Category: Labor and employment

Created by the federal government with the edition of the Decree 8,373/14, eSocial is a system for collecting and storing information in a virtual environment. Any person who hires a service provider or individual and has some labor, social security or tax obligation, must send labor, social security and tax information to the federal government, depending on this legal relationship of work.

Approved by the Joint Ordinance SEPRT/RFB 33, of October 6 of this year – published in the Official Gazette of October 7 and rectified on December 2) – the new S-1.1 version of eSocial implemented four new events to be reported:

• S-2500 - Labor Lawsuits
• S-2501 - Information on Taxes Arising from Labor Lawsuits
• S-3500 - Exclusion of Events - Labor Lawsuits
• S-5501 - Consolidated Information on Taxes Arising from Labor Lawsuits
  
  

S-2500 - Labor Lawsuits

The registration and contractual information related to the employment relationship, as well as the calculation bases for the collection of the Service Time Guarantee Fund (FGTS) and the social security contribution of the General Social Security Regime (RGPS), by competence, arising from labor lawsuits, should be declared at the S-2500 event, regardless of the period covered by the decisions/agreements.

The deadline for sending the information shall be until the 15th of the month following the date:

• the final judgment of the net decision given in the labor lawsuits;
• ratification of the judicial agreement;
• the ratified decision of the calculations related to the settlement of the decision; or
• conclusion of the agreement in the Commission for Prior Conciliation (CCP) or the Interunion Nucleus (Ninter), even if there is no social security contribution, FGTS or Withholding Income Tax (IRRF) to be collected.

As a triggering event for the transmission of information arising from the ratification of an agreement or final transit of the decisions mentioned in items (i) to (iv), the date of January 1, 2023, onwards, should be considered.

The eSocial Guidance Manual provides that the S-2500 event has independent processing of other events, that is, eSocial events do not depend on the completion of the S-2500 event to be transmitted.

Events should not be used for information relating to labor lawsuits of workers linked to the RGPS or RPPS that fall within the jurisdiction of the Common Court or the Federal Court.

The person responsible for sending the information is the one who will pay the judgment against the defendant, whether or not the employer – such as in situations where there is secondary or joint liability.

S-2501 - Information Taxes Arising from Labor Proceedings

In event S-2501, the amounts of the (IRRF) and social security contributions, including those destined to Third Parties, will be declared on the calculation bases contained in the judgment against the defendant and in the ratification decisions of agreements that were informed in  event S-2500.

An S-2501 event should be sent for each labor lawsuit, regardless of the number of workers included as a party to the lawsuit. If the court decision or agreed authorizes the payment of the amounts due in installments, for each installment paid a S-2501 event must be transmitted. This will allow recording the information of the taxes that are being paid up with the payment of eachinstallment..

Unlike event S-2500, event S-2501 should not be sent if there is no social security contribution or IRRF to be collected. In cases where there is a judicial deposit that guarantees the full collection of taxes, it is not necessary to send this event, since the collection will be made by court order. However, if the judicial deposit does not guarantee the full collection of taxes, this event must be sent with the remaining amounts.

The deadline for sending the event will be no later than the 15th of the month following the payment stipulated in the decision/agreement made in the labor proceedings or in the agreement entered into with the CCP or Ninter.

S-3500 - Exclusion of Events - Labor Lawsuits

With respect to the S-3500 event, it should only be sent if there is a need to make an improperly submitted S-2500 or S-2501 event without effect.

S-5501 - Consolidated Information on Taxes Arising from Labor Lawsuits

Event S-5501 deals with a return of eSocial about event  S-2501, whose objective is to show the declarant, based on the information transmitted, the taxes calculated (social security contributions, contributions due to other entities and funds and the IRRF).

How to prepare?

It is essential that companies prepare to launch new information on eSocial from January 2023 (considering the triggering event of January 1, 2023).

For companies that use process management systems, one can evaluate the feasibility of creating specific fields to be filled out that correspond to the same data required by eSocial, which would facilitate the acquisition of the information. You can also create specific alerts for those responsible for the need to include certain legal lawsuit on eSocial.

For companies that do not use a specific process management system, it will be necessary to monitor lawsuits to identify the emergence of the obligation to insert information into the system, in order to meet the deadline stipulated for events S-2500 and S-2501.

For those who use payroll management tools, another option is to check with the tool provider the possibility of new technological solutions that extract information related to labor lawsuits and send them to eSocial.

In any case, it is important to create a flow for sending the information to eSocial in order to avoid missing the deadline for inserting the information.

Penalties

eSocial is not an obligation per se, but a way to send information about compliance with tax and labor obligations. Failure to comply with the sending of information entails the payment of administrative fines provided for in labor and social security legislation. As an example, we mention the following fines:

• labor legislation, by not sending relevant information about the working relationship, as provided for in Article 41, single paragraph, Labor Code (CLT) - R$ 600 per employee;
• social security legislation, by not sending information about social security contributions, as provided for in Article 283 of Decree 3,048/99 and MF 15/18 Ordinance – R$ 2,331.32 to R$ 233,130.50;
• in the FGTS Law, for not sending information about FGTS deposits, as provided for in Article 23, 1, VII, of Law 8,036/90 - R$ 100 to R$ 300 per employee affected; and
• in tax legislation, as provided for in the 2005 and 2110 Normative Instructions of the Internal Revenue Service (2005/21 IN RFB and 2110/22 IN RFB) – depending on the occurrence of omission of information, inaccuracies in the information submitted, lack of information or delay in the delivery of the information.

We will make new publications on the subject in the coming days.

Category: Capital markets

This ebook describes the improvements made by the Brazilian Securities and Exchange Commission (CVM) to harmonize, define, and make the regulations governing public offerings more objective.

They are included in CVM Resolution 160, which took effect on January 2, 2023, and was published on July 13 of this year. Since the publication of CVM Instruction 476/09, this is the most significant revision to Brazilian law on the subject.

Category: Banking, insurance and finance

Established in 2015 at the request of the G20, the Task Force on Climate-related Financial Disclosures (TCFD) has promoted recommendations for climate change-related disclosures. In line with the TCFD's objective of making available consistent, comparable, clear, and efficient information on climate change and the recommendation to promote climate risk management, the Central Bank of Brazil issued, on November 21st of this year, BCB Normative Instruction 325 to standardize the way financial institutions should recognize sustainability assets on their balance sheets.

Sustainability assets are defined as those related to socio-environmental and climate sustainability mechanisms, and include carbon credit and decarbonization credit (CBIO) certificates.

The instruction changes  account headings of the accounting standards of institutions regulated by the Central Bank of Brazil (Cosif). Sustainability assets" are classified as "other non-financial assets" and "stock assets", depending on the use by the financial institution.

