Category: Tax

Leonardo Martins and Matheus Caldas Cruz

By means of State Law No. 9,041/20, published on October 5, the State of Rio de Janeiro authorized reduction of the ICMS tax basis on domestic operations with marine diesel fuel, to be consumed, moreover, by vessels intended for oil and natural gas exploration, extraction, or production activities. With the change, which internalizes ICMS Agreement No. 51/20, entered into by the National Finance Policy Board (Confaz), the tax collected will be equivalent to 4.5% of the value of the transaction.

The state law also provides for a reduction of up to 90% in interest and fines on overdue tax debts arising from levies or disallowances of tax credits for taxpayers performing the economic activities of oil and natural gas extraction and natural gas processing (CNAE codes 0600-0/01 and 3520-4/01) and manufacture of oil refining products (code 1921-7/00), whether or not entered or enrolled as outstanding debt, including those filed with respect to triggering events occurring up to September 30, 2020.

In order to enjoy special payment conditions, a Tax Conduct Consent Order (TACT) must be entered into, which will suspend enforceability of the tax debts covered and must be submitted by taxpayers opting in by December 7, 2020, in addition to complying with the other conditions that may be established by decree.

The debt may be settled in cash, within 15 days from the date of execution of the TACT, or in installments, with the first installment corresponding to at least 50% of the total value of the debt and the last payment made by December 15, 2020.

For cases in which there is ongoing litigation in the administrative or judicial sphere, the taxpayer must, by the date of execution of the TACT, expressly, irrevocably, and irreversibly formalize the waiver of the right on which objections, actions, or appeals relating to the tax debts covered are based. It is forbidden to use the amount of the judicial deposit for payment of the debt, since the guarantees presented in court can only be withdrawn after effective liquidation of the debt.

In the event of non-payment of the initial tranche, all debts must be demanded immediately. In the event of default for more than 30 days for any of the installments after the initial one, the benefits provided for will be immediately cancelled and the remaining balance will be calculated with the application of a fine and other legal accruals, less the installments paid.

The payments made with the reduction benefits provided for in Law No. 9,041/20 do not allow taxpayers to take advantage of any ICMS credits and also do not entail any ancillary obligations other than those expressly provided for in the law or in the TACT.

The discounts on default surcharges granted by the government of Rio de Janeiro are in line with initiatives taken by public revenue agencies with the purpose of raising cash and reducing their stocks of outstanding debt. For taxpayers, this movement represents an opportunity to reduce their tax exposure, using a significant financial discount, in a prolonged period of economic downturn.

Category: Litigation

More than an article, this text is testimony to the success of a crisis management that has as one of its relevant pillars the appreciation of diversity. We, the authors, were fortunate to be involved from the very beginning in an important, challenging. and emblematic case of our firm, related to the crisis management of one of our clients. First of all, we are privileged to be part of a firm that brings diversity and inclusion into its culture. For this reason, we feel extremely comfortable and encouraged to include in the development of our work all the values, experiences, and perceptions arising from our diverse characteristics. In our case, in particular, these characteristics are related to race, sexual orientation, and gender.

In general terms, the project involved putting into operation, in record time, a program for extrajudicial compensation linked to an event that reached a large number of people.

Given the start of the project, the typical challenges of a crisis scenario came about, which are always great, urgent, and, even with much preparation and organization, bring about many uncertainties which the organization needs to handle. We already knew that it would be essential to have a qualified team to handle the claims that would come. And since the issues that would appear to be resolved in relation to the different stakeholders involved were diverse and complex, it was essential to have an equally diverse team to handle them.

We believe that embracing diversity is the premise of successful teamwork. After all, if team members need each other to develop their work and achieve better results, it is valuable that they bring to the group multicultural contexts and diverse skills and knowledge.

A diverse team, that is, one made up of groups traditionally seen in the corporate environment and other social minority groups such as women, blacks, LGBTQ+ and people with disabilities, allows for the potential of pluralities to break paradigms. It was therefore one of the most relevant factors for the success of our crisis management that we supported ourselves and, in doing so, fostered a stimulating and welcoming environment so that everyone felt more engaged and motivated to carry out their activities and tasks, and thus extract their full potential for high performance.

It was possible to incorporate all this richness and multiplicity of values, experiences, challenges, successes, and even failures, of each one to the team work, potentiating the set of skills and, above all, creative solutions of the team. Specifically in a crisis management, it is necessary to anticipate demands, to meet the expectations of different people, to interpret the diversity existing in society, all this in an agile and efficient manner. In this context, non-traditional problem-solving methods are great allies as they provide greater adaptability, flexibility, resilience, and antifragility.

Now, uniting diversity with non-traditional management we have developed tools to enable high critical thinking, complex problem solving, and optimization of results. Combining this with a management that sought to create and maintain an environment of psychological safety, so that all team members could stimulate their creativity, autonomy, intrinsic motivation, risk taking, innovation, critical thinking, connection, and collaboration, without using their mental efforts to protect themselves, the result was high efficiency of the team.

At the end of the first year of the program, still in progress, it was possible to achieve all the goals set by the client efficiently, generating the legal protection necessary and meeting all the project's governance issues, as well as its social, economic, and humanitarian aspects.

This kind of approach, in an environment that embraces diversity in an open way and encourages equality between people and freedom of thought, usually yields great discussions and brings about creative and well-targeted solutions. In a crisis, this is an important differential in achieving better results. Turning it into an opportunity by managing it effectively, especially from a legal point of view, means reviewing traditional views and practices and welcoming diversity.

The search for creative, agile, and collaborative solutions finds fertile ground in a diverse team. Therefore, companies based on a culture of trust, collaboration, and inclusion, in which everyone feels represented, are those that achieve the best ideas and solutions, even in the face of a crisis. And this is how it is in our firm. And so we perform crisis management in our project with a high level of performance.

Category: M&A and private equity

Near the end of the third quarter and after almost six months of social distancing, it is already possible to identify, at least on a preliminary basis, some of the impacts caused by the covid-19 pandemic in the practice of mergers and acquisitions.

Until the end of May, practically all transactions were suspended due to a lack of vision regarding the progression of the coronavirus and its social and economic impacts, but now the M&A market is following the capital market and is already beginning to show a strong movement towards recovery still amidst uncertainties regarding the pandemic.

Mergers and acquisitions in figures

April showed the largest decline in transactions announced, according to the latest data from the Transaction Impact Monitor, published by the Transactional Track Record. May and June followed with low numbers, and July registered the highest number of transactions in the year. In consolidated data for 2020, the approximately 750 M&A transactions announced in Brazil up to and including August represent a drop of 18% compared to the same period in 2019.

The industry with the highest number of transactions was technology, followed by finance and insurance. These data indicate that most of the transactions that had been suspended were resumed at an accelerated pace. This goes against initial expectations that M&E transactions during the pandemic would focus on distressed assets and indicates that market players are aware of assets that represent high potential for appreciation due to new trends in behavior and social organization during and after the pandemic.

New developments

While market players continue to seek business opportunities in the face of the new conditions imposed by the pandemic, a partial and preliminary assessment of new developments in the practice of mergers and acquisitions that occurred in the negotiations during the pandemic should be conducted.

• Due diligence: from the point of view of contingency mapping, the pandemic has affected economic players in different ways, making it difficult to analyze and draw conclusions that can be applied generally to all businesses.

In this context, attention has been redoubled. The buyers' advisors reviewed their standard due diligence request lists to include questions regarding the impacts of the pandemic on the activities, sales, expansion, contracts, and future prospects of the target companies in general. The weight given to the year 2020 in terms of growth and expansion of target companies has been relativized by potential buyers in their assessments and models.

• Earn-out: mechanisms in which part of the acquisition price depends on the performance of the business during a certain period after the closing have proven to be effective instruments for bridge building and risk allocation between buyers and sellers at a time when often the parties' expectations are not fully aligned with the pricing of the asset in the current uncertain situation.

Indeed, in a scenario of instability and increased exposure to various types of risk, such as the covid-19 pandemic, earn-out clauses have become powerful alternatives to reducing the value of assets at the moment, allowing businesses to capture the benefits of the economic recovery expected for the near future.

As usual, the parties must clearly and objectively define the metrics that will be taken into account to determine satisfactory performance by the business, and establish effective mechanisms for measuring it.

