door of the establishment hindering traffic and causing noise in the surroundings, nuisance from smoke from active kitchens, among others.

With the regulation, the aim was to reduce these problems. The law divided the operations of dark kitchens into two groups and established permitted Occupancy Use Zones for their installation.

For a warehouse of up to 500 m² with 3 to 10 kitchens, it is understood that the activity is compatible with a residential neighborhood. Their installation, therefore, is allowed in most of the city's use zones, with the exception of Corridor Zones (ZCOR), zones located in the Environmental Protection and Recovery Macrozone, and preservation zones, such as the Exclusively Residential Zones (ZER) and the Special Environmental Protection Zones (Zepam).

For a warehouse with an area larger than 500 m² or with more than ten kitchens, the activity is considered to generate urban and environmental impacts. For this reason, their installation is restricted to Predominantly Industrial Zones (ZPI-1 and ZPI-2) and Economic Development Zone 2 (ZDE-2).

The text also highlights the need for dark kitchens already installed to adapt within 90 days after the law comes into effect, that is, the beginning of March of this year. Among the main measures are the following:

• adjust the minimum area of each kitchen to the limit determined.
• comply with the minimum distance between an existing or licensed dark kitchen and another;
• submit to the Municipal Secretary of Green and Environment a memorandum characterizing the enterprise;
• install, in a visible place, the data and licenses concerning each ongoing operation;
• adjust the noise levels generated by the establishment to the limits of the legislation in effect.

Another issue addressed in the law has generated a lot of controversy because it is unrelated to dark kitchens. This is a change in the sound pressure limit to 75 decibels in the place or surroundings where large events and shows will be held.

Overall, Law 17,853/22 brings more security to both citizens and operators/entrepreneurs of dark kitchens, by defining installation and operation rules to minimize impacts to their surroundings and facilitate coexistence with other municipal facilities. The classification standard is noteworthy because it makes it clear that the installation of dark kitchens in strictly residential areas - a great nightmare for residents - is not allowed.

Category: ESG and Impact businesses

Published on March 2 and in effect since March 9, Decree 11,427/23 approves the regulatory structure and the table of commissioned posts and functions of trust of the Ministry of Development, Industry, Trade, and Services. One of the innovations is the creation of the Bureau for Development of Green Economy, Decarbonization, and Bioeconomy, within the scope of industry, trade, and services.

Among the attributions and authority of the new bureau are the following:

• propose, implement, and evaluate public policies that encourage and support the development of businesses that generate social and environmental impact, integrate strategies for decarbonization of productive sectors, and foster the bioindustry in Brazil;
• encourage public and private access to capital for businesses that generate social and environmental impact;
• engage in discussions with public and private organizations involved in environmental, social, and governance issues to promote regulatory advancement and ensure conditions for the economy to develop on a sustainable model;
• propose, implement, and evaluate policies to promote industrial complexity related to the sustainable use of biomass, genetic heritage, and traditional knowledge associated with it;
• propose strategies for decarbonizing the economy;
• support and encourage the development of the economy;
• propose and articulate strategies to improve national and international legal arrangements related to the sustainable use of biodiversity and associated traditional knowledge by the productive sectors and climate change that may impact on the productive sectors.

The new bureau will include the following departments: Genetic Heritage and Productive Chains of the Biomes and the Amazon, Decarbonization and Green Finance, New Economies and Bioindustry, and Strategic Health Inputs.

The Genetic Heritage and Productive Chains of the Biomes and the Amazon department is responsible for, among other functions:

• participate in the drafting, implementation, and evaluation of proposals related to genetic heritage and productive chains of the biomes and the Amazon;
• propose, implement, and evaluate policies to foster the creation and consolidation of innovative businesses based on the sustainable use of genetic heritage and associated traditional knowledge in the Brazilian biomes and the Amazon;
• propose, implement, and evaluate policies to disseminate good practices in biodiversity-intensive sectors, especially those related to community protocols of indigenous peoples, traditional communities, and family farmers.

Within the purview of the Decarbonization and Green Finance department are the following:

• plan and coordinate the ministry's actions in international financial institutions for sustainable development, environment, and climate change;
• propose, implement, and evaluate policies to promote and prepare the productive sectors for the energy transition process and change to a low carbon economy;
• track the decarbonization targets of the international industry in relation to the Brazilian targets for the sector and future mechanisms to be implemented;
• participate in the proposal of measures and standards for the implementation and improvement of the carbon market;
• propose, collaborate on, and monitor economic and non-economic regulations related to decarbonization of the economy;
• propose, implement, and evaluate proposals for economic and financial mechanisms that enable the process of energy transition and low carbon production in the economy.

