Category: Environmental

Eduardo Ferreira, Aline Barreto Moraes de Castro Philodemos, Camila Argentino, Gabriela Doll Martinelli and Isabel Monteiro de Barros Alfano

That are several expectations  about the 26th edition of the Conference of the Parties (Conference of Parties – COP), which will be held between  October 31st and  November 12th in Glasgow, Scotland.

The COP aims to discuss, review, monitor and implement the United Nations Framework Convention on Climate Change - UNFCCC (Convenção-Quadro das Nações Unidas sobre Mudança Climática).

The UNFCCC is an international treaty signed by 197 countries at the United Nations Conference for the Environment and Development (Conferência das Nações Unidas para o Meio Ambiente e o Desenvolvimento), held in Rio de Janeiro in 1992. The main purposes of the treaty are to strengthen the global response to the threat of climate change, limit the increase in global average temperature and minimize the concentration of greenhouse gases, among other aspects that may impact the planet’s environmental balance.

Expectations emerge mainly from the fact that the convention was not held in 2020, due to the covid-19 pandemic.

In addition, the current edition of the conference is the fifth to be held since the signing of the Paris Agreement (Acordo de Paris), which was signed at the 2015 COP in the French capital. At the time, it was agreed that the signatory parties would present, every five years, an updated planning related to the reduction of greenhouse gas emissions. At this year's meeting, therefore, world leaders will have to communicate their efforts and update their respective countries' commitments to the matter.

Among the topics to be discussed are the carbon market, the reduction of greenhouse gas emissions, annual climate financing, reduction of deforestation on a global scale, updates and compliance with the rules of the Paris Agreement, as well as the establishment of collaborative, adaptation and mitigation measures related to environmental impacts.

Article 6 of the Paris Agreement, which cover some of the instruments for the creation of a global carbon market, is one of the main topics on the agenda. This market remains unregulated, requiring objective and viable definitions by the signatory countries.

Funding to address climate matters will also be in focus. Developed countries have pledged to invest at least $100 billion a year, by 2020, to address the climate crisis and help developing countries to reduce fossil fuel emissions and adapt to the impacts of the crisis. The conference will address such matter and verify the implementation of this measure worldwide.

In addition to these matters, actions are expected to be discussed to allow adaptation to climate change and mitigation of its effects, such as the adoption of low-carbon technologies, incentive to research, adoption of green economy, among others, aiming to reduce the loss of ecosystems and protect communities, especially those already affected by climate change.

There are also expectations on Brazil's performance. Potentially, the country has much to collaborate with environmental preservation, since it has good legal provisions related to the subject, such as the Forest Code, and holds the largest preserved green area in the world. We have 500 million hectares of tropical forests, which means a huge capacity to remove and stock carbon. Our forests, therefore, are essential for the stabilization of the global climate, which makes it essential to progressively implement more initiatives related to environmental preservation.

What is certain is that COP-26 will seek to establish new measures to lead signatory parties to reduce the effects of climate change and its impacts on society.

Category: Environmental

The Attorney General's Office filed the Direct Action of Unconstitutionality (ADI) 7,008, on September 30, with a request for a restraining order against Law 16.260/16 of the state of São Paulo. State law "authorizes the State Treasury to grant the exploitation of services or the use, in whole or in part, of" in state properties. The ADI 7008 was distributed to the rapporteurship of Minister Roberto Barroso.

According to the petition, São Paulo’s law would have violated constitutional provisions related to the Union's competence to legislate on indigenous peoples and general norms of protection of the environment and indigenous populations, in addition to ignoring the duty of respect for the organization of these populations and the rights of possession and enjoyment of the lands they traditionally occupy. This is because the state standard regulated the granting of ecotourism and commercial logging activities and forest by-products in state conservation units, regardless of environmental licensing and without prior consultation with potentially affected indigenous populations.

The Attorney General's Office requires the granting of a precautionary measure to suspend the effectiveness of Law 16.260/16 and, at the end, to uphold the request for the purpose of declaring:

• the obligation of prior environmental licensing for the granting of commercial exploitation of wood and forest by-products in state conservation units, because they are activities with medium potential for environmental impact; and
• the need for prior consultation with affected communities as a condition for granting concessions.

In Brazil, traditional and indigenous communities do not have a specific protocol for Free, Prior and Informed Consent (FPIC), as recommended in the Convention of the International Labor Organization (ILO) 169 and to which the Attorney General's Office expresses its mention. In this scenario, the judgment of the ADI, in addition to deciding the constitutionality of the state law, will be an important precedent on the subject, especially in relation to the understanding of the ministers of the Supreme Court on whether the specific protocol, in fact, is necessary to meet the convention or if, in the case of environmental licensing, the public hearing could provide such formality.

Category: Labor and employment

With globalization and the transformation of society, the adoption of labor compliance measures became a differentiating factor for companies willing to avoid the increasingly clear damages of unethical or inappropriate conduct.

Compliance, in general, may be defined as the principle of corporate governance that aims at promoting the organizational culture of ethics, transparency, and management efficiency, such that all actions of the company are in compliance with laws and regulations, internal and external controls, and values and principles.^[1]

Labor compliance, specifically, is a fundamental tool for the prevention and management of risks in the labor area. An investment that generates positive impacts for companies in their social and economic results, promoting improvement of the company's image and its organizational climate.

Its application aims to ensure compliance with labor standards, map possible risks, and encourage the adoption of good practices to value people, encourage the development of their skills, and promote a suitable work environment.

One of the main mechanisms of labor compliance is to improve people management processes, since litigation often arises from relationship problems between coworkers, in most cases, between managers and subordinates.

The tools that are part of the compliance program are:

• Code of Conduct: aims to consolidate the company's reputation and image. The Code of Conduct signals to everyone the conduct expected by the company, as well as its values and mission.

• Internal rules: establishes the rules of the work environment, with the procedures to be adopted in routine situations experienced throughout the employment contract.

• Reporting Channel: aims to facilitate the investigation and discourage the occurrence of practices of harassment and discrimination at the company.

• Internal investigations: consists of investigating reports received, mainly on topics such as moral harassment, sexual harassment, breach of company confidentiality, and other situations liable to termination of employment.

• Risk management: used to analyze and control potential threats related to people management by assessing all legislation applied to the company, mapping risks and developing internal controls.

• Corporate training: aims to make employees aware of the company's internal policies and rules, reinforcing the principles of the organization.

• Labor audit: based on the analysis of the documentation of labor routines to identify practices that are not in compliance with labor legislation, possible penalties, and solutions.

Among the consequences of the adoption of an effective compliance program particular highlighitng should be given to reduction of labor liabilities, decrease in the occurrence of lawsuits and administrative sanctions, and, especially, improvement in the work environment.

Although Brazilian culture is still very much focused on labor litigation, investment in preventive and consultative work is a market trend, mainly because of society's pressures in relation to corporate responsibility and maintaining a good work environment.

^[1] PINHEIRO, Iuri; SILVA, Fabrício Lima; BONFIM, Voilá. Manual do compliance trabalhista: teoria e prática [“Labor compliance manual: theory and practice”]. 2nd current, revised, and expanded edition. Salvador: Editora JusPodivm, 2021, p.50.

Category: Labor and employment

The judgment on Repetitive Topic No. 677, which brought back the discussion regarding the obligation of the debtor to pay any charges arising from default, even if the execution has been fully or partially secured via a judicial deposit, is suspended before the Superior Court of Appeals (STJ). Two Justices have already voted and there is a tie regarding who has liability for the payment of late payment charges arising after the deposit that secured the execution.

To clarify what is under debate, it is worth bringing back some concepts on the subject. In every lawsuit in which there is a judgment with a payment obligation, after the decision on the merits, the execution phase begins, in which the debtor will effectively pay what he owes to the creditor, according to the judgment rendered.

Executions of judgment generally follow the procedural flow: debtor and creditor submit their calculations, the judge decides who has indicated the correct amount (i.e., ratifies the amount due), the debtor is summoned to pay and, finally, payment is made via judicial deposit.

However, if the debtor believes that the amount ratified does not correspond to that really due, the discussion regarding the calculations may continue, and it will be incumbent on the judgment debtor to guarantee the amount of the execution, usually by means of a deposit.