When acquired for investment purposes, sustainability assets are classified as "other non-financial assets" and must be accounted for at their fair value, with gains and losses recognized in balance sheets and carried through in the income statement. When acquired for internal use, such as for achieving sustainability goals, they are classified as "stock assets" and recorded at the lower of cost or fair value.

BCB Normative Instruction 325 also provides that any liabilities arising from legal obligations or commitments to social-environmental and climate sustainability must be recognized in the accounting headings intended for recording the provision for contingencies. The measure is important because it obliges financial institutions to account for carbon reduction or offsetting pledges in financial statements, which contributes to mitigating green washing.

According to a note from the Central Bank, the new standard seeks to provide greater transparency in accounting records for assets related to socio-environmental and climate sustainability mechanisms in view of the potential growth of these operations in the financial market. The new instruction applies to accounting documents prepared as of the base date of January of 2023.

BCB Normative Instruction 325 therefore helps financial institutions to adopt standardization of sustainability assets. In addition to producing comparable information, the new standard stimulates increased trading of these assets in the financial market by requiring that provisions be made for sustainability goals.

Category: Compliance, investigations and corporate governance

The fight against corruption was highlighted in 2022, with the publication of relevant standards dedicated to the regulation of Law 12.846/13 (Anti-Corruption Law).

In July 2022, the federal government enacted the Decree 11,129/22, which revoked the old Decree 8,420/15 and significantly amended the regulation of the Anti-Corruption Law, drawing the attention of companies to the need to evaluate and improve compliance initiatives.

Also in July 2022, the Office of the Comptroller General (CGU) published the Normative Ordinance CGU 19/22, which established specific rules on early trial in the context of administrative accountability proceedings (PAR) established or called up by the CGU. In previous articles, we addressed what .

In addition to the two rules abovementioned, and shortly before the end of the year, on December 9, 2022, the CGU and the Attorney General’s Office (AGU) published the Interministerial Normative Ordinance CGU and AGU 36/22, which refers to the leniency agreement, specifically in relation to the criteria for the reduction of up to 2/3 of the amount of the applicable fine, as provided for in Section 16, §2 of the Anti-Corruption Law.

This ordinance is relevant because it is a regulation that lists objective, concrete, and minimally measurable criteria to limit the discretionary power of the authority in leniency agreement negotiations, allowing greater standardization in the guidelines and agreements.

In summary, the Interministerial Normative Ordinance CGU and AGU 36/22 indicates three criteria to be considered in reducing the fine: self-denunciation initiative, degree of collaboration and relevant conditions.

1. Self-reporting initiative: assesses the timing of self-denunciation and the unprecedented nature of the information submitted by the legal entity on the harmful acts practiced. Thus, the lenient authority will observe whether there was a timely adoption of investigative measures and reporting to the CGU and the AGU, culminating in the presentation of information and documents in the context of the collaboration.

The specific deadline set for self-disclosure to be timely is up to nine months, from the acknowledgement of the harmful act by the legal entity until its formal communication of interest in entering into a leniency agreement. For cases where the legal entity is aware of the existence of harmful acts before the normative ordinance, the deadline for the timing of the self-disclosure will be six months, counted from December 9, 2022, date of publication of the normative ordinance.

As part of this criterion, the lenient authority will also evaluate the unprecedented nature  of the facts or information reported by the legal entity comparing them with those already acknowledged by the public authorities , the CGU or the AGU, even if they do not refer to new facts.

2. Degree of collaboration: the authority will consider if the legal entity conducted internal investigation directed to gathering relevant information and documents, as well as evaluate the quantity, quality, scope, relevance and sufficiency of the information and documents delivered for the purpose of the leniency agreement.

In addition to the content, the second criterion also considers the form, that is, the authority will evaluate the speed in the treatment between the parties, whether the information provided is complete, in addition to the speed and accuracy of the reporting of harmful acts, highlighting as a criterion also the existence of responsibility by the legal entity and whether there was indication of the others involved.

It is worth noting that pursuant to Art. 16, I, of the Anti-Corruption Law, the indication of the others involved should be considered a criterion only when it fits. Depending on the specific case, there may not be other parties involved. Therefore, the authority should not consider the submission of other parties involved when it is not applicable in a specific case.

Furthermore, the authority will evaluate the promptness of the other actions necessary for the conclusion of the negotiation, such as timely translation of documents, availability for meetings, filling out requested documents, among other acts that are part of the negotiation itinerary.

3. Relevant conditions: the authority will observe the parameters of the terms of payment of the financial commitments assumed by the legal entity in the agreement, considering the speed of the payment condition of the value of the leniency agreement and, in case of installment payment, the payment profile outlined by the installments. For payments lasting more than six months, the authority shall assess the guaranty provided for payment as part of the criterion.

The fine reduction may be less in cases where the legal entity has previously given up a proposal for a leniency agreement or a memorandum of understanding in previous negotiation stems from the same harmful acts.

The Interministerial Normative Ordinance CGU and AGU 36/22 does not apply to cases where there is already final report submitted for signature of leniency agreement. On the contrary, the ordinance applies to any legal entity that identifies internally an act harmful against the public administration, as well as legal entities that are in the process of negotiating a leniency agreement (before sending a final report for signature).

Normative can be an important instrument to bring some predictability and limitation in negotiations for both parties, but will depend on its application under the facts of the case.

Category: Digital Law

 Law 14,478/2022, which creates a civil framework for the crypto economy in Brazil, was published on December 22, 2022.

The new Law has become part of the Brazilian legal system, and will enter into force in 180 days after its publication.

Among the approved propositions, the following stand out:

1. The creation of the legal categories of "virtual assets" and "virtual asset service providers", in line with FATF´s recommendations.
2. The determination that virtual asset service providers must obtain a license to operate before an entity to be appointed by the Federal Public Administration.
3. The determination that the activities developed by virtual asset service providers are guided by principles of free initiative and free competition, information security and protection of personal data, protection of popular savings, protection of consumers and users, protection against money laundering, among others.
4. The application of the Consumer Defense Code to operations carried out in the virtual asset market, whenever appropriate.
5. The submission of virtual asset service providers to Law 13,506/2017, which provides for the administrative sanctioning process of the Central Bank of Brazil and the Brazilian Securities and Exchange Commission, within the limits of responsibility of each entity.
6. The equalization of virtual asset service providers to financial institutions for criminal purposes and the consequent subjection of these companies to the penalties of Law 7,492/1986, which defines crimes against the National Financial System.
7. The creation of the crime called "fraud in the provision of services of virtual assets, securities or financial assets".
8. The inclusion of the activities of virtual asset service providers within the scope of the anti-money laundering law (Law 9,613/98), and the increase in penalty from 1/3 (one third) to 2/3 (two thirds) if the crime (money laundering) is committed repeatedly, through a criminal organization or through the use of virtual assets.
9. The discipline of the National Registry of Politically Exposed Persons (CNPEP) by act of the Federal Public Administration.
10. The creation of conditions and deadlines, not less than 6 months, by the entity to be appointed by the Federal Public Administration for adapting virtual asset service providers that are already in operation to the requirements of the future Law.

