Category: M&A and private equity

Clarissa Freitas, Rafael Costa Silva and Georgia Schneider

The board of the Brazilian Securities and Exchange Commission (CVM) reviewed, in June, a proposal for a consent order presented by a director of Investor Relations (DRI). The administrative sanctions proceeding (PAS) dealt with the untimely disclosure of a material fact in the context of a renegotiation of the terms and conditions of a proposed corporate merger, involving the company and its controlling shareholder. The disclosure of the relevant fact only occurred after publication on an Internet news portal.

The board of the agency followed a favorable recommendation of the Consent Order Committee or execution of the settlement, with the payment, in a single installment, of R$ 400 thousand to the CVM.

The investigation was initiated by a notice sent by the company's independent director to the Company Relations Bureau (SEP), reporting that the company's management had received a letter from a reference shareholder informing them of:

• its intention to vote against the merger of a company at a General Meeting of Shareholders; and
• the existence of negotiations between said reference shareholder and the company's controlling shareholders to adjust the corporate merger proposal.

There was a six-day interval between receipt of the letter sent by the reference shareholder and disclosure of the material fact, during which time the intention to vote against and renegotiation of the terms of the merger were published on an Internet news portal.

When questioned by the Corporate Relations Bureau, the Investor Relations director emphasized:

• that disclosure of the contents of the letter would go against the company's corporate interest;
• the information was within the control of the parties and was an ongoing negotiation, and it was doubtful to address it as a relevant fact at that time;
• that according to experts consulted, there was not yet reason for disclosure;
• absence of an order for disclosure from the CVM led it to the understanding that it was not necessary to take the information public at that exact moment; and
• after the news story, the necessary measures were taken immediately.

In drafting the indictment, the Company Relations Bureau highlighted, among other arguments:

• the failure to immediately disclose the contents of the letter compromises those who participated in transactions in the market during this period, by putting the company's shareholders into a position of information asymmetry, which therefore violates the principle of full and fair disclosure;
• the claim of secrecy of all or part of the information cannot is not fitting in view of the indications of leakage, much less in cases where the information was not under the company's control;
• the negotiation between the reference shareholder and the controlling shareholder resulted in conditions quite different from those initially disclosed to the market for the corporate merger;
• it would not be possible to keep control over the information, whose origin was external to the company; and
• the advice of the director of Investor Relations to outside consultants and/or other officers does not exempt or mitigate liability.

Initially, the defendant presented a proposal to assume a monetary obligation in the amount of R$ 250 thousand to extinguish the administrative sanctions proceeding, alleging, briefly, that:

• He acted in accordance with its fiduciary duties as the company's director of Investor Relations;
• the disclosure of an existing negotiation between the controlling shareholders and a reference shareholder could generate speculation in the market;
• the topic had been discussed with experts in the field who advised him not to disclose material facts at that time; and
• in the period between the sending of the letter and disclosure of the material fact, there was no swing in the company's share price.

In reviewing the proposal, the Consent Order Committee considered the following issues to conclude that the monetary obligation in the proposal should be improved:

• the opportunity and convenience of entering into the settlement, as well as the nature and seriousness of the violations subject to the PAS, the prior history of the proponent, its good faith cooperation, and the effective possibility of punishment;
• conduct performed after the entry into force of Law 13,506/17, which provides for a PAS in the sphere of the Central Bank of Brazil and the CVM, establishing new parameters for penalties and negotiation of monetary obligations;
• the company's status among issuers of securities and its degree of shareholding dispersion;
• the track record of the proponent, who had never been charged by the CVM in previous a PAS;
• the possible classification in group II of annex 63 of the RCVM 45, assuming as maximum penalty R$ 600 thousand; and
• CVM precedents in the review of similar cases.

After pondering the above elements, the recommendation was to improve the monetary obligation proposal to R$ 400 thousand, to be paid in a single installment. The proponent accepted the new terms of the proposal, which led the CVM board to follow the recommendation of the Consent Order Committee and decide, unanimously, to enter into the consent order.

Category: Banking, insurance and finance

The Bureau of Private Insurance (Susep) has put up for public consultation a draft of the Resolution of the National Board of Private Insurance (CNSP) that governs the operations of assignment and acceptance of reinsurance and retrocession operations and their brokerage, coinsurance, operations in foreign currency, and insurance contracts abroad.

The draft consolidates several regulations that deal with these topics, modernizes the provisions, and makes them compatible with the regulations recently issued by CNSP and SUSEP.

According to the explanatory memorandum, the drafting process was accompanied by discussions with representatives of the regulated market. Also taken into consideration were international references on the subject, and the recommendations of the International Association of Insurance Supervisors (IAIS).

The big news concerns the change in the global assignment limit rule. This rule provides for that insurers and local reinsurers may not assign in reinsurance and retrocession more than 50% of the premiums written for the risks they have underwritten, considering the totality of their operations, in each calendar year. Some classes are not taken into consideration for the calculation of the limit (for example, performance bonds, rural insurance, and credit insurance).

The draft regulation proposes the following relaxation:

• for insurers, extinguishment of the global assignment limit; and
• for local reinsurers, enlargement of the percentage for retrocession assignments up to 70% of the premiums written (without exception per line of business).

On the other hand, the text requires that insurers present a technical justification, by March 31 of the subsequent calendar year, for the adoption of a reinsurance assignment percentage higher than 90%, considering the totality of their operations, per calendar year. According to Susep, this rule is a precautionary measure, also adopted by other reference jurisdictions, to monitor and curb distortions in the use of reinsurance.

Susep also clarified that maintenance of a limit for local reinsurers is justified, insofar as it is in the nature of their operation to retain high risks. In addition, as a rule, these players do not need retrocession to make business possible, unlike insurance companies. In the general context, their portfolios are suited to the current operational limit (which is 50%).

In parallel, the draft regulation inserts a principle command, providing that insurers and local reinsurers adequately manage their reinsurance and retrocession operations, through the development and implementation of a risk transfer policy (which will complement the risk management policy provided for in CNSP Resolution 416/21).

The draft regulation establishes the minimum guidelines that must included in the policies for retention and assignment of risks in reinsurance and retrocession. The deadline for insurers and local reinsurers to prepare their risk transfer policies will be 180 days from the resolution's entry into force.

The new commands, according to Susep, establish a less prescriptive approach, based on the business strategy of the regulated companies themselves, with an emphasis on the structuring of reinsurance programs.

The measures will especially benefit companies that operate in high-risk lines of business that involve large sums insured and demand intensive use of reinsurance. Companies entering certain lines of business will also benefit, because the support and expertise of the reinsurer is usually fundamental in this scenario to make the operation viable.

The draft also ceases to make reference to the percentage of the preferential offer of reinsurance assignment to local reinsurers, instead referring to the applicable legislation (today, 40%, according to article 11, subsection II, of Complementary Law 126/07). The text is prepared for possible legislative change (studies of which are underway, as reported by Insurance Europe - see Country fact sheet of June 2022).

Public Consultation 9/22 will be open until August 18, 2022, and suggestions may be received via the e-mail address This email address is being protected from spambots. You need JavaScript enabled to view it., accompanied by a specific standardized table for comments or proposals, available on Susep's website.

Category: Litigation

One of the great points of discussion in the case law when a new law comes into effect is the moment at which the new legislation should be applied to legal relationships of continuous treatment or, as in the case we analyze here, in the hundreds of thousands of ongoing lawsuits, as occurred when the Code of Civil Procedure of 2015 (CPC/15) entered into effect.

The temperature of the debates rises if the matter involves one of the most effective measures for the recovery of credits litigated in the Judiciary: piercing of the corporate veil.

In a recent decision handed down by Justice Nancy Andrighi in the judgment of Special Appeal 1.954.015 PE, the Superior Court of Appeals (STJ) upheld a court decision handed down when the Code of Civil Procedure of 1973 (CPC/73) was in force, which provided for inverse piercing of the corporate veil when it is possible to seize the assets of companies of which the debtors are partners. The parties affected by the decision were subpoenaed after the new Civil Code went into effect.

The decision under appeal was made in the record of an action for enforcement of judgment, arising from a judgment issued in an action for damages, in which, after finding irregular succession between the judgment debtor companies, the court decided, without summoning the parties, for reverse piercing of the corporate veil to reach the assets of a legal entity different from the judgment debtor company, composed of the same partners, who were also respondents in the action for execution.

In the special appeal, the appellant argued that there was violation of articles 133 et seq. of the Code of Civil Procedure of 2015, which provide for the ancillary proceeding for piercing of the corporate veil. With this, he hoped to have the nullity of the procedural acts carried out in compliance with the decision, which had been issued in 2014, still in effect under the Code of Civil Procedure of 1973.

In the current law, contrary to the provisions of the previous code, a specific procedure is mandated, in which the judge must summon the parties to respond to the request to pierce the corporate veil, directly or inversely, in order to later decide on the inclusion of the new agents as defendants in the proceeding.

The dispute, therefore, touches on intertemporal law and the procedural requirements to grant piercing of the corporate veil.

The Code of Civil Procedure of 2015 came into effect on March 18, 2016,^[1] and, in its article 1,046, provided as follows: "Upon the entry into force of this Code, its provisions shall immediately apply to pending cases, and Law No. 5,869, of January 11, 1973, shall be repealed." The expression “outright" leaves no doubt that the procedural rule listed in the Code of Civil Procedure has immediate application to ongoing proceedings.

Despite the legislator's intention to apply the new law immediately to pending cases, we must remember that the process is composed of a succession of acts that occur at different times. Therefore, each procedural act must be evaluated separately to determine which law governs it.

This is the core of the so-called Theory of Isolated Procedural Acts, established in article 14 of the Code of Civil Procedure of 2015 and described in the tempus regit actum principle. The new law only affects procedural acts to be performed after it enters into effect, respecting the effectiveness of those already performed.

With the new procedural law in effect, the case law is questioning, based on the Theory of Isolated Procedural Acts and the tempus regit actum principle, which procedures should follow the Code of Civil Procedure of 1973 and which should be converted to the current Code of Civil Procedure of 2015. Or rather, is it possible to speak of retroactivity of procedural acts performed during the transition of codes?

With this in mind, the STJ has drafted a series of administrative rulings (E. Adm.) of the Code of Civil Procedure of 2015 to guide the legal community on the issue of intertemporal law regarding the application of the rules of the two codes in several specific situations.