In the exercise of its right to a full defense, the debtor, in certain cases, may even submit the dispute to higher courts. Meanwhile, the amount ratified remains deposited in the judicial account, and is adjusted for inflation following the indexes for savings accounts. Once the discussion is closed, the case returns to the trial court, for the amounts to b e released to the creditor.

In relation to this point, a debate began regarding the adjustment for inflation and late payment charges due to the creditor. This is because the remuneration applied on the amount deposited in the judicial account would not be sufficient to cover the adjustment criteria considered correct. Likewise, the late payment charges due, in theory, due to the time elapsed between the ratification of the calculations made by the trial judge and the actual receipt of the amount by the creditor, after the judgment, would also not be sufficient. This period between the ratification, followed by the deposit, and withdrawal of the amounts would represent a significant monetary loss for the creditors, who began to claim the differences in the adjustment for inflation and late payment to be paid by the debtor.

However, it is claimed that it would not be fair to assign to the debtor in good faith liability for late payment charges and adjustment for inflation, since it had the execution guaranteed at the time it was summoned, that is, soon after ratification of the calculations.

In view of this conflict, which began to be raised and discussed in many proceedings, the need arose to establish a specific theory on the matter, so that all the bodies of the Judiciary Power could extinguish the corresponding disputes.

Then, in 2014, Repetitive Topic No. 677/STJ was decided, which ended all discussions regarding liability for the payment of late payment charges arising after the deposit that guaranteed the execution, by establishing the theory that "in the execution phase, the deposit in court of the amount (full or partial) of the award extinguishes the obligation of the debtor, within the limits of the amount deposited" (emphasis added).

On August 25, 2020, however, during a session of the Third Panel of the STJ, Justice Paulo de Tarso Sanseverino raised a point of order to propose a review of the matter, in order to define "whether, in the enforcement proceeding, the deposit in court of the amount of the obligation, with the consequent application of interest and adjustment for inflation at the expense of the depositary financial institution, exempts the debtor from the payment of charges resulting from default, as provided for in the judicially or extrajudicially enforceable instrument, irrespective of the release of the amount to the creditor.”

One of the pillars of the revision is the fact that the judicial deposit made for the purposes of guaranteeing the execution could not be confused with payment, since it would not have animus solvendi (intention to settle the debt), such that there would be no reason to exempt the debtor from liability for the late payment charges.

On October 7, 2020, in an opinion drafted by Justice Nancy Andrighi, the STJ accepted the point of order and the procedure for review of Topic 677/STJ was initiated.

On June 2, 2016, the reporting Justice voted in favor of revising Topic 677/STJ, supporting implementation of the following theory: “In enforcement proceedings, the deposit made as security for the judgment or arising from attachment of financial assets does not relieve the debtor from payment of the consequences of its default, as provided for in the enforceable instrument, and, upon actual delivery of the money to the creditor, it must deducted from the balance of the judicial account.”

After the reporting judge's vote, there was a request for review of the record and the case was removed from the agenda. The judgment was resumed on September 10, 2021, when Justice Paulo de Tarso Sanseverino heard the appeal, but denied it relief. Currently, therefore, there are two divergent written opinions on the topic.

The reasoning of Justice Sanseverino was to the effect that there would be no fault by the debtor in the fact that the adjustment for inflation applied by banks in contract with the Judiciary is lower than the charges resulting from the delay.

The withdrawal of the amount covered by the execution should be carried out by the creditor immediately after the deposit is made. The non-withdrawal immediately thereafter is a mere exception, which occurs only when the judgment debtor files an objection on grounds deemed relevant by the court.

In the view of Justice Sanseverino, the decision on the allocation of the deposit aimed at guaranteeing the execution is not in the hands of the debtor, but rather the Judiciary, and no liability or penalty may be assigned to the debtor for the delay in the release and consequent bank remuneration below the late charges.

As highlighted by the Justice, the intended revision of the theory would bring about disadvantageous consequences for the enforcement proceeding, inasmuch as it would discourage the debtor from offering money for attachment and would encourage it to plead substitution of the cash guarantee with a bank guarantee. This is because it is disadvantageous for the debtor to offer money for attachment (which will be adjusted for inflation at the savings account rate), while it could invest the same amount in an investment with much higher profit potential.

In addition, the execution would be made eternal, since there would always remain late payment charges to be executed, generated between the date of the deposit and the date of actual withdrawal. In other words, even if the deposit were made by the debtor on one date and withdrawn by the creditor on the subsequent day, there would be a difference in default interest to be enforced, and the continuation of the execution on account of this remaining amount would be mandatory.

It is also important to emphasize the provisions of article 401, I, of the Civil Code, which imposes extinguishment of the arrears by the debtor, when it pays the installment due, plus the losses arising from the delay. In other words, any obligation related to late payment would be extinguished when the debtor makes the judicial deposit, consisting of the principal amount of the debt, plus the late payment charges up to the time of the actual deposit.

In addition, precedents 179 and 271 of the STJ regulate the adjustment for inflation of amounts deposited in court. They provide that the payment of the adjustment for inflation related to the amounts collected is the responsibility of the establishment that receives the money from the judicial deposit (bank in a partnership agreement with the Judiciary), and that the adjustment is independent of a specific action against the depositary bank. Liability for late payment charges, therefore, is taken out of the hands of the debtor.

After the opinion of Justice Paulo de Tarso Sanseverino, Justice João Otávio de Noronha requested review of the case record, which was converted into a collective hearing for the other Justices, again suspending the judgment, without a date for its resumption.

Category: Tax

The Superior Court of Appeals (STJ) decided, in 2018, Repetitive Appeal (REsp) 1.221.170/PR, which dealt with appropriation of PIS and Cofins credits based on the concept of inputs. At the time, the STJ gave the legal interpretation to the provisions of article 3, subsection II, of laws 10,637/02 (PIS) and 10,833/03 (Cofins), which ruled out the restrictive interpretation advocated at that time by the Federal Revenue Service.

At that time, the STJ tied the concept of input material to the criteria of essentiality or relevance, that is, considering the indispensability or importance of a given item (good or service) for the development of the economic activity performed by the taxpayer.

With the covid-19 pandemic, the analysis of the concepts of essentiality and relevance gained new developments. This is because, among the measures imposed during the state of calamity, companies were required to incur expenses with protective equipment designed to prevent contamination with and spread of the virus.

Since February of 2020, for example, the use of personal protective masks has been mandatory for circulation in public and private spaces accessible to the community, on public roads, and on public transport. It is also mandatory to adopt measures for sterilization of places of public access, including vehicles, and the provision of sanitizing products to users during the validity of the measures to address the public health emergency resulting from the covid-19 pandemic (Law 13,979/20).

Thus, masks, gloves, and hand sanitizer have become not only essential and relevant items in the fight against the pandemic, but also determinant for a company’s operation, to the exact extent of the interpretation fixed by the STJ in article 3, subsection II, of Laws 10,637/02 (PIS) and 10,833/03 (Cofins).

In the midst of the chaotic public health scenario, questions began to arise as to the possibility of appropriation of PIS and Cofins credits referring to these items. In the judicial sphere, the few decisions already rendered on the matter were unfavorable to taxpayers (cases 5003996-98.2020.4.03.6110 and 5012198-94.2020.4.03.6100, both from the TRF3).

Nevertheless, on September 27 of this year, taxpayers received more encouraging news on the topic. Almost two years after the beginning of the pandemic, the Federal Revenue Service published Cosit Advisory Opinion 164 recognizing the possibility of taking PIS/Cofins credits on expenses incurred with sanitizer, masks, and gloves used in protection against covid-19, as it considers that these items fit within the concept of an input.

The RFB found that gloves and sanitizer may be considered an input, as they fit within the concept of PPE (Personal Protection Equipment), for which credits had already been expressly recognized by the STJ's own repetitive decision (REsp 1.221.170/PR) and by Cosit Normative Opinion 05/18.

As for protective masks, the RFB argued that Joint Ordinance 20/2020, promulgated by the Special Secretary of Labor Welfare of the Ministry of Economy and the Ministry of Health, expressly excluded this item from the concept of PPE. Therefore, its utilization as a credit could not be based on these grounds. Nevertheless, the RFB found that the masks are mandatory items by legal requirement, recognizing their use as giving rise to a credit on this other basis, which is also supported by Cosit Normative Opinion 05/18.