• Material adverse effect: the condition precedent of absence of material adverse effect was already important in the deal documents before the pandemic, but now has even more weight for market players and parties involved.

Without going into the merits of the effectiveness of the condition precedent of absence of material adverse effect, the structure of the definition and the respective condition precedent have not undergone substantial changes in the new scenario, but the possible cases of occurrence and exceptions have been more detailed and designed for the specific case.

The express mention of epidemics and pandemics as exceptions to a finding of material adverse effect was already present in some negotiations, but now the parties have made it clear in the purchase and sale contracts that the effects of the covid-19 pandemic, in a generic manner, cannot be used as a justification to avoid closing the transaction, even if its potential effects cannot be clearly predicted.

• Representations and warranties: the representations and warranties clause, coupled with the obligation to indemnify for the falsity or inaccuracy of such representations, continues to be a central element of the negotiations. The actual business impacts of the pandemic are addressed, as needed, in the exhibits listing exceptions to such representations and warranties (the so-called disclosure schedules).

Some sellers try to get a representation from buyers recognizing that the transaction is being negotiated and entered into in the context of the covid-19 pandemic, and that any breaks in representations between the signing and closing resulting from the effects of the pandemic may not give cause for the buyers to withdraw from the deal. Buyers, in turn, have refuted the representation. It cannot be said that this contractual provision has been widespread in the practice of mergers and acquisitions.

Private equity

The private equity sector has so far had a rather unique dynamic. In mid-March, at the beginning of the pandemic, attention turned to private equity managers active in Brazil in terms of both potential divestments via capital markets and new investments.

As for divestments, the reduction of the basic interest rate to levels unprecedented in the Brazil's recent history, combined with the liquidity generated by the government in the markets (among other factors), has boosted the raising of funds through initial and follow-on share offerings in the capital markets, which has allowed the exit of mature investments by private equity managers. With B3 breaking historical records at almost 120,000 points in early 2020, there was an expectation that local and foreign managers would indeed seek liquidity for their investments.

As for investments, the expectation of growth in the number of businesses was not lower given the announcement of record levels of dry powder (capital available for investments), which, associated with the devaluation of the Brazilian Real against the dollar and the euro, had the potential to increase the expectation of new deals.

With the pandemic, however, Brazilian and foreign managers initially took care to give the necessary support to their investees. This was done with few new investments being made until the middle of this year. With regard to divestments, of course, very few IPO processes and follow-on offers were completed by the middle of the year.

However, even somewhat surprisingly, as of mid-June managers began to pursue their plans for divestment via the capital markets, and many IPOs and follow-on offers were successfully launched. Many others are likely to be completed this year, judging from the queue of applications submitted to the Brazilian Securities and Exchange Commission (CVM).

Already at the cutting edge of investments, such managers began to study new private transactions, especially in the technology, health, and education sectors. For this second half of the year, expectations for new investments remain high despite the slow progress of tax and administrative reforms.

Conclusion

Although the pandemic is a reality that should remain for some time, the M&A transactions under analysis have the same fundamental characteristics as the transactions carried out at the beginning of the year, with certain exceptions mentioned above.

Even in a scenario of uncertainty, mergers and acquisitions continue to be a relevant instrument for the most varied of sectors of the economy, either to enable the combination of relevant players in a given industry or to enable the injection of liquidity in various businesses, providing important alternatives for expansion and/or financial optimization {improvement, sanitation}.

Category: Competition

The Administrative Council for Economic Defence (Cade), through its Department of Economic Studies (DEE), recently released a study entitled Competition in digital markets: a review of specialized reports, which benchmarks international reports on the subject and summarizes their main discussions and conclusions.

This study is part of Cade's efforts to promote proper review of mergers and conduct in digital markets, which challenge traditional conceptions of the relevant market and have peculiar characteristics, such as the presence of multilateral platforms, economies of scale, data essentiality, and network and learning effects, which impose challenges on the work of antitrust authorities.

Despite the undeniable economic and even political relevance of mergers and acquisitions in digital markets, many of these transactions, especially those involving startups or platforms operating in the so-called zero price markets, escape the scrutiny of antitrust authorities by virtue of the legal minimum billing criterion for mandatory reporting, adopted in Brazilian law and also in various other countries. In view of this, the need to rethink the reporting criteria is debated at the international level and it is argued that the bodies should have their powers extended to review mergers and acquisitions already carried out.

Brazilian law already gives Cade the power to do so: our Competition Law allows the body to, within one year of consummation of the transaction, request notice of mergers whose parties do not meet the billing criterion.

In this context, Cade has sent a series of letters to various digital platforms to perform a historical monitoring of transactions carried out by these companies and their economic groups over the past ten years. The objective is to evaluate the movements in the sector and, potentially, identify transactions for which reporting may still be required.

The sector is under the spotlight of antitrust authorities abroad and in Brazil, which is why companies must assess the competitive risks of their business practices and also of potential mergers and acquisitions.

Category: Real estate

Since 2015, with the publication of Law No. 13,240/15 and later, Law No. 13,465/17, the federal government has been indicating a clear interest in improving the process of "destabilization" of public real estate that, for some reason, is of no use or does not serve any public interest in the assets of the Federal Government. This is beneficial not only from the point of view of greater efficiency in the management of the other buildings that are actually relevant to the Federal Government, but also for the composition of the State’s revenue.

In general terms, this process was already better structured for properties that were leased to or occupied by private parties registered with the Bureau of Federal Assets (SPU). This was done by means of a simplified procedure for direct purchase, by public notice or by private initiative, with the possibility of waiving public bidding (topic already addressed by us in this article).

Recently, as a complement to existing legislation, the federal government published Law No. 14,011/20 with the purpose of specifically facilitating the process of selling the Federal Government’s real estate not directly linked to any private individual by means of a prior right and which, therefore, requires a competitive process for sale.

In this regard, we highlight the following main points of innovation in the legislation passed:

• Acquisition of non-reserved/occupied property at the initiative of the private party. Any interested party may submit an offer for the acquisition of Federal Government property that is not recorded in the system for leasing or occupation. Orders can be made on the federal government’s website, in which the interested party must record its data and that of the property. In the order, documents related to the property that facilitate the evaluation of the property, such as photos and reports, may be attached.

If the property does not have a valuation report prepared or valid, it is up to the interested party to do so and submit it for the Federal Government's validation. The reports may be prepared by a qualified valuation expert or private firm.

• Sale at the Federal Government's own initiative. The Federal Government itself may prepare proposals for the sale of its properties, contracting BNDES to carry out studies and execute a privatization plan. The privatization may be done, among other ways, through the issuance of a lease, sale, or exchange; or by the creation of real estate investment funds and the hiring of their managers and administrators.

If it is advisable, considering the valuation and liquidity of the properties, the law provides that the sale may be done in lots, encompassing more than one property. This possibility, however, is expressly suspended by the legislation while the state of public health emergency arising from covid-19 is in force.

• Specific rules for public auction. The sale of Federal Government property requires an auction, which can be done online. In the event that the first auction is deserted or unsuccessful, the Bureau for Coordination and Governance of the Federal Government's Assets may hold a second auction, applying a 25% discount to the sale. If the second auction is also deserted or unsuccessful, the properties will automatically be put up for direct sale, with the application of 25% discount over the amount of the valuation. The acquisition also subjects the bidder to the right of preference of the assignee of a real or personal right, the lessee, or the tenant who is up to date with its obligations with the SPU, as well as expropriated parties.

The interested party who has financed the valuation of the property may acquire it on equal terms with the winner of the successful auction (that is, the party incurring the initial costs is entitled to preference for acquisition, on equal terms with the best bidder). If not, the winner will have to reimburse it for the costs of appraising the property.

• Consideration for the assignment of public assets. In addition to the sale of property, the paid assignment of Federal Government assets remains a possibility, and there is also provision for payment of the price of the assignment as consideration, which may be done through the obligation to build, remodel, or provide engineering services on real or personal property in the Federal Government’s interest. This can be especially interesting for the installation of infrastructure projects in reputable locations such as marine land, which usually include port and multimodal logistics enterprises.

In this case, the assignment will be done under a condition subsequent, conditional on the completion of construction, remodeling, or provision of engineering services.

