Category: Real estate

Almost three decades after their creation in the Brazilian legal system in 1993, Real Estate Investment Funds (Fundos de Investimento Imobiliário - FIIs) have multiplied and gained new uses, formats, and characteristics, especially in recent years, when their number has more than doubled[1] and their use as a form of financing has consolidated and continues to mature.

In this article, we discuss the possibility for FIIs to appear as developers and subdividers of the real estate developments that make up their corporate purpose. Typically, "brick" FIIs, intended for the construction of real estate, develop their ventures indirectly, using a special purpose entity (SPE), in which they hold an equity interest, to exercise the position of developer.

The question is: would it be possible for the FII to develop real estate ventures directly, without the use of an SPE as a vehicle? We believe that yes, and the answer presented here is constructed according to a real estate and registry perspective and part of the consolidated concepts adopted by the law, by the normative instructions (IN) of the Brazilian Securities and Exchange Commission (CVM), and by the domestic case law.[2]

The FII Law and the CVM's understanding regarding IN 472/2008

 The first point to be assessed is the fact that the law regulating FIIs (Law No. 8,668/93 - the FII Law) procies for the investment of funds of FIIs in real estate developments.[3]

By “investment", however, one does not infer "direct development" of real estate ventures, and the CVM is in charge of providing for and regulating this scenario in its Instruction No. 472, of October 31, 2008 (IN 472). Article 45, paragraph 1, of this Instruction expressly authorizes FIIs to develop construction projects. In this case, the FII trustee should exercise effective and direct control over the development of the project.[4] It is also the role of the trustee to represent the FII broadly in all actions necessary to achieve the purpose and investment policy of the FII.

This provision is led by a guiding principle, reflected in various other provisions of IN 472,[5] and is designed to grant the trustee autonomy and full powers to carry out and manage the projects that make up the FII's assets.

The underlying legal logic is that the FII does not have legal personality. Therefore, it is incumbent on its trustee to exercise the attributes inherent to personality. This logic is the result of a discussion regarding the very legal nature of the FII, at the end of which, in a legislative exegesis, the understanding prevailed that the assets are fiduciarily held by the trustee of the FII.

If, on the one hand, the CVM is aligned with the understanding that it is fully possible for the trustee to carry out the development constituting the FII's purpose, the situation is uncertain in the Real Estate Registries.

The IRIB (Brazilian Real Estate Registration Institute) has already been consulted on the subject[6] and has taken a position advocating for the impossibility for FIIs to procure real estate development directly. Some Real Estate Registries occasionally align with this understanding, alleging two reasons: that FIIs do not have legal personality and that there is an incompatibility between the corporate purposes of the trustee[7] and the real estate subdivider and/or developer. In other words, it is argued that FIIs could not be subject to the rights and obligations arising from devleopments and subdivisions. Even if the title were recognized as being that of the trustee instead of the FII, the trustee's actions would not be valid, since the FII trustee's corporate purpose would be incompatible with the activity of a real estate developer.

We believe that this position may be revised in light of the considerations already made regarding the legislator's choice to draw in the concept of FIIs closer to that of the fiduciary business. We will address each point individually to clarify the reasons why we believe that the alleged obstacles do not continue.

Absence of legal personality of the FII and sufficient fiduciary title to the IFI's assets for the trustee to perform the development

 One of the practical consequences of the FII's lack of legal personality is that it is not possible for it to directly own its real estate. [8]

The legal abstraction from which one departs is that ownership of real estate assets comprising the FII's assets is held by the fund’s trustee on a fiduciary basis, in a binding arrangement, which segregates the FII's assets from the trustee's assets and allocates them for an exclusive purpose.[9]

Thus, the trustee will now concentrate, in a secure and legitimate manner, in its name, the assets and liabilities emerging from the complex of obligations necessary to satisfy the corporate purpose, enjoying all the attributes inherent to ownership.

Recognizing the trustee as fiduciary owner, it is certain that the law itself, in this regard, in addition to not generating obstacles to assumption of the position of real estate developer by the trustee, expressly encourages and mandates it, as provided for in the first paragraph of article 45 of IN CVM 472 (mentioned above), in order to ensure the fund's success, providing the necessary security for FIIs to remain attractive to investors.

Absence of compatibility between the corporate purposes of the trustee and the real estate developer and absence of legal prohibition in the laws and regulations on the development of real estate ventures

The possibility of developing ventures must have authorization on two levels: legal and contractual.

From a legal point of view, article 5 of the FIIs provides that FIIs shall be managed by a multiservice bank with an investment portfolio or a real estate credit portfolio, an investment bank, a real estate credit company, a brokerage house, or a securities distribution company, or other legally equivalent entities, provided that they have proper authorization from the CVM to exercise such activity.

The Real Estate Development Law (Federal Law No. 4,591/64), in turn, provides that a developer is considered to be “an individual or legal entity, whether or not a merchant, that, although not carrying out the construction, compromised or effected the sale of ideal fractions of land [...] coordinating and carrying out the development and being responsible, as the case may be, for the delivery, at a certain time, a certain price and conditions, of the completed works." It may be the owner or promissory purchaser of the property on which the real estate development will take place. In turn, the Urban Land Parceling Law (Federal Law No. 6,766/79) believes that the subdivider must be the owner of the property for such purpose, except for the cases of popular parceling in which this proof of ownership is waived.

As is extracted from a review of the laws and regulations applicable to the development of real estate projects, there is, in fact, no real estate development or urban land parceling, a prohibition on having the FII appear as a developer or subdivider. Since the FII may directly acquire ownership of the property on which it seeks to develop the venture via a fiduciary transaction, in which the FII's trustee lends it its legal personality, the requirement of the Real Estate Development Law and the Land Parceling Law would be respected.

In addition, we do not see any incompatibility between the corporate purpose of the FII’s trustee and the activity of a real estate developer. This is because the subject to be reviewed is that provided for in the FII's bylaws and its investment policy. In this respect, it is worth noting once again that the law recognizes the lawfulness of the management of FIIs by various agents, with the trustee being charged with the duty of assuming direct completion of the venture to be developed by the FII.

Final Considerations

 In view of the above, the legal construction seems to us to be coherent and cohesive to the same effect: that of guaranteeing security for investors and purchasers of real estate products.

The FII Law and IN CVM 472, by expressly encouraging and mandating the direct achievement of the purpose of the FII by the trustee, impute to it not only the choice, but also the duty, to perform acts of development of the purpose in a direct manner, ensuring to investors greater predictability of investments. Purchasers of FII products, especially autonomous units, will have a legal guarantee of segregation of assets, generally absent from other development formats, and a guarantee of development by entities with consolidated expertise and reputation, which will be subject to strict control by a regulatory agency, which mitigates the social risk associated with the failure of the development.

However, few institutions have provided management services to FIIs that have as their purpose activities involving real estate development or land subdivision. In addition to the uncertainty mentioned above regarding the possibility of implementing the applicable registrations in the Real Estate Registries, experience shows us that the risk for investors and FIIs trustee linked to the activity, especially in a structure that does not have the limited liability for obligations conferred by a structure that has SPEs, has decreased the appetite of the institutions for this type of product.[10]

For those who wish to explore the evident possibility of direct development, it is advisable to take into consideration the specificities of the specific case and analyze the tax and regulatory issues in order to be sure that the format of direct real estate development by the FII is the most appropriate. It is also necessary to evaluate the risks inherent to the activity of developers and real estate subdividers that would be assumed directly by the FIIs and not by the vehicle (SPE) in which the FII holds an equity interest.

[1] In March of 2015, the number of FIIs registered with the CVM was 249, rising to 540 in March of 2020. Source: Real Estate Market Bulletin, B3, No. 89, of March 19, 2020. Available at: http://www.b3.com.br/data/files/2B/92/A2/B0/B5991710CF51CE07AC094EA8/Boletim%2 0Mercado%20Imobiliario%20-%202020%2003.pdf.

[2] The historical construction of the legal nature of FIIs, at the Brazilian and international levels, has taken place under the debate of several theories, defended by revered legal scholars, conceiving of FIIs either as condominiums or as unincorporated companies. Law No. 8,668/93, in its literal provisions, aligned itself with the so-called "fiduciary property theory" and established as positive law the understanding that FIIs are a commonality of resources under the trustee's ownership. Considering that the Real Estate Registries incline to the latter theory, we have adopted it to achieve the objective proposed. This controversy over the legal nature of the investment funds has currently been overcome due to the enactment of Law No. 13,874/19, which, upon including the new article 1,386-C in the Civil Code, establishes that "investment funds are a commnoality of resources, organized in the form of a condominium of a special nature, intended for investment in financial assets, goods, and rights of any nature."

[3] Law No. 8,668/93. Article 1. Real Estate Investment Funds are established, without legal personality, characterized by commonality of the funds raised through the Securities Distribution System, in the manner set forth in Law No. 6,385, of December 7, 1976, intended for investment to real estate ventures. (emphasis added)

[4] IN CVM 472. Article 45. The fund's participation in real estate projects may occur through acquisition of the following assets: I - any rights in rem in real estate; [...] § 1 When the FII's investment is in construction projects, the trustee shall, irrespective of the hiring of specialized third parties, exercise effective control over the development of the project.

[5] IN CVM 472. Article 30. It is incumbent on the trustee, in compliance with the rules: [...] I - to carry out all operations and perform all acts that relate to the purpose of the fund. and IN CVM 472. Article 32. The fund trustee must: [...] IV - enter into legal transactions and carry out all operations necessary for the execution of the fund's investment policy, exercising, or endeavoring to exercise, all rights related to the assets and activities of the fund. (emphasis added)

[6] Search filed under No. 9.441, of August 28, 2012.

[7] Article 5 of Law No. 8,668/93 provides that FIIs shall be managed by a multiservice bank with an investment portfolio or a real estate credit portfolio, an investment bank, a real estate credit company, a brokerage house, or a securities distribution company, or other legally equivalent entities.

[8]Such restriction does not apply to other types of assets, such as securities.