It is worth noting that the appropriation of PIS/Cofins credits for protective masks, gloves, and sanitizer was recognized only for workers allocated to the activities of production of goods and/or service providers, but not those allocated to administrative or commercial activities.

This position is in line with the majority case law that has been forming in the administrative sphere, in which a certain resistance to recognizing PIS/Cofins credits for commercial companies or any activity not directly connected to the provision of services or production or manufacture of goods is identified, per the literal meaning of article 3, subsection II, of laws 10,637/02 (PIS) and 10,833/03 (Cofins).

However, there are good arguments to challenge this tax interpretation that does not recognize the PIS/Cofins credit for commercial companies (retailers, wholesalers, etc.), especially due to the equal protection of companies, regardless of the area in which they operate, and the very principle of non-cumulativeness of the PIS/Cofins.

Specifically in the case of equipment intended to prevent the spread of coronavirus, it is possible to argue for its mandatory use even for the very operation of the commercial company, given the rules instituted by the public authorities.

The RFB's position is a first step in the recognition of the right to the PIS/Cofins credit for protection items against the dissemination of covid-19. It should be applied to all companies to keep in line with the concepts of essentiality and relevance defined by the STJ. The decision serves as an indication of the direction this discussion may take in the administrative and judicial spheres.

It is important to conduct a detailed analysis of this issue, observing the specificities of each company's activity and its classification within the concepts established by the STJ, considering the greater or lesser risks of being assessed.

Category: Tax

In 2018, the Superior Court of Appeals (STJ) ruled out the restrictive concept of input material, according to which the expense with input material should be directly integrated into the formation process of the end product or provision of service in order to be eligible for PIS and Cofins credit.

At that time, the 1st Section held that the "concept of input material should be evaluated in light of the essentiality or relevance, that is, considering the indispensability or importance of a given item - good or service - for the development of the economic activity performed by the taxpayer” (Repetitive Special Appeal No. 1.221.170/PR).

Although the STJ examined the issue in a proceeding involving legal entities engaged in industrial activities, the theory established allowed commercial companies (retailers, wholesalers, etc.) to take credits also with regard to essential or relevant items for their business activity.

It was expected that this judgment would settle the matter in the regional courts, due to the clarity of the theory established and the grounds set out in the written opinions of the Justices. However, both at the administrative and judicial levels, there have been decisions denying the right to a credit for expenses, such as credit/debit card fees, advertising and promotion, especially in lawsuits involving taxpayers in a commercial activity.

Precisely because of this, the discussion has recently gained a new chapter and is expected to generate new debates in the 1st Section of the STJ soon, this time to review the issue in relation to commercial companies.

Just Manoel Erhardt, an appellate judge convened by the Federal Court of Appeals for the 5th Circuit, admitted the processing of Motion to Resolve Divergence No. 1.810.630/PR filed by a retailer against the decision of the 2nd Panel. The purpose is to resolve a divergence regarding the possibility of crediting PIS and Cofins in relation to expenses considered essential for the performance of the taxpayer's business activity. In the specific case, it seeks to credit financial expenses arising from loans and financing.

The taxpayer argues that, by conditioning the characterization of a given expense as input material to the direct application in the productive process or in the provision of services, the 2nd Panel reinstated the restrictive concept of input material already ruled out by the 1st Section, diverging from the understanding settled in Repetitive Special Appeal No. 1.221.170/PR.  

The repetitive theory established by the STJ clearly disassociated the concept of input from service and industrial activities, recognizing as creditable any and all goods or services that are essential or relevant for the development of any economic activity. Therefore, every expense incurred by a taxpayer, industrial, commercial, or service provider, that is essential for the performance of its economic activity, is to be considered an input and generate PIS and Cofins credits.

A different understanding could ultimately create unequal situations in which the industrial company could take credits for certain essential expenses, such as advertising and publicity, while the commercial company would not have the same right, which is not consistent with the STJ’s decision in Repetitive Special Appeal No. 1.221.170/PR or with the governing legislation.

Although the case is limited to expenses arising from loans and financing, it is expected that the 1st Section will examine the scope of the repetitive theory as a whole in the judgment of the motion to resolve the divergence. The measure would standardize the understanding on the matter nationwide, providing legal certainty to taxpayers, especially commercial companies.

Category: Labor and employment

Law No. 14,151/2021, published on May 13 of this year, establishes in the head paragraph of its article 1 that “during the public health emergency of national importance resulting from the new coronavirus, pregnant employees shall remain away from on-site work activities, without prejudice to their remuneration.” In the sole paragraph of the same provision, it is stated that the employee on leave "will be available to perform activities at home, through telework, remote work, or another form of distance work."

Much has been questioned regarding the employer's liability for the payment of wages of pregnant employees in the event of impossibility of performing the activities at a distance, considering that the prohibition on performing the tasks in a face-to-face environment arises from the emergency public health crisis caused by the pandemic and from a legal mandate.

The liability of the employer to bear the burden of remuneration is not questioned, if it is possible to remove the employee from on-site activities, without prejudice to effective work. However, in activities that need to be performed in person, employers have a double burden, when they cannot go without effective work: the payment of the wages of pregnant employees on leave and the hiring, as temporary workers, of another employee for the role.

Various employers have directly challenged the Federal Government regarding this excessive burden and some claims have already been granted when brought to court.

Recently, the Federal Courts (Federal Court of Appeals for the 3rd Circuit - São Paulo/SP) issued two decisions on this matter, in the record of cases No. 5003320-62.2021.4.03.6128 (1st Federal District Court of Jundiaí/SP) and No. 5006449-07.2021.4.03.6183 (14th Federal Civil Court of São Paulo/SP).

In the first suit, by way of a writ of mandamus, an employer sought to advance the maternity leave pay of her domestic servant. The request was granted by the Federal Court, which ordered the INSS to accelerate the maternity leave pay for the period of leave resulting from the impossibility of performing the activities at a distance by the pregnant worker, pursuant to article 1 of Law No. 14,151/21.

The judge relied on the rule provided for in article 394-A of the Consolidated Labor Laws (CLT),^[1] which provides for the prohibition on performance of hazardous activities by pregnant employees.

In the decision, the judge pointed out that the case involved an insured employee who worked as a domestic worker, which would make it impossible to perform remote work or any other form of remote work. He also pointed out that the benefit provided for in article 1 of Law No. 14,151/21 to put the pregnant employee on leave from in-person work, without prejudice to remuneration, in order to prevent the risk of contagion by covid-19, was created by the State. Therefore, it would not be incumbent on the employer to bear the financial burden.

In addition, for the judge, the situation would fit within the rule provided for in paragraph 3 of article 394-A of the Consolidated Labor Laws, which provides for restrictions on work by pregnant employees in unhealthy environments, in the same manner as set forth in article 1 of Law No. 14,151/21.

The granting of advance maternity leave pay was said to be a duty of the State, and cannot be assigned to employers, as it violates the protection of maternity and pregnant women, ensured both by the provision set forth in the Consolidated Labor Laws and article 1 of Law No. 14,151/21.

The second decision stemmed from an ordinary action in the Federal Courts against the INSS and the Federal Government. The action sought direct compensation of the maternity leave pay paid by the employer during the period of leave of pregnant employees due to the impossibility of performing the work at a distance, pursuant to article 1 of Law No. 14,151/21 (Case No. 5006449-07.2021.4.03.6183).

In the case, it was reported that pregnant employees provided urgent and emergency medical care services in emergency rooms and hospital units and, therefore, could not provide remote care.

The difference in this action was the procedure, since, despite the petition for injunctive relief in the action , wages continued to be paid normally, and the employer requested compensation for the remuneration paid.

In the decision, it was emphasized that, since it is nursing work, it would be impossible to perform the activities remotely. Moreover, Law No. 14,151/21 has not defined who is liable for payment of the remuneration of pregnant employees whose professional activity is incompatible with distance work.

Whereas the Federal Constitution guarantees everyone the right to health, maternity, family, and society (articles 196, 201, II, 226 and 227), it establishes the duty of the State to promote social and economic actions and policies to achieve such purposes, including through the Social Security System, and that it is the Social Security's obligation to fund the coverage of claims, as in the case of unforeseen events arising from the emergency crisis caused by the covid-19 pandemic, the employer's request was granted, including the emergency relief requested.