In relation to the New Economies department, the following competencies stand out:

• encourage, support, and mobilize social and environmental business entrepreneurs;
• encourage the mobilization of public and private capital to support intermediary organizations and funding organizations of social and environmental impact businesses;
• propose policies that encourage the emergence and development of investments and businesses of social and environmental impact;
• promote a favorable regulatory environment for the development of impact investment instruments and social and environmental businesses;
• propose public policies that encourage public purchases of businesses that generate positive social and environmental impact and encourage the integration of social and environmental impact businesses in the production chains of large companies and corporations.

As for the Bioindustry Strategic Health Inputs department, the following competencies stand out:

• coordinate the development, implementation, and evaluation of policies to promote modernization of industrial processes and the incorporation of new technologies in the productive sectors of the bioindustry and strategic health inputs; and
• promote professional technological, corporate management, and innovation training for bio-based industries, especially in areas related to the production of biofuels, biomaterials, pharmaceuticals, cosmetics, and functional foods.

The decree is an important step towards fostering the green economy and businesses that seek to bring about corporate solutions to environmental and social problems. The expectation is that a regulatory and legal framework capable of promoting decarbonization of the economy and emergence of new impact businesses will be increasingly developed.

Category: Arbitration

Gisela Mation, Maria Dória, and Sávio Andrade

The potential of artificial intelligence is enormous and its use can bring about extraordinary developments. However, because it is not an easily applicable binary technology, there are a number of challenges to be faced in order to take full advantage of its potential.

In general, artificial intelligence operates with algorithms that perform inferences from data and accumulate knowledge and learning from previous experiences.

Over time, the system will improve itself and should always make it possible to trace the patterns detected so that we can understand its mechanisms and understand how the conclusions presented were reached.

However, this is not always the case. Machine learning is often not mappable, constituting a veritable black box that is neither accessible nor sufficiently intelligible by humans.

Moreover, the international community has already pointed out several cases of mistaken conclusions that occur when artificial intelligence is used for more sophisticated issues, different from repetitive operational tasks guided by humans.

Not surprisingly, global discussions are underway regarding problems related to the difficulty of tracking the conclusion of algorithms, the bias of the data used - leading to biased conclusions - and accountability arising from the use of artificial intelligence.

In Brazil, there is still no specific regulation on the subject, since the legal framework of artificial intelligence, approved by the House of Representatives in September 2021, is still pending in the Federal Senate.

However, it is imperative that, from the outset, the use of artificial intelligence observe ethical and legal principles and adhere to technical criteria of reliability, traceability, and accountability. It is essential to establish a minimum stringency to provide security for those involved.

Also in the second half of 2021, the Federal Judicial Board (CJF) held the II Conference for the Prevention and Out-of-Court Resolution of Disputes in order to seek efficient solutions to the large number of lawsuits in Brazil. Among the pronouncements approved, 106 stands out,^[1], which encourages the use of artificial intelligence in arbitrations.

Today it is already possible to imagine, for example, the use of artificial intelligence in transcriptions and translations, document analysis and systematization, or even in supporting the appointment of arbitrators, for competence verification and conflict checking.

There are various possibilities of employing artificial intelligence techniques to contribute to the improvement of efficiency in procedural acts in arbitration proceedings. These acts include those performed by arbitrators as well as by lawyers and experts. They also cover activities performed within the proceeding itself and preparatory activities.

Necessary care

The intention to encourage the use of artificial intelligence in favor of dispute resolution is laudable and necessary. To achieve greater efficiency, the incentive must be accompanied by guidance on the limits for the use of this technology, the phases in which it can be applied, and the means of verifying how it has helped the result obtained. In other words, due process of law needs to be updated to accommodate the use of artificial intelligence.

In this context, the CJF was right to point out, in the justification of the aforementioned pronouncement, the need for "this phenomenon to observe the constitutional guarantees of due process of law, especially the right to participation and the right to an adversarial process.

The ponderation was pertinent not least because caution is even more recommended in arbitration proceedings. One should avoid giving the other party elements to support a possible action for vacatur, which could harm both speed and legal certainty, two of the main advantages of arbitration proceedings.

This is not to reject the use of artificial intelligence in dispute resolution. As the CJF rightly pointed out, its use can contribute to disputes being resolved more efficiently and with less delay. However, its employment deserves care and diligence.

In the absence of specific regulations, it is essential that lawyers be aware and work to ensure that the use of artificial intelligence tools respects a broad defense, the adversarial process, and the guarantee of the arbitrator's free persuasion.

The direct consequences of technological advances have already arrived and, more than ever, the parties need to be well advised by multidisciplinary professionals who not only master the law, but also have the knowledge necessary to understand, in real time, how the application of artificial intelligence can impact on resolution of the dispute. In this manner, they can act quickly on behalf of their client.

^[1] Pronouncement 106: It is admissible in arbitration to make use of artificial intelligence technology tools to assist the parties and the arbitrator during the course of the proceedings.