These are the rulings and their central themes:

• Adm. 2: Admissibility requirements for appeals based on the CPC/73
• Adm. 3: Admissibility requirements for Appeals based on the CPC/15
• Adm. 4: Procedural act performed after the CPC/15 entered into effect
• Adm. 5: Appeals based on the CPC/73 and the opening of the term provided for in the CPC/15
• Adm. 6: Appeals based on the CPC/15 and the opening of the term for formal defects
• Adm. 7: Appeal and fees for loss on appeal under the CPC/15

Despite the STJ's efforts to define parameters, the issue is far from being exhausted.

To contextualize the decision rendered by the STJ in the case under discussion, it is interesting to analyze the concept of piercing of the corporate veil.

In substantive law, piercing of the corporate veil is provided for in article 50 of the Civil Code of 2002. It established, in a list of examples, the casers that would justify its application, particularly in cases where the individualization between the civil existence of the partner and the company is lost, due to abusive and fraudulent actions, with the aim of protecting the assets of one (partner) or the other (company) from their creditors.

As well outlined in the grounds of the appellate decision under analysis, “piercing of the corporate veil has as a parameter, therefore, illegitimate action of the company through abuse of rights, performed through violation of the law or of the articles of association, and also through mixing of assets.

Once the requirements of article 50 of the Civil Code are met, two forms of application of piercing of the corporate veil can be recognized.

The first of these is piercing of the corporate veil itself, which occurs when, to satisfy creditors, the assets of the partners are affected. The second is inverse piercing of the corporate veil, in which, to satisfy creditors, the assets of the legal entity are affected, which occurred in the judgment under discussion.

Although the concept of piercing of the corporate veil has been in force since the Civil Code of 2002 was published, the Code of Civil Procedure of 1973 did not provide a specific procedure for its implementation.

The application of the concept was based on case law. In general terms, if the requirements are found to be met in summary review, the judge can “pierce the veil" of legal entity, overcome asset autonomy and authorize, in an incidental manner, that a certain act of expropriation affect the partner's or the company's assets, depending on whether it is a case of piercing of the corporate veil or inverse piercing.

In this context, the possibility of a defense for those whose assets were affected by piercing of the corporate veil was postponed, that is, only after the act of expropriation could those affected submit their defense.

This is exactly what happened in this case. In fact, in the situation at hand, both companies in which the "succession" was found, besides having the same partners, who were already defendants in the execution of judgment, had the same lawyers as representatives in the record.

Despite these "coincidences", no appeal was filed against the decision that recognized the irregular succession of the judgment debtor companies. This contributed, in the understanding of the STJ, to upholding the decision under appeal, and even recognized preclusion of the possibility of arguing the nullity of the procedural acts performed.

The justice writing for the court, in her grounds for the decision, found that there is nothing to be said of modifying the decision, either due to the inertia of the appellant in the decision that included it as a defendant in the cause, or due to the temporal situation of the law to be applied to the act that so decided. It did not suffice, on the part of the judgment debtor company, to claim that the publication of the decision rendered in 2014 occurred in 2019, in order to make use of the new law that would benefit it.

The STJ followed its settled understanding that the new procedural law will not retroact to acts already completed, which occurred under the old law, even if the proceeding follows its course after the enactment of a new law, which ensures greater legal certainty to acts already performed, even with the enactment of a new law to the contrary.

More than that, the court has signaled that, even if minimum parameters have been defined to guide the decision as to which law is applicable to the case, when elements of intertemporal law are present, other procedural elements, such as preclusion of the matter in question and the effects of the decision handed down by the state courts, will be taken into consideration on a case-by-case basis when deciding these issues.

^[1] As per Administrative Restatement 1 of the STJ

Category: Restructuring and insolvency

Exit financing is a type of financing granted to companies under an in-court reorganization or out-of-court reorganization proceeding, with the specific purpose of paying off the credits restructured by the reorganization plan and financing the debtor's operations after the process is over.

This type of financing is different from DIP financing (Debtor in Possession Financing) structures, which are usually granted throughout the reorganization proceeding and are intended to finance the debtor until a reorganization plan is approved or even during the implementation of such plan.

Exit financing is generally granted after the plan has been approved to enable payment of the competition creditors, closing of the proceeding, and reinsertion of the company in the market under normal competitive conditions.

Although DIP financing structures are already widespread in judicial reorganization proceedings in Brazil, exit financing is still little used. Both were inspired by US practice related to Chapter 11 of the US Bankruptcy Code.

The use of this instrument in judicial reorganization proceedings in Brazil is interesting inasmuch as the Company Reorganization and Bankruptcy Law (LRF) provides that, even after approval of the reorganization plan, the debtor should be kept under judicial reorganization until all the obligations set forth in the plan due up to two years after the granting of judicial reorganization have been fulfilled.

During this period, the company shall be kept under judicial reorganization, under the supervision of the trustee and the judge himself, and must comply with all the formalities provided for in the LRF, in addition to suffering all the limitations and difficulties intrinsic to a company whose name says "under judicial reorganization".

It is no news that companies under judicial reorganization find it more difficult to obtain credit in the financial market and to negotiate contracts with customers and suppliers, who are often unwilling to take the risk of contracting with companies in such a situation.

Thus, obtaining exit financing for the payment of the claims restructured by the plan allows for a faster and more efficient end to the judicial reorganization proceeding and reinsert the company in the market under normal competitive conditions, which facilitates access to credit lines and financing under better conditions.

The recent changes made to the LRF by Law 14,112/20 with respect to debtor financing during judicial reorganization, which includes a whole new section dedicated to the topic,^[1] certainly contribute to providing greater legal certainty to the lender and, therefore, to an increase in the use of different financing modalities in judicial reorganization proceedings.

One of the main changes that help reinforce the legal security of the investor is the new article 69-B. It expressly states that, even if an appeal is filed against the decision that authorized contracting of the financing and the decision is reversed, it is not possible to change the extra-business nature or the guarantees granted by the debtor to the lender in good faith, if the funds have already been released.

Thus, once the granting of financing and the granting of the guarantees have been authorized, it is not necessary to await the final and unappealable decision in order to disburse the funds, since there is legal protection against ineffectiveness of the priority and the guarantees granted.

In the same vein, article 69-D states that in the case of bankruptcy of the debtor before the funds are fully released, the contract is automatically terminated and the lender will not be obliged to disburse the remaining amount. The sole paragraph of the same article reinforces the preservation of the preferences and guarantees granted up to the limit of the amounts delivered to the debtor before the date of the decision that converts the judicial reorganization into bankruptcy.

Also in the case of a bankruptcy, the reform of the law gave more priority to the payment of the amounts disbursed by the lender in the judicial reorganization. It is second only to the expenses indispensable for administration of the bankruptcy and to labor claims of a strictly salary nature due within the three months preceding the bankruptcy decree, up to the limit of five minimum wages per worker.^[2]

Article 69-C also introduced the possibility for the judge to authorize the creation of a subordinated guarantee of one or more assets of the debtor in favor of the lender, dispensing with the consent of the holder of the original guarantee

This provision does not apply, however, to guarantees of fiduciary sale and fiduciary assignment. Thus, even the creation of a guarantee under a condition precedent on the same assets already encumbered must observe the restrictions and any need to obtain the consent of the original creditors provided in the respective debt and guarantee instruments.

Challenges for the application of exit financing

Although the LRF reform has brought about some advantages that make greater use of exit financing feasible in judicial reorganization proceedings in Brazil, we believe that some challenges still have to be faced in the cases to come. Since exit financing is granted at the end of the reorganization proceeding (or as a measure to terminate it), most likely the debtor's obligation to repay the financing will occur after the reorganization is terminated.

In the event of default, the creditor will have the legal and contractual remedies provided, which usually include the possibility of executing of the guarantees and filing for bankruptcy. It is not clear from the legal provisions whether the priority of financing granted in the context of a judicial reorganization already terminated would extend in the event of a new petition for judicial reorganization or a supervening decree of bankruptcy.

That is, would exit financing, in a new judicial reorganization or bankruptcy, maintain its bankruptcy-exempt nature or, since it is a previously existing claim, would it be considered an unsecured claim?

The answer to this question is not clear and, in our opinion, will still depend on the evolution of this concept and on court decisions that address the issue. In our view, the purpose of the law in giving preference to the DIP lender to receive its claim is precisely to stimulate the credit market for companies under judicial reorganization, ensuring greater legal security as to the non-concurrence of credit and priority of receipt in any event.

However, article 69-D deals specifically with cases of converting judicial reorganizations into bankruptcy, and is silent as to the decree of bankruptcy after termination of the judicial reorganization.

Likewise, there is no legal provision regarding the debtor entering into a new judicial reorganization process without the financing granted during the reorganization having been fully paid off. It is also unclear whether such claims would have an bankruptcy-exempt nature simply because they were granted under the prior judicial reorganization.

In practice, investors and lenders of companies under judicial reorganization will probably continue to demand the granting of fiduciary sale and assignment guarantees over the debtor's assets as collateral for their financing, in order to reinforce the bankruptcy-exempt nature of their claims in any bankruptcy or new reorganization process.^[3]

In our view, the greater legal security afforded to the good faith lender, especially against the declaration of ineffectiveness and nullity of the constituted guarantees, will tend to foster the credit market for companies under judicial reorganization in Brazil.

^[1] Section IV-A - Debtor and Debtor Group Financing during Judicial Reorganization

^[2] As per the new wording of article 84 of the LRF.

^[3] According to article 49, paragraph 3, of the LRF, claims secured by fiduciary sale and fiduciary assignment of real or personal property are not subject to the effects of judicial reorganization. In bankruptcy, on the other hand, article 85 of the LRF grants the fiduciary creditor the right to request restitution of the asset sold or fiduciarily assigned, and restitution in cash is also applicable, should the asset no longer exist at the time of restitution, in which case such amounts will have a bankruptcy-exempt nature, pursuant to article 84, I-C, of the LRF.

Category: Litigation

In a recent decision, the São Paulo State Courts recognized the bad faith of an association that sought compensation in the millions, as it found that it was a front association whose sole purpose was to enrich itself without cause. The entity was ordered to pay a fine, court costs, and attorneys' fees.

The background to the case was the alleged misuse of personal data by a bank, which claimed to use databases to offer services and products to various consumers. The statement was made in a post on Twitter in response to a user.

Based on this posting, the association filed a public civil actionagainst the bank under the allegation that the exchange of data with other institutions, without the express consent of the owners, would violate the principles set forth in the Brazilian Civil Rights Framework for the Internet [“Marco Civil da Internet”] (Law 12,965/14), such as privacy and inviolability of personal data.

