Category: Competition

The Administrative Council for Economic Defense (Cade) submitted to public consultation a preliminary version of the Cartel Fine Calculation Guidelines, which is intended to clarify the criteria used in the application of the fines established in the Competition Law (Law No. 12,529/11). For legal entities, these fines may vary from 0.1% to 20% of the gross revenue of the company or of its economic group or conglomerate, in the sector of business activity affected by the violation.

The guidelines are based on the agency's decision-making practice in cartel investigations from 2012 to July, 2019 and, therefore, does not consider the decisions held by the current composition of Cade’s Administrative Tribunal.

According to the Competition Law, the calculation basis of the fine is the annual gross revenue in the sector of business activity (as defined in Cade Resolution No. 3/2012) in the year prior to the launch of the administrative proceeding. The use of the revenue in the "sector of business activity", a concept that does not necessarily correspond to the market affected by the cartel, was widely criticized after the enactment of the law and debated in some precedents. The guidelines suggest that, when the application of the revenue in the sector of business activity results in calculation basis that is disproportionate or unreasonable, Cade should instead take into account the revenue in the market affected by the conduct.

The guidelines also clarify that the revenue to be considered is, in principle, that generated by the company involved in the wrongdoing (the use of the revenue of the economic group to which it belongs would be an exception, for example to avoid maneuvers aimed at deliberately reducing the calculation basis) in the year prior to the launch of the administrative proceeding, and updated per the Selic rate until the month prior to Cade’s decision. When it is not possible to obtain the revenue in the year prior to the launch of the administrative proceeding (if the company has, for example, ceased its activities) or the amount reported by the company is not considered appropriate (if the company has experienced significant growth), the guide proposes to alternatively consider, for example, the year prior to Cade’s decision, the year of the public bidding subject of the investigation, or even the highest revenue obtained during the period the cartel was active or the average revenue obtained in the referred period.

The document also provides for the possibility of adjusting the calculation basis when the revenue encompasses a geographic area wider than that affected by the cartel. In these cases, Cade may alternatively consider a projection of the revenue the company would virtually obtain, taking into consideration how much the affected area represented from the wider geographic market, or use estimates of indirect sales as the calculation basis.

Regarding the reference fine rate, the guidelines recommend the use of the fine rates that have already been adopted by Cade in its decisions:

• 17% (with a minimum of 14%) for cartels in public bidding;

• 15% (with a minimum of 12%) for hardcore cartels, that is, agreements or exchanges of information related to prices, or to shares, clients or geographical area allocation, , with mechanisms for monitoring/punishing deviation and for ensuring perpetuity; and

• 8% (with a minimum of 5%) for other types of concerted practices (e.g. sporadic or non-systematic exchanges of information, unilateral disclosure of information, price fixing, etc.).

However, the fine rate to be applied in each specific case may be higher or lower than the reference fine rate, depending on the Cade's discretionary assessment of the aggravating and mitigating circumstances provided for by the law:

• seriousness of the violation (its role in the conduct, for example being the cartel leader or making use of coercion);

• good faith of the offender (awareness of illegality of the conduct, whether the affected market comprised essential services/products, cooperation with the investigation);

• benefit gained or sought by the offender (if it can be estimated);

• consummation or not of the violation;

• degree of harm, or of the threat of harm to free competition, to the Brazilian economy, to consumers, or to third parties (by type of conduct, for example);

• negative economic effects to the market (compensation of cartel victims before Cade’s decision on the cartel, for example, could mitigate the fine);

• economic situation of the offender (mitigating factor for those under proven compromised financial capacity); and

• recidivism.

The guidelines demonstrate Cade's commitment with the systematization and transparency of the parameters for calculating cartel fines, thus giving greater predictability on Cade’s cartel rulings. The document is in public consultation until August 8. Contributions can be sent to This email address is being protected from spambots. You need JavaScript enabled to view it..

Category: Tecnology

In a decision handed down on July 16, the Court of Justice of the European Union (CJEU) changed the understanding of the European Commission on international transfer of personal data between the United States and the European Union.

The decision, issued in the Schrems II Case,^[1] raised two main issues:

• The first relates to the validity of the EU-U.S. Privacy Shield, which used to authorize the transfer of personal data of individuals located in the European Union to the United States. It was questioned whether this instrument would actually meet the requirements of the European Union's General Data Protection Regulation (GDPR), in view of the US government's surveillance programs, which authorize the country's public security authorities to access and use personal data imported from the European Union.