The expectation is that the sale of Federal Government real estate, mainly from areas that are no longer useful to the Public Administration or that are the product of criminal seizures (including productive farms and commercial real estate), will represent a reduction in maintenance costs and an important source of revenue for the public power, considering not only the price of sales, but also the collection of the territorial or urban property tax (ITR/IPTU) by the new purchaser and the Service Tax (ISS) due for constructions and remodeling that will be carried out on these properties.

Category: Infrastructure and energy

Thiago Spercel and Felipe Baracat

The covid-19 pandemic has accelerated the implementation of sustainability practices in companies. It is already possible to see greater internal cohesion in organizations around purpose, culture, and value and acting in compliance with social and environmental standards and good governance practices becoming an imperative for survival in the corporate world. Companies that have been applying these concepts will have an important competitive advantage.

In this publication, we analyze the concept and advantages of responsible investment and the impacts of covid-19 on ESG practices related to environmental, social, and corporate governance aspects.

Category: Environmental

The Ministry of the Environment (MMA) instituted on July 2nd, by means of the Ordinance No. 288/20, the National Program of Payments for Environmental Services - also known as Forest + Program.

Payment for Environmental Services

Forest + Program  comes up in accordance with the Payment for Environmental Services (PSA in its acronym in Portuguese) initiative, which aims to stimulate the conservation of the so-called "environmental services", which can be understood as the set of activities for the improvement and conservation of native vegetation in all biomes, as per subsection I of the caption of article 41 of Law No. 12,651/12 (Forest Code). Those services are the ones that sustain life on  planet and benefit all society.

Article 41 of the Forest Code establishes, in this sense, the possibility for the Federal Executive Power to institute a "program to support and encourage environmental conservation," which involves the "payment or encouragement of environmental services as a retribution, whether monetary or not, for activities related to the conservation and improvement of ecosystems and that generate environmental services.”

The idea of the PSA is that the beneficiary or user of the environmental service somehow (monetarily or otherwise) give back to those who value the protection and preservation of the environment, enabling the provision of environmental servicesIt is a tool that aims to assist and stimulate proper conservation and management, valuing activities for protection and sustainable use of the environt. After all, an ecologically balanced environment is essential to life and to the proper functioning of society and the economy.

The initiative seeks to diversify current environmental policy instruments and propose the use of incentives rather than disincentives (such as sanctions, payment of taxes, etc.).

Although the fact that the PSA is already used by companies and/or individuals who seek to improve their images, or want to mitigate the impacts of their daily actions, legislation in Brazil is still not concrete in its relation . Forest + Program is the first step towards the consummation of such environmental instrument.

Forest + Program

As stipulated in Ordinance No. 288/20, Forest + Program aims to stimulate (i) the private market of payments for environmental services in areas in which native vegetation coverage are maintained; and (ii) the coordination of public policies for conservation and protection of native vegetation and climate change.

The program will be coordinated by the Forests and Sustainable Development Office of the MMA, which will seek to establish strategic partnerships with individuals or companies, governed by public or private law, family or community groups, at a national and possibly international level, with the intention to encourage the PSA for the ones who protect and preserve the environment. There will also be a stimulation to the signing of sectoral agreements, good practices, cooperation actions, etc.

Areas throughout the country will be targeted by the program, which will also encompass all Brazilian biomes. What is aimed is the maintenance of areas covered by native vegetation and the recovery of those areas that are already degraded. Brazilian territory has currently 560 million hectares of native forest.

At first, the expectation is that Forest+ will be implemented as a pilot project in the Legal Amazon region, which corresponds to 58.9% of the Brazilian territory and covers regions of the states of Acre, Amapá, Amazonas, Maranhão, Mato Grosso, Pará, Tocantins, Rondônia, and Roraima.

In order to map the reach of the program, it is planned the record and integration of the data related to environmental services developed under the scope of Floresta +, in addition to the development of a digital tool to systematize payment for such services.

The program already has R$ 500 million in funds, received from the Green Climate Fund [Fundo Verde do Clima]. This amount may be multiplied, considering that Brazil has the greatest biodiversity heritage in the world and has the potential to become one of the world's leading players in the implementation of the PSA.

Forest + Program is currently the bigger PSA program in the world.

National Policy of Payment for Environmental Services

In 2019, the Chamber of Representatives approved the Bill of Law No. 312/15, which proposes the institution of the National Policy of Payment for Environmental Services (PNPSA). The main purpose of the PNPSA, which will be managed by  the Brazilian Institute of the Environment and Renewable Natural Resources (Ibama), is along the  same purpose of the PSA: reward (monetarily or otherwise) those ones who implement measures related to the maintenance, recovery, or improvement the environment.

The bill of law went to the  Senate through Bill of Law No. 5,028/19 and is currently waiting to be scheduled  on the discussion agenda. The reporting senator, Fabiano Contarato, president of the Environmental Committee [Comissão de Meio Ambiente – CMA], had been conducting public hearings to support the project, which  were suspended on March 19 of the current year, due to the measures promulgated by the Senate to contain the covid-19 pandemic.

Bill of Law No. 3,791/19, also originated from the Senate, has same subject and has not been scheduled for discussions either. The reporting senator,  Acir Gurgacz, has already presented a favorable report, with an amendment of his own authorship.

The explanation for the creation of a federal legislation for this mechanism is that our legislative system is only conditioned  to punish offenders who degrade the environment, and not to benefit, in any way, the ones that act correctly. The expectation is that this new policy will bring some gains for a sustainable development with focus on the generation of jobs and income.

Category: Banking, insurance and finance

Rafael Carretero, Sofia Desinano e Gustavo Ceridorio

In line with the policy of economic and financial incentives to combat the effects of the covid-19 pandemic, the federal government issued Executive Order No. 992/20, on July 16 ("MP 992"), to regulate the possibility of sharing the guarantee for fiduciary sale of real estate between more than one credit transaction within the National Financial System (SFN). The measure, which amends federal laws No. 13,476/17 and 6,015/73 is mainly aimed at broadening access to credit for borrowing companies.

In its article 14, MP 992 includes articles 9-A to 9-D in Law No. 13,476/17 and expressly allows the fiduciary seller, with the consent of the fiduciary creditor, to use the real estate already fiduciarily sold as collateral for new and autonomous credit transactions of any nature, provided that they are contracted with the fiduciary creditor of the original credit transaction.

By allowing for the sharing of the fiduciary sale of real estate, MP 992 promises to facilitate consumers' access to financial products, in addition to ensuring stability to the SFN. Thus, due to the nature of the fiduciary sale, new transactions tend to present more beneficial term and interest conditions to the borrower, when compared to unsecured obligations. In addition, by establishing more rigor and transparency in contracting these transactions, the measure also brings benefits to the stability of the SFN.

Although driven by the current moment of crisis, the publication of MP 992 stems from an existing movement to expand access to credit through the fiduciary sale of real estate.

The concept of a fiduciary sale of real estate was introduced into the Brazilian legal system by Law No. 9,514/97, with the purpose of addressing a crisis in the housing sector. The main focus of the fiduciary sale of real estate was to help ordinary citizens negotiate better financing conditions for housing, since it limited the value of the financing to the value of the property subject to the security interest, even though it represented an effective guarantee of execution.

The experience confirmed the great effectiveness of the use of fiduciary sale as a guarantee and drove the demand for the expansion of the concept, always aiming at diffusion and cheapening of credit for other types of transactions. The response given by the Legislative Branch was the enactment of Law No. 10,931/04, which, in its article 518, established the possibility for obligations in general to be secured via fiduciary sale of real estate. Thus, the legislator made explicit its choice to allow the broad use of this instrument as an in rem guarantee in various types of obligations, with a political component to enable reduction of interest rates.

MP 992 arose to investigate important issues raised by the success of previously enacted laws. Its main debate is the possibility of sharing guarantees for fiduciary sales of real property for debts contracted with different financial institutions, expanding once again access to credit. However, the MP has some limits in its application, which represent important points of attention to be highlighted.

Although the new MP 992 does not expressly provide for the possibility of sharing debt guarantees by different financial institutions, it also does not completely prevent this possibility. In the inclusions made in Law No. 13,476/17, MP 992 mentions only the "original creditor" in relation to a credit transaction.