Among other prayers for relief, the association required the bank to stop collecting personal data, excluding that already stored in its system, and to pay compensation for non-economic damages in the amount of R$15,000 to each consumer who had their personal data violated, in addition to compensation for collective non-economic damages in an amount not less than R$10 million.

In its defense, the bank presented as its main argument the plaintiff’s lack of standing to sue, which, in fact, would be an extension of the law firm handling the case. Besides, the entity did not present its member list, which would justify its standing, nor the express authorization from the members to file the lawsuit.

The State Public Prosecutor's Office (MPE), which, in a first moment, manifested a position in favor of the association, also opined in favor of extinguishment of the case in its final opinion, on the understanding that there the association lacks standing. In its response, the MPE made a point of mentioning the case law of the Superior Court of Appeals^[1] regarding so-called “off-the-shelf associations".

At the trial level, the suit was extinguished without a judgment of the merits, precisely because of the understanding that the association had no standing. The basis used was that of Topic 82 of the Federal Supreme Court, according to which "the submission of express authorization is necessary for the filing, by the association, of a collective action in defense of the interests of its members.”

The MPE also pondered that "the plaintiff Institute did not present a list of members to justify its standing, or even a single complaint allegedly made by one of its members against the defendant" and that "the lawsuit was filed not to protect the interests of members, but as a source of revenue, which, without the danger of defeat, seeks compensation in a million-dollar sum, without any authorization from the interested parties, but with the aim of receiving substantial attorneys' fees.”

The decision, which still awaits confirmation by the São Paulo Court of Appeals, enforced the provisions of article 18 of Law 7,347/85, according to which, in public civil actions, associations should not be ordered to pay costs and fees, unless bad faith is proven.

The association was ordered to pay ten times the initial costs and a fine for bad faith litigation and attorneys' fees, fixed, respectively, at 5% and 10% of the updated amount in controversy.

In general terms, even though the case law is not unanimous as to the requirements that give associations standing in court, the decision in question shows that the São Paulo Court of Appeals is attentive to the malicious actions of the parties and their lawyers.

The decision is representative, in that it points out that associations cannot make use of the exemption from costs and the payment of fees for loss of suit provided for by law in order to bring unfounded lawsuits, filed not to defend the interests of the members, but to unduly enrich themselves through the Judiciary.

^[1] REsp 1.213.614/RJ.

Category: Tax

The month of July in the Administrative Board of Tax Appeals (Carf) was marked by the long-awaited return of in-person judgment sessions, after more than two years of exclusively virtual sessions. The 1st Panel of the Superior Chamber of Tax Appeals (CSRF) was the only one, for now, to resume in-person work at the agency.

The session took place in a hybrid model, with the remote participation of board member Edeli Pereira Bessa. Even in the face of various oral arguments and some technological connectivity challenges, all 63 cases on the agenda were reviewed by the panel.

Of the cases actually tried, the number of appeals denied certiorari and the rigorous analysis of the criteria for admissibility of the special appeals by the body are noteworthy.

In the July session, a significant number of appeals not admitted dealt with the legitimacy of the application of a qualified fine (150%, based on paragraph 1 of article 44 of Law 9,430/96) in assessments resulting from disallowance of amortization of goodwill.

In these cases, the predominant reason cited by the panel for non-admission of appeals, whether from the taxpayer or the National Treasury, was the lack of divergence of understanding between the decisions under appeal and decisions submitted as paradigms.

More specifically, in these cases, the panel has been maintaining the understanding that the particularities of each corporate reorganization transaction that generated the goodwill end up differentiating one judgment from the other, not because of divergence of interpretation of the legislation, but because of the facts.

In the judgments that went beyond the admissibility barrier and effectively entered issues of the merits, several discussions were taken up by the panel, which, with new members, had the participation of Carf's chairman, board member Carlos Henrique de Oliveira, and the new full board member, Gustavo Fonseca.

What most called the attention of taxpayers was the change in the understanding of the panel regarding the possibility of deducting expenses with goodwill amortization from the CSLL (Social Contribution on Net Income) tax basis. By the end of 2021, the board members, by application of article 19-E of Law 10,522/02, had recognized the taxpayers' right to make the deduction from the calculation basis.^[1]

When the discussion was resumed in the July session, the majority of board members voted to maintain the tax disallowance, under the argument that there is no provision allowing the deductibility of these expenses, unlike what occurs in the calculation basis of the IRPJ (Corporate Income Tax) - article 25 of Decree-Law 1,598/77.

It was also argued that, although article 57 of Law 8,981/91 provides that the rules for calculation and payment of the IRPJ apply to the CSLL, the provision itself states that "the tax basis and tax rates set forth in the legislation in force shall be maintained." Therefore, there is no doubt that, in legislation, not all exclusions and additions for one tax work for another.

In the current composition of the panel, board members Gustavo Fonseca and Carlos Henrique de Oliveira, who voted against the theory defended by the taxpayer and thus confirmed the change in the board’s understanding, had not yet opined on the matter.^[2]

Another relevant topic decided in the July session, this time in favor of the taxpayer, was the illegitimacy of the 30% limit for offsetting the IRPJ/CSLL tax losses of a defunct company.

This discussion had already been decided in a manner favorable to the taxpayer (including contrary to the position of the Superior Court of Appeals in REsp 1.925.025/SC and REsp 1.805.925/SP). The innovation was the statement of vote of the chairman of Carf, for whom the 30% lock is applicable within a normal situation of a company's life (affiliating it with the principle of continuity of legal entities). In the event of its termination, the limitation on the loss deduction should not apply. Thus, the taxpayer's special appeal was accepted by a majority vote.^[3]

The chairman of Carf also expressed his position in favor of canceling the assessment on revenues from investment subsidies. The case concerned IRPJ and CSLL collections for the calendar years 2011 and 2012 on ICMS presumed credit amounts granted by the State of Paraíba.

With the vote of the presiding board member, the 1st Panel of the CSRF formed a majority and cancelled the assessment, on the understanding that Complementary Law 160/17 settled discussion on the matter - differentiation, for taxation purposes, of investment subsidies and cost subsidies, equating the legal consequences of these two concepts.^[4]

The return of in-person judgment sessions, even if initially only of the 1st Panel of the Superior Chamber of Tax Appeals, certainly represents a breakthrough in the return to the pre-pandemic scenario. Relevant and dense topics were brought up for discussion, and the good management of the work allowed the agenda to be fulfilled, something that has not happened in a board meeting of Carf.

In 2022, a movie already seen in 2018 will be repeated, with the expected end of the tax auditors' strike movement and effective regulation, or not, of productivity bonuses, such that Carf judgments can be fully resumed. This time, with the possibility for the sessions to take place virtually, in person, or hybrid, without giving up the debates and judgments on highly complex issues and large amounts of money.

^[1] Appellate Decision 9101-005.936

^[2] Administrative Proceeding 16561.720109/2013-74

^[3] Administrative Proceeding 19515.005446/2009-03

^[4] Administrative Proceeding No. 10480.725593/2015-11

Category: Tax

After a little over two years without in-person sessions due to the pandemic, the Administrative Board of Tax Appeals (Carf) has resumed in-person work, now under new management, presided over by Board Member Carlos Henrique de Oliveira.

The first step in the return to the pre-pandemic scenario was taken with the publication of the agenda for the 1st Panel of the Superior Chamber of Tax Appeals for the month of July, with the indication that the session would be in person. This is the only Carf group that is holding judgment sessions, since the others do not have a quorum due to the adhesion of the board members representing the National Treasury to the strike movement of the category.

At the beginning of July, ME Ordinance 5,960/22 was published, regulating in-person and hybrid judgment modalities at the agency. 

The ordinance provides for the possibility of hybrid sessions, with the remote participation of the parties and the majority of the board members of the panel, thus following the procedure that was adopted by most courts of law in the post-pandemic scenario.

Under the terms of the ordinance, if it is not possible for more than half of the panel to attend in person, the session will be converted into a virtual session, in which case the parties will be allowed to withdraw the case from the agenda for a judgment in an in-person session.

Attention is drawn to the fact that there is no deadline for Carf to announce the presence of the board members and the possible change in the judgment modality, which may lead the parties to incur unnecessary expenses of time and resources if conversion of the in-person session into a virtual one takes place at the last minute.

The ordinance also provides for the possibility of removing a case from the agenda of a in-person session for a judgment in a virtual session, provided that the request meets certain procedural requirements. What is new is that there is no deadline to formalize this request for withdrawal; it only has to be done before the beginning of the judgment.

In order to optimize the judges' work and the smooth running of sessions, the Carf will also make it possible to transfer judgments to other days and/or times within the same meeting, at the parties' convenience.

The idea is that the sessions will be broadcast live on the Carf's Youtube channel, allowing interested parties to follow the judgments of their own cases and those of their interest. The agency also met a long-standing request from lawyers and will now make the recorded sessions available on its website, thus giving greater publicity to judgments.

Overall, the changes are beneficial. But the big challenge now is to guarantee the return of the judgments of the other Carf panels, in any of the session modalities, in view of the stoppage of the tax auditors, which is preventing the agency from functioning.

Category: Tax

Diana Piatti Lobo and André Essinger

When talking about crediting PIS and Cofins on inputs, the normative and case law context is always the same: the legal references of articles 3, II, of laws 10,637/02 and 10,833/03 and the examination conduct by the Superior Court of Appeals (STJ) in REsp 1.221.170/PR.

The STJ decided REsp 1.221.170/PR in 2018, under the procedure for repetitive appeals system, and declared the illegality of normative instructions 247/02 and 404/2004, as it considered that the interpretative limits for the concept of input present in these normative provisions were undue.

The Court defined the concept of input for the purposes of crediting PIS and Cofins as provided for in Law 10,637/02 and Law 10,833/03 and established that it must be assessed according to criteria of "essentiality" and “materiality" for a given good or service in the development of the activity performed by the taxpayer.

Despite this, the issue is still subject to discussions in the administrative and judicial spheres, in view of the divergence between the tax authorities and taxpayers regarding the subsumption of the facts to the open concepts of "essentiality" and “materiality" and the possibility of applying these concepts in the context of commercial economic activities or in subsequent stages of the production process and/or provision of services.

When it comes specifically to publicity, advertising, and marketing expenses, there are two main interpretative currents:

• one defends the possibility of taking PIS and Cofins credits on expenses, as it considers these expenses to be intrinsically linked to the generation of revenue and, therefore, are essential and relevant to the business activity; and
• the other holds that these expenses, although relevant and certainly incurred to generate revenue, do not fall within the legal concept of inputs, which would require, in this line, a link to the production stage of goods and/or services.