[9] Article 7: "The assets and rights that are part of the assets of the Real Estate Investment Fund, in particular real estate held under the fiduciary ownership of the trustee institution, as well as profit and income therefrom, are not mixed with the assets of the latter [...]."

[10]As they do not have legal personality, investment funds do not currently confer limited liability on the investment made by their unitholders. Law No. 13,874/19 established that an investment fund’s bylaws may establish: (a) limitation on the liability of each investor to the value of its units; and (b) limitation of the liability, as well as the parameters for its assessment, of the service providers of the investment fund, vis-à-vis the condominium and among themselves, for fulfilment of the particular duties of each one, without joint and several liability. However, this limitation of liability is still pending regulation by the CVM. After the CVM issues rules to this effect, it is possible that the institutions will have more comfort in managing FIIs that have as their purpose activities involving real estate development or subdivision, due to the possible limitation of liability to the investor and to the trustee itself as service provider.

Category: Infrastructure and energy

Ana Karina E. de Souza, Fabio Komatsu Falkenburger, Carolina de Souza Tuon and Luisa Andrade Costa e Silva Rodrigues

On August 11, the Anvisa board (National Health Surveillance Agency) unanimously approved the opening of public consultation on a proposed resolution that will regulate the new health security protocol in aircraft and airports in Brazil, with the aim of strengthening the fight against Covid-19. Public Consultation No. 894/20 will be open to receive contributions between August 26 and September 9, 2020.

The debate on this issue, which was already provided for in the 2017-2020 regulatory agenda, had its urgency accentuated with the declaration of a global public health emergency, which led to the need to improve health control methods at ports, airports, and borders.

Even though it has already presented measures to reduce the transmission of coronavirus in Brazil, such as divulging general guidelines for entry into the country through airports, assigning health inspection teams, and maintaining medical stations to detect suspicious cases, the federal government had to strengthen existing public health measures and establish others.

This was the objective of Law No. 13,979, published on February 6, 2020, to provide for actions that authorities may take to address the health emergency. In order to protect the public, subsection VI of article 3 of the law also authorizes Anvisa to adopt exceptional and temporary restrictions on entry and exit from Brazil via highways, ports, and airports to deal with the health crisis.

Interministerial Ordinance No. 1, published on July 29 with the participation of the Office of the President of Brazil, the Ministry of Infrastructure, the Ministry of Justice, and the Ministry of Health, regulated exceptional and temporary restriction on the entry of foreigners into Brazil indicated above via land and water transportation, but did not prevent the entry of persons of any nationality by air. Therefore, foreigners can still enter Brazil through airports, as long as they meet the migration requirements. For stays of up to 90 days, it is also necessary to prove before boarding the acquisition of health insurance valid in Brazil for the entire duration of the trip. Otherwise, entry may be prevented by the migration authority, prompted by the health authority.

On May 19, Anvisa also published Technical Note No. 101/20 to update the health measures to be adopted in airports and aircraft with recommendations to combat SARS-CoV-2, including limiting the capacity of bus rental to travel between terminals, organizing the movement of people in terminals, suspending on-board services on domestic flights, and following the guidelines of the World Health Organization (WHO).

To date, there is no regulation by Anvisa giving airport health inspectors the option of requiring conduct  from passengers, commercial facilities, or persons responsible for means of transport to control the spread of Covid-19.

The establishment of Public Consultation No. 894/20 seeks precisely to support the actions of these inspectors and contemplate the recommendations established by the WHO with more efficiency, reinforcing measures to combat the pandemic, such as the use of masks, adoption of social distancing, hand hygiene, among others.

Following the technical guidance of epidemiological surveillance and the Ministry of Health, the proposal aims to implement health measures in airports and aircraft after analyzing comments and suggestions from the general public and, especially, from actors directly impacted, such as airport terminal managers, transport operators, service providers, and companies operating in airports.

The text of the public consultation with the draft resolution was released by Anvisa and reiterates all the measures adopted so far. They should be adopted by all travellers, airport terminals, airlines, service providers, and companies in operation. The text also provides for denial of boarding to travellers who have a diagnosis or symptoms of Covid-19.

Category: Labor and employment

Federal Decree No. 10,470/20, published on August 25, extended the time limits for employers to suspend their employees' employment contracts or to reduce, proportionally, working hours and salaries.

Created by Executive Order No. 936/2020 (later converted into Law No. 14,020/20), these two labor instruments are part of a range of emergency measures promulgated by the federal government still during the beginning of the crisis caused by the covid-19 pandemic to confront the state of public calamity.

The authorization to negotiate individually the reduction of salary and working hours or to suspend employment contracts was well received by employers throughout Brazil, in the face of the abrupt stoppage of the national productive sector caused by the social distancing measures decreed by states and municipalities. With the extension of the time needed for social distancing, the time limit for implementing these measures has recently also had to be extended.

On April 1, the date of the publication of MP 936/2020, the Executive Branch had believed it sufficient to provide for the possibility of proportional reduction of working hours and salary for 90 days and suspension of employment contracts for 60 days. Soon, however, a need was found to extend the measure in order to combat the crisis and the sudden rise in unemployment. Thus, on July 13, Decree No. 10,422/20 increased by 30 days the possibility of reducing working hours and salaries and by another 60 days the possibility of suspending employment contracts, equalizing the terms of the two instruments, each of which became effective for 120 days in total.

However, the Executive Branch made it clear that if the employer chose to implement both measures for the same employee, their total duration could not exceed 120 days. In other words, the employee could only be affected by changes in salary and working hours or suspension of contract for a maximum period of 120 days.

However, faced with the maintenance of the state of public calamity, the different stages of the pandemic throughout Brazil and, especially, the low median business activity, the federal government decided to issue a new decree (10,470/20), extending the time limits of these instruments for another 60 days. Thus, employers are now allowed to use such legal tools for up to 180 days, subject to the decreed deadline of the public calamity.

Decree 10,470/20 also provides for the payment of the Emergency Benefit for a further two months to employees with an intermittent employment contract. Considering the four months already granted, this group of workers will be covered by the Emergency Benefit for a total period of six months.

The mechanisms in question are combined with the payment of the Emergency Benefit to employees who have had their employment contracts changed. In other words, employees who have had their salaries reduced and contracts suspended continue to receive the benefit as long as the change in the employment contract persists.

Category: Litigation

On August 26, 40 restatements of law were published, after approval at the 1st Working Group of Administrative Law, held by the Center for Judicial Studies (CEJ) of the Federal Judiciary Council (CJF) between August 3 and 7. Among them, three stand out regarding strategic partnerships entered into by state-owned companies, which help in understanding various legal issues that have arisen since the enactment of Law No. 13,303/16 (the State-Owned Enterprises Law).

The working group was held in a virtual format, due to the coronavirus pandemic (COVID-19) and aimed at consolidating interpretations of current administrative law rules. Hundreds of experts participated, including university professors, federal and state judges, members of the Public Prosecutor's Office and the Federal Auditing Court (TCU), as well as public and private lawyers. All the restatements of law approved are available for consultation at the CJF website.

The restatements on strategic partnerships entered into by state-owned companies are based on article 28, paragraph 3, subsection II, and paragraph 4 of the State-Owned Enterprises Law. The text expressly sets aside the public tender process “in cases where the choice of the partner is associated with its particular characteristics, linked to defined and specific business opportunities, justified by the unfeasibility of a competitive procedure.”

As a result of the work done during the event, three restatements on the subject were approved:

• Restatement No. 30[1] establishes the understanding that the "unfeasibility of a competitive process" provided for in article 28, paragraph 3, subsection II, of Law No. 13,303/16, does not mean the existence of a single party interested in entering into the strategic partnership. The interpretation of the provision of law, with which one agrees, shows that plurality of competitors is irrelevant, because the state-owned company must choose the private partner capable of offering the business opportunity best suited to the purposes of the partnership intended.

• Restatement No. 22,[2] in turn, expressly provides for a scenario of a "business opportunity": the participation of a state-owned company in the capital of a private company that is not a part of the Public Administration. To this end, the relevant provisions of the state-owned company’s bylaws must be observed.

• On the other hand, Restatement No. 27[3] provides that, for the "unfeasibility of competition" resulting from a business opportunity to be established, it must be impossible for there to be an objective comparison between interested parties, in the case of a partnership and corporate restructuring proposals, or, further, the need for a competitive procedure, when the proposal can be offered to all interested parties.

The approval of such restatements signals a certain easing of the resistance that still exists in relation to the signing of strategic partnerships between state-owned and private enterprises, reinforcing the spirit of the State-Owned Enterprises Law: to innovate, to make the management of public enterprises and government-owned companies more flexible and efficient, especially in relation to the rules on bidding and contracting. Precisely because of the search for efficiency, the exploration of economic activity often demands a combination of efforts between public and private economic agents in a less hierarchical manner and with a more balanced allocation of risks between the parties, as occurs in strategic partnerships.

Moreover, the approval of such restatements indicates an effort to achieve the precise meaning of normative concepts that are often obscure for those applying the law, such as the terms "business opportunities" and "unfeasibility of the competitive procedure".

The issue related to the execution of strategic partnerships by state-owned companies was addressed by the TCU within the scope of Representation No. 022.981/2018-7, made by the Bureau of Inspection of Water Infrastructure, Communications, and Mining (SeinfraCOM) of the TCU and authored by Justice Benjamin Zymler. The purpose of the representation was to analyze the legality of the partnership agreement entered into by the state-owned company Telecomunicações Brasileiras S.A. (Telebras) and the Brazilian subsidiary of the American company Viasat,[4] to operate the Ka band (non-military) of the first national Geostationary Defense and Communication Satellite (SGDC-1).

The strategic partnership agreement was signed in accordance with the rules of private law, as provided for in article 68 of the State-Owned Enterprises Law, expanding Telebras' negotiating freedom, removing red tape from the public contracting system, and benefiting the parties in the pursuit of their particular objectives, also associated, however, with public purposes.