• The second issue concerns the validity of the standard contractual clauses approved by the European Commission as adequate and sufficient instruments for the international transfer of personal data, in cases in which there is no adequacy decision handed down by the European Commission in relation to the country receiving such data.

Privacy Shield Invalidation: consequences for international transfer of personal data

In 2016, the US Department of Commerce and the European Commission entered into the agreement known as Privacy Shield, which established a set of principles and safeguards to be guaranteed by the companies that are party to the agreement, in order to enable the transfer of personal data of individuals located in the European Union to those companies located in the United States.

Until now, the Privacy Shield was an instrument recognized by the European Commission as adequate to ensuring a level of protection compatible with the one afforded by the GDPR[2] and, as a result, adherence to the agreement was sufficient to authorize the transfer of data from individuals located in the European Union to companies and organizations located in the United States that were adhering to the Privacy Shield, without the need for additional safeguards or authorizations from the data protection authorities of each of the European Union member states.

However, the recent decision rendered by the CJEU in the Schrems II Case invalidated that understanding, ceasing to recognize the adequacy of Privacy Shield as a legal basis for the international transfer of personal data. According to CJEU’s understanding, the surveillance programs implemented by the US government represent a disproportionate violation of the rights to privacy and data protection guaranteed by the GDPR. This is because, by failing to make clear the limitations on the powers granted to the intelligence services, the surveillance programs ultimately allow the public authorities to commit excesses and are not limited to what is strictly necessary to guarantee national security, as provided by the GDPR.

Furthermore, for the CJEU, US law does not guarantee judicial or other effective means for the data subjects to enforce the protection of their data against access and misuse by public authorities, nor the right to request rectification or deletion of their data.

That said, the CJEU concluded that US legislation and practices are not adequate to the GDPR and that the Privacy Shield is not sufficient to remedy these problems and, therefore, does not constitute a valid legal basis to legitimize the transfer of data from individuals located in the European Union to the United States.

Standard Contractual Clauses: guarantee of protection in international transfer of personal data?

Standard contractual clauses consist of standard template provisions, pre-approved by the European Commission, which should be included in contracts involving the international transfer of personal data as a safeguard measure to ensure minimum standards of security and protection of rights, as guaranteed by the GDPR. Since 1987, such clauses have been recognized by the European Commission as a valid and appropriate mechanism for authorizing international transfers of personal data, as laid down in decision No. 2010/87.

This understanding was confirmed by the CJEU in the Schrems II Case. However, the CJEU highlighted that the validity of standard contractual clauses is not absolute and is conditioned to their practical effectiveness in light of the laws, regulations and practices of the destination country, and it would be up to the controller to carry out this analysis.

That is, before transferring personal data to other countries, the controller must assess whether the standard contractual clauses will actually be effective or whether the data importer will be prevented from complying with them by legal provisions or by orders issued by the local public authorities, since the standard contractual clauses only bind the parties to the contract (data exporter and data importer), but not the public authorities of the destination country.

Should the controller believe that the standard contractual clauses will not be effective to ensure the protection of personal data, it must adopt additional safeguard measures. Otherwise, the controller may be prohibited by the data protection authorities of the European Union member states from transferring data to such countries. The CJEU also emphasized that this analysis shall be carried out periodically and that the controller must suspend the transfer of data if circumstances in the destination country change.

Consequences of the Schrems II Case at the global and national level

The decision in the Schrems II Case will have a great impact on the global market, since more than five thousand US companies used to resort to the Privacy Shield to legitimize the transfer of data from people located in the European Union, and now they will have to adopt new safeguard measures, as is already the case in other countries that have not had their adequacy recognized by the European Commission, such as Brazil.

In addition, the decision made it clear that standard contractual clauses are not absolute, which means that their mere insertion in the contracts may no longer be sufficient to legitimize the international transfer of data, especially in the case of countries whose laws and practices make their effectiveness unfeasible.

Finally, the decision highlights the importance of having local laws and practices compatible with the level of protection guaranteed by the GDPR, since the non-compliance may result in increased costs for the data transfer (due to the additional safeguards to be adopted by the controller) or, further, in the prohibition of transfer.