Machado Meyer´s team remains attentive to the regulatory movement in the crypto asset sector in Brazil and abroad.

Category: Environmental

On October 27, 2022, the Environmental Agency of the State of São Paulo (Cetesb) published the Cetesb Board Decision 106/2022/P, which establishes applicable procedures for issuance of technical opinions relating to:

• management of contaminated areas;
• reuse of contaminated areas;
• deactivation and demobilization of potentially generating activities of priority contaminated areas for licensing and decommissioning; and
• granting of groundwater collection wells around contaminated areas.

The first aspect extracted from the new board decision is the emphasis on the procedures relating to deadlines.

According to Article 3, deadlines count on calendar day basis (including weekends, holidays and non-business days), excluding the starting day and including the due date. Cetesb also established that the agency will consider the date that the party became aware of the first or second instance decision rendered by the agency and of other notifications issued in the proceeding as the day in which the confirmation of the reading of the “Communicate” (Comunique-se) notification occurs or automatically after the tenth day from the issuance of the electronic message to the address registered on Cetesb's website – whichever comes first.

Articles 5 to 7 of the Cetesb Board Decision 106/2022/P regulate the competence to issue technical opinions and decide on occasional challenges to the actions, in first and second instances, as follows:

• Technical opinion on the management procedure of contaminated areas: is issued by the Industrial Contaminated Areas Assessment Management Sector (ICRI) or the Gas Station Contaminated Areas Assessment Sector (ICRP). In the event of filing of administrative defense against any unfavorable opinion issued by the agency, the decision shall be rendered by the Administration of the Contaminated Areas Management Department (IC). In case of appeal against the decision of first instance, the trial will be held by the Board of Environmental Impact Assessment;
• Technical opinion on the procedure for reusing contaminated areas: is issued by the Management of the Contaminated and Rehabilitated Areas Assessment Division (IRA). In the event of submission of an administrative defense against any unfavorable opinion, the decision shall be rendered by the Management of the Department of Management and Revitalization of Contaminated Areas (IR). The Board of Environmental Impact Assessment is responsible for handling the trial of any appeal;
• Technical opinion on the procedure for obtaining and renewing well concessions around contaminated areas: is issued by the Management of the Grant Assessment Sector (IRAO). In the event of submission of an administrative defense against any unfavorable opinion, the first instance decision shall be rendered by IRA. If an appeal is later filed, the second instance decision on the matter will be issued by the IR; and
• Technical opinion on evaluation of Decommissioning and Demobilization Plan: is issued by the Management of the Environmental Agency. In the event of filing of administrative defense against unfavorable opinion, the first instance decision shall be rendered by the Management of the Department of Environmental Management, and the Board of Environmental Control and Inspection is responsible for the judgment of any appeal.

The new decision of the board established a deadline of 15 days, counted from the date of its acknowledgment, for the submission of an administrative defense against a technical opinion. If a decision is rendered in the sense of maintaining the previous opinion, the interested party will be notified to, also within 15 days, file an administrative appeal for judgment in second (and last) instance.

As for the means of procedural communication, the interested party – that is, a natural or legal person that requests the issuance of a technical opinion on contaminated areas before Cetesb – will be notified of the result of the technical analysis by a message on the electronic platform used by the agency. In this same platform, the interested party may even monitor the procedural progress and update registration data.

The Cetesb Board Decision 106/2022/P also determines that the administrative procedures for the issuance of technical opinions on contaminated areas begin with the filing of the request protocol (SD) on the electronic platform used by Cetesb.

In its final provisions, the document determines that proceedings not handled by interested party for 120 days will be filed by Cetesb. However, during this period, upon reasoned justification, an extension of the deadline may be requested, which must be assessed by the competent authority for issuing the technical opinion.

The new decision of the board, therefore, updated the procedure to be observed for requesting and issuing technical opinions by Cetesb’s various entities and provided information on the counting of deadlines, competence for the drafting of the aforementioned technical opinions, types of communication of procedural acts, appeal bodies and competent authorities for judgment. 

Category: Intellectual property

The first version of Disney's most classic character, Mickey Mouse, brought to public on October 1, 1928 in the short Steamboat Willie, is expected to enter into the public domain in the United States in 2024. What does this event mean in practice? To answer the question, we need to look at some points, starting with the history of the protection of intellectual property rights in the United States and this character.

In 1790, the year of the promulgation of the first U.S. copyright legislation, the term of protection was 14 years from the elaboration of the work.^[1] Several subsequent legislative changes extended the protection period, especially from the 1960s onwards, as shown in the following graph:

The last change in U.S. copyright legislation occurred in 1998, with the Sonny Bono Copyright Term Extension Act, popularly known as Mickey Mouse Protection Act, given Disney's strong support for the project.

The law extended the period of protection of a work created on or after January 1, 1978. As a rule, the end of protection passed to 70 years after the death of the author. In the case of anonymous, pseudonyms or custom-made works, the protection period was extended to 95 years from the year of first publication or 120 years from the year of creation, whichever expires first.

The first version of the character Mickey Mouse was created co-authored by Walt Disney, who died in 1966, and Ub Iwerks, who died in 1971. The publication took place in 1928 and had its registration renewed. Considering that, the copyright protection ends after 95 years, i.e. in 2023. Thus, from January 1, 2024, in principle, anyone  will be able to use this version of the character without violating Disney's copyright.

However, as pointed out by specialists in the legislation in question, the public's use of the first version of the character is not unrestricted. Disney maintains the protection of such version of the character, as well as newer versions, as a trademark. This protection can be presented to prevent or limit certain uses of the character, such such as selling merchandise in which the character is depicted. In this case, it could be suggested that the merchandise is a product produced or licensed by Disney.

Other Disney characters have already entered into the public domain in the United States earlier this year, such as Winnie-the-Pooh (Puff Bear), Piglet and Bambi. The loss of Disney's exclusivity over these characters has already resulted in a film production made by a third party, not yet published.

Considering that it is possible to compare the main character with Puff Bear, it is observed in the production trailer that the context in which it is inserted, as well as its countenance at times, distances the work from traditional Disney cinematographic productions, as it is associated with the horror genre. This was one of the strategies for using the character in the public domain without violating Disney's trademark.

But how does Brazilian legislation work? Are these and other characters in the public domain (in the United States or other countries) also in the public domain here?

In Brazil, copyright is regulated by the Federal Law 9,610/98 (Copyright Law). Article 41 of that law states that, in general, the author's patrimonial rights last for 70 years, from January 1st of the year following the author's death. After this period, the work falls into the public domain and is returned to the community so that everyone can use it freely, free of charge, respecting only its integrity and the author's credit.