Category: Arbitration

Marcela Volponi, Ciro Starling, and Henrique Buldrini

Presumed moral damage (in re ipsa), that is, inherent to the fact itself, is applied and recognized by the case law of the Superior Court of Appeals (STJ) in several situations involving consumer relations in Brazil, such as in cases involving:

• moral damage due to contamination of food with a foreign body;^[1]
• trademark misuse;^[2]
• improper registration in a delinquent debtor registry;^[3]
• refusal of the health plan to authorize emergency medical treatment;^[4]
• marketing and sale of personal data in a database.^[5]

Regarding the last topic, the 3rd Panel of the STJ, on November 12, 2019, in the judgment of Special Appeal 1.758.799 (REsp 1.758.799), in an opinion drafted by Justice Nancy Andrighi, defined that the provision or marketing and sale of personal data of a consumer contained in a database, without the knowledge of its holder, even if they do not fit in the concept of sensitive or confidential data, constitutes a case of moral damage in re ipsa.

Nevertheless, the 2nd Panel of the Superior Court, in the recent judgment of Interlocutory Appeal in Special Appeal 2130619/SP (AREsp 2130619/SP), handed down on March 7, 2023, and the opinion of which was drafted by Justice Francisco Falcão, the Court held that, although the leaking and sharing of consumers' personal data is not a desirable act, this event does not have the power, on its own, to establish presumed moral damage.

In the special appeal, it was argued that the decision handed down by the São Paulo Court of Appeal (TJSP), according to which a simple leak of reserved data would be sufficient to establish fault in the provision of services and presumed moral damages to the consumer, violated articles 42, 43, II and III, 46 and 48, of the General Data Protection Law (LGPD) and article 14, paragraph 3, of the Consumer Protection Code (CDC), which deals with the strict liability of suppliers.

According to the unanimous understanding of the STJ, data of an ordinary nature, personal and not intimate, capable of identifying an individual, should not be classified, under the LGPD, as sensitive. Thus, in case of mere leakage and/or sharing of the consumer's personal data, a finding of presumed moral damage would be ruled out.

Hearing the AREsp, admitting the REsp in part and granting relief in that part, the STJ entered into the concepts of "personal data" and "sensitive personal data" provided for in sections I and II of article 5 of the LGPD. The Court recognized that the rule provided for in subsection II of this article provides "a list of what would be sensitive personal data and, because they have this condition, require different treatment, as provided for in article 11 of the same LGPD."

Thus, it concluded that the leaking of sensitive data, because they are related to the intimacy of an individual, constitutes moral damage in re ipsa. Therefore, differently from what the TJSP concluded, the personal data leaked would not be sensitive data, since they do not fit within the exhaustive list (and not in the list of examples) of the rule.

Although, in this case, the contents of articles 42, 43, II and III, 46 and 48, of the LGPD and article 14, paragraph 3, of the CDC were not analyzed by the STJ - because for the reporting justice these provisions were not preserved for appeal - it should be remembered that the head paragraph of article 42 of the LGPD provides that "the controller or operator that, by virtue of the exercise of the activity of processing personal data, causes another person economic, non-economic, individual, or collective damage, in violation of the legislation for the protection of personal data, is obliged to repair it.”

In this context, processors will not be held liable only when they prove that they did not perform any data processing, that there was no violation of data protection legislation, or that the damage is the result of the exclusive fault of the data subject or a third party, as provided for in articles 43, 46, and 48 of the LGPD.

Article 42, paragraph 2, of the LGPD allows the judge, at his discretion, to reverse the burden of proof in favor of the data subject in the following cases:

• likelihood of his allegations;
• weaker position to produce evidence; or
• when the production of evidence by the holder becomes excessively burdensome.

Producing evidence regarding possible damages suffered by consumers in cases of leakage and/or sharing of data, however, is not a simple matter, either because of the difficulty of accessing information, the speed and agility with which information travels over the Internet, or the lack of transparency and ease ofin tracking the means of sharing data on the Internet.

TJSP and STJ decisions on the topic generate questions

It seems that the recent decision of the STJ has the potential to create a great debate about the definition of the concept of privacy, intimacy, and protection of sensitive personal data of consumers, due to the great number of interests and rights protected in the name of personal data privacy.

The classic formula for viewing privacy and intimacy - "the right to be let alone"^[6] - no longer fits today's reality, considering the exponential technological evolution.

From a reading of the decisions handed down by the TJSP and the STJ, some questions inevitably arise:

• Is it possible to state that the list of sensitive personal data provided for in the LGPD is exhaustive and not exemplary?
• Are all the cases provided for in the LGPD sufficient to guarantee the defense of the sensitive personal data of Brazilian citizens?
• Are there different levels of damage depending on the nature of the data leaked?
• Can it be said that all persons who have personally identifiable data leaked due to a security breach by a supplier responsible for handling personal data, in the context of a consumer relationship, do not suffer presumed moral damages?
• Should people/public figures be treated differently?