In this sense, we believe that it is still possible to create a guarantee for fiduciary sale of real estate for debts with different creditors, when this guarantee is created in favor of all creditors simultaneously, by means of the same instrument.

The new MP 992, however, was disappointing, as it established that the sharing of the guarantee for fiduciary sale of real estate is limited to transactions carried out under the SFN, since it excludes transactions carried out in the capital markets, among others. The regulators of the SFN are expected to take a position on whether or not to extend sharing of guarantees to transactions outside the SFN.

Although some changes proposed by MP 992 are in line with expansion of the use of fiduciary sale of real estate as a guarantee in credit transactions, others seem to go against this movement.

Category: Labor and employment

Gender identification issues are receiving increasing attention, especially in the workplace, where diversity initiatives, committees, and programs are becoming more common and necessary for the debate on this relevant topic. With the growing awareness of the importance of diversity in the work environment, doubts about the subject are also growing.

Exactly for this reason, before moving on to discuss the subject of this article, we think it is important to present some relevant concepts not yet fully known:

• The biological sex of an individual is a sexual determination based only on biological and physiological characteristics and chromosomal information.

• Gender identity is how an individual identifies with society, regardless of his or her biological sex.

• An individual’s sexual orientation is affective and sexual attraction, which can be to people of the same gender, of the opposite gender, or to both genders.

• A transgender is one who does not identify socially with the gender assigned to him/her based on his/her biological sex. That is, it is the individual whose biological sex is different from gender identity.

To illustrate the challenge faced by people who identify themselves as transgenders, in 2010 the Federal Medical Board defined a transgender as an individual who has discomfort with his or her biological sex, does not have "other" mental disorders, and expressly expresses, for at least two years, the desire to lose the characteristics of his or her biological sex and adopt those of the opposite sex. This concept followed the understanding of the World Health Organization (WHO), which mistakenly treated transsexuality as a mental disorder until June 18, 2018.

Evolving in its concepts, the WHO, during the 72nd World Health Assembly, held in 2019 in Geneva, removed so-called "gender identity disorder" from the official classification of diseases. One year before, the Federal Board of Psychology had already published CFP Resolution No. 01/2018, which guides professionals in psychology to not consider transvestility and transsexuality to be pathologies.

The removal of transgenderity from the WHO's list of diseases reflects the respect and maintenance of the dignity of people who identify themselves in this way. However, recognition of the scientific community is not enough; it is necessary that it is also contemplated and incorporated into the corporate culture of companies.

As increasing awareness and acceptance of diversity in the corporate world is noted, doubts also arise about forms of acceptance and conduct. One of the relevant issues that is in doubt is the use of restrooms by transgenders in the work environment.

When an employee identifies him or herself as a transgender, which bathroom will he or she use? Could imposing the use of restrooms according to biological sex, ignoring gender identity, be considered a restriction and end up generating the right to compensation?

The use of women's restrooms by transgender women and men's restrooms by transgender men is already a known topic in the Brazilian judiciary and has been under discussion by the Federal Supreme Court (STF) since 2015, but has yet to be concluded. It is Topic of General Repercussion 778 (Leading Case RE 845779): "Possibility that a person, considering the rights of personality and the dignity of the human person, being treated socially as belonging to a sex different from that with which he or she identifies and presents himself or herself publicly".

In November of 2015, after two votes in favor of using restrooms according to gender identity, Justice Luiz Fux asked for review of the record and the decision was adjourned, with no date for resumption thus far.

In the current context, without specific laws and regulations regulating the issue and without a decision by the STF, it is necessary to recognize the right of transgenders to the use of restrooms intended for the gender with which they identify, considering the importance of diversity and respect for any individual and their fundamental rights. Preventing a transgender employee from using the restroom according to his or her gender identity is a practice of discrimination, and also does injury to fundamental rights protected by the Federal Constitution, such as the right to intimacy, equality, autonomy, and the dignity of the human person.

It is important to be cautious, however, and to remember that isolated acts are not strong enough to change the mentality of everyone who lives and uses the facilities of a work environment. Moreover, the use of the restroom is only a small portion of the fight against transphobia in which society must engage.

In order to eliminate prejudice and stigmatization in the work environment, it is essential that companies implement affirmative actions to raise employee awareness, such as forming their own committees, implementing specific policies, and providing lectures on the most diverse of topics.

Meanwhile, a ruling by the STF is pending.

Category: Labor and employment

Since the enactment of Law No. 9,732/98, the rule of automatic cancellation of special retirement in the event that a worker works in a hazardous environment, provided for in paragraph 8[1] of article 57 of Law No. 8,213/91.

Special retirement is a social security benefit granted by the INSS (National Institute for Social Security) to workers who have contributed for 15, 20, or 25 years due to the performance of activities exposed to agents that are hazardous to health, continuously and uninterruptedly, at levels above the limits established by law. According to INSS data, over 2,000 special retirements were granted in Brazil in July of this year.

Even in the face of the incompatibility of providing services in a hazardous environment while receiving benefits resulting from special retirement, many workers continue to work in a hazardous activity, which has always been the subject of discussion in the Judiciary.

To put an end to this controversy, the Federal Supreme Court (STF) decided that the provision contained in paragraph 8 of article 57 of Law No. 8,213/91 is constitutional, according to a decision published on August 19, 2020, in the record of Extraordinary Appeal No. 791.961, which granted certiorari due to general repercussion of the subject matter (Topic 709).

The decision was handed down after an extraordinary appeal was filed by the INSS against a decision by the Federal Court of Appeals for the 4th Circuit, in which the application of article 57, paragraph 8, of Law No. 8,213/91 was ruled out, on the grounds that it would imply impediment to the free exercise of work. It was claimed, therefore, that the payment of social security benefits resulting from special retirement should be maintained for nursing professionals who had permanent contact with hazardous biological agents.

The STF, by a majority of 7 votes to 4, decided that workers who continue to work in hazardous conditions will suffer suspension of their benefit as a result of the special retirement.

The main basis used by Justice Dias Toffoli, writing for the court in the case, in sustaining the incompatibility of the performance of activity in an environment hazardous to health with the reciept of special retirement, was that the legislator, by granting workers early retirement for work in a hazardous environment in a presumed manner, intended to remove them from an environment unhealthy and hazardous to their physical safety.

According to the Justice, to allow return to special work or continuation thereof after obtaining retirement would be "unreasonable, illogical, and flagrantly contrary to the idea that guided the institution of the benefit.”

The Justice writing for the court also pointed out that retirees in the special arrangement are not prevented from working in other activities, such that if they work again in a hazardous environment by choice, since there is no prohibition in that regard, they will have their benefit suspended. For this reason, there is nothing to be said of an impediment to the free exercise of work or violation of article 5, XIII,[2] of the Federal Constitution.

If the employer is aware that an employee has started receiving special retirement benefits and cannot transfer him or her to an activity outside a hazardous environment, which is not an obligation of the employer and does not require proof of impossibility of transfer, the choice to maintain activities in a hazardous environment is the employee's. If the employee decides to keep the benefit even performing activities in a hazardous environment, the company is authorized to terminate the employment contract, and the employee is not entitled to the penalty of 40% of FGTS and compensated prior notice.

The majority opinion of the Superior Labor Court,[3] in cases of termination of employment due to receipt of special retirement, which derives from the law and not at the initiative of the employer, is that employees will not be entitled to payments arising from termination without cause, which include the penalty of 40% over the FGTS and compensated prior notice.

This specific case of termination by the employer is an exception to the rule instituted after the judgment of Direct Action of Unconstitutionality No. 170, through which the STF held that voluntary retirement does not entail termination of the employment relationship.

This is because, considering this understanding, the declaration of unconstitutionality under paragraph 1 of article 453 of CLT[4] and the cancellation of the Jurisprudential Guideline No. 177 of the SDI-I of the Superior Labor Court,[5] special retirement is incompatible with maintenance of the employment relationship in case the event of continuation of labor activities in a hazardous environment.

Law No. 8,213/91 does not provide for any penalty to employers who maintain an active employment contract with an employee who receives the benefit arising from special retirement and continues to work in a hazardous environment. To date, no decisions have been located in which a sanction has been imposed on the employer for this reason.