For Disney characters in the public domain (as well as any works previously protected by copyright in the same situation) to be used free of charge in Brazil, some points must be considered.

Firstly, the minimum period of protection for a foreign work to be considered in the public domain is 50 years from January 1 of the year following the death of the author of the work, as established in Article 7 of the Berne Convention for the Protection of Literary and Artistic Works, of which Brazil is a signatory, and dated September 9, 1886. This term applies even if the country of origin of the author or work establishes a shorter term of protection.

Secondly, Articles 7 and 8 of the Berne Convention provide that the duration of the protection shall be governed by the law of the country in which the protection is claimed and may not exceed the duration established in the country of origin of the work, unless there is an internal legal provision in contrary.

According to the legal text of Article 2 of the Copyright Law, Brazil undertakes to grant foreign works the same legal protection assigned to Brazilian works, provided there is reciprocity, that is, provided that Brazilian works are protected in foreign countries under their own laws.

This means that, in Brazil, Brazilian and foreign works are protected for the same period, that is, 70 years from January 1st following the year of the author's death.^[1]

In the case of the first version of the character Mickey Mouse, therefore, Brazil grants copyright holders exclusivity in the economic exploitation of the works for 70 years from January 1 of the year following the author's death.

As the United States confers the same right for 95 years, counted from the date of the first publication of the work, this means that the first version of the Mickey Mouse character will fall into the public domain in the United States before falling in Brazil. Here, as it is a work carried out in co-authorship, it will obtain this status only in 2042 – since, according to Article 42 of the Copyright Act, the term is counted from the death of the last of the surviving co-authors (in this case, Ub Iwerks,  who died in 1971).

As seen, the entry of copyright in the public domain must be analyzed in accordance with the legislation of each country. Therefore, it is up to those who intend to use illustrations, literary works, and other intellectual works, freely and free of charge, to verify whether these creations are in the public domain, according to the legislation of the country in which they are intended to be used.

^[1] BRANCO, Sergio. The Public Domain in Brazilian Copyright Law, 2011, p. 153.

^[1] 1790 Copyright Act

Category: Litigation

The granting of precautionary measures, in particular those involving the freeze of assets, must comply with the general legal requirements of risk demonstration to the useful outcome of the process and/or danger of irreparable damage. The jurisdiction of the Court of Auditors of the Union (TCU) in relation to that question is based on Article 44( 2).^[1] of the Organic Law of the TCU (Law 8,443/92), on Article 274^[2] of the Rules of Procedure of the TCU and on the subsidiary application of other legal provisions, such as the Law of Administrative Improbity^[3] (Law 8,429/92). However, this type of order is the subject of criticism and legal disputes.

On one hand, it is understood that the powers of the TCU are restricted to Articles 71 and 72 of the Federal Constitution and, consequently, would not include precautionary and enforceable measures, which would be restricted to the Judiciary. In fact, both the Organic Law of the TCU and its bylaws would extrapolate the powers delegated to the court by the Federal Constitution.

On the other hand, as decided in the leading case Security Warrant 24,510 – MS 24,510, the TCU has this competence based on the theory of implicit powers.^[4] According to the decision, TCU’s orders would only be enforceable against third parties if the court has sufficient powers to execute them, and not always depend on the judiciary.

On October 13, 2022, the Supreme Court ruled the MS 35,506 and consolidated its understanding^[5] that the courts of accounts have the power to adopt grant precautionary measures, "as long as they do not go outside their constitutional duties". In this case, the TCU ordered the freeze, for one year, of R$ 653 million of the Industrial Plants Project Ltda.’s assets (PPI), and confirmed its previous decision to pierce the PPI’s corporate veil – all in the administrative scope.

According to Minister Lewandowski, whose vote was the winner, "the public origin of the resources involved justifies that the injunction reaches individuals and not only public agencies or agents.". Regarding the disregard of the corporate entity of PPI, the Minister defended its possibility as a way to suppress abuses and frauds by the use and manipulation of the corporate entity.

Aware of the questions about the limits of its powers, the TCU has for years granted constriction orders of investigated assets. In many cases, the decisions are based on the generic risk to the useful outcome of the process considering the possibility of assets dissipation. Those decisions did not include what was the true evidence of eventual assets dissipation, especially in cases involving accusations of administrative misconduct and embezzlement of money.

Nevertheless, the consequences of the freeze orders go beyond the guarantee of payment of any conviction in the proceeding. An order preventing the disposal of assets by the respondent directly affects the companies’ capital and individuals’ finances, resulting on undesirable and critical financial situations.

These measures contradict the principle of the preservation of the company, surpassing the object of demand and affecting, in a macroeconomic analysis, the guarantee of jobs, income generation, maintenance of balanced and stable finances. The decision given in a process, administrative or judicial, may result in problems to the society as one.

Considering the above-mentioned consequences, the freeze orders granted by the TCU must be reasonably founded, demonstrating in the specific case the alleged irreparable damage or the risk to the useful outcome of the proceeding. In other words, the freezing injunction must be based not only on legal aspects, but on evidences of the real risk of not granting it.

^[1] Art. 44. At the beginning or in the course of any investigation, the Court, in a letter or at the request of the Public Prosecutor's Office, will determine, in a precautionary, the temporary removal of the person responsible, if there are sufficient indications that, continuing in the performance of his duties, may delay or hinder the performance of audit or inspection, cause further damage to the Treasury or make his compensation unfeasible. [...] § 2 - In the same circumstances as the caput of this article and the preceding paragraph, the Court may, without prejudice to the measures provided for in the arts. 60 and 61 of this Law, decree, for a period of not more than one year, the unavailability of assets of the responsible person, as many as considered enough to guarantee the compensation of the damage in investigation.

^[2] Art. 274. In the same circumstances as the previous article, the Plenary may, without prejudice to the measures provided for in the arts. 270 and 275, decree, for a period of not more than one year, the unavailability of assets of the responsible person, as many as considered enough to guarantee the reimbursement of the damages in investigation, pursuant to § 2 of Article 44 of Law 8.443, of 1992.

^[3] Art. 16. [...] § 4 - The unavailability of assets may be decreed without the prior hearing of the defendant, whenever the prior adversarial may prove to frustrate the effectiveness of the measure or there are other circumstances that recommend the injunction, and the urgency cannot be presumed.

^[4] As Luciano Ferraz explains, "The theory of implicit powers was constructed by the United States Supreme Court in the famous case McCulloch v. Maryland (1819), and is based on the idea that the granting of express jurisdiction to a particular State body matters in the implicit acceptance, also to it, of the means proper to the full achievement of the purposes prescribed by the constituent. It is true that this theory was granted in relation to the legislative powers (implicit) of the Union before the states, based on the federal constitutional regime of the USA, but the fact is that it has already been widely used by the Supreme Court to justify hidden powers of organs such as the Public Prosecutor's Office, the National Council of Justice and the Court of Auditors". (available on Legal Advisor website).