Another pertinent question is related to the possible application, by analogy, of strict liability and the establishment of presumed damage in cases of personal data leakage by credit protection databases and consumer data records. The joint and several liability between databases and suppliers, in this case, is guaranteed by the sole paragraph of article 7 of the CDC and article 16 of the Credit History Records Law (12,414/11).

There are still no definitive answers to all the questions, not least because this recent understanding is one of the first opportunities that the STJ has had to discuss part of the matter involving consumer rights and guarantees based on the LGPD, which entered into force in September of 2020. More analysis will probably occur on other occasions.

Since the LGPD entered into force, which guarantees, as one of its fundamental principles, the security and prevention of personal data (articles 6, subsections VII and VIII, 42, 43, 44, 45, and 46 of the LGPD) - there was (and still is) a fear on the part of companies regarding the application of civil, administrative, and criminal sanctions related to the activity of collection, storage, use, and transmission of personal data.

Although the STJ's understanding has not been established under the system of repetitive appeals, it seems that the result of the judgment has the ability to ensure, albeit temporarily, greater security for companies that perform data processing, by preventing the insetting of the well-known moral damages industry.

^[1] STJ, REsp 1.899.304/SP, opinion drafted by Justice Nancy Andrighi, decided on November 30, 2021.

^[2] STJ, REsp 1.507.920/SP, opinion drafted by Justice Maria Isabel Gallotti, decided on November 20, 2019.

^[3] STJ, AgRg no AREsp 821839/SP, opinion drafted by Justice Antonio Carlos Ferreira, decided on April 26, 2016.

^[4] STJ, REsp 1.839.506/RS, opinion drafted by Justice Ricardo Villas Bôas Cueva, decided on October 26, 2020.

^[5] STJ, REsp 1.758.799/MG, opinion drafted by Justice Nancy Andrighi, decided on November 12, 2019.

^[6] BENJAMIN, Antonio Herman; Marques, Claudia Lima; BESSA, Leonardo. Manual de Direito do Consumidor [“Handbook of Consumer Law”], 8th Ed., Revista dos Tribunais, Thomson Reuters, 2017.

Category: Tax

The Chamber of Deputies approved, on March 30, the conversion project of Provisional Presidential Decree 1,152/22 (“MP 1,152/22”), which introduced the new Brazilian transfer pricing policy. Among the innovations in the conversion process, the following stand out:

• the expansion of the criteria used in the case of commodities (Article 13 of the MP),^[1] which now admit the use of prices charged between unrelated parties and public prices, in addition to the quotation prices already provided for in the original wording;
• the exclusion of the secondary adjustment (Articles 17, IV, and 19 of the MP),^[2]-[3] since it would "encourage taxpayer to seek the compensatory adjustment [...], adjusting not only the tax base [...], but also the negotiated prices";^[4] and
• the exclusion of the prohibition on the deductibility of royalty and technical assistance payments involving parties residing in favorable tax jurisdiction or entitled to privileged tax regimes (Article 45, I, of the MP),^[5] "because the mere fact that the entity [...] is located in a tax haven does not mean that the deduction is not due".^[6]

The conversion project was sent to the Senate, which is expected to analyze and approve it in the coming days. The conversion of MP 1,152/22 shall be completed by June 1 to maintain its efficacy.

For a better understanding of the subject, we examine, in this Article, the normative grounds that justify the new Brazilian transfer pricing policy.

The arm's length principle

According to Article 2 of the MP, the new Brazilian transfer pricing policy is guided by the arm's length principle, which determines that the "tax base [of the corporate income tax (IRPJ) and the social contribution/tax on net income (CSLL) shall observe] [...] the terms and conditions [...] that would be established between unrelated parties in comparable transactions."

Next, Article 3 describes transactions that are controlled and therefore subject to the transfer pricing policy, as all "commercial or financial relationships between two or more related parties, established or carried out directly or indirectly, including contracts or arrangements in any form and series of transactions."

Article 4 adds that the "parties are related when at least one of them is subject to the influence, exercised directly or indirectly by another [...], which may lead to the establishment of terms and conditions in their transactions that differ from those that would be established between unrelated parties [...]". The hypotheses are exemplified in § 1.

The English expression adopted by Brazilian legislation, arm's length, literally means the distance of an arm. Given that the corporate or personal proximity between the contracting parties can influence the business conditions, the law uses this metaphor to require that a distance between related parties must be considered. With this, it is possible to analyze the transaction as if it had been concluded between independent parties under similar business conditions.