The TCU en banc found that the execution of a strategic partnership agremeent without a prior bidding procedure is supported by the State-Owned Enterprises Law, not because it was a case of waiver or unenforceability of bidding (provided for in articles 29 and 30), but due to the fact that the bidding procedure was unfeasible in the case, due to the existence of a defined business opportunity and the unique characteristics of the private partner, which would meet the interests of Telebras in the operation of the satellite.

Justice Benjamin Zymler highlighted that Telebras was able to establish objective criteria to evaluate the existence of a business opportunity, related to the achievement of the purposes of public policies involved in the scope of the partnership, such as the National Broadband Program (PNBL). The judgment, which took place on October 31, 2018,[5] marked a milestone in the TCU's confrontation of the issue and will certainly serve as a precedent for the analysis of issues related to strategic partnerships.

Combined with the unprecedented decision by the TCU in the judgment of the representation mentioned above, restatements No. 22, 27, and 30 further broadened the understanding regarding the possible application of private law rules in matters of public procurement, contributing to dispel the (non-existent) "general principle of bidding processes" and giving precedence to the efficiency of the Public Administration, through the dissemination of the understanding favorable to the application of direct contracting modalities.

[1]"The 'unfeasibility of a competitive procedure' provided for in article 28, paragraph 3, subsection II, of Law No. 13,303/2016, does not mean that, in order to establish a business opportunity, there can only be one party interested in establishing a partnership with the state-owned company. It is possible that, even in the presence of more than one interested party, a competitive procedure is unfeasible."

[2]"The participation of a state-owned company in the capital of a private company that is not a part of the Public Administration fits within the scenarios of 'business opportunities' provided for in article 28, paragraph 4, of Law No. 13,303/2016, and decisions in favor of such participation must comply with the legal dictates and regulations issued by the state-owned company regarding this possibility."

[3] "The contract for entering into business opportunities, as provided for in article 28, paragraph 3, II, and paragraph 4 of Law No. 13,303/2016 must be evaluated in accordance with the practices of the sector in which the state-owned company operates. The mention of the unfeasibility of competition for the realization of the business opportunity should be understood as being impossibility of objective comparison in the case of partnership and corporate restructuring proposals and as an unnecessary competitive procedure when the opportunity can be offered to all interested parties."

[4]Viasat Brasil Serviços de Telecomunicações Ltda. was represented by Machado Meyer before the TCU.

[5] Appellate Decision No. 2,488/2018.

Category: Tecnology

The General Personal Data Protection Law - LGPD (Law No. 13,709/18), which brings in rules on how personal data shall be processed, will enter into force within the next few days, as soon as the bill of law converting Executive Order No. 959/20 is signed by the Brazilian President.

LGPD brought in a new system of rules for the processing of personal data in Brazil and was scheduled to be implemented on August 16, 2020. Because of the covid-19 pandemic, debates and initiatives related to a potential postponement of the LGPD have been taking place within the Brazilian Congress since March of 2020. On April 29, the Executive published Executive Order 959 to put into operation the monthly emergency benefit paid due to the pandemic and to extend the LGPD implementation to May 3, 2021.

In an extraordinary deliberative session of the House of Representatives held on August 25, the conversion into law of Executive Order 959 was approved, contemplating an amendment that established the entry into force of LGPD by the end of this year. However, during a virtual floor session held on August 26, the Speaker of the Federal Senate received a question of order considering the pre-judgment of the matter by the floor previously. Thus, the provision in Executive Order 959 dealing with the extension of the LGPD was recognized as moot and withdrawn from the text.

Given that scenario, the effective entry into force of the LGPD will occur after signature or veto of the conversion bill that amended the original text of Executive Order 959, as per article 62, paragraph 12, of the Federal Constitution, which should occur in the coming days. Articles 52, 53, and 54 of the LGPD, which deal with administrative sanctions, will only enter into force on August 1, 2021, as set forth in Law No. 14,010/20.

Also, on August 26, the Federal Executive issued Decree No. 10,474/20 approving the regulatory structure and the statement of commission positions and functions of trust of the National Data Protection Authority (ANPD). The decree will enter into force on the date of publication of the appointment of the ANPD's chief executive officer in the Federal Official Gazette.

Under the terms of the LGPD, the ANPD's president and the other members of the ANPD's executive board shall be chosen by the President of Brazil and appointed after approval by the Federal Senate.

What to do?

It is important to resume or accelerate ongoing adequacy projects and work with contingency scenarios, depending on the degree of maturity of the respective projects. It will also be advisable to monitor the developments of the implementation of the ANPD in the coming days, including the profile of the Executive Board.

The LGPD will enter into force without further regulation by the ANPD and with the chance that it will not even have its executive board appointed. Although administrative sanctions are postponed until August of 2021, the entry into force of the law makes its obligations enforceable, including allowing for the civil liability of processing agents vis-à-vis the personal data subjects. In addition, other administrative sanctions in the Brazilian legal system, such as those provided for in the Consumer Protection Code or the Brazilian Civil Rights Framework for the Internet, are in force and can be fully applied when connected to violations related to personal data.

Category: Litigation

The most varied and possible crisis scenarios are always cause for concern and planning. Companies focus on numbers, goals, contracts, reputation, inventory, sales, tangible and intangible risks, natural and technological accidents, criminal actions, and data protection. Individuals impacted by economic instability, to a lesser or greater degree, worry about jobs, investments, debts, and so many other commitments. Public authorities demand an immediate response from individuals and companies to minimize (and sometimes resolve) disputes and ensure social welfare. That is what we have seen since the beginning of the year 2020. The effects of the poignant world crisis unleashed by the covid-19 pandemic are immeasurable and have affected all sectors of society.

In this context of so many uncertainties, it is important to reflect on the movement of the already troubled Judiciary for resolution of disputes resulting from the crisis we are experiencing. The economic recession faced by companies and the citizens’ loss of income are directly proportional to the increase in the number of new disputes of all kinds: family, consumer, labor, contractual, corporate, bankruptcy, judicial reorganization, etc.

In addition to the losses resulting from the stoppage or reduction in operating activities with the unpredictable quarantine period, companies’ problems can be greatly aggravated by cases that last for years on end. Disputes demand a rapid response from institutions in order to allow resources to circulate and, with this, for companies to resume the course of business and for citizens to honor their commitments. At stake are not only the allocation of endless resources (of the parties and the Judiciary) to litigation over the years, but also the wear and tear of those involved, the credibility of the company, the viability of the business, and, ultimately, the generation of jobs.

The traditional method of resolving disputes with the filing of claims, an adversarial process, production of evidence, judgment, and appeals should be the last way to resolve disputes related to the present moment in which we live.

Without the purpose of pointing out alternative methods of dispute resolution as a remedy for the pathologies of the Judiciary, the objective of this article is to demonstrate the importance and advantages of reaching good solutions via mediation, especially in times of crisis. In the absence of precedents that apply to the situation we live in (nothing is found in the courts that serves as a guide for resolution of judicial disputes related to the pandemic), it is not possible to predict the probability of success of this or that judicial measure. The unpredictability of the outcome of judicial measures, combined with the need for rapid circulation of resources, considerably increases the advantages of using mediation as a means of dispute resolution.

One of the most relevant factors associated with the effectiveness of mediation is the voluntary settlement by the parties without direct and partial interference by the mediator. They can engage a professional specialized[1] in the dispute, raising the level of discussions and contributing to the dialogue. Reaching a settlement is the common goal of the parties, which contributes to mutual satisfaction and provides greater chances for fulfillment of the agreement. There is no need to point to who was right or wrong, who lost or who won, the important thing is to reconcile interests and allow both parties to continue their activities.

Surveys confirm that mediations in countries with broad adherence to this private method have very high rates of success, around 89% in the United Kingdom and 75% in the United States in 2017.[2] The same studies estimate that roughly 70% to 90% of the cases litigated in the United States end in settlement. Also, in terms of satisfaction, a study conducted with 368 companies in the "Fortune 1000" ranking in 2011[3] indicates that 98% would used mediation in the prior three years and 89% indicate likely use of mediation in the future.

Unlike mediation, traditionally litigious dispute resolution, through a judge in the Judiciary and arbitrator or arbitral tribunal in arbitration, rarely resolves the real dispute and adapts to the interests of the parties. Dissatisfaction and reluctance with respect to the judicial relief results in the lodging of appeals and the use of other manoeuvres which may delay the outcome of the dispute for years, causing immense wear and tear for the parties.

Time is another extremely relevant factor to consider in the use of mediation in an attempt to resolve a dispute. According to data published in the "Justice in Numbers" report in 2019,[4] the average duration of a private mediation proceedings is up to four and a half months, while arbitration, in turn, may take up to two and a half years to result in an arbitral judgment. Judicial proceedings, the longest, take on average four years and ten months until a trial judgment is issued. When the nature of the cause is bankruptcy or judicial reorganization, the time for an outcome is doubled or tripled.

The consequences of the exacerbated volume of claims and structural deficiencies in the Judiciary are disastrous when considering the time factor for dispute resolution. Often, judicial relief may no longer suit the interests and factual reality of companies when it is pronounced, resulting in inestimable practical consequences. In this crisis scenario, it is not out of line to say that many companies may not survive the time of waiting on these claims.

The speed of the mediation process naturally means a reduction in the costs incurred by the parties. It is worth mentioning that the sums involved in mediation proceedings, both in private chambers and in the Judiciary, are remarkably low compared to the costs of a lawsuit or arbitration proceedings. Many private chambers also have special conditions with the possibility of reducing costs if the mediation fails or if the proceeding is conducted during the course of an arbitration.