In this context, the entry into force of the Brazilian General Data Protection Law (LGPD) and the formation of the Brazilian Data Protection Authority (ANPD) become even more urgent. This is because, although it is clearly inspired by the GDPR, which may facilitate recognition of its adequacy, the LGPD must become effective and Brazil must have an independent ANPD capable of guaranteeing the effectiveness of the LGPD and, consequently, the protection of personal data processed here.

[1] The Schrems II Case arose from a complaint lodged by the Austrian data protection activist Maximillian Schrems with the Irish supervisory authority, seeking to prohibit the transfer of his personal data from Facebook Ireland to Facebook Inc, located in the United States, on the grounds that U.S. law and practices did not provide adequate protection against access to personal data by public authorities.

[2] The legal structure and standards set established in the Privacy Shield were subject to a decision by the European Commission (decision No. 2016/1250), issued in August 2016. It was recognized that the Privacy Shield is an appropriate tool to legitimize the international transfer of data between the US and the European Union.

Category: Labor and employment

With the end of the validity of Executive Order 927 (MP 927) on July 19, 2020, employers can no longer use its provisions. Within the time frame of 60 days, as of July 20, the Brazilian Congress may issue a Legislative Decree to govern any impacts resulting from the loss of validity of MP 927.

In paragraph 11 of article 62 of the Federal Constitution, the legislator provided that if the Brazilian Congress does not issue a Legislative Decree, "the legal relationships created and resulting from acts performed during its validity shall continue to be governed by it.”

In other words, the legal relationships arising from MP 927 will remain valid until the end of the state of public calamity recognized by Legislative Decree No. 6/2020, in principle, December 31 of this year.

Individual agreements

According to MP 927, during the state of public calamity, employers and employees could enter into individual written agreements to ensure the maintenance of employment. This agreement would control over the law and agreements and/or collective bargaining agreements, provided that constitutional guarantees are respected.

Despite the controversy surrounding this measure and its effectiveness after the loss of the validity of MP 927, we believe it is defensible to maintain the measures agreed upon individually with employees until the end of the state of public calamity, subject to the constitutional provision mentioned above. However, companies will no longer be able to use such measures after the executive order has expired, failing which the act will be null and void.

Acceleration of holidays

MP 927 also authorized the acceleration of holidays unilaterally by the employer in cases of civil holidays or, with the individual consent of the employee, in the case of religious days.

Faced with the loss of validity of MP 927 and the withdrawal of its rules from the legal system, employers may no longer advance the enjoyment of holidays, except, however, per agreement via collective bargaining rule with the labor union of the category. Holidays already advanced may be offset, even if the actual date of the holiday occurs after the loss of effectiveness of MP 927.

Vacations

The rules for granting vacations, both individual and company-wide, have also undergone significant changes with MP 927, such as the acceleration of individual vacation periods, forms of payment, acceleration of the vacation announcements, etc.

After the loss of validity of MP 927, the employer will no longer be able to conduct new acceleration of vacation or disrespect the deadlines for communicating on whether they are granted.

In the case of vacations granted during the term of MP 927 and that had payment of the constitutional one third premium scheduled by the date of payment of the 13^th salary, employers will not need to revise the procedure and immediately pay the corresponding amount. Likewise, vacation days advanced will be valid, even if referring to future accrual periods.

Telework

The specific regulations of the Consolidated Labor Laws on the subject had been relaxed by MP 927. We believe it is not necessary to draw up a mutual agreement and record it as a contractual amendment for the maintenance of teleworking employees, although the initiative is recommended to guarantee even more effectiveness on a tailor-made basis, as long as this condition only last during the period of public calamity.

In the case of new agreements aimed at changing the employee's working arrangements to teleworking, individual agreements and the rules established in the Consolidated Labor Laws will have to be applied.

Occupational health and safety

MP 927 also made compliance with occupational health and safety rules more flexible, such as: (i) suspension of the mandatory medical examinations conducted upon hiring and periodically, which may be conducted within 60 days of the end of the state of public calamity; (ii) waiver of the examination upon dismissal in the event that an occupational medical examination has been conducted less than 180 days ago; (iii) suspension of training, which may be conducted within 90 days of the end of the state of public calamity; and (iv) maintenance of the CIPA, even if the term of office are ended, and suspension of the electoral processes in progress.