^[5] In the same direction: Security Suspension 5.455-RN and Security Warrant 34.446-DF.

Category: Litigation

The discussion on the constitutionality of state laws that provide for the mandatory extension of promotional campaigns to all customers – new or pre-existing ones – of services of a continuous nature had another chapter in the judgment of Direct Actions of Unconstitutionality 6,191, 6,333 and 5,399 (ADI 6,191, ADI 6,333 and ADI 5,399). However, it was not a final chapter, because the Supreme Court's decision was restricted to promotions related to telecommunications and education service providers.

ADI 6,191 and ADI 6,333 were proposed by the National Confederation of Educational Establishments (Confenen), while ADI 5,399 was filed by the National Association of Cell Phone Operators (Acel). The lawsuits questioned Law 15.854/15 SP and Law 16.559/19 PE, according to which providers of continuous services (such as telecommunications, education, water, electricity, health plans, cable TV, internet providers, among others) are obliged to offer their old customers the same conditions offered to fresh consumers. In case of non-compliance, fines could be imposed.

At the trial, the Supreme Court ruled, by majority of votes, that the mentioned state laws were unconstitutional. For this, the Court based its decision on two main arguments, one of formal order and another of material order.

From a formal point of view, the Supreme Court pointed out that the contracts established between consumers and telephone operators or educational institutions are civil matters and, therefore, are subject to legislation that can only be created by the Federal Union, not by States. In addition, it was recalled that the Court had previously decided that only the Federal Union could legislate on education and telecommunications.

Regarding the material argument, the court pointed out that the state laws violate the constitutional principles of free enterprise and proportionality. The granting of discounts indiscriminately to old clients would  hamper suppliers to seek new customers, which would breach the free enterprise principle. Furthermore, requiring service providers of an ongoing nature to amend the contracts already established would cause disproportionate damage.

Considering the arguments used by the Supreme Court, although the object of the actions are specific laws of São Paulo and Pernambuco, any similar state law would also, in principle, be unconstitutional. States with similar laws should, then, submit to the decision.

It is important to highlight that the Decision of the Supreme Court covered only promotions related to providers of education and telecommunications services, because the thesis created was: “the state law that imposes on private providers of teaching and cellular services the obligation to extend the benefit of new promotions to pre-existing customers is unconstitutional". Thus, by exclusion, other services of a continuous nature (such as health plans, internet providers and pay TV) would still be subject to similar state laws.

The analysis of the judgment of these ADIs leads us to believe that grounds used by the Supreme Court could also be applied to other services of a continuous nature. It is now worth following how other entities representing service providers of this nature will act, considering that there are several state and federal bills proposing that service providers are obliged to extend to their pre-existing customers the same conditions offered for new ones.

Category: Tax

Legal entities depend on a range of auxiliary activities to make their businesses viable, such as legal and information technology services, advertising, accounting, human resources, and others.

To rationalize management, simplify procedures, and optimize resources, it is not uncommon for companies in the same economic group to choose to share these facilities, sharing the necessary expenses, whether to maintain internal departments or to hire external providers. These are called cost sharing agreements.

Despite being an atypical contract, not provided for in the Brazilian civil law, this instrument implies, most of the times, advance of expenditures inherent to the funding of these sectors by one of the participating entities, usually identified as a “centralizer", linked to financial reimbursement by the other beneficiaries, proportionally to the portion attributed to each entity.

Because it represents a mechanism of mutual contribution to finance advantages of common use, the duty assumed by the centralizing entity should not be confused with the provision of services covered by these structures, jointly enjoyed by the contracting companies.

This role is most often fulfilled by the agents actually hired and paid for the performance of the shared services, when the cost sharing model adopted involves the participation of third parties to deliver these services.

It is also unreasonable to affirm that the contributions made by the beneficiary companies and received by the centralizer, as reimbursement for anticipated expenses, should be considered indistinctly as revenue of the latter.

We should not forget that it is a characteristic of cost sharing that one of the contracting parties incurs expenses in advance for the benefit of the others, under a commitment to future reimbursement. In this type of arrangement, the amounts received by the centralizer, therefore, translate into a simple restoration of what was spent on behalf of the other contractual parties, without any associated economic advantage.

This insight is fundamental and the Federal Revenue Service of Brazil (RFB) had already taken it into account when it issued the Resolution of Divergence 23 of the General Coordinator’s Office of Taxation (SD Cosit 23/13), in which it expressed the understanding that it is possible to exclude from the PIS and Cofins calculation basis the amounts received as reimbursement by the centralizing legal entity of shared activities, precisely because they do not represent revenue, but rather cost recovery, without adding anything to the legal entity's assets.

The issue was addressed in a judgment by the 3rd Panel of the Superior Chamber of the Administrative Tax Appeals Board (CSRF), whose decision was published on May 11, 2022. In the judgment, by majority vote, financial income received by the centralizing company was ascribed the nature of revenue from provision of services, in the course of the flow of payments established through cost sharing, admitting the levy of PIS and Cofins on the items (Appellate Decision 9303-012.980).^[1]

In a dissenting opinion, the reporting judge, Tatiana Midori, reasoned that the contractual model under analysis could not be confused with a service contract. This is because, besides not being for consideration and imposing reciprocal obligations, the amounts reimbursed would not be added to the recipient's assets, nor would they be capable of creating wealth or profit, since they represent "mere settlement of accounts". The reporting judge also pointed out that the company assessed had strictly followed the criteria for apportionment, accounting, and instrumentation,^[2] listed in SD Cosit 23/13.

This view, however, was overcome by the vote of board member Luiz Eduardo Santos, according to whom the taxpayer had provided services to other legal entities (whether merely administrative or linked to the main activity) and received amounts for this.

To justify the levying of the contributions, the board member argued that:

• the characterization of revenue is independent of the division between non-core activity and core activity, with such discussion being merely doctrinaire and not originating from the law;
• there is no legal provision in the Brazilian tax legislation governing the treatment of apportionment of common expenses; and
• the Brazilian legal system provides that only in consortium contracts and powers of attorney, a certain expense can be incurred and passed on to a third party without being considered its own expense.

The reasoning above does not seem to be the most consistent with the position already expressed by the Federal Revenue Service of Brazil and, in view of this, we propose some reflections.

It is noteworthy that the decision has expressly concluded finding SD 23/13 inapplicable, understanding that it would not be of mandatory observance by Carf. However, it must be remembered that, according to article 33, of IN/RFB 2.058/21, the solutions of divergences handed down by Cosit have binding effect within the Federal Revenue Service and protect taxpayers who apply them.^[3] This condition, therefore, derives from a legal standard.^[4]

To finding otherwise would favor a scenario of generalized legal insecurity. This factor, in itself, would be enough to lead to the opposite result. Furthermore, the understanding on the merits reached by the CSRF itself left out, in our judgment, some crucial points that should guide the examination of the matter.