In addition, the rationalization of costs is considerable when considering, globally, the impacts of a successful mediation, such as the prevention of repetitive claims in court, which, in addition to overloading the Judiciary, requires funding expenses, costs, payment of judgments, fees for loss in suit, etc. In this regard, it is relevant to mention that there are emblematic and complex cases that have been resolved by means of chambers for compensation involving mediation. This experience has already been seen in air accidents (Chamber of Compensation 3054, related to the compensation of the relatives of the victims of flight JJ3054, and Compensation Program 447, related to the compensation of the relatives of the victims of flight AF 447); environmental accidents (PIM - Mediated Compensation Program, related to the compensation of those affected by the breach of the Fundão Dam, and CIB - Dam Compensation Center, related to the compensation of those affected by the breach of the Brumadinho Dam); mass consumer issues involving telecommunications services; and even issues involving the negotiation of telephone company claims under judicial reorganization, as determined by the 7th Business Court of the Rio de Janeiro State Court of Appeals in 2017.

In the midst of the crisis caused by the covid-19 pandemic, the São Paulo State Court of Appeals' Internal Review Board, per Provision No. 11/2020, instituted a pilot project for conciliation and pre-trial mediation for business disputes resulting from the pandemic. Innovative, the resolution includes judges in the pre-trial phase to hold a conciliation session with the parties, who must be referred to mediation if the attempt is unsuccessful. The mediator shall be chosen by common agreement of the parties and, in the event of disagreement, appointed by the judge. The parties only have to prepare an application to initiate the procedure, via e-mail, with the appropriate party information/identification, claim, and cause of action. The sessions must be conducted in electronic format, through Microsoft Teams. The provision does not, however, provide for the use of the method in matters involving applications for judicial reorganization and bankruptcy, which has already been applied by the Rio de Janeiro State Court of Appeals.[5]

In the same vein, the National Council of Justice (CNJ) announced in May of this year the launching of an online platform for mediation, precisely to avoid a build-up of post-pandemic lawsuits.

Although there may be cultural resistance, it is necessary to carefully analyze all the advantages that the mediation procedure offers and may come to offer to companies and businesses, including structural aspects that do not seem to make up the conflict in question, but which constitute a broader and more contemporary view of access to justice.

The current crisis scenario requires the Judiciary, more than ever, to focus on the adoption of preventive measures to avoid the filing of many cases to litigate contracts and claims for the application of disclaimers of liability due to force majeure or unforeseeable circumstances, for example. In essence, the effective economic recovery of companies and businesses is a condition for Brazil’s economic recovery and social peace. In this scenario, mediation constitutes an essential and undeniably practical tool for achieving these objectives, contributing to the management of crises such as the current one and others of so diverse a nature. In the end, every crisis brings to light forced structural changes which, despite the difficulties, certainly contribute to the cultural evolution of society and institutions.

[1] In addition to the various national and international private institutions focused on the expertise of professionals to act as mediators in business disputes, the courts maintain agreements with training courses so that professionals can act in Cejuscs.

[2] https://www.german-resolver.de/resources/The_Eighth_Mediation_Audit_2018-2.pdf

[3] Cornell’s Survey Research Institute, 2011.

[4] CNJ, Justice in Numbers 2019, https://www.cnj.jus.br/wp-content/uploads/conteudo/arquivo/2019/08/justica_em_numeros20190919.pdf

[5] All the information regarding the procedure is available at Provision No. 11/2020 of the TJSP's Internal Review Board https://www.tjsp.jus.br/Download/Portal/Coronavirus/Comunicados/Provimento_CG_N11-2020.pdf.

Category: Environmental

Brazil signed the Nagoya Protocol on February 2, 2011, but its contents remained with the House of Representatives for eight years until it was referred to the Federal Senate for review on July 9 of this year. Last August 6th, the Senate approved Draft Legislative Decree No. 324/20, which ratifies the protocol. The text is now going for promulgation.

Signed at the 10th Meeting of the Conference of the Parties to the Convention on Biological Diversity (CBD) - COP-10, held in October of 2010, the Nagoya Protocol attends to three objectives discussed at the CBD: (i) conservation of biodiversity; (ii) sustainable use of natural resource components; and (iii) fair and equitable sharing of the benefits arising out of their use.

The agreement is considered a milestone in the international management of biodiversity, with the aim of promoting its sustainable use and creating a social and environmental apparatus of retribution for the communities and peoples with associated traditional knowledge.

Among the various rules brought in by the protocol, the sovereignty of countries over their genetic resources stands out. Thus, any exploitation by foreign companies or organizations is subject to the express authorization of the countries holding these resources. Part of the profits from the production and marketing of products resulting from the exploitation of genetic resources should also be shared with the country of origin.

The ratification of the Nagoya Protocol will reinforce the provisions of Federal Law No. 13,123/15, which deals with access to genetic heritage and associated traditional knowledge, as well as the sharing of benefits for conservation and sustainable use of biodiversity.

After the enactment of the ratification of the protocol, Brazil may also participate in international deliberations on the protection of biodiversity, any national interests, and obtaining new genetic resources from countries that are already party to the treaty.

It is expected that the ratification of the protocol will also allow access to genetic heritage from other countries and effective sharing of benefits from technological developments involving Brazilian biodiversity, with scientific advances in Brazil and promotion of economic development.

Category: Labor and employment

The 2^nd Section of the Superior Court of Justice (STJ) reaffirmed the understanding that it is incumbent on the courts of common jurisdiction (Justiça Comum) to decide claims related to self-managed corporate health insurance plans, except when the benefit is instituted in an employment contract or collective bargaining agreement. In this case, Labor Courts will have jurisdiction to rule, even if a retired worker or dependent of the worker appears as a party of the dispute.

The matter was decided in Incidental Proceeding for Assumption of Competence (IAC) No. 5/STJ[1] and, as it is a qualified precedent, it will guide the lower courts.

In the judgment, the Justice writing for the court, Paulo de Tarso Sanseverino,  who had proposed resumption of the case law that prevailed in the STJ[2] until 2018 recognizing the jurisdiction of the Labor Courts to rule claims in which the health insurance plan is operated by the company that hired the worker (self-management) due to the understanding set by the Supreme Court (STF) in the judgment of RE No. 586.453/SE under the general repercussion regimen, dealing with the competence of the Labor Courts for claims related to supplemental retirement, did not prevail.

According to the Justice writing for the court, in the absence of a rule analogous to article 202, paragraph 2, of the Brazilian Federal Constitution (FC) (which provides for the autonomy of supplementary pension plans in relation to the employment contract) to specifically deal with supplementary health plans, it would not be possible to exclude the direct relationship between the employment contract and the health insurance plan contract, from the standpoint of worker and their dependents, in view of article 114, I and IX, of the FC.

However, the position captained by Justice Nancy Andrighi prevailed by maintaining the current case law of the STJ[3] to the following effect:

• the jurisdiction of the Labor Courts is restricted to disputes where the health insurance plan is (i) corporate self-management and (ii) instituted through an employment contract or a collective bargaining agreement. This is because such circumstance binds the health insurance benefit to the employment contract and calls for the application of article 114 of the FC and article 1 of Law No. 8,984/95; and

• in all other cases, the courts of common jurisdiction have jurisdiction.

Justice Nancy Andrighi highlights that, just as the STF held with respect to supplementary pension plans, the central foundation of the STJ's current understanding is the autonomy of health insurance plan contracts in relation to employment contracts in view of the elevated regulation of the supplementary health sector, which is not appropriate to the labor courts, nor can it be placed within "other controversies arising from the employment relationship," per article 114, IX, of the FC.

Therefore, in the absence of dispute regarding the employment contract or labor rights, it is a matter of an eminently civil nature, which calls for the competence of the courts of common jurisdiction, even in the case of corporate self-management health insurance plans, a modality in which the operation of the health plan is carried out by the Human Resources department of the company that hired the worker, in attention to article 2, I, of Normative Resolution No. 137/06 of the National Supplementary Health Agency (ANS).

The current understanding of the STJ (now in a qualified precedent) affirming the jurisdiction of Labor Courts only in disputes where the rules regarding the health insurance involves self-management corporate plans and are provided for in an employment contract or collective bargaining agreements seems to us the to be the most correct, whether due to its observing constitutional competence or due to its respect for the autonomy of the legislation governing health insurance contracts, therein resolving once and for all all doubts regarding the competent court and bringing legal certainty for companies.

Besides guiding state courts, the precedent is relevant because it tends to eliminate the great waste of time caused by the repetition of procedural acts when there is a finding of lack of jurisdiction for the Labor Courts in actions relating to a health insurance plans that would be within the competence of the courts of common jurisdiction, especially because it deals with a right inherent to the very dignity of the human person, such as health care.

Decisions that do not comply with the STJ's understanding may be challenged directly in court through a complaint (article 988, IV, of the Code of Civil Procedure). There is no need to wait for a potential claim of conflict of jurisdiction or for a special appeal in an interlocutory appeal, as occurred in the case under examination.

[1] Issue examined in Special Appeal No. 1.799.343/SP and Conflicts of Competence No. 165.863/SP and 167.020/SP

[2]AgInt no REsp 1.630.686/SP, opinion drafted by Justice Moura Ribeiro, Third Panel, decided on March 21, 2017, published in the Electronic Gazette of the Judiciary on April 3, 2017

[3]CC 157.664/SP, opinion drafted by Justice Nancy Andrighi, Second Section, decided on May 23, 2018, published in the Electronic Gazette of the Judiciary on May 25, 2018; REsp 1.695.986/SP, Justice Ricardo Villas Bôas Cueva, Third Panel, decided on February 27, 2018, published in the Electronic Gazette of the Judiciary on March 6, 2018.

Category: Infrastructure and energy

The National Electric Energy Agency (Aneel) approved, on August 6, the bid notice for Transmission Auction No. 1/2020, scheduled for December 17 of this year. It is an important step towards resumption of the pace of growth that the electricity sector was experiencing before the crisis. The event is the first to occur after the Ministry of Mines and Energy's decision to postpone energy and transmission auctions, announced at the beginning of the covid-19 pandemic in Brazil.