Unlike the scenarios mentioned in the previous topics, this is not a completed legal act, but possible lawsuits on the grounds of omissions by employers. It occurs that, once the condition that authorized the above-mentioned suspensions no longer exists, that is to say, MP 927 itself, companies must adopt the procedures and legal deadlines established in the Consolidated Labor Laws and in regulatory rules.

As for the CIPA, we believe that the employers who chose to extend the terms of office of the then sworn-in executive board and suspend electoral processes must resume the procedures necessary for the new board to take office.

Hours bank

Considering the impossibility for some establishments to continue their operations, MP 927 authorized the institution of hours bank for offsetting within up to 18 months from the date of the end of the state of public calamity.

Since, according to the rules of MP 927, it would be necessary to sign a formal individual agreement to establish an hours bank, we believe that a completed legal act has been formed that has in its essence a provision for prospective effects: use in the abovementioned period.

Thus, not only because of the constitutional provision presented in the introduction of this article, but also in order to maintain the balance of what was agreed upon, rule regarding use must be preserved.

FGTS

Another measure brought about by MP 927 to relieve companies' cash flow was suspension of FGTS payments related to the March, April, and May 2020 periods, which were due in the immediately following month. It was also established that collection for these periods could be deferred in up to six installments from July of 2020, with maturity on the seventh day of each month.

Faced with the loss of validity of MP 927, employers who have chosen to defer payment thereof may continue to respect the payment dates provided for in the executive order.

Employees' work hours at healthcare facilities

Executive Order 927 also authorized health care professionals, pursuant to a written individual agreement, to work overtime beyond the legal and/or negotiated limit, including in the period reserved for rest periods between work days. The only exception was weekly paid rest of 24 hours, which had to be respected.

With the loss of validity of MP 927, it will be possible to maintain adjustments of these terms until the end of the state of public calamity, due to the completed legal act formed per the constitutional provision, provided that the agreement was entered into before July 20.

New agreements entered into after July 20 must be adapted to the Consolidated Labor Laws. The measures established by MP 927 may no longer be applied.

Category: Corporate

One of the innovations brought about by Normative Instruction No. 81 of the Department of Business Registration and Integration (DREI), issued on June 10 of this year, is the express provision for the filling of limited liability companies' articles of association containing preferred quotas with voting restrictions or without voting rights.

A specific item included in the filling manual for limited liability companies (5.3.1) expressly establishes that quotas of different classes are admitted in these companies, and the articles of association are used to establish the proportions and conditions attached to such quotas. These preferred quotas may grant their holders various economic and voting rights. They may even eliminate or limit the voting right of the holder of such preferred quota, subject to the limits of Law No. 6,404/76 (the Brazilian Corporations Law), applied in a supplementary manner.[1]

The DREI also expressly stated that if there is any preferred quota without voting rights, it will not be computed for the purposes of calculating the quorums for call to order and resolutions provided for in the Civil Code.

Preferred shares are those that confer on their holders equity advantages and/or special privileges not attributed to other quotas, accompanied, in most cases, by restrictions on voting rights.

Since the entry into force of the new Civil Code on January 10, 2002, the possibility that the capital stock of a limited liability company may include preferred quotas has been discussed, considering that the Civil Code is silent on this matter. Despite this silence, part of the legal scholarship came to the understanding that preferred quotas should no longer be admitted on the basis of the prevalence of the nature of a company of persons (intuitu personae) intrinsic to limited liability companies.

It is important to emphasize that, when dealing with the freedom of a limited liability company to perform an act not prohibited by law, such as contemplating preferred quotas in its capital stock, we must consider certain principles that are the basis of private law, including private autonomy, contractual freedom, and legality.

Private autonomy and contractual freedom materialize the right of the contracting parties to choose whether or not to enter into a contract, as well as the content and conditions thereof, provided that they are agreed upon in good faith, respecting the social function of the contract, and not contradicting any provisions of law. The principle of legality, in turn, is provided for in article 5, subsection II, of the Federal Constitution, according to which all are equal before the law, without distinction of any kind, and no one shall be obliged to do or refrain from doing anything except by virtue of the law. From the point of view of private law, this principle stipulates that private individuals may do anything that is not forbidden by law, which includes performing any act not provided for by law. Thus, there would be no legal impediment for limited liability companies to include preferred quotas in their articles of association.

It so happens that, before Normative Instruction No. 81, there was no uniform understanding on the part of the various boards of trade regarding this controversy. Some accepted the recording of articles of association including quotas without voting rights or with restricted voting rights, while others rejected this possibility.