The ruling shows that it attaches too much importance to arguments that should be determinant in designating the nature of the amounts received. Even if it were possible to link to the centralizing company's activity the elements of provision of a service, which is certainly controversial,^[5] as well explained in the dissenting opinion, the decision did not demonstrate the actual receipt of revenue linked to this provision of services, the taxable event of the taxes in question.

As can be seen, the judge builds his theory based on loosening of the concepts of “core activity" and “non-core activity" to portray the obtaining of revenue. In his view, practical experience makes this differentiation unfeasible, since certain services can fall into one category or another, depending on the allocation given by the company that receives them.

To justify the statement, the example of legal services is brought in, which could be understood as core activities, when consumed directly for the achievement of core activities, such as the conclusion of a company's business. The same expenditure would be classified as a core activity when reverted to the performance of activities of the same nature, citing tax planning as an example.

Thus, he explains that the cost sharing contract may gather services that assume a double condition, since, at certain times, they will be considered a core activity (due to their acting in favor of activities of this nature) and, at other times, they will be a secondary activity (due to their being invested in activities considered ancillary). Under this pretext, it is alleged that it would not be possible to rule out the nature of provision of a service performed by the centralizing company.

However, the function of any core activity on behalf of a legal entity is to produce consequences on its business, regardless of the sector in which it is absorbed and the degree of proximity with the corporate purpose. To some extent, all the activities contracted by the entity act to generate positive effects on its core business.

The fact that an activity is closer to the acts that are part of the entity's corporate purpose is not an impeding or excluding criterion to characterize it as a core activity. In other words, it is incorrect to state that core activities will be only those invested in ancillary activities of the entity.

Any activity performed on an auxiliary basis that is not typical of the core business should be interpreted as a non-core activity. The word itself is self-explanatory: “core activity" encompasses every role that does not have a purpose in itself, but serves as an instrument to achieve the corporate objective, whatever the business line may be.

Taking the example given in the judgment, the common objective of all legal services is essentially the same, that is, to provide legal support for the entity that avails itself of them. It will be, in any case, a non-core activity, which aims to optimize the result of the core activity, regardless of the context in which it is performed.

Furthermore, the grounds against the taxpayer neither invalidate nor counteract the premise that the expenses advanced by the taxpayer were incurred for the exclusive benefit of third parties, which is to say, the other beneficiaries of the cost sharing. Given this picture, the question is: how is it possible to ascribe the nature of revenue per se to the reimbursements received?

The answer could not be more straightforward: these amounts are not revenue. The taxpayer does not experience an increase in net worth capable of constituting revenue from the provision of services.

The application of this precept also inspires repercussion on the possibility of appropriating a PIS and Cofins credit on all of the amounts paid by the centralizing company under these contracts, when it involves the hiring of legal entities. That has to be guaranteed.

But the guarantee that should be pursued, after all, is not to see funds that do not have this characteristic taxed as revenue, as recognized by the Public Administration itself in SD Cosit 23/13.

Among the ills that plague our tax system and affect the good development of the business environment and the economy in Brazil, legal insecurity and lack of predictability in tax matters stand out. If, on the one hand, structural reforms that are difficult to implement can bring about a permanent solution, on the other hand, more targeted actions, potentially resulting from a necessary change in culture, would make a big difference.

It would be of enormous value to have the many doubts that permeate the application of our tax legislation answered by the Federal Revenue Service, as happened in the case of cost sharing. But this achievement will be worthless if the taxpayer cannot be sure that the agency's understanding will be generally followed by the Public Administration.

^[1] Administrative Proceeding 19515.003333/2004-51.

^[2] SD 23/2013 establishes that the portion attributed to each entity is calculated based on reasonable and objective apportionment criteria, previously agreed upon, formalized by an instrument signed between the intervening parties; that they correspond to the actual expense of each company and to the global price paid for the goods and services; that the centralizing company of the operation appropriates as an expense only the portion attributable to it according to the apportionment criteria, in an identical manner to the decentralized companies that are beneficiaries of the goods and services, and accounts for the portions to be reimbursed as rights to recoverable credits; separate accounting of all acts directly related to the apportionment of administrative expenses.

^[3] Article 33. The solutions of consultations issued by Cosit, as of the date of their publication:

I - have a binding effect within the RFB; and

II - support taxpayers who apply them, even if thety are not the respective inquirer, as long as they fit into the scenario covered by them, without prejudice to confirmation of their actual classification by the tax authority in an inspection proceeding.

^[4] National Tax Code (CTN):

Article 100. The following are complementary rules to laws, international treaties and conventions, and decrees:

I - normative acts issued by administrative authorities;

(...) Sole paragraph. Compliance with the standards referred to in this article rules out the imposition of penalties, charging of default interest, and adjustment for inflation of the monetary value of the tax calculation basis.

^[5] The adoption of this premise seems to be materially inconceivable, since it would place the taxpayer in the simultaneous condition of provider and recipient of a single and indivisible service, as though it could be reproduced and passed on, as an effect of the contractual arrangement adopted.

Category: Labor and employment

Companies, in the recent past, were obliged to require employees to wear masks while working on their premises, following the recommendations of the respective norm 20/20, which provided restrictive measures directed at the working environment due to the covid-19 pandemic. The ordinance was later amended on some occasions by regionally adopted health protocols and had its validity tied to the end of the emergency declaration in public health of national importance (Espin).

The use of a mask is no longer mandatory from 22 May of this year, with the publication of the Ordinance 913/22, which established the end of the public health emergency, ending the restrictions related to the work environment, with the exception of the existence of more restrictive state and/or county standards.

With the emergence of an even more contagious subvariant of The Omicron, BQ.1, the cases of people infected by covid-19 have returned to rise in Brazil and worldwide. According to the World Health Organization (WHO), the subvariant has been found in more than 65 countries, including Brazil, and has prevailed over the other circulating variants of Ômicron.

Given this scenario, some determinations of the mandatory use of masks have already begun to reappear in judicial Court, such as the Regional Labor Court of São Paulo, by the GP/CR Act 5/22, and the Regional Labour Court of Campinas, through the Recommendation GP-CR 001/22.

There was also the Resolution 761/22 National Health Surveillance Agency (Anvisa), which updated the measures to be adopted at airports and aircraft, as well as the Decret 67,299/22 of the state of São Paulo, which determines the use of masks in public transport, places of access, shipments and landings.

Although there is still no standard that determines the mandatory return of the use of facial protection in work environments, we should consider the current scenario of much crowd by the World Cup period and year-end gatherings, which can enhance the growth of new cases.

In view of the determinations that have been taken, as shown in the examples mentioned, in order to safeguard the health of their employees, we suggest that companies begin to plan for a possible return of the mandatory use of masks in their facilities, while waiting for the manifestation of the competent agencies.