As can be seen, the creation of an obligation to grant leave for in-person work functions, according to article 1 of Law 14,151/2021, generates much more than just the act of putting the pregnant employee on leave. It also creates a burden, often excessive for the employer. Given this situation, the Federal Courts have taken a position on the State's responsibility to pay the wages during the period of leave, either by advancing the maternity leave pay, under the terms of article 394-A of the Consolidated Labor Laws, or even the compensation of wages already paid by the employer.

To this end, it is essential for it to be impossible for pregnant employees to perform their activities outside the physical environment of the employer, and the company must prove that pregnant employees cannot work at their residence, through telework or remote work or other form of distance work. In the event the request is granted, the employer may not require employees to render any services to it, under penalty of constituting fraud against Social Security (article 171, paragraph 3, of the Penal Code).^[2]

^[1] Article 394-A. Without prejudice to their compensation, including the amount of the health hazard premium, employees must be on leave from: I - activities considered unhealthy to a maximum degree, for the duration of pregnancy;

II - activities considered unhealthy at a medium or minimum degree during pregnancy;

III - activities considered unhealthy to any degree during lactation.

Paragraph 2. The company is responsible for paying the health hazard allowance to pregnant or breastfeeding employees, compensating them pursuant to the provisions of article 248 of the Federal Constitution, at the time of collection of the contributions levied on the payroll and other income paid or credited, for any reason, to the individual providing services.

When it is not possible for a pregnant or lactating employee on leave pursuant the head paragraph of this article to perform their activities in a healthy place at the company, the event shall be considered as a risk pregnancy and shall entitle them to maternity pay, pursuant to Law No. 8,213, of July 24, 1991, during the entire period of leave.

^[2] Article 171 - Obtaining, for oneself or another, an illicit advantage, to the detriment of another, inducing or maintaining someone in error, by means of artifice, trickery, or any other fraudulent means:

Penalty - confinement, from one to five years, and a fine, from five hundred thousand réis to ten contos de réis.

(...)

Paragraph 3 - The penalty is increased by one third if the crime is committed to the detriment of an entity governed by public law or an institution of the popular economy, social assistance, or a charitable institution.

Category: Labor and employment

Ordinance No. 620/21, published by the Ministry of Labor and Social Security (MTP Ordinance 620/21) on November 1 (and in effect since then), establishes that:

• when hiring a worker or continuing the employment, employers are forbidden to demand any discriminatory or limiting documents, especially proof of vaccination;
• requirement of a vaccination certificate in recruitment processes, as well as the termination for cause of an employee due to the non-presentation of a vaccination certificate, is considered a discriminatory practice;
• the termination of employment due to a discriminatory act, under the terms established in MTP Ordinance 620/21, in addition to the right to compensation for moral damages, allows employees to choose between: (i) reinstatement, with full compensation for the entire period of leave, upon payment of the remuneration due, adjusted for inflation plus legal interest; or (ii) receiving, in double, the remuneration of the period of leave, adjusted for inflation plus legal interest;
• employers must establish and disseminate guidelines or protocols indicating the necessary measures to prevent, control, and of the risks of transmission of COVID-19 in the workplace, including the national policy guidelines on vaccination and the promotion of the effects of vaccination in reducing COVID-19 contagion; and
• employers may establish policies to encourage the vaccination of their workers.

MTP Ordinance 620/21 also establishes that, to ensure the preservation of sanitary conditions in the workplace, employers may offer staff periodic testing to prove that they are not contaminated by COVID-19. In this case, workers are obliged to carry out testing or present a vaccination card.

The ordinance goes against recent decisions of the labor courts – based on the prevalence of a public interest in protecting the health of the community in the workplace – that validated termination for cause of workers who refused to be vaccinated. It also goes against the understanding of the Public Labor Prosecutors’ Office (MPT), which has expressed its support for requiring vaccination of workers as a measure to protect the health of workers in the workplace, under penalty of adoption of disciplinary measures by employers, including termination for cause in the event of an unjustified refusal.The restrictions imposed by MTP Ordinance 620/21 are also at odds with the recent decisions of the Brazilian Supreme Court involving mandatory vaccination.

Due to this, there are great chances that MTP Ordinance 620/21 will be deemed unconstitutional. However, until that happens, employers who have already adopted measures requiring vaccination for working on-site must review (albeit temporarily) such practices, under penalty of they being considered discriminatory and the employer being subject to the consequences established by MTP Ordinance 620/21. Any termination based on the lack of vaccination, even without cause, may be included in this case and, therefore, considered discriminatory for the purposes of the ordinance. For now, it is only possible to recommend that employees get vaccinated.

The full Portuguese version of MTP Ordinance 620/21 can be accessed at this link.

UPDATE - 19/11/2021

In a preliminary decision, Brazilian Supreme Court suspends restrictions imposed by MTP Ordinance 620/21

The Justice of the Brazilian Supreme Court (STF) Luís Roberto Barroso granted a preliminary decision last November 12^th to suspend the restrictions imposed by the Ministry of Labor and Social Security (MTP)’s Ordinance No. 620/21 in its article 1, caput and §§ 1st and 2nd; article 3, caput; and article 4, caput, items I and II. The Justice’s decision responds to lawsuits filed in the Supreme Court questioning the constitutionality of the restrictions imposed by the ordinance.

As we had anticipated above, the rules established by Ordinance No. 620/21 prohibiting employers from requiring proof of vaccination in the workplace were at odds with the recent decisions of the Brazilian Supreme Court involving the possibility of requiring vaccination. Nor were they in line with labor courts’ decisions that validated termination for cause of workers who refused to be vaccinated and with the understanding of the Public Labor Prosecutors’ Office on the subject.

Justice Barroso, however, determined that this preliminary decision does not apply to people who have an express medical contraindication to vaccination, provided that it is based on the National Vaccination Plan against COVID-19 or on scientific consensus. In this case, he considers it acceptable that immunization is not mandatory.

As the suspension of the articles mentioned in the ordinance was determined by the Justice in a preliminary decision, it still needs to be judged by Brazilian Supreme Court.

According to the Court’s schedule, the judgment session should take place between November 26^th and December 3^rd, 2021.

We will continue to follow developments of these topics and their potential consequences.

 UPDATE - 12/02/2021

Interruption of the judgment regarding Brazilian Supreme Court preliminary decision which suspends restrictions imposed by MTP Ordinance 620/21.

On December 2^nd, Justice Nunes Marques interrupted the virtual session of the judgment regarding the preliminary decision granted by Justice Luís Roberto Barroso, which suspended the restrictions imposed by the Ministry of Labor and Social Security (MTP)’s Ordinance No. 620/21, for the judgment to be done face to face and not virtually.

Up to now, four Supreme Court Justices have already voted and all of them were in favor of the suspension of the restrictions imposed by MTP Ordinance 620/2021.

We will continue to follow the developments regarding the reschedule of the judgement.

Category: Litigation

Sanctioned in August, Law No. 14,195/21 (Business Environment Act) brings expectation of debureaucratization for Brazilian companies and incentive to investments in Brasil. The text is the result of the conversion of Provisional Measure No. 1,040/21, edited by the federal government to improve the position currently occupied by the country - 124th place - in the Doing Business ranking of the World Bank.

Among the legislative changes of a corporate nature introduced by law, the most commented measure is the facilitation of the procedure for opening companies. One of the most relevant aspects of the legal text refers to the possibility of automatic issuance of operating licenses and permits (without human analysis) for medium risk activities, provided that the entrepreneur, partner or legal guardian of the company^[1] sign a term of science and responsibility.

Risk classification will consider specific state, district, and municipal laws. In the absence of legal rule, the definition will be based on the classification of the National Network for the Simplification of Registration and Legalization of Companies and Businesses (Redesim).^[2] In addition, the Business Environment Act provides for the waiver of firm recognition in acts filed in the commercial boards^[3] and prohibits, in the process of registering entrepreneurs carried out by Redesim, request data or information that is already in the federal government database.^[4]

The Business Environment Act also amends important aspects of Law No. 6,404/76 (Law of The S/A). The first amendment refers to the provision of plural voting for one or more classes of shares to allow non-majority shareholders to control the company.^[5] Such provision does not, however, apply to companies controlled directly or indirectly by the public authorities, public undertakings and mixed-economy companies and their subsidiaries. There was also increased protection for minority shareholders.