The current laws and regulations provide for penalties only for workers who continue to work in a hazardous environment. This is because, besides the employee having his benefit suspended, the INSS may also charge workers for amounts earned while working under these conditions, under the terms of article 255[6] of Normative Instruction No. 77/15, of the INSS. The legitimacy of such collection by the INSS was reiterated by Justice Dias Toffoli in his opinion in the judgment of Extraordinary Appeal No. 791.961. He added that the charge is retroactive, and should occur as of the date of granting of the benefit in cases where activity in a hazardous environment is maintained.

[1] Paragraph 8. The provisions of article 46 apply to insured persons who are retired under the terms of this article and who continue in the exercise of the activity or operation subjecting them to hazardous agents contained in the list referred to in article 58 of this Law.

[2] “The exercise of any work, trade, or profession is free, when the professional qualifications established by law have been met."

[3] Case TST-RR-11373-07.2014.5.15.0095

[4] “Spontaneous retirement of employees of publicly-traded companies and government-controlled companies is allowed as long as they meet the requirements of article 37, subsection XVI of the Constitution, and subject to the provision of an invitation conduct a public tender process."

[5] “Voluntary retirement terminates the employment contract, even when the employee continues to work at the company after the social security benefit is granted. Therefore, the penalty of 40% of the FGTS in relation to the period prior to retirement is not due."

[6] "The amounts unduly received shall be returned to the INSS, in the manner set forth in articles 154 and 365 of the RPS.”

Category: Aviation and shipping

Pedro Henrique Jardim, André Camargo Galvão and Leandro Lopes Zuffo

The federal government announced, on August 13th, the forwarding, as a matter of urgency, of Bill No. 4,199/20, in order to implement the changes proposed under the BR do Mar program (the Cabotage Bill). A result of long institutional discussions, BR do Mar aims to stimulate cabotage through the consolidation of logistics alternatives, the transformation of internal logistics means, and the reduction of the infrastructure deficit in Brazil, pointed out as barriers to investments and to the structuring of business ventures in Brazilian territory.

Since the second half year of 2019, the maritime sector, especially cabotage, was awaiting the positioning of the Ministries of Infrastructure and Economy on the subject, which indicated possible structuring of significant regulatory changes in the sector.

Currently, cabotage in Brazil is governed, among other rules, by Law No. 9,432/97, which restricts the operation of foreign vessels and companies in navigating domestic routes (cabotage, inland navigation, and port and maritime support). In the current scenario, in which the Cabotage bill is not yet applicable, Brazilian shipping companies (EBN) encounter specific difficulties in chartering and, consequently, operating foreign vessels. Among them, the following are highlighted:

• Chartering of foreign vessels with prior authorization from the National Waterway Transport Agency (Antaq), in some cases no prior authorization is required;

• Specific limitations on the number of foreign vessels that an EBN can charter;

• Compliance with current labor regulations applicable to vessels flying the Brazilian flag, which implies, for example, the hiring of Brazilians for the positions of captain and chief engineer, in addition to two thirds of the vessel's crew, except for situations in which the foreign vessel is chartered in the bareboat modality (in non-technical language, it can be said that the bareboat charter occurs when a vessel is “leased” without captain, crew, and other items that may be necessary for navigation), suspending flag and registered in the Brazilian Special Registry (REB), a structure that divides opinions in the Judiciary regarding the contract regime; and

• The restricted possibilities of using resources from the Merchant Marine Fund (FMM), arising from the collection of the Additional Freight for the Renewing of the Merchant Marine (AFRMM), provided for by Brazilian norms.

Within this regulatory framework, EBNs have argued that cabotage does not offer as many economic benefits to its operators as long-distance shipping operations and other modalities of freight transport. They also argue that, due to the restrictions of the current legislative framework, the operating and capital costs of cabotage are high when compared to the returns resulting from these investments.

According to executives of the sector, such facts occur because, in addition to the costs resulting from the acquisition of vessels, the cabotage sector is also significantly more expensive than the long-distance shipping sector because it has the majority of the crew composed of Brazilian workers (which increases labor costs) and because it bears more taxes on the use of bunker fuel (fuel specific to the vessels - the Tax on the Circulation of Goods and Services (ICMS), not applicable in long-distance shipping operations.

In August of 2019, the Federal Auditing Court (TCU) highlighted some of these inefficiencies, such as the variation in the ICMS collection on bunker fuel, and drew attention to the lack of standardization of procedures carried out by public agencies and entities and a simplified operation of multimodal transportation (that involving two or more modes of transportation). These aspects were pointed out as limitations to the exploration of the potential of cabotage, which at the time represented only about 5% of cargo transport operations in Brazil.

As a response to this situation, Resolution 70/2019 of the Partnerships and Investments Program Council (CPPI), published in the second half year of 2019, acknowledged that, when properly implemented, waterborne cargo transport "is comparatively more efficient, safer, and presents lower costs and environmental impacts than road or rail transport." Thus, the CPPI instituted a program to stimulate cabotage, called BR do Mar, led by seven guidelines:

         1. Allowing the use of foreign flag vessels to form part of an EBN's fleet;

         2. Adoption of Brazilian seafarers to train part of the crew on foreign flag vessels operating in cabotage;

         3. Reduction of barriers to entry in the cabotage market;

         4. Reduction of costs of investment in vessels;

         5. Equalization of operating costs in relation to the social benefits of cabotage;

         6.A reassessment of the Federal Government's policy of intervention in support of development of the merchant navy and the shipbuilding and ship-repair industry and the resulting burdens; and

         7. Support for investments in the safety of coastal navigation by the Brazilian Navy.

During the wait for definitive presentation of the Cabotage Bill, Senator Kátia Abreu (PP-TO) presented Bill No. 3,129/20, based on the notes made regarding the sector in Brazil by technical bodies such as the TCU, the Administrative Council for Economic Defense (Cade), and the CPPI. The bill brought in measures expected within BR do Mar, such as the possibility of chartering foreign vessels, in the bareboat charter modality , regardless of their size and type of use, and to implement procedures that favor multimodal transport, such as an  electronic system of unique documentation for multimodality.

Some other points of Bill 3,129, however, are different from what was expected in BR do Mar, such as progressive reduction of the AFRMM rate and the provision of the possibility of offshore register of vessels– being the local registry merely informative – and the determination of the applicability of foreign legislation on the property rights of the vessel, if desired (“os direitos reais e os ônus poderão ter foro estipulado fora do Brasil, caso no qual terá a respectiva lei de regência, sendo o registro realizado no Brasil apenas de caráter informativo “) In principle, this could reinforce the provisions regarding the granting of vessels as collaterals already provided for by article 287 of the Bustamante Code and substantially alter the rules governing the ownership of vessels. With the Cabotage Bill, recently forwarded by the federal government, it is expected that Bill 3,129 will be left aside in favor of the bill structured by the ministries of Infrastructure and Economy.

On the basis of public statements by members of the Ministry of Economy and the Ministry of Infrastructure, it was possible to nurture different expectations regarding the Cabotage Bill that went beyond the measures presented Bill PL 3,129. The presentation of the new bill made more concrete the specific measures directed at costs, fleets, ports, and the naval industry, which we summarize below by category:

Costs

• EBNs operating in cabotage shipping will have tax benefits on chartered vessels, entirely suspending the following federal taxes: Import Tax (II), Tax on Industrialized Products (IPI), contributions to the Social Integration and Public Servants' Equity Formation Programs (PIS/Pasep) levied on the import of foreign products or services, Contribution to the Social Integration and Public Servants' Equity Formation Programs (PIS/Pasep) levied on the import of foreign products or services, Contribution for Intervention in the Economic Domain - Fuels (Cide - Fuels), and AFRMM.

• Measures will be implemented to optimize bureaucratic procedures, with the objective of better integrating cabotage with multimodal transport, and to simplify routine procedures, such as those related to inspection and release of goods and products. It is speculated that the changes will mainly be made to the procedures concerning the customs arrangement applicable to cabotage.

Fleet

• The permission for EBNs to operate with foreign vessels owned or held by their wholly foreign subsidiaries (which would reduce not only CAPEX, but also the OPEX of these operations), by means of time charter contracts, within different situations governed by the Cabotage Bill.