When examining 21 decisions handed down by the Carf's ordinary courts on the matter,^[1] all of them after the concept of inputs was established by the STJ, a majority unfavorable to the taxpayer can be seen, with a prohibition on taking PIS and Cofins credits in relation to these expenses.

The general line maintained in these decisions is that, besides being necessary to prove the essentiality and materiality of the expense with its end activity, this expense must fit into the production and/or provision of service phase, which, in general, does not occur with advertising and marketing expenses.

To better understand the above arguments, we resort to the decision rendered through appellate decision 3302-012.005, handed down on October 26, 2021. In it, the 2nd Panel of the 3rd Chamber of the 3rd Section, by majority vote, upheld the disallowance of PIS and Cofins credits taken by a leading streaming company.

The main reason raised was that the expenses with advertising and marketing were not a structural element and inseparable from the performance of the service performed by the company (provision of films and other visual materials), so that its suppression would not compromise the performance of its core business.

The winning vote highlighted that advertising and marketing expenses "are only an option for the taxpayer to seek quick and bigger results, but this does not justify attaching such expenses as a sine qua non condition for the performance of its activities.

The dissenting vote, in turn, held that because it is a virtual company that uses streaming technology to attract customers to watch licensed movie products and distribute them to its consumers, marketing and advertising services would be essential to the company's activity, and therefore eligible for PIS and Cofins credits.

This opinion was based on the evidence submitted, based on documents and reports prepared by market experts, that the suppression of these advertising and marketing expenses would have such an impact on the company's revenue generation that the business activity would undoubtedly become unviable.

Also noteworthy is appellate decision 3302-012.007, issued on October 26, 2021, and unfavorable to the taxpayer. In it, the Carf board members, despite having recognized the importance of the expenses incurred with advertising and marketing for a company that manufactures soaps and detergents and sells cleaning, household maintenance, perfumery, and personal hygiene products, held that these costs are not essential for the purposes of carrying out its activity, and consequently, for the purposes of generating PIS and Cofins credits.

There are also, albeit in a minority, examples favorable to the taxpayer in the Carf's case law, as can be seen in appellate decision 3401.005-291 handed down on August 29, 2018. The decision recognized the right of a customer in the production and sale of cosmetics, hygiene, perfumery, and cosmetics in general to treat credits as inputs arising from expenses with advertising and marketing.

In the decision, in summary, the Carf's team found that it is possible to credit PIS and Cofins, since the company's corporate purpose involves activities such as economic feasibility studies, definition of the strategy to launch its products in the market, and validation of results, which are directly related to marketing and advertising activities.

Along the same lines, the 1st Ordinary Panel of the 2nd Chamber of the 3rd Section, through appellate decision 3201-005.668, issued on August 21, 2019, when analyzing a case involving a credit card company, recognized the company's right to assess PIS and Cofins credits on marketing expenses, as it considered these services essential and material to the performance of its business activity.

More specifically, when comparing the nature of the revenue ascertained and the inputs used, the Carf panel, by majority vote, concluded that the specific services provided by the company to its customers are exactly those linked to brand development and market performance. They would therefore be directly linked to services related to marketing and advertising, and are thus intrinsic to their provision of services.

Although it seems more appropriate to analyze in a deeper way the essentiality and materiality of marketing, advertising, and publicity expenses from the point of view of the impact on the generation of revenue and the achievement of the taxpayer's core business, it can be seen that the Carf examines the particularities of the concrete case only to ascertain whether the expenses have a pertinent, essential, and relevant relationship with the production process or with the provision of services, to enable the sale and delivery of the good or service to the end consumer.

Despite the importance of the discussion on the subject, especially in a scenario of increased competition among companies and, consequently, greater need for investment in marketing, advertising, and publicity, the majority position indicates a restrictive interpretation regarding the possibility of crediting these expenses.

The topic was subject to review only by the Carf's ordinary panels. The 3rd Panel of the Superior Chamber of Tax Appeals, the highest administrative level of appeal responsible for settling interpretative conflicts, has not yet ruled on the merits of the issue. This fact leads us to await the discussions and the possibility of a reversal in the case law that is currently the majority of the body.

^[1]3302-012.005, 3302-012.007, 3301-011.071, 3301-011.073, 3301-011.074, 3301-011.075, 3301-011.076, 3301-011.077, 3301-011.079, 3301-011.081, 3302-010.033, 3302-009.388, 3302-009.389, 3302-009.390, 3003-001.184, 3302-008.120, 3301-007.117, 3001-000.939, 3201-005.668, 3301-005.689, 3401-005.291

Category: Tax

The deductibility of expenses with amortization of goodwill from the calculation basis of the Corporate Income Tax (IRPJ) and Social Contribution (CSLL)^[1] is a topic that has long been discussed in the judgment sessions of the Administrative Board of Tax Appeals (Carf).

A careful analysis of recent precedents allows us to affirm that, despite the maturity of the discussion, the case law is not yet settled as to the definition of the limits of the corporate restructuring considered valid for goodwill deductibility purposes.

Carf, an administrative court recognized for the technical quality and depth of its discussions, has always had on its agenda debates that are very relevant to taxpayers. In relation to goodwill and related matters, it can be seen that the history of the case law has unfolded in three distinct phases, whose results were defined according to the judgment criteria adopted at each moment.

The first phase took place between the 2000s and early 2015. During this period, there was a transition from the Taxpayers Board to the Administrative Board of Tax Appeals, currently Carf, created in 2008.^[2] In this first phase, the validation criteria adopted by the administrative court were based on three requirements:

• Goodwill transactions formed in acquisitions between unrelated parties;
• the so-called "economic sacrifice" - as the cash payment came to be known by the court; and
• the presence of a report supporting the future profitability of the stake acquired.

In this phase, therefore, the presence of a transaction between unrelated parties was essentially valued, even if followed by internal restructuring.

It imposed the penalty of non-deductibility to the transactions styled as "internal goodwill", that is, the goodwill formed in acquisitions of an equity interest without the presence of independent parties. The precedents existing at the time were handed down by ordinary panels, since the Superior Chamber of Tax Appeals had not yet reviewed the issue.

With the resumption of judgment sessions at the end of 2015, after the suspension of the agency’s sessions for almost a year, the second phase of the analysis of goodwill cases at Carf began. The ordinary panels and the 1st Panel of the Superior Chamber of Tax Appeals, with significantly changed membership, are now reviewing the prior case law of the board and the criteria for validating the transactions that enable the deductibility of goodwill.

More specifically, the courts have started to adopt concepts imported from abroad, where anti-avoidance rules are established, such as "economic substance" or "business purpose".^[3]

This phase was also marked by the invocation of requirements foreign to the legislation governing goodwill (Law 9,532/97 and Law 12,973/14) - "transfer of goodwill", "actual acquirer", "economic sacrifice", among others - as a substitute for payment. As a result, in this second phase, the cases decided by the 1st Panel of the Superior Chamber of Tax Appeals, with two exceptions,^[4] had the deductibility of goodwill from the IRPJ and CSLL tax basis refused.

Regarding the qualification of the ex-officio fine, the 1st Panel of the Superior Chamber began to impute the 150% qualified penalty to identification of civil offenses, such as abuse of right and sham transaction, fraud against the law, or simply the presence of "artificiality". In this second phase, little value was placed on strictly including the facts in the concepts of evasion, fraud, or collusion, which authorize application of the aggravated penalty under the terms of article 44, I, together with paragraph 1, of Law 9,430/96 and Law 4,502/64.^[5]

The third phase began in the early months of 2020, marked by suspension of in-person sessions due to the pandemic and the extinguishment of the casting vote promoted by Law 13,988/20.

After an initial halt in the judgments, Carf resumed the sessions virtually. A limitation was set on the amount of cases that could be included in the agenda. This circumstance limited the examination of goodwill cases because they usually involve high values.

With the increase in the values assigned to cases and inclusion of more cases on the agenda, the first trials on the topic began, with the casting vote already extinguished. These precedents, which were decided as of the second half of 2021, are marked by a more detailed analysis of the specific case and a review of the criteria that had been guiding the second phase.

Transactions involving the so-called "internal goodwill" continue to be invalidated by the 1st Panel of the Superior Chamber of Tax Appeals, even in the face of a casting vote in favor of the taxpayer.^[6]

This is a point of intersection between the three phases, because corporate acquisitions and reorganizations without the presence of independent parties have never been accepted by Carf's case law.

The panel also recently decided, in April of 2022,^[7] a case involving the amortization of goodwill using a "vehicle company". Despite the favorable outcome for the taxpayer on that occasion, we believe that the issue needs to be debated further to consolidate a trend in the case law.

The conduct of the Superior Chamber of Tax Appeals, however, indicates the end of phase two and the beginning of a phase in which the legal concepts already established by law are guiding the subsumption of the facts under analysis.

With regard to the qualification of the ex-officio fine, the precedents identified show a clear change in the position of the panel, which detaches itself from the concepts provided for in the civil law in order to impose the increase and, consequently, a greater subsumption of the analysis into the conduct provided for in Law 4,502/64.

In a case on the subject,^[8] decided in September of 2021, the 1st Panel of the Superior Chamber provides a detailed analysis of the criteria of lawful and unlawful avoidance, as well as evasion, for the purposes of applying the qualified fine.

From an analysis of this and other precedents, the expectation is that the case law will consolidate to this effect. In other related topics, the suppression of the casting vote has guided a favorable outcome for the taxpayer in proceedings arising from tax assessment notices.^[9]

Despite this mostly favorable survey, the current Carf scenario is one of uncertainty. The suspension, since January, of trial sessions due to the adhesion of the board members representing the National Treasury to the strike of the category, in line with the change in the chairmanship of the body and the indecision as to the resumption of the sessions in person, generates doubts among taxpayers as to the unfolding of the judgments.

The first in-person session of the 1st Panel of the Superior Chamber of Tax Appeals after the pandemic will take place in July. In an optimistic view, it is expected that in the second half of the year in-person sessions will effectively be resumed, enabling a return of the judgment of goodwill issues for the consolidation of administrative case law on the subject.

^[1] Provided for in Laws 9,532/97 and 12,973/14.

^[2] After the promulgation of Executive Order 449, of December 3, 2008, converted into Law 11,941/2009.

^[3] There was an attempt to introduce anti-tax rules incorporating these concepts into MP66/02, which was rejected by the Brazilian Congress.

^[4] Appellate Decision 9101-003.610, of June 5, 2018, Appellate Decision 9101-003.208, of November 8, 2017.