Through paragraphs I and II of paragraph 1 of Article 124 of the S/A Law, the new law changed the minimum deadlines for the convening of the general meeting of shareholders, which become:

• in the case of a closed company, 8 days in advance for the first call and 5 days in advance for the second call; and
• in the case of a publicly opened company, 21 days in advance for the first call and 8 days in advance for the second call.

Art. 124, paragraph 5, inc. I, it also provides that the Brazilian Securities and Exchange Commission (CVM) may, in a letter or at the request of any shareholder, and after hearing the company, determine the postponement of the general meeting for up to 30 days if the information provided is insufficient for resolution.

With the inclusion of item X in Article 122 of the S/A Law, it will be up to the general meeting of shareholders to decide on the conclusion of transactions with related parties, the disposal or contribution of assets to another company, if the value of the transaction corresponds to more than 50% of the value of the total assets of the company indicated in the last approved balance sheet.

In relation to publicly held companies, paragraphs 3⁰ and 4⁰ article 138 of the S/A Act, prohibiting the accumulation of the positions of chairman of the board of directors and the position of Chief Executive Officer or Chief Executive Officer of the Company^[6] and enabling CVM to exceptionalthis rule for publicly held companies with "smaller" companies, based on the terms of its regulations.

In addition, the Business Environment Act inserted paragraph 2⁰ article 140 of the S/A Law, through which it made it mandatory for publicly held companies to participate independent directors, in the terms and deadlines to be defined by cvm. This rule was already observed as a good practice of corporate governance but became legally enforceable under the new law.

In an attempt to boost tax collection, the original text sent to sanction the President of the Republic provided for the extinction of simple societies in the Brazilian legal system – a topic of intense debate in the legal community. However, the provision was vetoed^[7] by the President of the Republic, a decision celebrated by several entities – especially those linked to liberal professionals.

Despite this veto, the president sanctioned the extinction of individual limited liability company (Eireli), which was expected, given that, even before the creation of the single-person limited company format, established by the Federal Law No. 13,874/19 (Economic Freedom Law)^[8], the Eireli format was already in disuse.

The new law should not be fully capable of producing immediate practical effects, since certain aspects depend on specific regulations and ordinances of the responsible bodies. In any case, the text represents an important step towards the resumption of economic activity in Brazil, fostering entrepreneurship by promoting the debureaucratization of procedures and incorporating values introduced by the Economic Freedom Act of 2019.

^[1] Art. 6a, Caput and §1 of Law No. 11,598/07.

^[2] Art. 5a, Caput law no. 11,598/07.

^[3] Art. 63 of Law No. 8,934/94.

^[4] Art. 11-A of Law No. 11,598/07.

^[5] Art. 16 c/c 110-A of Law No. 6,404/76.

^[6] This forecast will only take effect within 360 days of 08/27/2021.

^[7]According to the veto message, the device contradicts public interests by profound changes in the corporate regime, subjecting a significant portion of the economically active population to unwanted tax reflexes in municipal laws and adaptation costs.

^[8] Civil Code: "Art. 1,052. In the limited company, the liability of each partner is restricted to the value of their shares, but all are jointly and severally liable for the payment of the share capital.

• 1 - The limited company may consist of one (1) or more persons."

Category: Labor and employment

The Minister of the Supreme Federal Court (STF) Gilmar Mendes dismissed an extraordinary appeal (1160361), on September 14, to reform the decision given by the Labor Court for the execution of a company, without it having participated in the phase of knowledge of the action.

The process included the company in the passive pole for alleged formation of an economic group, only in the labor execution phase. According to the company's defense, it did not have the opportunity to participate in the knowledge phase, which would have impaired the production of evidence, in addition to confronting the guarantee of constitutional principles – such as due process, contradictory and broad defense – and violating the article. 5, II, XXXV, LIV and LV, of the Federal Constitution (CF).

Despite the argument of the defense, the Superior Labor Court (TST) held that there is no affront to the constitutional articles relied on, justifying that the cancellation of Summary 205^[1] that court would supposedly allow the inclusion of third parties in the execution phase.

Faced with the negative decision, the company brought an extraordinary appeal to the Supreme Court, which was accepted on the basis of Article 97 of the CF^[2] and in Binding Summary 10 of the Supreme Court.

In his decision, Minister Gilmar Mendes founded that, with the 2015 Code of Civil Procedure (CPC), "deserves to revisit the jurisprudential guidance of the the quo in the sense of the feasibility of promoting execution in the face of execution that did not integrate the procedural relationship in the knowledge phase, only because it integrates the same economic group for labor purposes".

For Minister Gilmar Mendes, even with the cancellation of Summary 205 of the TST, according to Article 513, §5 of the CPC, the company, even belonging to the same economic group, could only participate in the execution phase and suffer constriction of assets and block of values, if it had participated in all moments of the process,  since the article expressly provides that compliance with the judgment cannot be promoted if the guarantor, co-obliged or responsible has not participated in the knowledge phase.

According to the Supreme Court, following the plenary reservation clause, the TST could not disregard Article 513, §5, of the CPC, but declare it unconstitutional or respect it.

The theme is also addressed in the Fundamental Precept Non-Compliance (ADPF) No. 488, through which the National Transport Confederation (CNT) questions acts carried out by courts and judges of work that include individuals or legal entities only in the execution phase, without them having participated in the phase of knowledge – a situation similar to that of the 1160361.

At ADPF, still in procedure in the Supreme Court, the CNT maintains that the inclusion in the knowledge phase, in addition to not being provided for in the legal system, restricts the principles of contradictory, broad defense and due process, harming those who seek to prove that they do not participate in economic groups.

This is because the procedural and recursive characteristics of the labor execution phase restrict the right of defense, especially in the higher courts, such as the TST, because in them only constitutional matters can be discussed, which affects the interest of the party who did not participate in the knowledge phase of the process.

Some Regional Labor Courts (TRT) have rejected the defendant's insertion not included in the judicial title in the passive pole of action based on the aforementioned violations.^[3] However, it is noted that there is still great resistance from TRTs and the TST itself, which makes clear the legal uncertainty for the whole business community. However, although the recent Supreme Court decision was delivered in a monocratic manner, the positioning should impact labor executions substantially.

^[1] Summary no. 205 of the TST. ECONOMIC GROUP. EXECUTION. SOLIDARITY (cancelled) - Res. 121/2003, DJ 19, 20 and 21.11.2003. The sympathetic person, a member of the economic group, who did not participate in the procedural relationship as claimed and who, therefore, is not included in the judicial enforcement order as a debtor, cannot be a taxable person in the execution.

^[2] Art. 97. Only by the vote of the absolute majority of its members or members of the respective special body may the courts declare the unconstitutionality of law or normative act of the Public Power.

^[3] ECONOMIC GROUP. SINGLE EMPLOYER. INCLUSION OF A COMPANY THAT WAS NOT INCLUDED IN THE EXECUTIVE ORDER. IMPOSSIBILITY. A company that is part of an economic group that did not participate in the knowledge phase and was therefore not the judicial executive title cannot be held responsible for the payment of labor claims, under penalty of affront to the constitutional principles of due process and broad defense. The thesis of the single employer or dual responsibility - according to which all members of the economic group are employers - gives guarantees to the worker, but does not authorize the subversion of constitutional guarantees inherent in the conduct of the judicial process. This is because the "single employer" derives from the construction of the doctrine that did not intend, with the use of this expression, to disregard the individuality of each of the companies that are members of the economic group, but only to give them solidarity for the effects of the employment relationship. (TRT-12 - AP: 00025178720105120027 SC 0002517-87.2010.5.12.0027, Rapporteur: HELIO BASTIDA LOPES, SECRETARIAT OF THE 2A CLASS, Publication Date: 11/03/2016)

Category: Environmental

The growing concern about climate change and the intensification of discussions on the subject are increasingly impacting the country, both in the proposition of new standards involving environmental issues and in the enforcement of existing provisions. In addition, there is a constant demand for strengthening environmental by stakeholders, mainly with regard to the disclosure of information relating to the impacts of companies’ activities on climate issues.