Category: Labor and employment

Alarming numbers: all of a sudden some of the major U.S. companies that have surfed the digital wave in recent years – largely as a reflection of the isolation imposed by the covid-19 pandemic –had announced mass layoffs, which in some cases, represent  a decrease of up to 50% of their current job positions.

However, it would be wrongful to admit that in the United States mass layoffs may take place without previous discussions. Heated debates have arisen among experts concerning the legal impacts and potential lawsuits challenging such layoffs alleging violations of the Worker Adjustment and Restraining Notification Act of 1988 (WARN Act).

The WARN Act is a U.S. federal statute that, in general lines, requires prior communication to employees or unions and other authorities, at least 60 days in advance, for mass layoffs of not less than 50 employees in companies that have more than one hundred employees in a single site.

This termination movement in the United States turned on the yellow light for companies in Brazil and, especially, labor unions, which fear that the wave of layoffs may spread overseas.

The concept of mass layoffs  within the Brazilian legal system was only regulated with the enactment of the Labor Reform (Federal Law No. 13,467/17), which has completely waived the prior authorization of the labor union or the performance of a collective bargaining agreement for this type of termination.

Like other Reform legal issues challenged before Courts, the mandatory collective bargaining for the mass termination of workers was also discussed in the Brazilian Supreme Court (STF). When assessing the theme 638 in the Extraordinary Appeal 999,435, the Court ruled that, in cases of mass layoffs, companies operating in Brazil shall allow a "prior union intervention". If such intervention does not occur, courts may declare null or abusive by the courts.

But what would be the so-called "prior union intervention" stated by STF’s Justices? Practice shows that the expression refers to the establishment of an effective dialogue between company and union representing the impacted workers, so that the layoff process would affect in a slighter way the group of terminated workers and society.

The STF has not determined that the dialogue and, consequently, the negotiation between the company and the union shall be fruitful. In our view, however, prior labor union intervention presupposes a duty of sincere effort between the parties to achieve a possible consensus or convergence. In case a stalemate happens, the company could proceed with the mass layoffs, regardless of union’s authorization.

In practice, companies sat within Brazilian territory that need to cut many workers should fulfill their duty to formally notify the union, so that they can meet with employees' representatives, aiming at an effective dialogue with the labor entity. This dialogue may be done by submitting proposals and counterproposals duly registered by the parties, capable of leading to a potential consensus or agreement between the interested sides.

Category: Tax

Constitutional Amendment 125, promulgated on July 14, 2022 (EC 125/22), introduced a new requirement for  admiting the special appeal by the Superior Court of JUstice: demonstration of the relevance of the issues of federal law infraconstitutional discussed in the case.

The institute is similar to the general repercussion, but differs in terms of the demonstration and subjective transcendence of the matter to be assessed: in the Supreme Court, constitutional; in the Superior Court of Justice, federal infraconstitutional law.^[1]

In the explanamation of the proposal that resulted in the approval of EC 125/22, its authors affirm that the requirement to demonstrate the general repercussion in the extraordinary appeal allowed a large reduction in the number of appeal that arrived in the Superior Court of Justice, which is why it would be worthy to adopt the same instrument also for the Superior Court of Justice.

Except in cases where relevance is presumed, listed in Paragraph 3 of the Article 105 of the Federal Constitution of 1988, in the event that a matter can be assessed by the Superior Court of Justice, it will have to be of great national interest and transcend the interest of the parties involved in the special appeal. With this, the Court will be able to focus its attention and effort to face issues of great relevance.

The Superior Court of Justice is the court competent to establish the interpretation of federal infraconstitutional legislation and resolve existing case law divergence between courts. Contrary to what happens in a constitutional court, whose action should be on the basis of conflicts involving constitutional issues depending on the order and whose interpretive north serves as a horizon for the construction of norms based on statements introduced by ordinary or complementary legislation, the STJ has the function of interpreting federal infraconstitutional legislation as a whole,  regardless of whether this is in the interests of small or large numbers of individuals.

Moreover, in relation to the divergence of case law, the fact that there are distinct positions between two courts justifies the action of the Superior Court of Justice to solve the issue, even if the matter has few interested parties.

In the Superior Court of Justice, there is also a mechanism that allows the trial of topics with a certain detachment from the discussion held by the two parties in the process: the special repetitive appeal. In this type of appeal, when the matter is considered repetitive, the competent chamber will assess the subject in its broadest scope and, at the second moment, the solution will be applied to solve the case that brought the matter to court. That is, it is a real instrument that allows the trial of theses by the Superior Court of Justice.

The procedure for affecting the subject for consideration by the section has the participation of all members of that fractional body, which is inferable that it is not all matters that can be decided according to that system. Only when it is found – from the manifestation of all the ministers who make up the fractional body – that the subject is discussed in many appeals, it will be subject to a broad assessment by the chamber and the decision will have a degree of binding to the classes of the court itself and the lower court bodies.

Therefore, the introduction of a requirement such as the determination of relevance of the matter under discussion in the special appeal as a condition to its knowledge would have the power to modify the essential characteristics of the Superior Court of Justice as a court that primarily interprets federal legislation infraconstitutional and resolves case law divergence between second-degree courts.

Although I believe that the requirement to demonstrate the relevance of the matter alters important characteristics of the Superior Court, since EC 125/22 was promulgated and the filter should be observed for the knowledge of the special appeal, we envision a possibility of overcoming the so-called "defensive case law" in relation to the knowledge of appeals brought on the basis of case law conflict, so that the role of the STJ is again more important.

Among the autonomous hypotheses of special appeal of Article 105, III of the Federal Constitution, point 'c' authorizes its filling when the decision "gives federal law a divergent interpretation of that which has given it another court" (divergence of case law). In that circumstance, the demonstration that the appealed decision interpreted a legal provision in a sense different from that given by another court already authorises the knowledge of the special appeal, and it is for the Superior Court of Justice to decide which interpretation is appropriate – and which should prevail.

However, over the years, a doutrine was formed in the Superior Court of Justice that the knowledge of the special appeal brought based on the existence of case law conflict would be conditional on the evidence of the violation or negative validity of the federal infraconstitutional legislation for the case. In other words, greater importance was given to one of the hypotheses of the special appeal and a requirement for the knowledge of the appeal based on case law divergence was added.

EC 125/22, in this particular, may contribute to the STJ overcoming this misguided interpretative line and resume its role as a court competent to standardize the interpretation of federal legislation infringing, even if it is not facing violation or negative validity.

It is not hard to remember that legal provisions can be interpreted in various ways, provided that there is consistency and respect for the legal system. Moreover, until there is a binding demonstration from a higher court, the authorities may not be able to perform their function in waiting for a position with that characteristic. This leads to decisions in different senses, without violation of the law.