^[5] Article 44. In cases of an ex-officio assessment, the following fines shall be applied:

I - seventy-five percent (75%) on the total or difference in tax or contribution in cases of lack of payment or collection, lack of declaration, and in the case of inaccurate declaration;

Paragraph 1. The fine percentage mentioned in subsection I of the head paragraph of this article shall be doubled in the cases provided for in articles 71, 72, and 73 of Law 4,502, of November 30, 1964, regardless of other applicable administrative or criminal penalties.

^[6] For example, Appellate Decision 9101-005.778, decided on September 9, 2021.

^[7] Appellate Decision 9101-006.049, of April 4, 2022.

^[8] Appellate Decision 9101-005.761, of October 26, 2021.

^[9] According to ME Ordinance 260/20.

Category: Capital markets

CVM resolutions 166 and 168, issued in September 2022 by the Brazilian Securities and Exchange Commission (CVM), have amended CVM Resolution 59 and CVM Resolution 80, which provide for the registration and provision of periodic and eventual information of securities issuers admitted to trading in regulated securities markets.

The novelty of CVM Resolution 166 is the exemption of legal publications in newspaper for small businesses. The CVM Resolution 168, in turn, makes it mandatory to elect independent directors to publicly-held companies traded on the stock exchange and brings definitions related to plural voting and  new rules allowing the cumulation of the positions of Chairman of the Board of Directors and Chief Executive Officer, with the respective adjustments to Annex K of CVM Resolution 80. Both resolutions enter into force on October 3.

Dispensing legal publications in newspaper

To simplify the procedures applicable to small businesses, CVM Resolution 166 establishes that companies that have earned a consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the past fiscal year, may carry out the publications ordered by the Brazilian Corporate Law on the Empresas.NET or Fundos.Net.

Plural vote

The new resolution included Article 41-A in CVM Resolution 80, providing that plural voting (as provided for in Article 110A of the Law 6,404/76 or the Brazilian Corporate law),^[1] is not applicable in votes of the general meeting of shareholders which deliberates on transactions with related parties that must be disclosed by publicly-held companies, which demonstrates CVM’s clear intention to level the votes of shareholders on the matter, due to its relevance.

Accumulation of positions

Annex K of CVM Resolution 80 began to regulate not only the non-conflict declaration to be provided by the directors at the time of their tenure, pursuant to Article 147, § 4, of the Brazilian Corporate Law, but expanded its application to additional investiture requirements in management positions.

This expansion of application aforementioned was due to prerogatives attributed to CVM by the Brazilian Corporate Law, which, when approaching the theme of the prohibition of accumulation of positions of chairman of the board of directors and chief executive officer of the company, provides in article 138, § 3, that the CVM may issue a normative act that excludes smaller companies from this impediment.

Thus, CVM established as an exception the possibility of cumulation of the position of chairman of the board of directors and the position of chief executive of the company for small businesses, pursuant to Article 294-B of the Brazilian Corporate Law.

Therefore, the closure of these functions will not apply to companies that have earned consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the last fiscal year.

Independent directors

The same prerogative is assigned to CVM by the Brazilian Corporate Law when dealing, in Article 140, § 2, with the mandatory participation of independent directors on the board of directors of publicly-held companies with shares traded on the stock exchange, determining that such participation will comply with the terms and conditions defined by CVM.

After the new resolution was published, the CVM established the rules regarding the mandatory presence of independent members on the board of directors. They will apply to companies that have, cumulatively:

• registration of a publicly-held company, in category "A";
• securities admitted to trading on the stock market by an organized market management entity; and
• stock or stock deposit certificates (BDRs) in circulation.

The criteria adopted by CVM to determine the obligation of independent members on the board of directors present several points of convergence with that provided by B3 in its Novo Mercado Regulation, today considered the trading segment with stricter governance criteria for publicly-held companies in the Brazilian market.

The following table compares the criteria adopted by CVM in the newly published rule to those of the B3 Novo Mercado Regulation.

With the determination of the mandatory presence of independent directors in listed companies of any segment and with the convergence of the criteria of independence of directors with those of the Novo Mercado, CVM makes another move to strengthen the levels of governance for publicly-held companies, equating them with those that voluntarily joined the Novo Mercado.

The provisions of Articles 4 to 7 of Annex K concerning (i) accumulation of positions as chairman of the board of directors and the position of Chief Executive Officer or main executive officer of the company and (ii) mandatory presence of independent members on the board of directors of publicly-held companies shall apply only to the term of office initiated from 1 January 2023,  which will require the adequacy of companies that do not adopt such rules from the next fiscal year.

^[1]Art. 110-A provides: the creation of one or more classes of common shares with plural voting, not exceeding 10 (ten) votes per common share, is allowed:

I - in the closed company; and

II - in the publicly-held company, provided that the creation of the class occurs prior to the trading of any shares or securities convertible into shares of its issue in organized securities markets.

Category: Litigation

The right to be forgotten – which involves the withdrawal of personal information from websites and mass media – is a contemporary theme and the subject of intense debate in the world legal stage. It bumps into several prerogatives provided for in the Brazilian legal system and was recently considered incompatible with the Federal Constitution by the Supreme Federal Court (STF) – Theme 786.^[1]

Currently, the internet is present in people's daily lives in such a deep-rooted way that it is difficult to imagine that, until a few decades ago, research was done in encyclopedias, communication was mainly through telephone calls and news was broadcast basically in printed newspaper, radio or television.

For better or for worse, today we are one or a few clicks of any person and any information. For no other reason, much has been said about the Streisand effect and its implications for the right to be forgotten.

The expression arose in the United States after the lawsuit filed by actress and singer Barbra Streisand against photographer Kenneth Adelman of Pictopia agency, due to the disclosure of several aerial photographic records of the California coast on a website. In addition to compensation for moral damages for alleged violation of her privacy, Streisand required the removal of the satellite image of her residence, which was among the photographs disclosed.^[2]

Contrary to what the actress intended, the action ended up increasing its exposure. Before the lawsuit, the photo of her residence had been accessed only six times – and, according to media reports, of the six accesses, two were made by her lawyers. With the notoriety that the case gained after the lawsuit was filed, the image went viral, and the site received approximately 420,000 hits in a month.^[3]

In this context, the Streisand effect "(...) can be understood, in brief synthesis, as the situation in which, from an attempt to censor certain information or artistic expression of the market of ideas, the initiative results in the vast replication of said content, usually through media and websites, due to the dynamism in the exchange of information between its users".^[4]

In Brazil, several cases suffered the Streisand effect, which called into question the effectiveness of the right to be forgotten even before its unconstitutionality was declared by the Supreme Federal Court.

In June 2012, the Superior Court of Justice (STJ), under the rapporteurship of Minister Nancy Andrighi, concluded the trial of the Special Feature 1,316,921/RJ, brought by Google Brasil Internet Ltda. (Google) against the presenter Xuxa Meneghel. The purpose of the appeal was to analyze the suitability or not of imposing the obligation to restrict the results obtained in searches in google's system that associated the presenter with pedophilia, for her performance in the film “Amor Estranho Amor” (1982).^[5]

According to the STJ, considering the existing consumer relationship between users and research providers, governed by the Law 8,078/90 (Consumer Protection Code - CDC),^[6] Google's liability should be limited to the nature of the activity developed, intended exclusively to facilitate the location of information, regardless of its content.

Thus, the court recognized that it is not feasible to impose a discretionary judgment on the research providers and force them to exclude the results obtained in searches conducted with a certain word, as intended by the presenter. To reach this understanding, the ministers considered:

• the infeasibility of establishing objective criteria of limitations to research – carried out by a system whose reasoning capacity is limited when compared to the creativity of the human being to circumvent any restrictions;
• that eventual censorship would prevent access to any website that mentions the forbidden term (or expression), regardless of its legal/offensive content or not – which would consequently repress the constitutional right to information.

However, it is very common to have greater repercussion on social networks and websites when the person seeks judicial protection and confidentiality, in a clear unfolding of the Streisand effect. In the tool Google Trends, you can verify that the search for the terms that the presenter tried to deindex increased considerably during the month of the trial of the process (June 2012), passing the platform classification from 1 to 43 points.^[7]

In a more recent case (December 2019), when assessing the Complaint 38.201/SP, proposed by journalist Ulysses Campbell, author of the book “Suzane: assassina e manipuladora”,^[8] the Supreme Federal Court understood that the preliminary decision that suspended the publication, disclosure and commercialization of the unauthorized biography of Suzane Von Richtofen, sentenced for the murder of her parents, would offend the constitutional prerogative of freedom of expression under the negative bias.^[9]

At the time, Minister Alexandre de Moraes recorded that the fence to prior censorship, however, would not exempt the journalist from being liable for any offenses to the personality rights of the parricida generated with the publication of the literary work, guarded by the right to freedom of expression, this time, under the positive bias.

He also stated that there is no constitutional permissive that restricts freedom of expression in the negative sense, to preventively limit certain discussions to become public, which would characterize prior censorship, because what the Federal Constitution protects, in fact, is freedom of expression in the positive sense, allowing the citizen to manifest in the way he wants.

In this regard, the remark made by the minister in his vote, in which he states that "[the] fundamental right to freedom of expression, therefore, is directed not only to protect supposedly true, admirable or conventional opinions, but also to those that are dubious, exaggerated, reprehensible, satirical, humorous, as well as those not shared by the majorities."^[10]

As occurred in the case of the presenter Xuxa, the repercussion of the judge caused it to increase the curiosity of the public in relation to the book. Just see that in the week of its debut (January 2020), were sold 769 copies of the biography Suzane Von Richtofen, a larger amount than other best sellers, as the novel by American Julia Quinn (614 copies),^[11] known worldwide for its collection of books The Bridgertons.

When analyzing these cases, it is noted that the censorship of results obtained from consultations made in search providers or publication of literary works not only finds an obstacle in the prerogatives enshrined in the Federal Constitution – in particular the right to information and freedoms of expression and the press – as any discussion about them by the actors involved can, for the sake of truth, contribute to a certain fact being even more remembered and discussed than it was initially, given the curiosity generated by its judicialization.

Lucas Faillace White Castle draws important parallel with what is done in England to undermine the Streisand effect. There, "who enters with an action claiming damages can require the judiciary not only the secrecy of justice, that is, not disclose the information contained in the process, but also the very disclosure that the process and secrecy exist, under penalty of crime of disobedience ('contempt of court')".^[12]

Although the Supreme Federal Court has understood that the right to be forgotten is incompatible with the Federal Constitution when its exercise is supported only in the passage of time, it is possible that the subject will be analyzed on a case-by-case parchment if any situations of excess or abuse are configured in the freedom of expression and information.