According to the report United in Science 2021, published by the World Meteorological Organization (WMO), the period between 2011 and 2020 was considered the warmest ever to be disclosed in the reports. The Secretary-General of the United Nations (UN) also recently emphasized the urgent need to reduce air emissions and actions to protect world population from the negative effects of climate change. This increases the pressure on the various sectors of society to strengthen their sustainable policies in order to reduce the global risks that such changes may provoke. Such idea is even more relevant considering the rise of initiatives related to the adoption of concrete measures derived from ESG policies (environmental, social and governance).

In 2020, for example, there was the proposition of Bill No. 3,961/20 (PL), which, if approved, would place Brazil in a state of climate emergency, until the situation is circumvented and actions to reduce the impact of human activity on climate are no longer urgent.

Among the devices proposed in the PL, the following stand out:

• prohibition of relocation by the Brazilian government, during the emergency situation, of budgetary resources intended for environmental protection, the fight against deforestation and the reversal of climate change for other purposes;
• preparation of the National Plan for Response to Climate Emergency; and
• conclusion of the complete transition to a sustainable and carbon-neutral socio-environmental economy model by 2050.

The PL is in progress before the Chamber of Deputies and currently awaits the opinion of the rapporteur in the Committee on Environment and Sustainable Development, which will be decisive for the evolution of discussions on the subject in the house.

Although the PL is a very relevant innovation regarding climate change, the theme is already regulated, at the federal level, by Federal Law No. 12,187/09 (National Climate Change Policy - PNMC) and Federal Decree No. 7,390/10. Both provisions regulate Brazil's commitment to the United Nations Framework Convention on Climate Change to reduce greenhouse gas emissions. However, although it has been an important step towards regulating climate issues, the PNMC still demands additional standardization for effective structuring of climate governance. It is necessary to establish instruments for the country to implement mitigation and adaptation actions and means for their enforcement as provided for in Nationally Determined Contributions (NDCs).

Also at the federal level, the Central Bank of Brazil (BCB) has recently published several acts that detail and strengthen existing regulations on the management and disclosure of climate risks applicable to financial institutions. One example is Resolution of the National Monetary Council (CMN) No. 4,943/21, which sets forth obligations for financial institutions to identify, measure, evaluate, monitor, report, control and mitigate the adverse effects of climate change relating to their activities. To implement such climate risk management measures,^[1] institutions should adopt, in summary, mechanisms to identify and monitor the risks arising from their products, services, activities or processes, as well as their suppliers and controlled entities.

Another interesting innovation brought by the resolution is the obligation to identify, in a timely manner, possible political, legal, regulatory, technological or market changes, including significant changes in consumption preferences, which may significantly affect the climate risk incurred by the institution, and to inform which procedures can be adopted to mitigate it.

BCB Resolution No. 139/21, in turn, provides for the disclosure of the Social, Environmental and Climate Risks and Opportunities Report, allowing the investor to analyze, in an integrated manner, and based on the same criteria, risks and business opportunities offered by each institution.

Regulations on the subject may be considered incipient, but we have seen very innovative decisions by the courts, which have been incorporating legal guidelines related to climate issues into their decisions. An example is the recent decision rendered in the context of a public civil action^[2] filed by institutions and associations representing the residents of the Municipality of Nova Seival^[3], in the State of Rio Grande do Sul. The Court determined, on August 31, 2021, that the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) shall include analyses related to climate change in the Reference Terms (TRs)^[4] that support the environmental licensing procedure of thermal power plants located in the state of Rio Grande do Sul.

In the referred case, the associations discuss the validity of the environmental licensing of a project involving the construction of the largest thermal power plant in the state, based on allegations that the federal environmental agency responsible for licensing, IBAMA, would have failed to provide the necessary publicity to public hearings that would be held as a requirement for issuance of the environmental license of the enterprise, and that there were gaps in the Environmental Impact Study (EIA) and its Environmental Impact Report (RIMA) (together EIA/RIMA) presented by the entrepreneur to support the environmental licensing. These flaws, in the associations' view, should be addressed in so that the licensing process could progress. Amongst the gaps pointed out by the authors of the action, we highlight the absence of a Health Impact Assessment (HIA) and information on the contribution of greenhouse gas emissions arising from the operation of the plant, as well as an analysis of its impact regarding the achievement of the Brazilian goals undertaken in the Paris Agreement.^[5]

Based on the technical opinions submitted by the associations, the Court stated that the activity would present relevant risks to the environment and to the region’s community. Thus, based on provisions of the PNMC and State Law No. 13,594/10, which created the Gaucho Policy on Climate Change, the judge determined that the TRs involving environmental licensing of thermal power plants include guidelines on climate change, mainly with regard to the need of conducting a strategic environmental assessment, in accordance with art. 9 of the state law in question, and the inclusion of an analysis of the risks posed to human health.

Thus, even if there is still a long way to go, the progressive increase in initiatives is noticeable, including judicial claims, regarding climate risks and their respective management. They are mainly driven by the growing discussion on the subject and the eagerness for the incorporation of ESG criteria in the corporate and regulatory spheres.

^[1] CMN Resolution No. 4943/2021 defines climate risk, in its transition risk and physical risk aspects, as:

"I. Climate risk of transition: the possibility of losses to the institution caused by events associated with the transition process to a low-carbon economy, in which greenhouse gas emissions are reduced or compensated and the natural mechanisms for capturing these gases are preserved; and

II - Physical climatic risk: possibility of occurrence of losses to the institution caused by events associated with frequent and severe weather or long-term environmental changes, which may be related to changes in weather patterns."

^[2] Public Civil Action No. 5030786-95.2021.4.04.7100/RS, filed before the 9th Federal Court of Porto Alegre - Judicial Section of Rio Grande do Sul.

^[3] The institutions and associations are: Gaucho Association for the Protection of the Natural Environment (Agapan); Gaucho Institute of Environmental Studies (Ingá); Preserve Institute; Cooperativa Agroecológica Nacional Terra e Vida Ltda. (Coonaterra-Bionatur); and Center for Popular Education and Agroecology (Ceppa).

^[4] The TR is the document issued by the licensing authority, in which methodological guidelines are indicated to orientate the preparation of the EIA/Rima. The EIA/Rima is necessary to evaluate the environmental feasibility of projects with significant polluting potential. We highlight the need to include in the EIA/RIMA the indication of which measures will be implemented to eliminate, mitigate or compensate for the negative impacts arising from the operation of the enterprise.

^[5] All signatory countries to the agreement have assumed the obligation to submit NDCs, which can be defined briefly as voluntary commitments to collaborate with the global goal of reducing atmospheric emissions to mitigate the effects of climate change. The Brazilian government presented its new NDCs by 2020 and has committed to reducing domestic greenhouse gas emissions by 37% by 2025 and by 43% by 2030, in addition to neutralizing them by 2060. More recently, during the Climate Leaders Summit, Brazil indicated that climate neutrality would be achieved by 2050.

Category: Tax

Since the general repercussion became a requirement for admission of extraordinary appeals in the Supreme Court (STF), this type of appeal has been paving the way for questions of great national interest to reach the Court and affect a significant number of interested parties.

The introduction of the requirement also highlighted the role of the Supreme Court as a constitutional court. It happens that, once the general repercussion of a matter is recognized, the analysis of the theme of the judgment of the specific process suffers a shift. First of all, the Supreme Court takes the decision on the constitutional subject of general repercussion without limiting itself to the grounds set out in the apeal. The court may receive contributions from representative entities (amici curiae) with notorious knowledge on the subject and, after, apply the understanding to solve the individual process.

This new model of trials related to topics of great interest bears similarity with abstract and concentrated control of constitutionality. Only after the end of this phase, the solution will be applied to the specific case that allowed the arrival of the matter to the Supreme Court.

The underlying effects of decisions given under this system are binding for all courts. After the court of second degree applies the decision, will not be accepted an extraordinary appeal, being possible the handling of complaint against the decision of the court of 2nd degree (provided that exhausted the ordinary instance) that does not apply the position established by the Supreme Court in the general repercussion.

It is even possible to see an important change related to the constitutionality control exercised by the Supreme Court in recent years. Decisions given in the trial of subjective processes, but according to the regime of general repercussion, begin to have an effect similar to those originated from abstract and concentrated control.