Eleven lots will be traded at the auction, spread over nine Brazilian states: Amazonas, Bahia, Ceará, Espírito Santo, Goiás, Mato Grosso do Sul, Minas Gerais, Rio Grande do Sul, and São Paulo. Investments of R$ 7.4 billion are expected, in addition to the contracting of 1,958 km of new transmission lines. The states of Rio Grande do Sul and São Paulo concentrate the largest number of new transmission facilities. According to the call notice, the deadlines for completion of works vary from 42 to 60 months.

Two of the lots contain projects to revitalize facilities currently managed by the Companhia Estadual de Geração e Transmissão de Energia Elétrica (CEEE-GT) and by Amazonas-GT. In the case of Amazonas-GT specifically, the assets will be auctioned because of the concessionaire's decision not to renew its concession contract.

As usual, the entities which may participate in the auction, as bidders, provided that they fully comply with the provisions of the public bid notice and the legislation in force, are: (i) legal entities under public or private law, domestic or foreign, and private equity funds, alone or combined in a consortium; or (ii) complementary welfare entities, combined in a consortium with private equity funds and/or another complementary welfare entity, provided that the consortium has the participation of one or more legal entities under private law that are not a private equity fund or supplementary pension entity.

The bid notice approved brings in a novelty: according to item 14.6, after the concession agreement is signed, transfer of corporate control of the concessionaire will be forbidden before the commercial operation of the facilities granted, except in cases where the transfer of corporate control is considered an alternative to the extinguishment of the concession with a benefit for the adaptation to the provision of the service, under the terms of article 4-C of Law No. 9,074/95.

This change represents a new position of Aneel in order to attract investors who will fully comply with the transmission line construction obligations. The restriction, however, may lead to less competition, as many investors who won transmission lots at auctions used transfer of corporate control as a means of raising funds for the construction of transmission lines.

Aneel also approved the possibility that Eletrobras and its affiliates participate in the auction. The bid notice will be sent to the Federal Accounting Court for review and, in case of changes in the text, to Aneel’s Executive Board for further consideration.

Category: Tecnology

Approved by the Federal Senate on June 30 and still pending consideration by the House of Representatives, Bill of Law No. 2,630/2020 establishes the Brazilian Law on Freedom, Responsibility, and Transparency on the Internet, nicknamed the "Fake News Law". The text proposes to define "standards, guidelines, and transparency mechanisms" for social networks[1] and private messaging platforms,[2] but ends up establishing several obligations for providers,[3] who will have new roles and responsibilities in their operations and in the moderation of content.

Placed in a specific political and social context, the Fake News Bill of Law emerges as an attempt to stop the dissemination of fake news on the internet and to mitigate its impacts in the social, electoral, and public health spheres. However, the approved draft does not contain a definition of the term "fake news", directing its focus on inauthentic behavior of users accounts on social networks and on transparency regarding paid content, which will be moderated by application providers.

Even though the purpose of the law is legitimate, these moderation practices raise a number of concerns, among them: the extension of liability of application providers and the risk of censorship and violation of users' rights to information, freedom of expression, and privacy.

In this analysis, we highlight some of the obligations imposed by the Bill of Law on application providers and possible effects thereof.

Measures regarding accountability and transparency in the use of social networks

The Bill of Law establishes several measures that providers should adopt to protect freedom of expression and access to information, among which we highlight those related to (i) prohibition of inauthentic accounts; (ii) prohibition of automated accounts not identified as such; and (iii) obligation to identify promotional and advertising content.

• Inauthentic accounts are defined by the Bill of Law as profiles that assume or simulate the identity of third parties in order to deceive the public, with the exception of accounts that are explicitly humorous or parodies, as well as those that identify corporate names or pseudonyms. According to the Bill of Law, providers should adopt measures, within the scope and limits of their service, to prohibit the operation of such accounts with a view to protecting freedom of expression and the right of access to information, as well as promoting the free flow of ideas on the internet.

• The Bill of Law also provides that social networks should require the identification of automated accounts, which is to say, accounts managed by technology that simulates or replaces human activities in the distribution of content on social networks, popularly known as "robot accounts". If the automated account has not been identified as such to the providers or the public, the providers may request confirmation of identification by presenting a valid identity document, under penalty of deletion of the account..

In addition, the Bill of Law imposes on providers the responsibility to develop mechanisms to "detect fraud in the registration and use of accounts in breach of the legislation", as well as to track and control the behavior of automated accounts in order to confirm their authenticity.

• Finally, the Bill of Law provides that providers must identify promotional and advertising content in a prominent manner for the users, including when later shared, forwarded, or passed on. The identification of the promotional and advertising content must contain information regarding the account responsible for the action or the advertiser, including contact information.

The obligation to maintain this identification can be quite complex, since such content, even if initially identified, can be modified by users when the content is shared, making it difficult to control the changes and dissemination of the modified content.

In addition, the obligation to provide contact information of the responsible person or the advertiser to the users who request it, in a broad and undefined manner, may give rise to abusive, whith no legitimate interest, as well as cause damage to the privacy and freedom of expression of its owners.

Moderation and transparency proceedings

Also under the justification of guaranteeing the right of access to information and freedom of expression for users of social networks, the Bill of Law establishes "moderation proceedings" that must be complied by the providers.

It is important to highlight that the Brazilian lawsalready establish the obligation of providers to comply with the principle of transparency in offering their services, and to make available their terms of use in a clear language. The new regulation instituted by the Bill of Law would now oblige providers to also make available mechanisms for users to question their actions (as in the case of account deactivation), as well as notify the user regarding the application of the measure and the respective grounds.

There are situations, however, that would dismiss the notification of the user, such as in the case of violation of children's and adolescents' rights or if there is a risk of "immediate damage that would be difficult to repair". In such cases, it would be incumbent on the provider to make the account or content unavailable, without the need to notify users.

The Bill of Law further establishes that the provider shall be responsible for repairing, within the scope and technical limits of the services, any damage arising from erroneous moderation. However, it is not clear what form this remedy would take (whether it would only correspond to make the content mistakenly removed available again or whether it would include, for example, indemnification for moral and material damages), which leaves room for expansion of the providers’ liability.

The operations of the providers, as established in the Bill of Law, must be demonstrated based on the preparation of a report concerning the measures for moderation of content and accounts applied by the provider to be published quarterly. This report must contain information such as the grounds and methodology used to detect irregularities and the type of measures taken.

In addition to being released to the public, the report may be evaluated by the Internet Transparency and Accountability Board, a body that will be responsible for monitoring the measures established by the Bill of Law and suggesting guidelines on the subject.

Extension of providers’ civil liability and risks to users’ freedom of expression and right to information

Currently, the civil liability of application providers for content generated by third parties is regulated by Law No. 12,965/2014, popularly known as the Brazilian Civil Rights Framework for the Internet. According to this law, application providers may only be held civilly liable for damages arising from content generated by third parties if, after a specific court order, they have not taken the applicable measures to make unavailable the content indicated as infringing.

That is, under current legislation, application providers do not have the obligation to previously inspect content generated by third parties. They are only obliged to make such content unavailable if they receive a specific court order determining such removal.

However, Bill of Law No. 2,630/2020 changes this model by imposing to the social network providers and private messaging services the obligation to moderate the content posted by their users and to make it unavailable if it violates the platform's terms of use or the law, regardless of receiving a court order.

This new model increases the liability and power of application providers, as it removes from the judiciary and places on these companies the burden of analyzing the content published by users and determining who they consider to be in violation of the law or their terms of use. Two main problems arise from this:

• The first is the expansion of the platforms' civil liability, as they will now be held liable, irrespective of a court order, both for infringing content that they fail to remove and for content that has been mistakenly made unavailable. This expansion is quite problematic because it imposes a disproportionate burden on application providers, which may end up making their activities unfeasible.

• The second is the risk of censorship and violation of users' rights to information and freedom of expression, insofar as it gives application providers the power to determine what may or may not be published on their social networks, which today are one of the main means of communication.

Although the purposes of Bill of Law No. 2,630/2020 are laudable, the way it is proposed to combat the dissemination of fake news is quite problematic, as it ends up legitimizing situations of violation of the users’ rights to information, freedom of expression, and privacy perpetrated by private agents and, at the same time, it also increases the liability of these agents, which may render their activities unfeasible.

The fight against the misinformation aimed at by the Fake News Law is urgent, but hasty regulations can have serious consequences for internet freedom. As seen, Bill of Law No. 2,630/2020 is complex and encompasses sensitive topics that need to be discussed from different perspectives with civil society, in a manner similar to  the one that occurred during the discussions regarding the Brazilian Civil Rights Framework for the Internet.

Society, as the most interested party, should be invited to participate in the discussions regarding the Bill of Law, helping the Legislature find alternatives to the management and moderation of content by providers, with the aim of guaranteeing fundamental rights in the virtual world, especially freedom of expression and right to information, the prohibition of censorship, and the protection of privacy.

[1] The term "social network" is defined in article 5, VIII, of Bill of Law No. 2,630/2020 as "an internet application that is designed to connect users to each other, allowing, and having as the center of activity, communication, sharing, and dissemination of content in the same information system, through accounts connected or accessible to each other in a connected manner."

[2] The term "private messaging service" is defined in article 5, IX, of Bill of Law No. 2,630/2020 as an “internet application that makes it possible to send messages to certain and determined recipients, including those protected by end-to-end encryption, so that only the sender and recipient of the message have access to its exclusive content, excluding those primarily intended for corporate use and electronic mail services.

[3] Bill of Law No. 2,630/2020 does not define the term "social network and private messaging service providers" (only the terms "social network" and "private messaging service" in article 5, subsections VIII and IX). From the wording proposed in the Bill of Law, we believe that the term “providers of social networks and private messaging services" may be treated as a synonym of application providers, defined by the Brazilian Civil Rights Framework for the Internet (Law No. 12,965/2014). However, the law is only applicable to application providers whose platforms have at least two million registered users (article 1, paragraph 1, of Bill of Law No. 2,630/2020).

Category: Banking, insurance and finance

Central Bank Public Consultation Notice No. 77/20 proposes changes to the rules for authorizing the operation of payment institutions set out in BCB Circular No. 3,885/18. Published in early July, the draft brings in impact proposals for the Brazilian payments industry. Some of them have been long awaited by the market, such as the regulation of a new type of payment institution (creation of payment transaction initiator).