• The amendment of article 10 of Law No. 9,432/97, making it possible for an EBN to charter a foreign vessel (only in the bare hull mode) without the need to obtain prior authorization from Antaq and to have a construction contract in effect with a Brazilian shipyard or to own the Brazilian vessel. As of the enactment of the changes provided for in the Cabotage Bill, EBNs may only charter a single foreign vessel in the modality indicated above. This limit will be progressively extended to two foreign vessels in 2021, three in 2022, and an unlimited number as of 2023, as proposed in the Cabotage Bill.

• The creation of a new legal type of EBN, which may operate only through investments in fleets, and may have as its activity the chartering of vessels for other EBNs and/or foreign shipping companies. This new modality will be called a Business Navigation Investment Company (Empresa Brasileira de Investimentos na Navegação - EBN-i), which will favor new players or smaller companies that do not have their own vessels and, in principle, will have the same requirements as EBNs for their organization (which will become, according to the Cabotage Bill, a legal entity organized in accordance with the provisions of Brazilian law and headquartered in Brazil).

• The provision that the minister of State of Infrastructure may establish the situations for the chartering of foreign vessels may be considered of "public interest", a competence currently assigned only to the plenary board of Antaq via Antaq Resolution No. 1/15, based on article 9, subsection II, of Law No. 9,432/97.

Ports

• The regulation of the authorization for temporary use of port areas and facilities in special cabotage operations - "those considered regular for the transport of cargo in type, route, or market not yet existing or consolidated" - it being Antaq's responsibility to have specific terms, deadlines, and conditions of use for port areas and facilities within the property of public ports, that is, within the organized port.

• Alignment with other measures of the Ministry of Infrastructure that offer incentives for the expansion and adaptation of existing ports so that they can attend to cabotage services. Ports such as Suape and Santos have already implemented changes to facilitate cabotage between the two, and the Ministry of Infrastructure has leased about 14 port areas since last year. The Ministry of Infrastructure also indicates that it has a plan to carry out bidding for 14 other port areas and grant authorization for 33 new terminals for private use. These adaptations and expansions of the port infrastructure seek to obtain new investments in the existing public and private terminal infrastructure.

Shipping Industry

• Permission for foreign companies to use the FMM to enable the construction, maintenance, and repair of foreign vessels in Brazil, encouring the docking of foreign vessels in Brazil and the development of shipyards.

Among the measures expected on the basis of public statements by members of the ministries and which were not fully covered under the Cabotage Bill, the following should be highlighted: (i) that the working arrangement of maritime workers in cabotage shipping should be regulated in accordance with the law of the flag the foreign chartered vessel flies; and (ii) that state taxation on bunker fuel (ICMS) should be resolved, in order to standardize its price and, consequently, avoid further negotiations with states.

The Cabotage Bill also establishes the minimum requirements for an EBN to qualify for the BR do Mar program. To be granted qualification, the EBN must meet the following requirements: be an EBN authorized to operate in the transportation of cargo via cabotage, have good tax standing at the federal level, and sign a commitment with the federal government, which will oblige it to submit information regarding the guidelines of BR do Mar and other specific provisions that will give the Ministry of Infrastructure greater accountability over the sector,[1] as provided for in the Cabotage Bill.

The regulatory changes proposed by the Cabotage Bill seem to aim at increasing cabotage navigation in Brazil. The government's expectation is to benefit the Brazilian logistics chain towards multimodality, diversification, competition, and efficiency. However, the impressions of the players in the sector regarding the possible regulatory impacts do not seem to be unanimous, and it would not be surprising to witness intense debates on the subject in Congress, where the bill will has a long way to go, even if it is possibly shortened due to the urgency imposed by the government.

[1] The Cabotage Bill lists that it will be mandatory to submit information regarding the following issues: "a) expansion, modernization and optimization of its activities and its operating fleet in Brazil; b) improvement in the quality and efficiency of cabotage transport in relation to the user experience; c) increase in the supply to the user of cabotage transport; d) creation and maintenance of regular cargo transport operation; e) valuation of employment and qualification of the Brazilian crew hired; f) development of activities in the value chain of cabotage navigation in operations performed in Brazil; g) innovation and scientific and technological development that promote the economic development of cabotage transport; h) safety in the transport of the goods transported; i) sustainable development; j) transparency as to shipping/freight prices; k) healthy competitive practices that ensure the competitiveness and conduct of the business in an ethically responsible manner; and l) promotion of integrity.”

Category: Tax

The marketing and sale of goods and products via the Internet grew exponentially during the period of social isolation caused by the covid-19 pandemic, highlighting how e-commerce is a modern and agile way to implement a legal deal. As there are no territorial boundaries or difficulties in the purchase and sale transaction, companies may be increasingly flexible and efficient in their operations in order to serve customers more dynamically.

The recent strong expansion shows how e-commerce has the potential to generate profits for companies and value for consumers, while generating an undeniable increase in tax impacts on the sector. One example is the promulgation of state norms to extend the responsibility of digital platforms with respect to the control and collection of ICMS on transactions carried out on digital platforms, in contrast with the economic protection measures adopted in the context of a pandemic.

This is the case of the State of Rio de Janeiro, which enacted Law No. 8,795/20 to, among other changes in the state's ICMS legislation, hold the legal entity holding the electronic platform and the financial intermediary liable for payment of ICMS in online commerce transactions. In other words, there will be a legal provision to require intermediation service providers and financial agents to pay the state tax, which is normally the responsibility of salesmen/shopkeepers who sell products on digital platforms.

Following this same logic, the State of São Paulo, through CAT Ordinance No. 156/10, has disciplined the compliance with ancillary obligations by providers of commercial intermediation services in a virtual environment and by providers of services related to e-commerce, making it clear, however, that compliance with these obligations rules out any joint and several liability for companies in the sector.

The legislation of the State of Rio de Janeiro and São Paulo is not, however, a novelty in the Brazilian legal system. Bahia, Ceará, and Mato Grosso, for example, have already published similar normative acts - laws No. 14,183/19, 16,904/19, and 11,081/20, respectively.

It is a fact, however, that the tax siege on the digital economy is not restricted to state policies. The discussions on the first part of the tax reform outlined by the federal government are also advancing in Congress. Bill No. 3,887/20, proposed by the Minister of Economy, Paulo Guedes, aims to unify the PIS and Cofins contributions, including on import transactions, through the institution of a new value-added tax, called the Social Contribution on Transactions with Goods and Services (CBS).

Specifically with regard to transactions carried out in e-commerce, article 5 of Bill 3,887/20 establishes that digital platforms are responsible for collecting the CBS in the event that the selling legal entity does not register the transaction by issuing an electronic tax document.

Moreover, article 65 of Bill 3,887/20 includes digital platforms domiciled abroad in transactions carried out through them as jointly and severally liable for the collection of the new CBS levied on imports of goods, among others. To this end, platforms will be responsible for registering with the tax administration in order to comply with the ancillary obligations related to the CBS (such obligations were not detailed in the bill).

The tax interference in the digital economy, especially with regard to tax liability in e-commerce, stems from the high relevance of this business model for the current globalized market. However, it is important to emphasize that it is not the tax law's role to prevent the development of a certain economic activity, but rather to always seek standards for neutral and effective taxation.

Therefore, not only should political authorities be careful when designing new propositions, but market players should pay extreme attention to changes imposed by legislation, since tax obligations have a high impact on an extremely fast, dynamic, and fluid business model.

Category: Infrastructure and energy

Definition of eligible projects, possibility of investment in imported equipment, coverage for future investments, and establishment of simplified procedures are the main innovations.

Alberto Faro, Vitor Fernandes de Araújo and Felipe Baracat

On September 3, the Ministry of Communications published Ordinance 502 to regulate the procedures for approval and monitoring of priority infrastructure projects in the telecommunications sector eligible for financing through the issuance of incentivized debentures, under the terms of Law No. 12,431/11.

Scheduled to enter into force on October 1 of this year, Ordinance 502 comes at a good time, as it enables infrastructure debentures to be issued by companies in the communications sector, broadening the range of funding in a branch with high potential for innovation and, in many cases, capital-intensive needs.

Since 2016, the incentivized debentures have played an important role in financing infrastructure projects, reaching a total of R$ 34 billion in issuances in 2019 alone.