Since 2017, with the enactment of DREI Normative Instruction No. 38, the possibility of establishing preferred quotas in limited liability companies was already included in the registration manual for limited liability companies. At the time, the provision had been placed in item 1.4, subsection II, letter "b" of the manual for registration of limited liability companies so that the supplementary regulation of the Brazilian Corporations Law would be presumed for limited liability companies that had preferred quotas. Even so, there were differences in the legal scholarship as to its validity and legality, and as regards the details linked to the division of the capital stock into such quotas, for example the possibility of eliminating or limiting the right to vote. This difference in understanding has always generated great legal uncertainty regarding the subject and has served to make it impossible in practice for limited liability companies to create preferred quotas.

Although the change brought about by Normative Instruction No. 81 is very welcome as a way to standardize the understanding regarding of the filling agencies, some controversial issues still need to be clarified. The first revolves around the competence of the DREI to establish the possibility of creating preferred quotas in limited liability companies, given that the DREI is a body whose legal purpose is to hand down standards to resolve doubts regarding the interpretation of laws and regulations on the registration of companies, under the terms of article 4 of Law No. 8,934/94. Therefore, any quotaholder of a limited liability company that may feel harmed by the division of the capital stock into preferred quotas may bring the matter to be discussed in the judicial sphere, on the grounds of incompetence of the DREI to "legislate" regarding preferred quotas in limited liability companies.

Furthermore, Normative Instruction 81 does not indicate exactly which advantages may be assigned to preferred quotas. In other words, it is not clear whether limited liability companies will be restricted to the use of the advantages allowed by the Brazilian Corporations Law, which must be applied in a supplementary manner, or whether they will be able to innovate with other advantages not provided for by law.

Thus, from the standpoint of company registration, some issues relating to the use of preferred quotas by limited liability companies have been clarified and standardized by Normative Instruction No. 81. However, given the controversy that the subject generates in Brazilian legal scholarship, the underlying issue still generates controversy and conflicting understandings.

[1]The Brazilian Corporations Law, in turn, expressly allows companies to issue preferred shares, which give shareholders certain preferences, such as (i) priority in the distribution of fixed or minimum dividends, (ii) priority in the reimbursement of capital, with or without a premium, or (iii) accumulation of the preferences and advantages mentioned in items (i) and (ii), as provided for in article 17 of the same law. In addition, the bylaws may limit certain rights relating to the preferred shares, such as the right to vote.

Category: Labor and employment

In order to ensure the solidity, stability, and regular operation of the Brazilian Financial System, the Brazilian Monetary Council (CMN) issued Resolution No. 4,797/20 on April 7, establishing until September 30 of this year, among other issues, prohibitions on increasing the compensation of officers and members of the board of directors of financial institutions and other institutions authorized to operate by the Central Bank of Brazil (Bacen).

However, due to various questions regarding its implementation, on May 29 the CMN issued Resolution 4,820/20, which revoked CMN Resolution 4,797/20, reestablished the prohibitions determined, and extended them until December 31, implementing improvements in wording and clarifications.

As for the prohibition on the increase in compensation, the new resolution established that:

• financial institutions are prohibited from increasing the compensation, fixed or variable, including in the form of an advance, of officers and members of the executive board and audit committee;

• the amounts subject to this prohibition may not be the subject to future disbursement obligations;

• the concept of variable compensation includes bonuses, profit sharing, deferred compensation payments, and other performance-related compensation incentives;

• the variable compensation may not exceed, either in nominal amounts or in percentages, the compensation paid in the same period of the previous year; and

• increases in compensation, fixed or variable, whose concession procedures were completed before April 7, 2020, are not subject to this prohibition.

The scope and limits of the resolution have generated a number of questions and discussions among the institutions over the last few months. In order to clarify them, the Bacen recently published answers to frequently asked questions regarding the rule (FAQ), clarifying, among other points, that the prohibition on increasing compensation also includes simple readjustment for replacement of inflation or salary matching, even if provided for generically in the institution's compensation policy or defined in collective bargaining agreements.

Since then, much has been discussed regarding how to make the prohibitions imposed by the CMN, as clarified by the FAQ, compatible with the other legal obligations arising from collective bargaining related to the readjustment of salaries of employees of financial institutions subject to the supervision of the Bacen, applicable even to directors and officers hired as employees.