In this article we address three aspects of the public notice that deserve special attention from the industry.

Objective of payment transaction initiator

Inspired by the payment initiation service provider (Pisp), created under the open banking regulation in the United Kingdom, the BCB has been indicating since April of 2019 that the service of initiating payment transactions is one of those contemplated in the Brazilian open financial system (open banking).

The first regulatory provision of this service took place on May 4, 2020, with Joint Resolution No. 1 of the BCB and the National Monetary Council (CMN), which established the regulatory framework for open banking in Brazil. The rule defines what payment transaction initiating institutions are (article 2, VI) and that the service to be provided by them consists of enabling "the initiation of the instruction of a payment transaction, ordered by the client, in relation to a deposit account or pre-paid payment" (article 2, VII). In addition, the rule makes it clear that payment transaction initiators will be mandatory participants in open banking and must observe the rules applicable to them.

These definitions, however, are somewhat abstract in nature, an option commonly adopted by regulatory bodies to confer a legal framework to future and uncertain situations.

The market expectation was a more detailed rule on payment initiation services. However, as the notice shows, it seems that the BCB intends to follow an abstract definition that guarantees it a comfortable level of control over potential new entrants, even at the expense of greater predictability for the industry. This dilemma is commonplace in financial regulation and so far the BCB has shown no sign of changing strategy.

Even so, it is already possible to find some practical examples that give a more precise idea of how this service will work in practice. According to a note published on the BCB website, a payment transaction initiator will allow the client to make payments by debiting his deposit or payment account without using cards, that is, through any other existing systems, such as book transfers or PIX, the instant payment arrangement to be implemented by the BCB by the end of 2020.

Good examples of use are delivery applications, which currently facilitate payments with the use of cards, but may offer a debit service without having to manage a payment account or participate in the transaction settlement chain.[1]

The less detailed nature of the standard opens up an important range of options for implementing this service. Regardless of the means used for the transfer (debit card registration, provision of data on the source account itself, or another tool that allows for direct transactions between accounts), if the initiation involves a payment debit or deposit account, it is a regulated service.

Greater regulatory rigidity on the part of the Central Bank

A second highlight of the public notice is the greater restriction to be imposed on payment transaction initiators. In the proposal presented, payment transaction initiators will need to request prior authorization from the BCB to operate. The rule differs from the current system for payment institutions, which should only request authorization after reaching certain operational limits.

In addition, the BCB has proposed that payment transaction initiators may not store end-user credential data used to authenticate payment transactions with the account-holding institution, unless the initiators provide a cloud storage service to financial institutions under the regulations in force.

In practice, this means that people will have to input their information with each transaction carried out, if this proposal is implemented, which may compromise the user experience. Currently, one of the greatest features for using cards in online purchases, especially in e-commerce sites and delivery and transportation applications, is the possibility of registering and activating cards for future transactions, without the need to manually input information with each purchase.

The BCB's proposal responds to the growing concern for cyber security and personal data protection in the financial system. However, it also shows the weight that this factor has been having in the regulator's decisions: information security is taken as a priority, even though it may harm the end user experience.

Greater stringency with electronic money issuers

A third point to highlight is the tightening of the rules on the authorization of electronic money issuers (institutions offering pre-paid payment accounts) to operate.

Currently, these issuers need to apply for operating authorization from the BCB only after reaching R$ 500 million in payment transactions or R$ 50 million in client funds held in a pre-paid payment account.

The BCB proposed in the public notice that all new institutions falling into this category should apply for authorization before starting to operate and those already operating below the limit should seek authorization according to a predetermined schedule, depending on the operational volume of each institution. Thus, all issuers would be covered by mid-2023.

According to the note released by the BCB, the change has reasons of a competitive nature (to level the market conditions of the providers of this service), a regulatory nature (to improve the monitoring of transactions, especially for the purposes of preventing money laundering and terrorist financing), and prudential nature (to improve the risk management of popular savings accounts managed by these institutions).

In various countries, there is growing concern regarding the financial resilience of pre-paid payment account managers and e-money issuers. In the US, for example, where the regulation of these players is generally more flexible and varies according to the state in which the institution is organized, some authors advocate improving the institutional arrangement applicable to e-money issuers in order to increase the protection afforded to users’ funds.[2]

Regardless of the reason, there is a clear indication of the change in risk perception by the BCB, which will certainly transform the payments market in Brazil, which, after six years of development, is already showing signs of resourcefulness and attracting a growing number of consumers.

Regarding the payment transaction initiators, there is no exact measure of the size of this market in Brazil, but it is already possible to have an idea of its potential, evidenced, for example, by the recent controversy involving WhatsApp Pay.

The regulator’s expectation is that this new type of payment institution will make the market increasingly competitive, stimulating creativity and innovation, both from established players and possible new entrants. However, the exact effects of this are still uncertain. After all, if the brief history of payment initiation in Brazil has taught us anything, it is that its potential impact is of great proportions.

[1] A payment method already present in Brazil for purchases over the Internet is bank transfer via partner bank. In these cases, the online store provided a direct link to the internet banking of one or another partner bank for transfer with pre-filled-in data of the beneficiary. With the concept of the payment initiator, the expectation is that this model may be replicated more widely and in a centralized manner, with lower transaction costs.

[2] Awrey, Dan. Bad Money (February of 2020). 106 Cornell Law Review. Available at: https://ssrn.com/abstract=3532681.

Category: Infrastructure and energy

On July 30, the Senate approved Conversion Bill (PLV) No. 30/20. The text will now go for presidential approval. At issue is the conversion into law of Executive Order No. 945/20, published on April 4, with the main objective of mitigating the effects of the covid-19 pandemic in the port sector, especially the removal and compensation of individual workers belonging to risk groups or with symptoms of coronavirus contamination.

During the process of consideration of MP 945 by the Brazilian Congress, however, the congressmen introduced a series of amendments to the original text, turning the final version of PLV 30/20 into a real reform of the legal framework of the port sector, with changes mainly to Law No. 12,815/13 (New Ports Law) and Law No. 10,233/01 (Law creating Antaq).

The matters dealt with by PLV 30/2020 were varied: from the inclusion of port activities in the list of essential services contained in Law No. 7,783 (Labor Strike Law) to the provision of targeted measures to remedy the effects of the pandemic (mirroring the original provisions of MP 945), such as the possibility for leased terminals to hire workers freely (in contracts limited to 12 months) whenever there is unavailability of freelance workers in the Labor Management Body (OGMO) to meet labor requisitions (including during strikes, stoppages, etc.). Mitigation measures are in force for 120 days or as long as the effects of the pandemic continue.

Some of the changes implemented by PLV 30/2020, however, have a truly structural nature, responding to the historical demands of the sector in an effort to relax the arrangement for occupation of public ports areas, with a view to promoting greater competitiveness in organized ports. In this regard, the recent Operational Audit Report of the Federal Accounting Court (TCU), which sought to identify the limitations of organized ports in relation to Private Use Terminals (TUPs) in terms of commercial dynamism and operational efficiency, should be highlighted. The report describes the trend of migration of public port investments and cargo, mainly due to their structural rigidity, which often prevents more rational use of their areas.

In this sense, PLV 30/2020 basically implemented a two-pronged structural reform for the port sector: (i) segmentation of the legal arrangements for the concession of organized ports and the leasing of port facilities; and (ii) consecration of new contractual instruments for the occupation of port areas and facilities in organized ports.

As to the first set of amendments, it should be emphasized that, according to the previous wording of Law No. 12,815/13, the concession and lease arrangements in the sector basically coincided, although, in practice, they referred to substantially different economic operations.

With the maturing of the initiatives for the privatization of organized ports, with Codesa in the final phase of studies and Codesp in the advanced phase of hiring consulting firms, important measures were effected to delimit specific arrangements for the concession of ports and the leasing of terminals.

In a first analysis, it is noted that PLV 30/2020 withdrew the lease term from articles 4 and 5 of the New Ports Law, reserving this arrangement exclusively to concession contracts. Also included is article 5-A to clarify that contracts entered into between the concessionaire and third parties, including those for the operation of port facilities, shall be governed by the rules of private law. No legal relationship will be established between the third parties and the granting authority. Although the new provision is directly inspired by article 25, paragraph 1, of Law No. 8,987/95 (Concessions Law), the measure seems to come at a good time since, in the specific framework of the port sector, a similar rule was not supported by provisions of law, but only by regulatory decree (Decree No. 8,033/13, article 21), generating challenges and some legal uncertainty regarding the legal reserve for the treatment of the matter.

However, although the consolidation of the legal arrangement under private law for contracts entered into by future organized port concessionaires is an important measure for the imminent implementation of port concessions, points relevant for the mitigation of possible insecurities in the model seem to persist. The transitional arrangement between lease contracts, once subject to the legal arrangement of public law and which, with the concession of the organized port, are now subject to private law, is noteworthy. Currently the matter is subject to article 22 (head section and paragraphs) of Decree No. 8,033/13. However, given the relevance of the provision for the certainty and attractiveness of port concessions, it would have been equally helpful to incorporate it into Law No. 12,815/13.

As for port leases, PLV 30/2020 also introduces into the New Ports Law articles 5-B and 5-C, inaugurating an autonomous arrangement for such contracts, with simplified provisions and a new specific process for waiving bidding procedures. In accordance with the sole paragraph of the new article 5-B, the direct contracting of leases may occur upon meeting the following requirements: (i) proven existence of a single party interested in the operation of the port facility, established by performing a public call by the port authority aiming at identification of potential interested parties; and (ii) compliance of the lease with the PDZ (Development and Zoning Plan) of the port.