This new way of looking at the role of the constitutional court stems from the attribution of the so-called transcendent effect to supreme court decisions in control of diffuse constitutionality, especially when marked by abstractivization.

The manifestations of the Supreme Court are of interest to the entire collective and significantly impact in society, which is why the effects are usually considered in decisions.

The Supreme Court does not act in an airtight manner or even without considering the events that occurred in society – although it is frequent to try to refute this statement – especially because, when interpreting the constitutional provisions applicable to the cases under its assessment, the conceptions that prevail at that time are taken as premises.

However, claiming the influence of extralegal factors in the application of law requires some care, otherwise the Judiciary takes on a typical function of the Legislative Power.

In relation to the control of constitutionality of laws that create or modify the rule of a tax, the argument that the declaration of unconstitutionality may have a relevant impact on public accounts and compromise the federative person's ability to continue activities of interest to the population is often raised (sometimes even hidden).

This extralegal argument cannot serve as a reference for the exercise of constitutionality control, much less as a justification for recognizing the validity of a law that creates or modifies the legislation of a tax.

With the edition of the Code of Civil Procedure (CPC) of 2015, article 927, § 3, was introduced, which contains a wording similar to article 27 of Law No. 9,868/99, which authorizes the Supreme Court and other higher courts to modulate the effects of their decisions, provided that there is a modification of its case law or in trial of repetitive appeals. The justification for modulating the effects should be social interest and legal certainty.

The point of attention is the existence of an understanding with broad scope and whose modification may affect a significant number of legal relations. For this reason, the effects of the decision are allowed to be calibrated, with the establishment of a specific moment from which the interpretation conferred should be observed.

The possibility of changing the interpretation of legal provisions is the result of the very dynamics of the rule of law and reflects the changes, in various ways, that occur in society and influence the applicators of law.

The search for legal certainty requires that acts consolidated and concluded in the past in line with the prevailing orientation at that moment must be protected and shielded against revision or reform based on supervenient interpretation.

Due to a scenario marked by changes in interpretation, legal certainty as a value to be achieved presupposes the establishment of beacons and criteria that protect the administered who act in moderation, following guidelines provided by the Administration itself or even precedents emanating from the Judiciary.

It cannot be accepted that a predominant interpretation in a given period is used as a basis for the revision and/or reform of an act performed many years earlier, when the orientation was different. This is the concept of legal certainty which we advocate and on the basis of which we believe that the modulation of the effects of decisions amending dominant case law should be based.

The consequence of the modification of the dominant case-law is seen, by positive law itself, as a factor authorising the limitation of its effects. And what would that be? The disregard of many legal acts implemented under the then dominant orientation, forcing the return to the previous situation. In the case of the tax liability, it is the possibility of repaying amounts paid improperly or even the collection of amounts not paid in due course.

By authorising the effects of the decision to be limited and avoided the consequences of the undoing of acts carried out in accordance with the guidance of the higher courts, law recognises that, exceptionally, extralegal factors may be invoked as the basis for a given decision.

The alternative requirement to allow the modulation of the effects of decisions is the social interest. Once again, the consequences of the decision for society may be used as a reason for limiting the effects of the judicial pronouncement.

The argument often invoked as the basis for requests for limitation of the effects of a decision that recognizes the unconstitutionality of the device that creates or modifies the rule of a particular tax – harmful impact on the public coffers – cannot be accepted, if solely taken. Social interest is not confused with the interest of the tax administration.

The assumptions that lead to consider possible effects of the decision in society as an extralegal justification to limit the effects of the decision are put by law and should be observed.

As this is an exception accepted by law, it is essential that the modulation of the effects of judicial decision-making on the basis of extralegal grounds be adopted sparingly. It should only occur when the authorizer requirements are present.

Category: Tax

With the publication of Decrees Nos. 47,767/21 and 47,768/21 on September 21, the State of Rio de Janeiro regulated, respectively, Laws Nos. 9,214/21 and 9,289/21, which define special tax treatment for thermoelectric projects in its territory.

Law No. 9,214/21, regulated by Decree No. 47,767/2021, establishes the following tax treatments:

• ICMS deferral on the following transactions carried out by the project owner or by companies that may be formally hired or subcontracted to build the power plants:
  • Import of machinery, equipment, parts, pieces, and accessories for the installation of the venture, provided that they are imported and cleared through Rio de Janeiro's ports and airports;
  • Internal acquisition of machinery, equipment, parts, pieces, and accessories intended for the installation of the venture;
  • Interstate acquisition of machinery, equipment, parts, pieces, and accessories intended for the installation of the venture, with regard to the tax rate differential.
• Exemption from ICMS on imports of natural gas, even if liquefied, to be used in its thermoelectric power generation process.

In turn, Law No. 9,289/21, regulated by Decree No. 47,768/2021, grants:

• ICMS deferral in the successive internal operations with natural gas produced in the state to be consumed in thermoelectric power plants to the time when the electric power leaves that establishment;
• Deferral of the ICMS tax on services rendered for the transportation of natural gas produced in the state to be consumed in thermoelectric power plants to the time when the electric power leaves that establishment; and
• Exemption from the collection of the deferred tax in the event of interstate transactions with electricity.

The special tax treatments will be in force for the term of the energy auction contract expired by the applicant or by December 31, 2032, whichever occurs first.

The decrees establish that taxpayers wishing to adhere to the special tax treatment must file a request for classification with the State Treasury Department (Sefaz).

In order to apply for this tax treatment, the company or consortium must prove that it has won an energy auction held in 2021 or, in the specific case of Decree No. 47,767/21, prove that it has obtained a prior environmental license for the power plant project already installed or to be installed in the state.

Companies must support the application with all documents and information listed in the exhibits to the decrees (which include negative clearance certificates, investment forecasts, income statements, among other documents), as well as additional documents demonstrating the good standing of the company/consortium, in accordance with the requirements set forth in article 9 of Decree No. 47,201/20.

As a condition for using the special tax treatment under Laws Nos. 9,214/2021 and 9,289/2021, the decrees state that companies and consortia must commit to investing at least 2% of the variable cost relating to natural gas, calculated each year, in power generation projects using renewable sources or, optionally, in energy conservation projects or studies on the energy sector, in accordance with the specifications set forth in the laws and provided they are in the interest of the State of Rio de Janeiro.

These investments must be made in projects expressly indicated by the State Bureau of Economic Development, Energy, and International Relations (Sedeeri) or in other projects presented by the company/consortium previously approved by the bureau.

The use of funds will be monitored and inspected by Sefaz, which may require proof of investments made and the appropriate documents in determining the amounts invested.

Specifically in relation to Decree No. 47,767/21, it is hereby established that:

• once the application for classification is granted, an accession instrument will be signed between the company and the state, which will confirm the right to enjoy the benefits provided for in the decrees; and
• if the application is denied, the applicant company may, within 30 days, appeal to the State Bureau of Finance, who shall have 45 days to render an unappealable decision on the matter.

Sefaz will annually publish information related to the decrees, including the taxpayers benefited by the tax incentives.

The decrees prohibit the adoption of special tax treatment for taxpayers who:

• have an irregular tax registration with the state of Rio de Janeiro;
• have a debt with the state treasury, except when the enforceability is suspended;
• hold a stake or have a partner that holds a stake in a company with debt registered in the Outstanding Debt of Rio de Janeiro or with a state registration canceled or suspended due to tax irregularity, except when the enforceability is suspended;
• are in an irregular situation or in breach of tax debt installment payments;
• are in breach of the environmental good standing certificate or do not have one;
• are not in good standing with the FGTS or do not have a Labor Clearance Certificate (CNDT);
• are registered in the Registry of Employers who have submitted workers to conditions analogous to slave labor.

The decrees further establish that taxpayers that fail to comply with the conditions will lose their right to the special tax treatment, in which case they will have to collect the ICMS due for the transactions they would carry out and reverse any credits generated during the transaction.

Category: Infrastructure and energy

With the progress of vaccination and gradual reopening of borders, the aviation sector is beginning to show signs of recovery. In Brazil, the federal government's plan to grant the operation of federal airports to the private sector is following the originally planned schedule. The National Civil Aviation Agency (Anac) approved on September 21 the drafts of the notice and concession contract for the 7th round of airport concessions. The documents will be available for public consultation between September 23 and November 8, 2021, during which time the company and regulated agents may send contributions through a specific electronic form, available on Anac's official website. The date for the public hearing has not yet been released.