For instance, the Supreme Federal Court recently concluded the trial of the Special Feature 1,660,168/RJ, whose background was the analysis of the possibility of deindexing news that used the name of the party used in the results obtained in searches performed on certain providers.

When provoked by the Minister vice-president of the Supreme Court for possible judgment of retraction, due to the application of divergent understanding to Theme 786 of the Supreme Federal Court, Minister Marco Aurelio Bellizze pointed out that the decision given by the Third Panel of that Court was not contrary to Theme 786. The decision, in the case, kept the condemnation of certain search providers to install filters to unlink the name of a particular person (party appealed) of news about alleged fraud committed in public tender.

According to the rapporteur minister, the issue would have been "decided from the perspective of fundamental rights to privacy and privacy, as well as the protection of personal data, and not on the basis of the right to be forgotten". At the time, the minister differentiated the situation of non-disclosure of news from the prohibition of the publication of the name of the candidate of the public tender.

For all purposes, it is perceived that the Supreme Federal Court once again recognized the possibility of making Theme 786 more flexible and, in some way, safeguarding the right to be forgotten – even if analyzed from another perspective.

If this case-by-case analysis of the subject becomes a consolidated position, it will be up to the lawyers, given the absence of specific legislation, to work creatively and develop ways to overturn the Streisand effect in these exceptional situations as already occurs in England – in addition to the processing of cases under legal confidentiality – at the risk of not having practical results from any judgments that recognize the applicability of the right to be forgotten in the specific case.

^[1] "It is incompatible with the Federal Constitution the idea of a right to forgetfulness, thus understood as the power to prevent, due to the passage of time, the disclosure of truthful facts or data and lawfully obtained and published in the media - analog or digital. Any excess or abuse in the exercise of freedom of expression and information should be analyzed on a case-by-case basis, based on constitutional parameters, especially those relating to the protection of honor, image, privacy and personality in general, and the express and specific legal provisions in the criminal and civil spheres" (Leading Case Extraordinary Appeal 1.010.606/RJ, Full Court of the Supreme Court, rapporteur Minister Dias Toffoli, trial date 2.11.2021).

^[2] What is Streisand effect? Phenomenon viralizes 'secrets' of famous. Access on 8.1.2022.

^[3] The Streisand Effect: When censorship backfires. Access on 7.29.2022.

^[4] BECKER, Rodrigo Frantz (coord.). U.S. Supreme Court: historical cases. São Paulo: Grupo Almedina, 2022, E-book, p. 339.

^[5] For Luiz Fernando Marrey Moncau, this judgment does not deal with the right to forgetfulness, but about the deindexation of results by search engines (MONCAU, Luiz Fernando Marrey, Direito ao Esquecimento: entre a liberdade de expressão, a privacidade e a proteção de dados pessoais, São Paulo: Thomson Reuters Brazil, 2020, p. 340). However, for the purposes of this article and knowing the terminological discussions on the subject, the judgment will be addressed as a precedent related to the right to be forgotten.

^[6] Pursuant to Article 3, §2, of the CDC, "service is any activity provided in the consumer market, for remuneration, including those of a banking, financial, credit and security nature, except those arising from labor relations" (g.n.). In this sense, Minister Nancy Andrighi recorded in her vote that, although the activity carried out by Google is not directly remunerated by its users, "it is clear the existence of the so-called cross marketing – promotional action between products or services in which one of them, although not profitable in itself, provides gains arising from the sale of others. Although searches conducted via Google Search are free, the company sells advertising spaces on the site as well as preferences in the order of listing search results."

^[7] Google Trends. Access on8.1.2022.

^[8] Generally speaking, the work tells the story of Suzane Louise Von Richtofen, who was sentenced to 39 years in prison in closed regime for the murder of her parents (CAMPBELL, Ullisses. Suzane: assassina e manipuladora. 1st ed. São Paulo: Matrix, 2020).

^[9] According to lessons from Luis Pinto Ferreira (Comments to the Brazilian Constitution. São Paulo: Saraiva, 1989. v. 1, p. 68), cited by the rapporteur Minister, freedom of expression is protected by the CF in two respects: the positive, which aims to protect the outsourcing of the manifestation, and the negative, which turns to the "prohibition of censorship".

^[10] Complaint 38.201/SP, First Class of the Supreme Court, rapporteur min. Alexandre de Moraes, trial date 2.21.2020.

^[11] Unauthorized biography of Suzane von Richthofen reaches the list. Access on 8.1.2022

^[12] The Streisand effect. Access on 8.1.2022.

Category: Real estate

The ability to overcome and adapt face of adverse situations is part of human nature.. World War I and World War II, for example, triggered drastic transformations in society, with impacts on global geography, economy and politics.

These conflicts eventually drove revolutionary creations in the area of technology, such as radio and computer, and in health, case of penicillin. More recently, during the covid-19 pandemic, society experienced a devastating new situation that, due to intensity and lethality, has changed (and has been changed) the habits and claims of the general population.

In recent years, the world lives in the era of the shared economy, based on the appreciation of collaborative consumption and the sharing of services and goods. In the real estate field, even before the pandemic, it was already possible to notice changes in the profile of consumers, both the younger ones, who no longer wish to invest large amounts to achieve the (perhaps old) dream of home ownership, as the older ones, who break old social barriers to live alone and share new experiences in an advanced stage of life.

In fact, the gradual decrease in the square footage of the apartments launched is no accident and is an increasingly common situation in large cities. The reduction is due both to the scarcity of land in large urban centers and to the high cost of the square meter in better-located regions, as well as the good acceptance of the public, who are already used to living in small apartments and using more common spaces in condominiums.

In São Paulo, for example, it is possible to find offers of smaller and smaller apartments, aimed at a type of public interested in properties with more shared spaces of leisure and services, near urban centers, than by large apartments.

The Sao Paulo Zoning Law (Municipal Law No. 16.402/16), among other objectives, aimed to bring residential and commercial centers closer together, by increasing the supply of apartments closer to the public transport hubs, in areas further away from the urban center, precisely so that residents had more access to these services.

This urban movement seems to be in tune with the coliving, most recently practiced in Brazil, but already common and widespread in other parts of the world. The main objective is to share experiences and facilitate the concentration of housing, leisure and commerce in a single pole.

Born in the 1970s in Denmark, the then cohousing (characterized by individualized units around collective spaces) covered a neighborhood that sought to experience a certain sense of community, with spaces of coexistence and shared activities.

The idea was applied and adapted in the United States in the following decade and remained a viable option and in constant adaptation nowadays. In the concept of coliving, some spaces, usually living rooms, kitchen and laundry, of a single property are shared and there is a room for each resident.

Very confused with the university republics, the idea of coliving is to aggregate and give access to shared experiences, with conditions that probably would not be possible if the facilities were arranged in individual units. It is the concept of dividing to multiply.

Cities such as New York, London and São Paulo increasingly have residents interested in enjoying this sense of community in relation to housing, to be able to reside in trendy central regions (in New York, Staten Island; in London, Old Oak; and in São Paulo, Jardins, Higienópolis and Pinheiros) and have access to leisure and trade services concentrated in these areas,  with significant cost reduction.

In Brazil, the acceptance of coliving by the public also seems to grow. In May 2019, only 30% of Brazilians accepted the coliving as an option. By March 2020, this percentage was already 55% among Paulistanos.

With the pandemic, the use of offices, urban spaces and residential spaces has been significantly changed. The way the city is occupied has changed and, consequently, the habits of its citizens has changed as well. The model of the coliving was put in check, since it encourages the use of shared spaces, which makes it more difficult to maintain social distancing. Still, the proposal has been adapting and seeking consolidation and acceptance in the market.

In the legal field, the Federal Constitution guarantees housing as a social right, alongside rights such as leisure, transportation and security, concepts close to the characteristics of the coliving. However, similarly, the right to property is also guaranteed by the Constitution as an inviolable right.

The legal instrumentalisation of the coliving usually occurs through a standard lease agreement, governed by the Lease Law (Federal Law 8,245/91), with severe predictions regarding the obligation to respect the condominium convention and general rules of coexistence.

However, the model has no specific safeguard in law that deals with issues such as minimum length of stay, characteristics of residents, responsibility of each one before the condominium, limitation of activities, among others.

The lack of forecasting makes it difficult to apply the coliving in strictly residential buildings, which generally adopt a more conservative stance, especially depending on the profile of the residents of the coliving. In general, people who adopt this model of housing do not intend to establish residence on the site for very long periods, which generates wear and conflicts of interest among residents.

The discussion increases when trying to establish the limit of exercise to the right of ownership of the person who wishes to install a unit of coliving in a residential building, in which there are no other apartments that take the model. The difficulty can be due both to the disinterest of the owners and to the express prohibition (whose validity is questioned by those who seek the application of the model) in the condominium convention.

From the misstep of the law in the face of the rapid advance of technology and new business, the first debates about the validity of the coliving in the Brazilian legal system. The model faces resistance from the traditional rental system to the lease short stay (airbnb). It is also faced with the difficulty of acceptance by occupied condominiums – and concerned – with issues such as security, movement of people, turnover, profiles of residents and increased use of the common area.

While the pandemic seems to have been controlled and society begins to incorporate the cultural and social changes it brought, discussions about the coliving take shape in the judiciary.

On the one hand, Startups, investors and companies looking to develop and apply the shared economy into new (or perhaps not so new) business models. On the other, residents, liquidators and owners apprehensive about the major changes in the use of apartments and the common spaces of their properties in such a short time and, still, without clarity or well-defined rules of use, which can impact on the original design of the development as typical residential.

Thus, it is necessary to wait for the outcome of the first discussions in the Brazilian courts on the subject, including considering the apparent conflict between constitutional principles.

Only with the passage of time and the conduct of these judicial decisions will it be possible to assess whether the colivig it is a reality that came to stay in Brazil, which will possibly still require some flexibility and adjustments of norms, or if it will be necessary another leap of development to another legal model that meets the longings of a society that is experiencing a process of constant change and adaptation.

Category: M&A and private equity

Until the advent of Law 13.874/19 (Economic Freedom Law), there was much debate about the legal nature of investment funds and the extent of liability of their quotaholders for unsettled liabilities of these funds.