In Paragraph 3 introduced to Article 105 of the Constitution by EC 125/22, its paragraph V states that there will be relevance in the "cases in which the trial under appeal contradicts the dominant case-law of the Superior Court of Justice". It should be noted that this is one of the hypotheses expressed in which there is relevance of the issue dealt with in the special appeal.

Although the precept indicates that the relevance will occur contrary to the case-law of the Superior Court of Justice itself, a systematic interpretation of the hypothesis must be given and the standardfunction of the court, which has been so unprestigious in recent years, should be given a systematic interpretation.

Given the introduction of a new requirement for the knowledge of the special appeal and established some hypotheses in which there is relevance of the issue dealt with, an opportunity arises to overcome the interpretative line mistakenly constructed with the sole purpose of preventing the processing of special resources. There is also the chance to reinforce one of the powers of the Superior Court of Justice, which is to standardize the case law and solve the divergence of interpretation of federal infraconstitutional legislation between courts.

^[1] ALVIM, Teresa Arruda; DANTAS, Bruno. Special appeal, extraordinary appeal and the new function of the higher courts. 5th ed. São Paulo: Thomson Reuters Brazil, 2018. p. 320.

Category: Labor and employment

The Government of São Paulo announced the mandatory return of the use of masks on public transport, in publication in the Official Gazette of November 25, 2022. The objective of the measure is to contain the new increase in cases of covid-19.

Thus, on November 26, the mandatory use of masks, as regulated by Article 1 of the Decree 66,575, of 17 March 2022.

It occurs that, although the government has announced the return of the measure only on public transport, the Decree 67,299, of 24/11/2022, determines the mandatory use of masks in transport passenger collectives, not distinguishing whether the medium is public or private.

Given the uncertainty, it is recommended that companies again require the use of masks in chartered means of transport, as well as in places of access, embarkation and disembarkation, from November 26, 2022.

Category: Competition

The Administrative Council for Economic Defense (Cade – the Brazilian antitrust authority) discussed the retroactive application of the Resolution 24/19, which provides the methodology for calculation of fines for gun jumping violation (the early consummation of transactions, prior to Cade’s approval), which can reach the maximum of R$ 60 million.

The discussion took place in the context of a gun jumping investigation (APAC) referring to the consummation of a transaction prior to the approval of Cade, which occurred before the entry into force of the resolution that brought specific parameters for the calculation of the fine in cases of gun jumping – taking into account, for example, the duration and severity of the wrongdoing, the intention of the parties, and also considering the value of the transaction and the revenue of the parties.

Prior to the resolution, fines for gun jumping followed the general parameters set out in the Cade's Internal Regiment.

According to the Commissioner Rapporteur assigned to the APAC, a retroactive application of Resolution 24/19 would be possible if it could benefit the wrongdoers (i.e. the parties to the investigated transaction). However, the Commissioner Rapporteur concluded that the methodology of Resolution 24/19 could aggravate the parties’ situation instead, and decided to apply the rules provided for in Cade’s Internal Regiment, which was in force at the time of the wrongdoing.

The Commissioner Rapporteur assessed gun jumping precedents in which the Internal Regiment rules were applied, to identify those with characteristics similar to those of the investigated case (e.g. type of operation – global or national –, size of the companies involved, effects in Brazil and competition aspects) and ordered a pecuniary contribution, to be paid by the wrongdoer, that was equal to the amount reached in the most similar case, duly updated per the Selic rate.

The Commissioner’s decision was unanimously followed by the Cade’s Tribunal.

Before the Resolution 24/19 was in effect, the highest fine imposed by Cade in a gun jumping case was R$ 30 million, and each of the other fines imposed amounted to less than R$ 3 million.

In the first case in which the fine calculation methodology provided for in Resolution 24/19 was applied, a R$ 57 million fine was imposed, not reaching the statutory maximum limit only because of a discount granted by the Commissioner Rapporteur of the case. The maximum limit of R$ 60 million for fines was recently reached in a case settled by Cade and the parties involved in the investigated transaction, where details about the calculation were not disclosed.

Cade’s decision went beyond establishing the possibility of not applying the methodology for calculation of fines set out in Resolution 24/19 for transactions consummated before July 2019 (when the Resolution entered into force) without Cade’s approval: it also made room, in such cases, for the settlement negotiations to consider sanctions imposed in precedents with characteristics similar to the case under negotiation, giving society greater certainty and predictability.

Category: Capital markets

The Brazilian Securities Commission (CVM) introduced on June 10 of this year, through the CVM Resolution 135, the possibility of carrying out transactions with large lots of shares and securities representing shares in specific segments or trading procedures in exchange and organized over-the-counter markets.

According to paragraph 1 of Article 95 of CVM Resolution 135, transactions with large lots are considered to meet, cumulatively, the following conditions:

• the minimum lot is not less than that disclosed by CVM in relation to the respective securities;
• occur with single and indivisible lot of securities; and
• participation of a member of the securities distribution system.

Since the publication of the resolution, the market has been waiting for the CVM to disclose the methodology to be applied for the definition of large trading lots, which occurred on October 4, in view of the decision of the CVM Board that approved the proposal presented by the Superintendence of Relations with the Market and Intermediaries (SMI).

The proposal made by SMI, after interactions with the market, was inspired by the European regulations for the definition of so-called "Large in scale orders" or LIS, calculated from the average volume traded per asset. According to the technical area, the European model was considered more appropriate for the Brazilian market, since it considers the different liquidity patterns of the shares.

It was defined as this:

Frequency of disclosure – The shares and securities representing shares that can be traded in large lots and their respective minimum lots will be disclosed, in principle, every four months, through the Circular Letter of SMI (it should be noted that CVM Resolution 135 will be amended at this point because it initially provided for annual disclosure).

Criteria – The following criteria will be used in the disclosure of minimum lots for the trading of large lots:

• the median daily volume traded during the base calculation period, making it unnecessary to exclude the trades carried out on the first trading day of the calculation basis; and
• the minimum number of trading sessions in which there has been trading for the purposes of meeting the eligibility criterion shall represent 25% of the trading sessions of the base calculation period.

Minimum lot definitions for trading large lots – The following table will be used for the definition of shares and securities representing shares that can be traded through transactions with large lots:

With the permission to set up specific trading segments or procedures for conducting trades with large lots of stocks and other securities representing shares to be made in the stock and over-the-counter markets, the regulator seeks to offer an alternative to mitigate any market impacts deriving from the harmful volatility in the price of a given asset, depending solely on the existence of an offer with a large-volume transacted.

The changes promoted do not represent a fence for the use of the mechanisms previously existing for the trading of large amounts of shares and securities representing shares.

This is the case, for example, of special negotiation procedures that were provided for in the CVM Instruction 168/91 (revoked), in case of transactions involving substantial blocks or quantity of shares or direct offers higher than the daily media traded in the last trading sessions – with CVM Resolution 135, the rule of these procedures became included in the regulation of the stock exchange's managing entity.