In relation to the second prong of structural innovations in the legal framework of the port sector, PLV 30/2020 also introduced a new article 5-D, responsible for disciplining, on a legal level, temporary use of port facilities. According to the provision, port authorities may agree to use of the port with the party interested in the handling of cargo with a non-consolidated market (for an non-extendable period of 48 months) for port areas and facilities located within the land area of the organized port. Bidding will be waived and a simplified selection process may be carried out (along the lines of what is done today for transition contracts) in the event that there are multiple interested operators.

Once again, the merits of the measure is the incorporation of the institute of temporary use into the text of law. The measure had been provided for by Normative Resolution No. 7 of Antaq (National Agency of Water Transportation), but the Federal Courts of Espírito Santo suspended its effectiveness because of alleged excess in the regulatory power of the agency.

PLV 30/2020 also amends article 27 of Law No. 10,233/01, including in it subsection XXIX to ensure Antaq the competence to regulate other forms of operation of port areas and facilities not provided for in specific legislation. The change seems to put an end to the one size fits all model in force in the port sector, under which, regardless of demand, the granting power only had lease agreements to allow occupation of port facilities. Such rigidity, as noted in the Operational Audit Report of the TCU, was imposed at the expense of the competitiveness of organized ports.

It is also clear that, in addition to determining the measures applicable exclusively in the context of the exception and public calamity that arose from the covid-19 pandemic, PLV 30/2020, on the eve of the inauguration of the new organized port concessions, implemented relevant changes and improvements in the legal framework of the port sector, with the potential to resolve old deadlocks and boost the operation of Brazil's public ports.

Category: Real estate

Executive Order (MP) No. 992/20, published on July 16, provides, among other issues, for the possibility of sharing a single fiduciary sale of real estate as collateral for more than one contract to open financial transactions within the Brazilian Financial System.

The innovation arises from the inclusion of certain provisions in the current Law No. 13,476/17, which deals mainly with credit facility agreements, and aims to facilitate the taking out of new loans without additional risks to financial institutions by allowing the sharing of the security interest in the property.

Although the additions have been made to the legislation on credit facility agreements, the new provisions are not clearly worded in such a way as to restrict their application to such agreements. On the contrary, the MP indicates that sharing can be done for "new and autonomous financing transactions of any nature", provided that such transactions are encompassed within the Brazilian Financial System. As a result, the scope of application of the new provisions may be subject to discussion and, ideally, should be clarified when the MP is converted into law.

Without prejudice to this discussion, the MP may benefit individuals and legal entities that have entered into financing transactions guaranteed by fiduciary sales of real estate with certain creditors (original transactions) and that wish to enter into new financing transactions within the Brazilian Financial System with the same creditors, using the same asset as collateral (derivative transactions). If an individual, the interested party may only do so for his own benefit or that of his family entity by declaring such information in a contract.

In order to be annotated in the real estate record as a derivative transaction under the terms of MP 992/20, the new contract must necessarily contain certain elements, as was already the case for the original financing transactions governed by Law No. 9,514/97. The amount of principal of the new transaction, the interest rate and charges incurred, the term and conditions for repayment of the financing to the creditor, the declaration regarding the use for his own benefit or that of his family entity (in the case of an individual), the grace period for arrears, the declaration that the property may be used freely by the debtor when in default of the obligations and requirements dealt with in article 27 of Law No. 9,514/97 are all essential requirements of the contract and must be expressly provided for.

Among the requirements, it is important to mention with emphasis that, in addition to the above-mentioned requirements, the contract must include a provision that provides that non-payment of any obligations in financing transactions guaranteed by the same fiduciary sale of real estate (both for original and derivative transactions) will allow the creditor to accelerate all obligations guaranteed under the shared fiduciary sale. This means that the changes introduced in Law No. 13,476/17 by Executive Order 992/20 allow the automatic inclusion of the due date cross-referenced with an accelerated maturity event in financial transactions previously carried out with the same creditor, even without the handling of contractual changes specific to the original transaction.

Another relevant inclusion is the specific provision that, for the purpose of sharing guarantees, provisions relating to automatic settlement of debt do not apply when the product resulting from the execution is not sufficient to settle the debt, with the exception made for transactions for financing housing. This point is certainly one of the most controversial when it comes to choosing fiduciary sale of real estate as collateral for transactions, especially when compared to the alternative of creating a mortgage, which does not have the same restriction.

Thus, the important changes introduced in the legislation certainly expand access to credit, as well as reduce lenders' exposure to risk and making the updating of collateral for new loans more dynamic. Before, the use of the same property as collateral for a new financing transaction required the undoing and redoing of the original security interest, with consequent cancellations and new real estate recordings.

Although the scope is limited to the Brazilian Financial System, the innovation brought about by MP 992/20 may encourage discussions on legislative changes to allow expansion of these provisions for the creation of a fiduciary sale of real estate as security for other types of financing. MP 992/20 still has to be submitted to the Legislature in order to be converted into law. In this process, changes to this legal arrangement may be implemented.

Category: Corporate

In effect since July 1, Normative Instruction No. 81/20, published by the Brazilian Department of Company Registration and Integration (DREI), of the Ministry of Economy, repeals various previous normative instructions with the purpose of consolidating the rules relating to the public registration of companies and bringing in some innovations in the wake of Law No. 13,874/19 (the Economic Freedom Law).

Among the rules repealed is Normative Instruction No. 35/17, which contained provisions on "(...) acts of transformation, incorporation, merger and spin-off involving businessmen, companies, as well as the conversion of a simple company into a business company and vice-versa" and, in its article 30, it categorically mentioned that "the conversion of a business company into a non-profit company and vice-versa is prohibited".

The prohibition presented by IN 35 was based on the understanding that the legal framework of business companies was incompatible with the legal framework for non-profit associations, which cannot distribute profits and assets to their members. In such a situation, therefore, the association should be dissolved and a new business company set up. This is because according to article 61 of the Civil Code, in the event of dissolution of an association, the remainder of its net equity shall be allocated to the non-economic entity designated in the bylaws or to the municipal, state, or federal institution with identical or similar purposes. Transforming the association into a business company would mean creating a possibility of returning assets to the partners.

It was also argued that article 1,113[1] of the Civil Code would not apply to non-profit companies since it is included in the Special Part of the Civil Code, which refers to companies, and not in its General Part, which would apply to legal entities in general.

However, IN 81, in its Chapter V, called “Conversion of a partnership (sociedade simples) or association into a business company (sociedade empresária) and vice-versa", with a structure quite similar to Chapter V of IN 35, removed the prohibition on converting a non-profit company into a business company provided for in IN 35 and dealt, in its article 84, with the filing of an instrument of conversion of a partnership or association into an business company.

Under the terms of this article, the instrument of conversion must initially be registered with the Civil Registry in which the partnership or association is registered, and later, together with the amendment and restatement of the organizational documents of the respective corporate type, it shall be submitted for filing with the commercial registry of the same state of the federation or a different one. If the new corporate type is a corporation, the complete list of shareholders must be presented, with an indication of the number of shares resulting from the conversion, since such information would only appear in the corporate books, not in the bylaws (in the case of a limited liability company, the information on quotaholders is part of the articles of association).

From an analysis of the new regulations, it is clear that there has been a fundamental change in the position of the DREI regarding the change in the form of a legal entity from an association (or from a non-profit company type) to a business company.

In dealing with the change in the form of a legal entity as a "conversion" and not as a "transformation", it seems to us that the DREI sought to avoid discussion on the possibility of applying the institute of "transformation" to legal entities other than companies, focusing only on the possibility that a non-profit entity may become, through a simple formal act of registration, a for-profit entity.

Thus, IN 81, in its article 74, established that, after registration with the Civil Registry, the instrument of conversion of a partnership or association into a business company shall be filed with the commercial board of the headquarters, accompanied by the amendment and restatement of the organizational documents of the respective corporate type.

Thus, even though the conversion of a legal entity from an association into a business company has been accepted by the DREI from the standpoint of public registration, there are still controversies regarding its legal possibility, and some practical difficulties of an accounting and tax nature need to be faced.

For example, there are no legal parameters for the formation of the capital stock of the company, with the definition of the number and equity value of the quotas or shares newly issued, having an impact on equity accounts. Some associations have securities representing ideal fractions of their assets, corresponding to the contributions made by the members, so-called "equity securities", which would allow for a smooth transition from the association's equity accounts to the business company due to their similarity with the concept of quotas/shares and capital stock. Other associations, however, have no equity securities and so it will be impossible to determine the number of quotas or shares to be assigned to each member of the association.

In the demutualization process of the São Paulo Stock Exchange (Bovespa) and the Futures and Commodities Exchange (BM&F), such associations had equity securities representing their assets, held by the then associates, securities, and commodities and futures brokers. Demutualization was not implemented through transformation, but through the spin-off of associations and merger of the net assets into new companies. Each member received shares issued by such companies in the proportion and value of the equity securities they held in the associations.

Thus, if there are equity securities, the adequacy of the equity accounts as a result of their conversion into a business company would be feasible in proportion to the equity securities of the members, and the value of the capital stock of the company would correspond to the value of the equity of the association.

In the event that the association does not have net equity, it would be necessary for the members to subscribe, in the desired proportion, new quotas/shares for formation of capital stock (as in the incorporation of a company) to be paid up in accordance with the rules established in the subscription instrument.

[1] “Article 1,113. The act of transformation is independent of the winding up or liquidation of the company, and will obey the guiding principles themselves of the constitution and registration of the entity type into which it will be converted."

Category: Labor and employment

With the end of the term for Executive Order No. 927 (MP 927) to be converted into law on July 19, the measures proposed in it to tackle the covid-19 pandemic can no longer be used.

Published on March 22, MP 927 put into place various changes in the laws and regulations to preserve employment and income and to face the financial crisis during the state of public calamity, making rights and procedures under the Consolidated Labor Laws (CLT) more flexible, among which we highlight:

• Possibility of changing in-person work arrangements to teleworking at the employer's discretion

• Acceleration of individual vacations

• Granting of company-wide vacations

• Enjoyment and acceleration of holidays

• Hours bank with offsetting period of up to 180 days

• Suspension of administrative requirements in occupational safety and health

• Deferment of payment of the Guarantee Fund for Length of Service (FGTS)

After the expiration of MP 927, employers will no longer be able to avail themselves of such measures in the forms and with the features proposed therein. The exact terms of the CLT control again. The great concern is: what happens to the legal relationships established during the term of the MP and in the form it provides?