With the exception of real estate funds – the only type of investment fund that was regulated by specific law and which limited the liability of quotaholders^[1] – the majority doctrine, based on the regulations issued by the Brazilian Securities and Exchange Commission (CVM), understood that investment funds:

• presented a condominium nature (although covered with special characteristics that differentiated them from the civil condominium), without their own legal personality; and
• were subject – given the legislative gap on the limitation of liability of quotaholders (with the exception of real estate funds) – supplementarily to the rules on the general condominium. As a consequence, it was understood that the quotaholder was liable for all the fund’s unsettled liabilities (respected only its quota-share in the condominium).^[2]

With the enactment of the Economic Freedom Law, investment funds were finally regulated and included into the civil law (via the insertion of the new Chapter X in the Civil Code) and had their legal nature defined as a "condominium of a special nature". According to the new law, the rules of the general condominium set forth in Articles 1,314 and following of the Civil Code are not applicable to investment funds. The unlimited liability of the condominium members, therefore, was expressly excluded.

The law also expressly allowed the bylaws of an investment fund to provide for the limitation of the liability of a quotaholder (for liabilities of the fund) to the value of the quotas subscribed by that quotaholder^[3].

Currently, the draft of the CVM resolution which shall provide for the constitution, operation and disclosure of information of investment funds, as well as the provision of services to the funds, is under discussion. The same resolution will regulate the Economic Freedom Law and the outlines of the legal nature of investment funds and the limitation of liability of their quotaholders.

Without prejudice to this regulatory advance, which is still pending, it can be concluded that the liability of quotaholders is now regulated and may be limited.

The question that arises is: how will the judiciary interpret this limitation and what are the hypotheses in which it can be derogated so that creditors of an investment fund may access the equity of the quotaholders of that fund? Will the same arguments used for disregarding the legal personality of companies be valid? Will the rules on economic group joint and severe liability, used in labor matters, be applied? Or, furthermore, will subsidiary liability be applied in tax matters?

Liability of the quotaholder

Although the Economic Freedom Law has granted to the investment funds the nature of a condominium, the special characteristics of this condominium mean that quotaholders do not have the same prerogatives that condominium members have in relation to the common property, in particular to "use the property in accordance with its purpose, exercise all rights compatible with the indivisibility, claim it from third parties, defend its possession and alienate the respective ideal part or encumber it" (Art. 1,314).

Differently from what occurs in the civil condominium, the quotaholders of an investment fund only have rights over the equity fractions of the fund proportional to the investment made (represented by quotas), including the respective earnings, right of redemption and right to participate in the liquidation of the common equity.

The assets of the special condominium called fund are not, strictly speaking, direct assets of its quotaholders, nor are they available to be pledged to satisfy creditors of these quotaholders.

Accordingly, the quotas of an investment fund cannot be held liable for debts or liabilities of the investment fund itself, unless the fund's Bylaws do not limit the liability of the quotaholder.

Each quotaholder holds rights exclusively over the quotas representing the investment made by him/her for the achievement of the common equity of the fund, and, therefore, the quotas belonging to the other co-investors cannot be affected by debts incurred by a quotaholder.

STJ Decision

Recently, the Third Panel of the Superior Court of Justice (STJ) decided^[4] that investment funds may be subject to inverse disregard of legal personality if they are used to shield the assets of their quotaholders with the clear intention of harming creditors.

Despite the facts of the decision predate the enactment of the Economic Freedom Law, the decision reveals that the limitation of liability, even if established via Bylaws and now supported by law, will not be absolute, and there will be cases in which it may be relativized or derogated from.

The rules designed to protect the equity of the investor (quotaholder) shall lose applicability when there is unequivocal proof that the investment fund itself was constituted in an abusive manner, either with the intent to defraud creditors or to serve purposes that are not appropriate to the nature and objectives of investment funds. An example would be removing the assets of the fund (cash, receivables, real estate, shares) from the universe of assets available for pledge and, consequently, harming the creditors of a quotaholder.

This fraudulent intent is not related to the activities of the fund – which are conducted by professional service providers duly registered with CVM (as determined in CVM Instruction 555/14) – but rather to the interests of their quotaholders (individuals or legal entities), who use its umbrella to hide assets.

The STJ’s decision was rendered in this context. In the case under analysis, a private equity investment fund (FIP) had two companies from the same economic group as its quotaholders. Both – in view of the derisory value of the transfer of FIP quotas between them (extremely inconsistent with the market value) – acted with misuse of purpose and patrimonial confusion to hide the true wealth of the economic group to which they belong – with the clear intention of harming creditors.

That is, in view of the abuse of the entity's purpose and the absence of third parties (quotaholders) acting in good faith, it became possible to apply the inverse disregard of the legal personality of the quotaholders (in parallel with Art. 50, § 3, Civil Code), directly affecting the net equity of the FIP.

It seems, therefore, that the tendency is for the Judiciary to adopt the hypotheses of disregard of legal personality (in direct or inverse modalities) contained in Art. 50 of the Civil Code for similar abuse cases involving investment funds and their quotaholders. In view of the misuse of the investment vehicle, the rules applicable to the equity protection of quotaholders should not prevail, under penalty of emptying the characteristic purpose of the entity.

Cases of disregard of legal personality of invested companies of investment funds, which lead to liabilities of these companies being attributed to their partners, including investment funds, may also affect the quotaholders of these funds, especially under the arguments of "economic group" used in labor matters.

From the tax perspective, investment funds have been repeatedly subject to assessments by the Brazilian Federal Revenue Service. As a rule, the legislation attributed to the fund administrator the responsibility for the taxes levied on the income earned by the quotaholders or by the fund portfolio itself – in these cases, the administrator is the taxpayer of the tax obligation as the responsible party.

In this context, there are cases of assessment at the administrative level (Administrative Council of Tax Appeals - Carf) against the administrator of investment funds. With regard to quotaholders, there are also cases of assessments arising from abusive tax planning, as the one that involved the decision of STJ.

Based on these considerations, the contours of the liability of investment fund quotaholders will still depend on a more in-depth examination, by the Judiciary, of the concepts brought by the Economic Freedom Act and the CVM regulation that is yet to come.

^[1] Pursuant to item II of Art. 13 of Law 8,668/93, the quotaholder "II - is not personally liable for any legal or contractual obligation, in relation to the properties and undertakings that are part of the fund or of the administrator, except for the obligation to pay the full amount of the subscribed quotas".

^[2] Refer to Articles 1,315 and 1,320 of the Civil Code.

^[3] Refer to Article 1,368-D of the Civil Code.

^[4] Refer to the judgment of Special Appeal 1965982 - SP, of April 5, 2022.

Category: Environmental

The Supreme Court (STF) judged, on July 4 of this year, the Investigation of Non-compliance with Fundamental Precept 708 (ADPF 708), one of the actions that make up the so-called Green Agenda and deals with climate litigation, a theme of great importance in the current environmental jurisprudence.

ADPF 708 was filed in 2020 by several political parties on the grounds that the Union had been in compliance with climate and policy obligations related to the National Climate Change Fund (Climate Fund), created by Law 12.114/09 and mentioned in the National Climate Change Policy instituted by the Law 12.187/09.

In July of this year, the full court^[1] of the Supreme Court, by majority, with a vote against only the Minister Nunes Marques, upheld the action to:

• recognise that the Union is silent, as it has not fully allocated the resources of the Climate Fund for the year 2019;
• order the Union to cease to omit to operate the Climate Fund or allocate its resources; and
• prohibit the contingency of revenues that are part of the Climate Fund, setting the following judgment thesis: "The Executive Branch has a constitutional duty to make the resources of the Climate Fund work and allocate annually, for the purpose of mitigating climate change, and its contingency is being limited, due to the constitutional duty of protection of the environment (CF, art. 225), of international rights and commitments assumed by Brazil (CF, art. 5, para. 2), as well as the constitutional principle of separation of powers (CF, 2º c/c art. 9º, par. 2nd, LRF)".

In his vote, Minister Luiz Roberto Barroso, rapporteur of the case, acknowledged that the Union was omitted in the management of the Climate Fund, which constitutes a violation of the right to the balanced environment and the fulfillment of international commitments to which Brazil is a signatory. The Minister recognized the constitutional nature of issues involving climate change, based on Art. 225 of the Federal Constitution:

"4. Constitutional, superlegal and legal duty of the Union and elected representatives to protect the environment and combat climate change. The issue, therefore, is of a binding legal nature, and it is not a free political choice. Determination to refrain from omissions in the operationalisation of the Climate Fund and the allocation of its resources. Arts intelligence. 225 and 5, § 2, of the Federal Constitution (CF).

(...)

16. Contrary to what the Presidency of the Republic and the General Law Of The Union claim, the question relevant to climate change is a constitutional matter. In this line, Art. 225, caput and paragraphs, of the Constitution expressly establishes the right to the ecologically balanced environment, imposing on the Public Power the power-duty to defend, preserve and restore it, for gifts and future generations. Therefore, environmental protection is not part of the Chief Executive's political judgment of political, convenience and opportunity. This is an obligation to which compliance is bound. In the same vein, the Constitution recognizes the supralegal character of the international treaties on human rights of which Brazil is part, pursuant to article 5, § 2.

17. In the same vein, the Constitution recognizes the supralegal nature of the international treaties on human rights of which Brazil is a party, pursuant to article 5, § 2. And there is no doubt that environmental matters fall under the hypothesis. As well remembered by the UNEP representative in Brazil, during the public hearing: "There are no human rights on a dead or sick planet" (p. 171). Treaties on environmental law constitute a species of the genus human rights treaties and therefore enjoy supranational status. Thus, there is no legally valid option to simply omit in the fight against climate change".

As shown in the transcript ion above, the vote of Minister Luiz Roberto Barroso attributes to the Paris Agreement a hierarchical position superior to infraconstitutional norms, granting it a constitutional character, since the Paris Agreement would be equal to international treaties on human rights. The understanding is in line with the terms of the Article 5, § 2, of the Federal Constitution.

The trial is extremely relevant to the subject of climate litigation, as it consists of another supreme court judge on the subject and takes an important step to leverage environmental policies in the country.