For example, imagine that the parents decide to sell something to their children. The conditions of this contract – price, terms and forms of payment, and guarantee – are generally different from those applied when the contract involves unrelated parties. That is, the family relationship and the consequent proximity between the contract parties influence and allow the business conditions to differ from those applied in the market, creating benefits and losses that ordinarily would not exist.

Nevertheless, the proximity between contract parties does not constitute abuse or refer to an unlawful act. Economic science even explains the impact of this phenomenon with the transaction costs theory of Ronald Coase^[7] – Nobel Prize in Economics.

According to him, there are costs intrinsic to contracting in the market – such as costs to negotiate, draft contracts, and ensure the execution of these. The market is itself costly and imperfect. Coordination between economic agents, in turn, makes it possible to reduce this cost. This shows the intrinsic synergy between the related parties, since the corporate and personal relationships between them reduce the costs.

On the other hand, the presence of these more beneficial or harmful terms and conditions constitutes an instrument for related parties to transfer or maintain income in jurisdictions with lower tax burden, intending to reduce the overall tax burden. This fact causes the progressive erosion of the tax bases of the states.

To this macro perspective is added the tax equality, considering that other taxpayers, who follow market conditions, should bear a greater tax burden.

In a competitive scenario with the absence of transfer pricing rules, a tax advantage is created, in addition to the existing economic one, which can violate the freedom of competition and the principle of tax neutrality.

A mechanism to correct tax treatment

In this sense, the transfer pricing policy constitutes a mechanism for correcting the tax treatment to determine the tax base consistently with the market income.^[8]

It is not, therefore, a question of nullifying the synergy between related parties, but of correcting the tax treatment and preventing it from being an additional disturbance to competition, beyond the already existing economic advantage.

For this reason, when it is held that there should be adjustments in the tax base, the underlying private relationship is not altered. It is only recognized that, for tax purposes only, the price of the transaction, for example, shall be a different one from the real one.

The transfer pricing rules are not intended to question the legitimacy of the transaction and its prices, that is, one should not talk about fraudulent overpricing or under invoicing, since the parties effectively contract the prices in a real way. The tax law is limited to comparing these prices with those that would be obtained under market conditions (at arm's length) and adjusts them to calculate the tax bases.

Hence, there is a difficulty that is intrinsic to the application of transfer pricing rules: how to identify market conditions?

In most cases, there is no single price, form, and contractual conditions. In fact, it is difficult to define market conditions, because of the range of options available.

It is noticed, therefore, that this construction impacts the control by the tax authorities, since, under the principle of arm's length, it must turn to the hypotheses in which there is a substantial deviation of market behavior and conditions.

The application of the new Brazilian transfer pricing policy, consequently, will reveal to what extent tax authorities are attending to these fundamentals, and this may result in the litigation regarding the subject.

^[1] Conversion project of MP 1,152/22: "Article 13. Where there is reliable information on comparable independent prices for the traded commodity, including quotation prices or prices charged between unrelated parties (internal comparables), the PIC method shall be considered the most appropriate for determining the value of the commodity transferred in the controlled transaction, unless it can be established in accordance with the facts and circumstances of the transaction and other elements of Article 11, including the assets, functions, and risks of each entity in the value chain, that another method is more appropriate to observe the principle outlined in Article 2.

[...]

• 2 The adjustments provided for in § 1 shall not be made if the comparability adjustments affect the reliability of the PIC method and justify the consideration of other transfer pricing methods, in accordance with Article 11.

[...]

• 5 - The public prices shall be used for the control of transfer pricing in the same way as they would be used by unrelated parties in comparable transactions.
• 6 - In extraordinary cases, the use of public prices shall not be appropriate for the control of transfer pricing if it leads to a result incompatible with the principle provided for in Article 2. [...]

^[2] MP 1,152/22: "Article 17. For the purposes of this Provisional Presidential Decree, it is considered:

[...]

IV - secondary adjustment - that used as a result of the adjustments provided for in items I or III of the caput."

Conversion project of MP 1,152/22: Excluded item IV of Article 17 of MP 1,152/22.

^[3] MP 1,152/22: "Article 19. If the spontaneous adjustment or the primary adjustment referred to in items I and III of the caput of Article 17 are made, the secondary adjustment shall also be made, which shall be determined based on the following criteria:

I - the adjusted amount will be considered as credit granted to the related parties involved in the controlled transaction, remunerated at the interest rate of twelve percent per year;

II - the interest provided for in item I shall be considered due from January 1 of the year following the period of calculation until the date on which the amount considered as credit is fully reimbursed to the legal entity resident in Brazil and shall be subject to taxation of the IRPJ and CSLL;

III - the interest rate will be reduced to zero if the amount considered as credit is fully reimbursed to the taxpayer in Brazil within ninety days, counted from:

(a) January 1^st of the year following the calculation period that caused the spontaneous adjustment; or

(b) the date of the notification of the tax notice regarding the primary adjustment."