The urgent need to modernize Brazil's telecommunications infrastructure, including to support new Internet of Things (IoT) and 5G connection technologies, which will bring greater competitiveness to the Brazilian economy, and the remaining difficulties in universalizing broadband telecommunications service can be largely met with the access of companies in the sector to diversified financing structures, often more robust and cheaper, especially in the capital market.

The ministry's expectation is to attract financing for the expansion of telecommunications infrastructure through debentures worth at least R$1 billion over the next two years.

Under Law No. 12,431/11, only infrastructure projects considered to have priority may be financed through the issuance of incentivized debentures and enjoy the applicable tax benefits. The process of classifying projects as priorities is regulated by ministerial ordinances issued by the relevant ministries.

Ordinance 502 amends Ordinance 330 (of July 5, 2012), which governs only the approval of priority projects in the broadcasting segment. Ordinance 502, in turn, establishes the rules applicable to the approval of priority projects in the telecommunications sector. The main innovations it brings in are presented below.

Expansion of eligible projects

Investments in data center initiatives, Internet of Things (IoT), 5G connection, and underwater cables are now possible with Ordinance 502. Another important novelty is the coverage of projects aimed at recovery, adaptation, or modernization of infrastructure, in addition to implementation, expansion, and maintenance. Each investment project may include more than one initiative eligible to be classified as a priority under Ministerial Ordinance 502.

Projects aimed at implementation, expansion, maintenance, recovery, adaptation, or modernization of infrastructure will be eligible for designation as priorities:

• transport networks;

• fixed or mobile access networks;

• satellite communication systems;

• wireless local area networks, based on IEEE 802.11 standards, in locations with public access;

• submarine cable for data communications;

• data centers;

• machine to machine communication networks, including Internet of Things - IoT;

• 5G networks or higher;

• underwater cables;

• network infrastructure for telecommunications; and

• infrastructure for telecommunications network virtualization.

Project expenditures

• Possibility of reimbursement. Costs, expenses, or debts incurred in a period equal to or less than 24 months from the date of closing of the public offer may be reimbursed with the funds arising from the issuance of incentivized debentures.

• Future investments. The funds raised through the issuance of incentivized debentures may be allocated to the future payment of costs, expenses, or debts related to the project, fostering the development of projects of high complexity and long term implementation.

• Reimbursement of expenses with grants. Expenses for grants for communications infrastructure projects are part of the investment project. Thus, the costs disbursed to obtain concessions, authorizations, and licenses to operate the project may be reimbursed with the funds raised through the issuance of incentivized debentures, which enables project finance structures (with their leverage components) starting in the preliminary stages of the project. Such expenses for grants may include, without limitation, the acquisition of Brazilian technology assets, network coverage and service quality obligations, and payment of a public price for authorization to provide telecommunications services, among others.

• Support system. Capital expenditures associated with operation support systems (OSS) and business support systems (BSS), understood as software toolkits that allow one to manage and automate the collection, integration, and processing of information, may also be included in the investment project.

Financing for imported goods

Ordinance 330 prevented the use of funds obtained from the issuance of incentivized debentures for the financing of imported machinery and equipment. This restriction hindered the competitiveness and economic viability of projects in a sector that demands the use of state-of-the-art technology and in which often no affordable components can be found in the domestic market.

Just as an example, renewable energy projects, historically those with greater access to financing from incentivized debenture issuances (representing about 74% of the total in the domestic market), are not subject to similar restrictions in sector regulation.

The restriction on the financing of imported goods did not appear expressly in the articles of Ordinance 330, but was in the tables in Exhibits III and IV - Tables of Sources and Uses. The ministry, based on such exhibits, believed that it was not possible to classified expenditures disbursed for imported machinery and equipment as items that could be financed. The new Exhibit III - Table of Uses and Sources, contained in Ordinance 502, does not contain a similar provision, making clearer the possibility of using the funds raised for the acquisition of imported goods.

Simplification of procedures and duration

Ordinance 502 considerably simplifies the approval process for projects to be classified as priorities, which is essentially based on corporate and registration documents, on the identification of the applicants for approval, and on the description of the project, pursuant to article 4 and the exhibits of Ordinance 502. Similarly, the procedures for monitoring the implementation and progress of projects have been made more flexible and clarified. They should be carried out by means of a project report, a table of uses and sources, a list of goods acquired and services hired, and the geographic location of the relevant goods acquired. These documents should be submitted annually to the Ministry of Communications pursuant to article 7 of Ordinance 502.

Category: Real estate

The governor of Rio de Janeiro signed Law No. 8,953/20, which regulates, at the state level, the Economic Freedom Law (Federal Law No. 13,874/19) and classifies low risk activities that individuals or legal entities may perform in the state of Rio de Janeiro without the need for any public act of release.

A public act of release, as determined by paragraph 6 of article 1 of Federal Law No. 13,874/19, is the licensing, authorization, concession, registration, permitting, notification, accreditation, study, planning, recording, and the other acts required, under any denomination, by an agency or entity of the Public Administration in the application of legislation, as a condition for the exercise of economic activity, including the beginning, continuation, and ending for installation, construction, operation, production, management, use, exercise, or realization, in the public or private sphere, of an activity, service, establishment, profession, installation, operation, product, equipment, vehicle, or building, and others.

The legal text lists 289 low-risk economic activities that will not require any public act of release, such as issuance of operating licenses, including: legal services, real estate management and administration, consulting in information technology, rental and purchase and sale of owned real estate, retailing of jewelry, optics, stationery, watchmaking, and food services for events and receptions (buffet).

The list of activities is exemplary, that is, the Public Administration may waive the need for public acts to release other activities, either ex officio or upon request, except for those enterprises and activities that use environmental resources, potentially or effectively, causing significant environmental impact, subject to environmental licensing by the state, which continue to be subject to the state environmental legislation in force.

Municipalities may also create their own laws on the subject, observing as minimum parameters those defined in Federal Law No. 13,874/19, the new state law, and Resolution No. 51/19 of the Committee for the Management of the National Network for the Simplification of Registration and Legalization of Companies and Businesses (CGSIM).

The law reduces bureaucracy and provides more legal certainty at the state level for the development of these economic activities.

Category: Corporate

On September 2, the Rio de Janeiro Court of Appeals confirmed a judgment by the business court of that state that had granted a request for judicial reorganization filed by the Cândido Mendes Institute, a civil association that maintains the Cândido Mendes University, which has over 12,000 students and 1,000 professors and employees.

The request for judicial reorganization of the Candido Mendes Institute reignited legal scholars’ debate on the subject, raising two important questions:

• Can a non-profit association be treated as a "company" in certain circumstances?

• As a company, can it resort to judicial reorganization under the Business Reorganization Law (Law No. 11,101/05), even though it is not registered as a business company with the competent commercial boards?

In a literal interpretation of article 1 of the Business Reorganization Law, the concepts of judicial, extrajudicial, and bankruptcy reorganization are applied only for the benefit of businessmen and business companies. In this line of reasoning, cooperatives, foundations, non-profit associations, and all other economic agents are excluded from the protection provided by the Business Reorganization Law, no matter the activity performed.

It so happens that, often, these economic agents organize themselves as companies, coordinating production factors and placing goods and services on the market. What would be the situation of some charitable hospitals, non-profit educational entities, or football clubs that adopt the legal structure of non-profit associations, but are in fact true companies from the economic point of view, seeking profit, economic sustainability, and asset growth, even if they do not share the profit among partners?

Initially, to understand the contours of a "company", we need to resort to article 966 of the Civil Code, according to which a businessman is one who exercises professionally an organized economic activity for the production or circulation of goods or services. In this sense, a “business" is an economic phenomenon, for which, to be established, three essential elements are necessary: (i) exercise of economic activity for the production or circulation of goods or services; (ii) organized activity, with the coordination of production factors (capital, labor, and goods); and (iii) activity carried out in a professional manner, that is, with habituality and aiming at profit or financial return.