In addition to the ADPF 708, the Green Agenda comprises the following actions:

• ADPF 760, filed on 11/12/2020 with the objective of resuming the Action Plan for Prevention and Control of Deforestation in the Legal Amazon (PPCDAm);
• Direct Action of Unconstitutionality by Omission 54 (ADO 54), filed on 8/22/2019 on the grounds of unconstitutional omission of the Federal Government "in the task of combating deforestation, in order to achieve the purpose of making effective Articles 23, items VI and VII, and 225, caput and § 1, items VI and VII, of the Federal Constitution";
• ADPF 651, filed on 2/10/2020 with the aim of questioning the constitutionality of Presidential Decree 10,224/20, "which, on the pretext of regulating Law 7.797/89 – which creates the National Environmental Fund (FNMA) – excludes civil society from the deliberative council of the FNMA, which affronts the Federal Constitution in its most basic precepts";
• ADPF 735, filed on 9/1/2020 against Decree 10,341/20, in joint reading with Ordinance 1.804/GMMD/20, on the grounds of incompatibility of these norms with constitutional precepts, especially the right to the ecologically balanced environment. Together, the two rules authorize the use of the Armed Forces in the fight against environmental crimes, which harms the environmental protection system, to the extent that it entails and aggravates the emptying of the functions of environmental protection agencies and the Ministry of the Environment itself;
• ADO 58, filed on 6/5/2020 to claim recognition of unconstitutionality by default of the Union due to the non-availability of the amounts already deposited in the Amazon Fund;
• Direct Action of Unconstitutionality 6,148 (ADI 6,148), filed on 5/30/2019 against Resolution of the National Council for the Environment (Conama) 491/18, which provides for air quality standards, on the grounds that the resolution entails insufficient protection for the rights to information, health and the ecologically balanced environment; and
• ADI 6,808, filed on 4/22/2021 to request the declaration of unconstitutionality of Articles 6 and 11-A of Law 11,598/07, with the amendments granted to it by Article 2 of Provisional Measure 1.040/21, on the grounds that this provisional measure includes in the law for the automatic grant of environmental license to companies of medium risk-grade activities, in addition to making it impossible for environmental agencies to request additional information for the licensing of these companies.

Although they address issues different from that of ADPF 708, two other actions that make up the Green Agenda, mentioned above, were recently judged by the Supreme Court. ADI 6.148 was dismissed on 5 May this year to declare the constitutionality of Conama Resolution 491/18, but Conama was ordered to issue a new resolution on the matter within two years, including the following issues:

• the current Guidelines of the World Health Organization on appropriate air quality standards;
• the national reality and local peculiarities; and
• the primacy of free enterprise, social development, poverty reduction and the promotion of public health.

ADI 6,808 was found partially well founded on April 28 of this year to determine the exclusion of Articles 6 and 11a of Law 11,598/07 on environmental permits. The legal provisions mentioned, however, were not considered unconstitutional.

^[1]    The Supreme Court is composed of 11 ministers, and the full court, or plenary is formed by the 11 ministers and chaired by the president of the court. It is up to the plenary to judge the unconstitutionality or constitutionality of the laws, with a minimum quorum for the vote on constitutional matters of eight ministers (art. 143, § the only one of the rules of procedure of the Supreme Court).

Category: Infrastructure and energy

In a move that has gone largely unnoticed by the general public, the National Petroleum, Natural Gas and Biofuels Agency (ANP) took an important step in February of this year towards consolidating Brazil's leading role in the global energy transition process.

On February 10th, the ANP board approved ANP Resolution 866/22, which significantly expanded the list of projects eligible to receive investments that oil companies are required to make annually in research, development research, and development and innovation (RD&I).

With this expansion, the regulation of RD&I now expressly encompasses the possibility of investments in projects related to topics unrelated to the oil sector, including those involving decarbonization, energy transition, and renewable energy.

The change represents an important paradigm shift, since it is the first time that the ANP, an authority born to stimulate the development of the Brazilian oil industry, explicitly recognizes, in its regulations, the strategic role of oil companies in the development of technologies that, in the near future, will mitigate the environmental impacts of this industry and eventually replace the use of fossil fuels in the national energy matrix.

RD&I Regulation

The oil and natural gas exploration and production contracts signed in Brazil include a provision that requires, under certain circumstances, that companies invest a percentage of the gross revenue from their oil and natural gas production in RD&I projects (RD&I Provision). In the last five years alone, this obligation resulted in investments of almost R$10 billion in RD&I in Brazil, equivalent to 20% of the federal public budget directed to scientific research in the same period.

It is important to note that only RD&I projects in compliance with ANP regulations are eligible to receive investments based on the RD&I Clause. Since 2015, the main standards that regulate and direct investments in RD&I are ANP Resolution 50/15 and ANP Technical Regulation 3/15.

Originally, these rules required that investments in RD&I have the purpose of promoting scientific and technological development in the oil, natural gas, and biofuels sector. In addition, they authorized investments in "other renewable energy sources corresponding to that sector." Therefore, even investments in renewable energy should be related to the oil industry. There was no reference to projects aimed at energy transition or decarbonization.

With the publication of ANP Resolution 866/22, these standards have been significantly changed. Four new categories of RD&I projects have been included that are eligible to receive resources from oil and natural gas producing companies:

• renewable energy and energy transition;
• new actions for innovation and startups;
• innovation in micro and small enterprises; and
• reduction in risks and bureaucracy in regulations.

In addition to creating regulatory definitions for concepts such as renewable energy , energy transition, and decarbonization,^[1] the resolution brought in a central clarification: the express provision that the expenses qualified as RD&I encompass not only projects directly related to the petroleum sector, but also those from related sectors of renewable energy, energy transition, and decarbonization.

Impacts of the new regulation

According to a clarification released by the ANP itself, "the new version of the resolution proposes more clarity in the eligibility of RD&I projects related to renewable energy and energy transition, including decarbonization, CO₂ capture, and environmental characterization and protection studies.”

The agency also stated that it will establish a priority procedure for projects and programs that prioritize the allocation of RD&I resources to hydrogen, biofuels, energy storage, and digital transformation.

This change has a double importance:

• It confers greater legal security, from the regulatory point of view, to companies that have already been directing their investments in RD&I projects beyond the oil, natural gas, and biofuel areas. Even before the change, several companies had already submitted and obtained exceptional approval from the ANP for research not directly related to the oil sector, on topics involving, for example, CO₂ capture, storage, and transformation.

• The regulatory change seeks to stimulate the development of more projects aimed at decarbonization and energy transition beyond the companies and research institutions that had already been spontaneously proposing this type of project.

A few months after the publication of the new regulation, the analysis of data on RD&I projects submitted to the ANP for approval points to a strong indication that the change in rules has already started to produce concrete effects.

Between 2016 and 2021, RD&I projects classified in the categories "biofuels" and "other energy sources" represented a percentage of 3.74% of all projects approved by the ANP. By 2022, this percentage has more than doubled to 7.65% of the total.

It is possible that the proportion is even higher, because some lines of research, such as projects involving capture and underground storage of CO_2, are often approved by the ANP as part of larger projects related to improving the efficiency of oil fields, which ends up leading to their inclusion in the "exploration and production of oil and natural gas" category.

Brazil as a world protagonist

Knowing that more than 89% of global CO₂ emissions come from burning fossil fuels, it is evident how fundamental the expansion of a renewable energy matrix and the decarbonization of energy production sources is.

The effects of the conflict between Russia and Ukraine have also highlighted the issues of energy security and the high dependence of some countries on natural gas and oil. The skyrocketing fuel prices are just another undesirable consequence of this scenario. All these problems reinforce the urgency of rethinking the world's energy matrix.

Recently, the International Renewable Energy Agency's World Energy Transitions Outlook 2022 estimated that it will be necessary to invest around $5.7 trillion per year by 2030 in energy transition. Renewable energy’s share will have to grow strongly in all sectors, from 14 percent today to about 40 percent of all energy produced in 2030. The report also points out that governments will need to act with cross-cutting structural policies capable of accommodating the different technological routes and social demands.

The increase in investments in RD&I projects focused on renewable energy, energy transition, and decarbonization is a growing trend not only in our country, but worldwide. Given Brazil's continental dimensions and natural vocation for a cleaner energy matrix, we have the potential to lead the global energy transition movement and consolidate our position among the countries with the cleanest energy grid in the world.

Furthermore, as a signatory to the Paris Agreement and the Kyoto Protocol, Brazil has assumed international commitments that involve ambitious targets in terms of carbon reduction. The ANP's posture in recent years, aimed at a series of revisions to its regulatory framework and greater adaptation to the global energy scenario, could not be more in tune with these goals.

^[1] "1.21C. Decarbonization - The process of reducing and, in the long term, eliminating the emission of greenhouse gases, especially carbon dioxide."

Category: M&A and private equity

Securities and Exchange Commission Resolution 166(CVM), which governs the publications required by the Brazilian Corporations Law for smaller publicly-traded companies (those with annual gross revenues of less than R$500 million, based on the financial statements for the last fiscal year), will enter into effect on October 3, 2022. Until then, smaller publicly-traded companies were subject to the same publication rules as larger publicly-traded companies.

The new CVM resolution allows smaller publicly-traded companies to carry out, through the Companies.NET and Funds.NET,the publications required by the Brazilian Corporations Law or provided for in the regulations issued by the CVM.

These information submission tools are able to record the time when the information was disclosed and ensure the inalterability of its content and source. This assures the external public that the information published comes directly from the company. The publications will be considered made on the date the documents are disclosed in the systems by the companies.

When the publications are made by third parties without access to the systems, such as, for example, in the case of article 258 of the Brazilian Corporations Law (publication of tender offer by the offeror, in the case of public offerings to acquire control of a publicly-held company), the third party may send the document to the company, which must then disclose it through the Empresas.NET and Fundos.NET systems .

The publication of documents via the Empresas.NET and Fundos.NET systems does not imply an analysis of the merits or agreement with their content on the part of the CVM or any organized market entity.

Regarding the issue of publications mandated by the Brazilian Corporations Law, it is worth remembering the recent changes put into place by Law 13,818/19 (which amended the Brazilian Corporations Law to provide for mandatory publications) and the Legal Framework for Startups (Complementary Law 182/21):

• The most relevant change is the end of the obligation for companies to publish in the official press outlets of the Federal Government, the states, or the Federal District. According to the new wording of article 289 of the Brazilian Corporations Law,, as amended by Law 13,818/19, the publications must be made in a “newspaper of wide circulation published in the locality in which the company's headquarters is located, in a summary form and with simultaneous disclosure of full copies of documents on the same newspaper page on the Internet, which shall provide digital certification of the authenticity of the documents kept on a separate page issued by an accredited certification authority under the Brazilian Public Key Infrastructure (ICP-Brasil)."

• Regarding publications that involve financial statements, the new wording of article 289 of the Brazilian Corporations Law, amended by Law 13,818/19, provides that publication in summarized form must contain, at least, "in comparison with the data of the previous fiscal year, global information or values related to each group and the respective classification of accounts or records, as well as extracts of the relevant information contemplated in the explanatory notes and in the opinions of the independent auditors and the audit committee, if any.

The following table summarizes the publication arrangements currently in effect.