Conversion project of MP 1,152/22: Excluded Article 19 of MP 1,152/22.

^[4]Office of the Deputy Da Vitória - PP / ES, opinion of the Joint Committee on the Provisional Presidential Decree 1.152/22, p. 35.

^[5] MP 1,152/22: "Article 45. In determining the actual profit and the tax base of IRPJ and CSLL, the amounts paid, credited, delivered, employed, or remitted as royalties and technical, scientific, administrative, or similar assistance are not deductible:

I - entities resident or domiciled in favorable tax jurisdiction or entitled to privileged tax regimes, as referred to in Articles 24 and 24-A of Law No. 9,430 of 1996; or [...]"

Conversion project of MP 1,152/22: Excluded item I of Article 45 of MP 1,152/22.

^[6] Office of the Deputy Da Vitória – PP/ES, Opinion of the Joint Committee on Provisional Presidential Decree 1.152/22, p. 34.

^[7] R. H. Coase, The firm, the market and the law, University of Chicago Press, 1988.

^[8] Paul Kirchhoff, Tributação no Estado Constitucional, São Paulo: Quartier Latin, 2016, p. 105.

Category: Capital markets

The Brazilian Securities and Exchange Commission (CVM) released, on February 28, 2023, the Annual Circular Letter 2023 – CVM/SEP containing the main guidelines regarding the obligations of publicly-held, foreign and incentivized companies before the autarchy.

The annual circular letters of the Superintendence of Relations with Companies (SEP) are great references for companies, as they facilitate the understanding of the procedures to be adopted in their routine obligations, in addition to bringing information about the rule interpretations of the CVM and SEP.

We highlight below some points of the Circular Letter.

• Presentation of the DFP in the context of the registration as a publicly-held company

In item 2.10 of the Official Letter, the CVM clarified that it is not necessary to present the DFP (Form of Standardized Financial Statements) during the process of registration of public companies when financial statements are presented for registration purposes with a date later than the last fiscal year, either due to a material change in the conditions of the issuer or because the issuer was constituted throughout the fiscal year.

The CVM stated that, in these cases, the DFP is not necessary for the financial statements for registration purposes or for the financial statements of the last fiscal year.

• Appeal against the imposition of a punitive fine

In relation to item 2.16 of the letter, it is worth analyzing the excerpt below:

"Pursuant to article 16 of CVM Resolution No. 47/21, as amended by CVM Resolution No. 159/22, the decision to apply punitive fines may be appealed to the CVM Collegiate to the superintendent of the area, in the second and last instance and without suspensive effect, within 10 (ten) days from the date of signature of the return receipt of the Office at the company's headquarters. Only in cases where the punitive fine is applied by the General Superintendence or by a member of the Collegiate who acts as Rapporteur will it be up to appeal to the Collegiate. (emphasis added)"

The excerpt highlighted above should not be interpreted as a possibility that the appeal against the decision to impose a punitive fine may be addressed, in any case, to the CVM Collegiate. This possibility was excluded by the modification brought by CVM Resolution 159/22, and the small excerpt highlighted, in our understanding, seems to be a mere error, considering the modifications of the aforementioned resolution.

The text of the letter itself confirms this understanding when it correctly highlights that the CVM Collegiate could only be triggered for this appeal if the penalty was applied by the "General Superintendence or by a member of the Collegiate who acts as Rapporteur."

• Financial statements

For the financial statements, the CVM also brought some new considerations, highlighted below.

• Disclosure of the Value Added Statement (DVA)

The CVM warned that some companies have not presented the DVA in their financial statements, quarterly information and DFP, with all the details required in Technical Pronouncement CPC No. 09, citing its items 15, 30 and 33, Models I, II and III.

• Early Disclosure of Financial Information

In item 3.2.2, the CVM brought a new recommendation for companies that disclose financial information in advance to adopt a disclosure policy that provides for and establishes criteria for such communications.

The letter also deals with this issue in item 4.24 (Operational data and metrics), emphasizing that companies often disclose operational information through communications to the market, and not by material facts. These are the well-known "operating previews" and other communications that show results prior to the disclosure of quarterly financial statements (ITRs) and financial statements.

Considering the recommendations expressed in the previous annual letter and the new considerations, below are the items to be observed by companies for this type of communication:

• The disclosure of financial information in advance should be done in an exceptional way.

• If the financial data is anticipated, in any case, the company must do so in an equitable manner and emphasize that the information is preliminary, adding whether or not it has been audited or reviewed by the independent auditors. Such information must be true, complete, consistent and not misleading.

• This information should, as a rule, be disclosed in a material fact. In SEP's view, information from the financial statements is presumably a material fact.