In the case of the Cândido Mendes Institute and so many other business associations, the first two elements are easy to identify, lacking only the profitable nature of the business in order be to characterized as a business entity. However, these entities could be seen as associations with economic purposes: although they are prohibited from distributing profits to partners, they act as economic agents that compete in the market to generate financial gains and expand their assets. Thus, it is possible to distinguish two types of associations: (i) those that carry out business and operate in the market aiming at enlargement of their asset, generating financial gains to be fully reverted to the entity itself, without distribution of profits to the partners, and (ii) those that aim at providing advantages to their members, without a monetary nature (such as a neighborhood association or a parents' and students' association at a school). The first type of association may, under certain circumstances, engage in business activity.

Thus, although there are important voices to the contrary,[1] according to some legal scholars,[2] it would be possible to follow a broad reading of article 1 of the Business Reorganization Law, to extend the application of said law to cooperatives and associations with economic purposes, which carry out activities of production or circulation of goods or services, with clear generation of wealth (economic motive). This broad reading is said to be justified on the basis of a systematic interpretation of the Business Reorganization Law, since its article 47 establishes the objectives and guiding principles of judicial reorganization: “to make it possible to overcome a situation of economic and financial crisis on the part of the debtor, in order to allow maintenance of the source of production, employment of workers, and the interests of creditors , thus promoting the preservation of the company, its social function, and the stimulus to economic activity.”

In requesting its judicial reorganization, the Cândido Mendes Institute has set important precedents for granting application of the Business Reorganization Law and judicial reorganization to the following non-profit associations: in Rio Grande do Sul, the University of Cruz Alta (2005) and the Lutheran Association of Brazil (2019), and in Rio de Janeiro, the Casa de Portugal Hospital (2006).

We know that certainty and legal certainty are two fundamental pillars for business law. Economic agents depend on clear rules, applied in a predictable and uniform manner by the Judiciary, so that they can calculate their risks and make their economic decisions. In this sense, it does not seem prudent to us that the system of bankruptcy and judicial reorganization should be applied to business associations simply on the basis of an extensive interpretation of article 1 of the Business Reorganization Law, causing divergences among the legal scholars and case law. That would bring about a lot of instability to the system.

Taking advantage of the fact that the issue is being debated in the Brazilian Congress, it seems advisable that the Business Reorganization Law be amended to clearly provide for the applicability (or not) of the system of bankruptcy and judicial reorganization for other economic agents that have business activity, even if they do not fit within the classification of business companies. Without such a change, broad interpretations can create legal uncertainty in the market, especially for lenders in the credit market, which can ultimately raise the cost of capital for third sector entities.

[1] TOLEDO, Paulo Fernando Campos Salles de; ABRÃO, Carlos Henrique (Coords.). Comentários à Lei de recuperação de empresas e falência [“Comments on the business reorganization and bankruptcy law”]. 4th ed. São Paulo: Saraiva, 2010. p. 56; PENTEADO, Mauro Rodrigues, in SOUZA JUNIOR, Francisco Satiro; PITOMBO, Antônio Sérgio A. de Moraes (Coords.). Comentários à lei de recuperação de empresas e falência [“Comments on the business reorganization and bankruptcy Law”]: Law No. 11,101/2005. São Paulo: RT, 2005. p. 110; FAZZIO JÚNIOR, Waldo. Lei de falências e de recuperação de empresas [“Business bankruptcy and reorganization law”]. 4th ed. São Paulo: Atlas, 2008; BURANELLO, Renato M. Sistema privado de financiamento do agronegócio – regime jurídico. [“Private agribusiness financing system - legal framework”]. 2nd ed. São Paulo: Quartier Latin, 2011. p. 229/230; MELLO FRANCO, Vera Helena de e SZTAJN, Rachel. Falência e recuperação da empresa em crise [“Bankruptcy and reorganization of companies in crisis”]. Rio de Janeiro: Elsevier, 2008. p. 20.

[2] We cite: (i) VERÇOSA, Haroldo Malheiros Duclerc. Das pessoas sujeitas e não sujeitas aos regimes de recuperação de empresas e ao da falência [“Persons subject and not subject to company reorganization and bankruptcy arrangements”]. In: PAIVA, Luiz Fernando Valente de (coord.). Direito falimentar e a nova lei de falências e de recuperação de empresas [“Bankruptcy law and the new business bankruptcy and reorganization law”]. São Paulo: Quartier Latin, 2005. p. 109-110 (arguing for the possibility of bankruptcy and judicial reorganization of cooperatives); (ii) WAISBERG, Ivo and RIBEIRO, José Horácio Halfeld Rezende. A ultrapassada teoria da empresa e o direito das empresas em dificuldades [“The outdated theory of the company and the law of companies in difficulty”]. In: Temas de direito da insolvência Estudos em homenagem ao Professor Manoel Justino [“Topics in Bankruptcy Law: Studies in homage to Professor Justino Bezerra Filho”]. São Paulo: Instituto dos Advogados de São Paulo, 2017, p. 708 (arguing for the need for a broad reading of article 1 of the Business Reorganization Law); and (iii) BEZERRA FILHO, Manoel Justino and CAMPINHO, Sérgio (in opinions arguing for the application of the Judicial Reorganization Law to the Cândido Mendes Institute).

Category: Environmental

The National Solid Waste Policy (PNRS), set forth by Law No. 12,305/10, defined as one of the guidelines applicable to solid waste the order of priority that must be considered for its management and handling. According to the PNRS, priority should be given to not generating solid waste, followed by reduction, reuse, recycling, and treatment. Last in the order of priority, therefore, is environmentally sound final disposal of waste, which in most cases corresponds to disposal in landfills.

Aiming at avoiding prioritization of waste destination in this last category and in order to take advantage of waste that cannot be recycled, the Bureau of Infrastructure and Environment (SIMA) of São Paulo has established guidelines and conditions for the licensing of units involved both in the preparation of Refuse Derived Fuel (RDF) and in the recovery of energy from the use of RDF.

For this purpose, Resolution No. 47/2020 was published on August 6, revoking the prior rule, SIMA Resolution No. 38/2017, which only regulated the use of fuel derived from urban solid waste in clinker furnaces (cement kilns). The new standard broadens the range of waste that can be used in preparing RDF, as well as the types of enterprises in which RDF can be used.

RDF may be prepared from the following wastes, provided they are not classified as hazardous:

• Solid urban and similar waste from trade, industry, services, and construction, as well as post-consumption;

• Industrial waste, agricultural waste, petroleum waste, refining waste, etc., as listed in Exhibit I of the resolution; and

• Waste generated in effluent and water treatment plants.

Only solid urban wastes that are not technically or economically feasible for recycling, as well as those that, after sorting carried out by a refuse collector cooperative, are considered waste, may be used for RDF purposes. This legal provision reflects the order of priority established by the PNRS, in which recycling should be prioritized in the chain of activities related to waste management. In this respect, the resolution itself establishes that the use of RDF is a form of final disposal of solid waste of lower priority than recycling and higher priority than treatment.

Resolution 47/2020 provides that the RDF preparation unit and the unit where the energy contained in the RDF is recovered will require prior environmental licensing. From this perspective, the environmental license of the unit in which preparation of the RDC takes place must contain the list of wastes authorized for receipt, and it is incumbent on the interested party to implement control and registration of the types of waste to be received, types of RDC produced, and their destinations.

For the use of RDF in industrial boilers and furnaces, a license must be requested from São Paulo State Environmental Agency (Companhia Ambiental do Estado de São Paulo - Cetesb), including the presentation of a specific feasibility study and a conformity test plan.

Cetesb Board Decision No. 73/2020/P, also published on August 6, provides that environmental licensing, both for the RDF preparation units and for enterprises that use the RDF in their boilers and furnaces, will be conducted, in all its phases, by Cetesb's environmental agencies.

These innovations brought in by the São Paulo resolution are welcome, as they provide an environmental gain by allowing the use of waste within the production chains themselves, thus contributing to the extension of the useful life of landfills and reducing the need to open new landfills.

On the other hand, there is criticism of waste-to-energy incineration, such as the fact that, with the burning of materials, much of the energy needed to produce them is lost. In addition, a lot of energy is consumed by the incinerator, and burning generates vaporized water and waste in the form of ashes, only part of which is actually incinerated.

In any case, it is possible to see an opportunity in this regulation of RDF: waste that thus far represented expenses for companies, forced to hire a consignee to send it to the landfill, can, for example, be sold now as raw material for RDF, a possibility to obtain revenue from waste that, for management, represents a cost for the entrepreneur.