Following the same model adopted in the 5th and 6th rounds, the government opted to grant the airports in blocks. This division aims to group together loss-making and surplus-generating airports, improving the attractiveness of the assets to maximize revenue and prevent airports with low traffic and profitability from being left without bidders. Sixteen airports located in the North, Southeast, and Center-West regions will be part of the 7th round. The division will be in three blocks, headed by the airports of Congonhas/SP, Santos Dumont/RJ, and Belém/PA.

The SP/MS/PA block will be composed of the airports of Congonhas/SP, Campo de Marte/SP, Campo Grande/MS, Ponta Porã/MS, Santarém/PA, Marabá/PA, Parauapebas/PA, and Altamira/PA. The minimum initial contribution provided for in the current draft is R$ 487 million. The RJ/MG block will be composed of the airports of Santos Dumont/RJ, Jacarepaguá/RJ, Montes Claros/MG, Uberlândia/MG, and Uberaba/MG, and the minimum initial contribution is R$ 355.2 million. The North block will be composed of the airports of Belém/PA and Macapá/AP, and the minimum contribution currently stipulated is R$ 55.5 million. It is expected that approximately R$ 8.8 billion will be invested over the 30-year concession period.

In addition to the initial contribution to be paid within 15 calendar days from the signing of the concession contract, the winning bidders will also pay variable contributions. These amounts will correspond to the annual amount in Brazilian Reais resulting from the application of a tax rate on the total gross revenue of the concessionaire (and any wholly owned subsidiaries) earned in the year prior to the payment. The first variable contribution will be due as of the fifth full year of the concession, with the following percentages being applied:

RJ/MG Block

North Block

SP/MS/PA Block

Brazilian or foreign legal entities, supplementary pension entities, and investment funds, alone or in a consortium, may participate in the bidding. It is forbidden for a legal entity (or its subsidiaries and parent companies) to participate in more than one consortium to submit a bid for the same block.

The possibility of hiring an expert witness, a new feature introduced during Round 6, was retained. Thus, the bidder that does not have the technical experience required by the call notice shall submit a commitment to hire an expert witness confirming that, if declared the winner, it will demonstrate its qualification through an expert witness contract to be signed with an airport operator that meets the requirements of the call notice. For technical qualification purposes, evidence will be required that the airport operator has processed, in at least one of the last five years:

• 5 million passengers for the RJ/MG and SP/MS/PA blocks; and
• 1 million passengers for the North block.

Congonhas and Santos Dumont airports are among the main Brazilian airports. The location of both in the country's two largest economic hubs raises the federal government's expectation of tax revenue.

Although the pandemic has drastically affected aviation and boosted the use of videoconferencing platforms to avoid travel, Congonhas and Santos Dumont remain attractive assets with the potential to generate intense competition among investors.

Category: Banking, insurance and finance

The subject of a public hearing between December of 2020 and April of this year, the new regulatory framework for investment funds in Brazil will implement the innovations brought in by the Economic Freedom Law (Law No. 13,874/19), modernizing the regulation of the industry and bringing the local market closer to the best international practices.

The resolution by the Brazilian Securities and Exchange Commission (CVM) on the subject, which is about to be published, brings in common rules for all investment funds and proposes others specific to certain categories of funds: initially, the financial investment fund (new nomenclature for funds focused on investments in stocks, foreign exchange, multimarket, and fixed income) and the credit rights investment fund (FIDC).

Among the innovations in the regulations of the FiDC, the possibility of labeling it as social and environmental stands out, as long as it invests preponderantly in credit rights arising from activities that generate social and environmental benefits. The origin of these benefits also needs to be verified by a second opinion report or through certification, in both cases based on methodologies internationally recognized for this purpose.

The requirement for an external opinion or certification on the classification of the FIDC quotas as social and environmental is aligned with the guidelines for the issuance of environmental bonds (green bonds) and social bonds (social bonds) issued by the Climate Bond Initiative and the International Capital Market Association, respectively. Both are best practice manuals adopted by the international market in this area and used by second opinion and/or certification entities to support their opinions. The objective of the insertion of requirements for the use of social and environmental labeling is to provide investors with greater security in relation to the externalities of their investment, through independent verification linked to international standards.

The requirement is necessary in view of the risk of creating social and environmental assets without clear criteria, the much feared greenwashing, due to growing investor interest in assets related to environmental, social, and governance (ESG) factors.

The CVM justified the labeling of a fund as social and environmental, targeting the fostering of the green bond market, to encourage managers of projects that offer social and environmental benefits to seek them out.

However, this labelling has the potential to also promote impact businesses, those that are profit-driven and have a mission to solve social and/or environmental problems, with a commitment to monitor their impact and financial performance.

Green bonds are issued in the capital market, the funds of which are used in projects with positive environmental aspects, which substantially contribute to the low carbon economy (such as wind power plants and solar energy generation), or projects currently with high emissions, but which are important for the migration from a high to low carbon economy, through the adoption of more sustainable practices (agricultural or transportation sectors).

Securitization of social and environmental receivables is a great opportunity for impact businesses to finance themselves, proliferate, and scale their operations.

The proposed regulation does not make it clear whether it would be possible to create FIDCs focused on exclusively environmental or exclusively social receivables. The text should be more generic in expressly including the possibility that the Social and environmental FIDC acquiring credit rights of an exclusively social, exclusively environmental, or exclusively social and environmental nature in order to cover all the activities conducted by impact businesses.

According to a recent report published by Social Progress Imperative, if we continue on current trends, the UN's 17 sustainable development goals, the 2030 Agenda, would only be achieved in 2082 (2092, considering the effects of the pandemic). Impact business is an important tool to accelerate this process.

The increased supply of financial products aimed at the low carbon economy and impact businesses contributes to the growth of the sector and, consequently, to addressing the social and environmental challenges of Brazil.

Category: M&A and private equity

The Covid-19 pandemic has caused an expected impact on M&A transactions during 2020. Despite the relative uncertainty regarding the extent of the pandemic and its effects in 2021, a strong recovery in transactional activities and, in particular, in M&A transactions has been observed since the end of last year: from a total of 615^[1] transactions in the first half of 2020, the M&A sector recorded a total of 916 transactions in the same period of 2021, an increase of 48%.

This increase has been supported by an increase in various M&A modalities, whether via direct foreign investments, acquisitions by private equity funds, or bilateral operations between Brazilian companies (many of them capitalized by recently completed IPOs) that seek to consolidate their market position via acquisitions. The healthcare, retail, real estate, and education sectors have been some of the most active, but the technology sector continues to lead in number of transactions and amounts involved, bringing in some innovation for the usually rigid M&A contracts.

Among the technology companies that have attracted the attention of investors are SaaS (Software as a Service), e-commerce companies, information technology, big data, artificial intelligence, and "tech" companies in general (fintechs, proptechs, insurtechs, techfins, among others). This attractiveness is due to various vectors: digital transformation of life in general, greater scalability and density in the consumer market, less dependence on the public sector, potential for higher margins, and a "buyer's market" for investors who want to dispose of their assets.

From the point of view of innovation in operating structures, it is worth mentioning the dynamism that business in the technology sector has imposed on market players. It is not uncommon for investors in the sector to adopt an approach very similar to that of aggressive venture capital funds, even if the asset in question is not necessarily embryonic: due diligence of reduced scope, limited indemnity and, sometimes, structuring of the transaction via an offshore holding company, with the adoption of standardized contracts (either the purchase and sale agreement or the shareholders' agreement), all in preparation for new funding rounds for the target asset, or even a possible IPO in possibly more liquid markets.

Even with this dynamism, however, issues such as compliance with the General Data Protection Law are always a major point of attention for transactions in the sector, given the access that technology companies generally have to the personal data of a large number of users.

Audits focused on verifying compliance with the law and on whether the company adopts programs and codes for its employees have been increasingly frequent. The question is whether the new molds for transactions involving technology companies will impose themselves on more traditional M&As as well.

^[1] https://blog.ttrecord.com/informe-mensal-brasil-2t-2021/