As of July 21, the Brazilian Congress will have 60 days to issue a legislative decree regulating the issues arising under relations that occurred during the period of validity of MP 927, especially regarding its future effects. If the Brazilian Congress does not respond within this period, the guidelines of Executive Order 927 will be applied to the acts carried out during its validity.

We will continue to monitor the evolution of this topic and any developments.

Category: Tax

Section 28 of Law 13,988/20, which resulted from the conversion of Executive Order No. 899/19 into law, put an end to the casting vote in the decisions of the Administrative Tax Appeals Board (Carf) and brought relief for taxpayers who, not infrequently, saw tax debts maintained due to the double vote granted to the judge representing the National Treasury.

The change occurs in a context in which CARF’s decisions had begun to prioritize tax collection and in which judgments involving complex legislation, the interpretations of which the tax authorities have changed over the years (e.g., cases of transfer pricing and goodwill), began to be decided by a casting vote in favor of the tax authorities, awakening in society a feeling of injustice and legal uncertainty.

Section 28 is currently being questioned from both formal and substantive points of view in the  Direct Actions of Unconstitutionality (ADIs)[1] filed before the Federal Supreme Court and in the Public Civil Action (ACP)[2] filed before Federal Court[3].

Validity of the rule under review

The allegation most frequently used in questioning section 28 is that the change in the casting vote was made by "jabuti” or "legislative smuggling", conduct rejected by the STF in ADI No. 5.127, ruled in 2015.

In general terms, the lawsuits filed against the new law provision claims that the Appended Amendment No. 01, which aimed to append the texts of Amendments 9 and 162 to the PLV 02/2020, lacks of thematic relevance. According to the rationale adopted, MP 899 deals with extrajudicial negotiation of existing and established claims, while section 28, setting forth a tie-breaking rule in an administrative decision, disciplines the procedure for determining and demanding the tax debt.

Besides the fact that ADI No. 5,127 deals with a completely different factual and normative context, the truth is that the interpretation intended by the plaintiffs in the ADIs and the ACP removes from the Legislative Branch the constitutional prerogative of effective participation in the process of conversion of an executive provisional measure into law.

Far from allowing the legislative bodies to use the legislative procedures to approve matters completely dissociated from the matter selected as relevant and urgent by the Executive Branch, the hindering of the legislative activity to the point of preventing improvement of the measures is an affront to the constitutional text.

In fact, the new rule is proving to be one of the greatest instruments of tax justice ever introduced in the legal system. As is known, the current tax laws are the result of extensive regulations, many times amended, quite complex, and impregnated with technical inaccuracies, ambiguities, and gaps.

The cost to society (State and taxpayers) is immense. Excessive litigation, very high penalties (75% and 150%), costs with guarantees, increase in the state apparatus (number of attorneys, tax agents, advisors, etc.), enormous uncertainty for investors and companies, increase in business costs (infrastructure, personnel, attorneys, etc.), fees for losses in litigation (State and taxpayer), among others.

In this case, the thematic relevance of the new provision is very high. The transcription of part of the explanatory memorandum of MP 899 leaves no doubt and, in fact, seems to have been written tailor-made to justify the end of the casting vote: "6. (...) it is an instrument of solution or resolution, through appropriate means, of tax disputes, bringing with it, far beyond a tax collection purpose, which is extremely important in a scenario of tax crisis, of cost reduction and correct treatment of taxpayers, whether those who no longer have the capacity to pay, or those who have been assessed, not infrequently, due to the complexity of the legislation that allowed a reasonable interpretation contrary to that considered appropriate by the tax authorities."

The rule extinguishing the casting vote, therefore, is added to the set of provisions dealing with tax settlements, in order to achieve a common purpose.

Having overcome the first claim, two additional arguments are raised to support the illegality of section 28.

One of them concerns the supposed invasion of private initiative by the Brazilian Presidency. The lawsuits filed maintain that the discipline of the organization and functioning of the administrative bodies is reserved to the initiative of the President and that, therefore, change of the casting vote should have been subject to a bill or order authored by him.

It so happens that section 28 does not interfere with CARF’s structure. The rule concerns to the proclamation of a result in the event of a tie in the administrative proceeding, ruling for extinguishment of the tax debt in this case. It is therefore a tax matter that influences the final issuance of the tax debt.

The last argument, which, in our view, does not merit in-depth discussion, is based on the logic that the issuance of general rules on assessments is reserved for complementary laws and that, in these terms, the National Tax Code (CTN) is responsible for regulating the matter. Under CTN’s guidelines, the assessment is exclusively within the competence of the tax authority.

This point, which was addressed in the PCA, seems to us to be a hermeneutical construction that goes beyond the text of the law. It suffices to note that section 28 in no way affected the assessment activity of tax agents.

Application of the rule to pending cases

The remaining question is the effects of the end of the casting vote for cases pending of analysis in the administrative and judicial spheres. Some people believe that the rule is purely procedural in nature and, as such, only applies prospectively.

Section 28 provides that the facts indicated in the assessment shall no longer be defined as an infraction in the event of a tie in the quorum for voting. When there is a tie in the judgment, it is assumed that there was no typical fact apt to give rise to tax collection.

This is the understanding that best aligns the provision with the tax system. This is because, in accordance with the dynamics adopted prior, the doubt regarding maintenance of the tax assessment was always transformed into certainty of the double vote by a judge representing the National Treasury, in flagrant violation of the principles of due administrative process, equal protection, strict legality, tax consistency, and, especially, the provisions of section 112, II, of the CTN, according to which the tax law should be interpreted in the manner most favorable to the taxpayer.

From this one can extract that in dubio pro taxpayer: if there is doubt about the factual circumstances justifying application of the law, the interpretation most favorable to the taxpayer should prevail.

Section 28 only established as positive law a guideline that was already emanating from the legal and tax systems with the intention of privileging the idea that dubious interpretations are decided in favor of the taxpayer and reinforcing the value of closed consistency (see section 112 of the CTN mentioned above and sections 5, II, and 150, I, of the Federal Constitution, which deal with the Principle of Legality at the general level of the Law and the Principle of Closed Consistency in the Tax Law, respectively).

In a certain manner, it is an instrument to rescue the concept of a tax enshrined in section 3 of the CTN, which is an obligation instituted by law and charged through fully binding administrative activity. More than the simple reading of this provision suggests that the important thing is to note that, in order to be a tax, one must be sure of its institution and collection, two qualities that are missing in cases decided by a casting vote.

Section 28 is also harmonious with the command of section 204 of the CTN, which provides for a presumption of certainty and fixed value of the debt registered. Assessments that, in an administrative review process, have the same number of judges opining for and against their legitimacy do not preserve these attributes of certainty, fixed value, and enforceability.

Section 28 is a hybrid rule, with a predominant characteristic of substantive law. It goes far beyond a simple rule concerning administrative procedure. It provides that tax debts are only valid when there is reasonable certainty that the facts will be subsumed under the overarching rule of application, bringing to the ordinary legislative level a scenario for extinguishment of the tax debt, within the framework of section 156, IX and sole paragraph, of the CTN.

In this context, section 106, II, "a" of the CTN expressly states that the law applies to past acts or facts, provided they are not definitively judged, when it excludes a situation from the infraction framework. Pursuant to section 5, XXXVI, of the Federal Constitution and section 502 of the Civil Procedure Code only final and unappealable judicial decisions have the force of being definitive. Thus, the application of section 28, under the cloak of section 106, covers all cases already decided in the administrative sphere, as well as those in progress that have already had appellate decisions in favor of the tax authorities based on a tied decision.

Because it brings in new rules to the legal relationship between taxpayers and the Federal Government, that is, a supervening law, section 28 should be applied to ongoing cases, regardless of their procedural stage. In general, considering the specific case, a request for review in the judicial level must be included in the complaint or be part of an unnamed petition, bringing to the case the news of the supervening rule.

In the administrative level, a request for review of cases in progress must be made by means of a motion for clarification, appeal, or unnamed petition, the latter in the event that the appeal has already been filed. Once the request for review has been accepted, the result of the administrative decision shall be amended to reflect the command of section 28. Following this, the opportunity for motions and appeals should be opened for the Attorney for the National Treasury. It is not a question of conducting a new judgment, in view of the most complete lack of a normative provision in this regard but recognizing a different result.[4]

In view of the above, since this is not a rule of an exclusively procedural nature and since it provides for elements that interfere with the tax relationship itself between the taxpayer and the tax authorities, establishing a scenario for extinguishment of the tax debt, we believe that the provision can cover all cases in which the merits of the tax debt are still under discussion (i.e, all the cases that do not have a final and unappealable judicial decision).

It is not yet known how panels of the Carf will act in the face of this legislative change, but, for us, one thing is certain: although surrounded by uncertainty, the end of the casting vote brings about a perception of improvement in the tax judiciary. We will continue to hope that the board members will adopt the most appropriate interpretation of the issue and give priority to the intention of the legislator.

[1] (i) ADI No. 6399, filed by Augusto Aras, attorney-general of the Republic; (ii) ADI No. 6,403, filed by the Brazilian Socialist Party (PSB); and (iii) ADI No. 6,415, filed by the National Association of Tax Auditors of the Federal Revenue Service of Brazil (Anfip).

[2]Public Civil Action 1023961-69.2020.4.01.3400, filed by the Institute of Defense in Administrative Proceedings (Indepad).

[3] At the request of the STF, under ADI No. 6399, filed by the PGR, the House, the Senate, the Presidency, and the AGU have already expressed an opinion in favor of its legality.

[4] We disagree, therefore, with the guidance adopted in the recent decision issued in Ordinary Action No. 5094299-45.2019.4.02.5101/RJ, of May 29, 2020.