• However, there is no impediment to such disclosures occurring via a notice to the market, provided that the information disclosed (i) does not allow inferring the financial result or (ii) represents a multiple commonly used for the valuation of companies in that sector. Management should assess the relevance of the material fact in each disclosure.

• If it is not an exceptional disclosure, and the Company has the practice of anticipating financial information, it is recommended that it adopts a disclosure policy that:

"(i) establishes what data or metrics will be disclosed, containing a precise definition of the indicator, if necessary;

(ii) defines the periodicity of disclosure (monthly, quarterly, etc.);

(iii) fixes the date, or period, for such disclosure (e.g., between the 5th and 7th business day of each month); and

(iv) determines that disclosure be made on a regular basis, thereby avoiding discretion in disclosure."

• In the event of a change in the disclosure policy that deals with the anticipation of financial information, the company must previously disclose a material fact about the modification.

Considering this, we believe that the CVM signals that it may closely evaluate the previous operational and other disclosures that may anticipate information on the companies' results, and it is highly recommended that the companies adopt the suggestions contained in the letter.

• Acquisition of a company – disclosure of information

Regarding communications about acquisitions, it was already recommended that publicly-held companies disclose such operations with complete information and that would allow investors to analyze the business carried out. Therefore, there isn’t a regulatory change that motivates the CVM's recommendation brought in item 4.1.2 of the letter.

In this sense, the recommendation for companies to disclose a material fact or a communication to the market containing "relevant information available that allows the understanding of the business by the public to which the information is intended, which includes the main conditions of the business (price, form of payment, etc.), as well as financial information (revenue, EBITDA, profit, etc.) and / or operational of the acquired business" , denotes a concern of the autarchy with disclosures that did not bring sufficient information about the business done.

In their new disclosures about acquisitions, therefore, the companies should seek to provide information in line with this new excerpt of the letter.

• Related Party Transaction Communication

In the item about the communication of transactions between related parties (4.16), the CVM brought a new recommendation as a "good practice". Although it is not mandatory, it is recommended that companies disclose the transaction with a related party under the terms of article 33, item XXXII, of CVM Resolution 80/22, at the time of its approval by the competent corporate bodies, even if it mentions its conditions for the implementation of the operation.

The deadline established by CVM Resolution 80/22 continues to be seven business days, counted from the occurrence of the transaction, pursuant to article 33, item XXXII, of the resolution.

• Fiscal Council – replacement of an alternate member

In its item 7.1.4, the letter highlights the need to hold a general meeting to elect an alternate member of the fiscal council when a member resigns. This requirement stems from the provisions  of the Brazilian Corporate Law, which in its article 161, paragraph 1, establishes that the fiscal council must have alternate members in equal number to the number of effective members.

This excerpt from the letter demonstrates the CVM's concern with cases in which the replacement of the alternate member of the fiscal council is prolonged, leaving the composition of the body in disagreement with the provisions of the Brazilian Corporate Law.

Although the legislation does not set a deadline, the excerpt signals that the CVM will not allow companies to simply wait for a new and not yet scheduled meeting. Thus, it is recommended that companies convene such an assembly in the shortest possible time.

It is also noteworthy that, pursuant to article 26, first paragraph, item II, paragraph "a", of CVM Resolution 81, the election of a member of the fiscal council in companies registered in category A, and that have outstanding shares, will require the procedures for remote voting.

• Communication on the closure of repurchase programs

In its item 7.14, the CVM recommended that companies disclose the closure of their repurchase programs informing at least the number of shares acquired and the intended destination for the repurchased shares.

• Modifications introduced by Law 14.195/21

The letter brings changes resulting from the important changes promoted  by Law 14.195/21, among which stand out those related to the plural vote and the composition of the board of directors, with the requirement of occupation of the positions by independent members, as well as with the prohibition of cumulation of positions for the positions of chairman of the board and chief executive of the company.

On these topics, we recommend reading our e-book, as well as an article on the modifications brought by CVM Resolution 168.

• New Reference Form

The letter has new guidelines on the completion of the Reference Form, a topic of great interest to issuers, due to the changes contained in CVM Resolution 80/22, as amended by CVM Resolution 59/21.

In addition, the completion of the "New Reference Form" will take place on the CVM's web platform, pursuant to Circular Letter 7/2022-CVM/SEP, modifying the operational aspect of the presentation of the information.

Soon, we will analyze in this portal the CVM guidelines for completing the new Reference Form.

Category: Capital markets

The Brazilian Securities and Exchange Commission (CVM) published on March 22, 2023, the CVM Resolution 180, which entered into force on April 3, 2023. The new rule amends CVM Resolution 80, published on March 29, 2022, which regulates the registration and the provisions of periodic and eventual information of the securities issuers, and CVM Resolution 160, published on July 13, 2022, which sets forth provisions related to public offerings of primary and secondary distribution of securities.

CVM Resolution 180 arose from an internal letter, sent to the General Superintendent of CVM, and subsequently sent to deliberation and approval of the CVM’s Collegiate, in a meeting held on March 21, 2023. The regulation was not submitted to the public consultation process because it only had specific and punctual changes. There was also no prior regulatory impact analysis, as its objective is precisely to reduce certain regulatory requirements.

The motivations for the edition of the new resolution were, among other aspects:

• clarify the concept of frequent issuer of fixed income (Emissor Frequente de Renda Fixa - EFRF);
• provide for the application of the automatic rite in subsequent offers of shares of closed-end investment funds;
• specify the times when documents previously reviewed by a self-regulatory authority must be submitted to the autarchy; and
• Optimize the process of requesting registration of the offers and the issuers.

CVM Resolution 180 modified certain wordings of the Exhibit C of CVM Resolution 80. The fields not required from category B companies in the reference forms were reviewed, in order to standardize the use of the marker "X" as an indication of non-enforceability of a given item or sub-item.

In addition, with the amendment of article 5, paragraph 2, of CVM Resolution 80, the flow of applications for issuer registration was changed. With this, the technical area will manifest itself only in cases of insufficiency of the documentation presented in the application for registration of the issuer.

In order to eliminate the inquiries that have arisen about the drafting of the reference forms, footnotes 90 and 91, which provided, respectively, about the cases and methods of presentation of the reference form and on the disclosure of the grouping of employees of a given organization by diversity indicators, have also been deleted.

In response to a formal request sent by the Brazilian Association of Financial and Capital Markets Entities (Anbima), the new resolution amended article 38-A of CVM Resolution 80 to establish compliance with the provisions of CVM Resolution 160 with respect to the EFRF concept. The change aims to eliminate doubts about the possibility of the offers benefiting from the automatic rite, in the hypothesis of offers that have a single debtor of securitization security backing and this one fits as an EFRF.

After amending article 26, item VII, of CVM Resolution 160, CVM Resolution 180 also allowed the use of the automatic rite in offers aimed at professional and qualified investors – as well as in subsequent offers – intended for investors in general, provided that they have prior analysis by a self-regulatory entity.

The new resolution also changed the application flow for the registration of offers, with the amendment of article 37, paragraph 1, of CVM Resolution 160.

The measure optimizes the process of analyzing the requests. Henceforth, the technical area will only contact the applicant if the documents submitted are insufficient. After ten days from the request for registration of the offer, if the applicant has not been contacted, it will be assumed that the documents submitted are sufficient, and there is no longer the need for tacit confirmation by the technical area.

The Brazilian Securities and Exchange Commission has been making several regulatory changes in recent years in order to optimize the securities issuance process. The changes promoted by CVM Resolution 180 are in line with this movement and seek to clarify and specify certain points identified in the application of CVM 80 and CVM 160 resolutions to further facilitate the procedures related to the offers.

Category: Tax

The Complementary Law Project (PLP) No. 79/2023, presented in the Federal Senate on March 30, 2023, allows the extension of the term of the tax and financial-tax incentives of ICMS (Tax on the Circulation of Goods and Services) reinstituted under the terms of Complementary Law No. 160/2017 for another ten years.

With the extension, the States that reinstituted the tax incentives will be able to grant and extend the referred incentives  until December 31, 2042 (according to the current legislation, the final term is December 31, 2032).

In addition to the extension of the term, PLP No. 79/2023 also revokes the gradual reduction of 20% for certain tax incentives as of 2029. This rule is applicable to the tax incentives related to commercial activities, interstate transactions with agricultural and vegetable extraction products in natura and to the maintenance and increase of port and airport activities related to international trade.

PLP 79/2023 also aims to strengthen compliance with the legal certainty principle and the acquired right for taxpayers who already use the tax incentives. In this regard, the text establishes that, although the granting State may revoke or modify the granting act or reduce its scope or the amount of the tax incentive, it must be ensured the enjoyment of the incentives according to the terms and conditions by which they were granted.

Therefore, the revocation or amendment to reduce the effects of tax incentives will only produce effects for new beneficiaries, protecting those who already enjoyed the aforementioned regimes.

PLP No. 79/2023 has as its main justification the fact that tax incentives are relevant tools for promoting development policies and reducing regional inequalities, generating socioeconomic results in attracting entities to certain specific regions.

The justification also mentions the existence of tax reform proposals (PECs No. 45/2019 and 110/2019) and the possibility of future extinction of the ICMS. However, it is highlighted that the competence of the States and the Federal District, as currently in force, will remain for a certain period of time. The extension of ICMS incentives is necessary to safeguard them, with stability and predictability, during any transition period.