Could the CMN restrict the application of salary readjustments established in salary matching or defined in collective bargaining agreements?

Salary readjustment on the annual base date, as established by a collective bargaining agreement or agreement by means of free collective bargaining between the labor and trade unions representing professional and economic categories, respectively, is provided for by law[1] and constitutes a right guaranteed by the Federal Constitution to employees, due to the recognition of the validity and normative character of collective bargaining agreements.[2]

In this context, non-compliance with obligations established in collective bargaining agreements exposes institutions to labor claims and collective actions by labor unions representing their employees, who may request not only the payment of salary differences resulting from the non-application of the annual salary adjustment, duly adjusted for inflation and accrued interest, but also collective bargaining penalties and even potential indirect termination of employment contracts.

On the other hand, non-compliance with the restrictions imposed by CMN Resolution No. 4,820/20 exposes the institutions subject to the supervision of the Bacen to the penalties and measures provided for in Law No. 13,506/17.

In view of this situation, should the prohibitions established by the CMN remain in force in their current form, associations and trade unions representing the institutions subject to the supervision of the Bacen should negotiate with their employees' labor unions salary readjustments for directors and officers hired as employees that are compatible with the prohibitions of the resolution.

Among the possible paths to be adopted through collective bargaining for the application of the restrictions imposed, we envision:

• postponing the negotiation of the salary adjustment for this group of employees until a period after December 31, 2020; or

• establishment of permission for institutions to negotiate salary adjustments individually with this group of employees after December 31, 2020.

For now, however, all that remains to be done is to await the developments on the subject.

[1] Article 10 of Law No. 10,192/2001: Wages and other conditions relating to work continue to be fixed and revised on the respective annual base date through free collective bargaining.

[2] Interpretation of article 8, XXVI, of the Federal Constitution, and article 611 of the Consolidated Labor Laws.

Category: Aviation and shipping

By Fabio Komatsu Falkenburger, Marina Estrella Barros, Vitor Guilherme da Silva Barbosa and Vittoria Psillakis Mickenhagen

The air sector was one of the hardest hit by the effects of the covid-19 pandemic. Domestic and international travel have become practically unviable due to the closure of borders and social distancing. Per data from the International Air Transport Association (Iata), worldwide demand for flights decreased 54% and 7.5 million flights were cancelled, leading to a reduction of more than US$ 419 billion in revenues and a loss of market value for all companies in the sector.

Airlines have high operating costs involving expenditures on fees paid to the government and airports, salaries, and maintenance of aircraft. In addition, the change in the price of the dollar during the pandemic increased expenditures on fuel and lease payments. The significant decrease in revenue and the rise in the dollar have severely affected the payment capacity of many companies, especially those in emerging countries, where currency variation is a major problem. To avoid even more serious consequences, some countries have developed financial rescue plans.

The United States government reached an agreement in April of this year to allocate $25 billion to bail out major U.S. airlines, including American Airlines, Delta, United, and Southwest. The intention is for 70% of the loan to be for the payment of employees, without the need to return the money. The other 30% would be reimbursed in 10 years. On the other hand, companies will not be able to dismiss employees until September of 2020 or impose wage cuts. In addition, the U.S. Treasury will invest approximately US$ 100 million in the acquisition of shares in the companies. Companies participating in the agreement must refrain from repurchasing shares or paying dividends until September of 2021 and must agree to executive compensation limits until the end of March of 2022.

Another example of a country that has established measures to mitigate the consequences of the current crisis in the air sector is Germany. Lufthansa, the largest national airline and one of the largest in the world, has lost market value, suffering a reduction of approximately 50% in the price of its shares traded on the stock exchange. The airline and the German government closed a 9 billion euro support agreement. The package takes into consideration the needs of the company and the taxpayers and employees of the Lufthansa Group. In addition to the loan, the German government is expected to become the company's largest shareholder by acquiring 20% of its shares in a transaction involving some 300 million euros. Even so, the company will maintain its private management, with minimal government participation in corporate management and limited voting rights.

The Italian government has decided that in order to maintain Alitalia it will need to adopt more drastic measures. The Italian airline was already facing great financial difficulties before the pandemic and in 2017 it was placed under state supervision. The government has announced that it intends to nationalize the company and invest large amounts to keep it operating without having to fire its employees.

Some countries in the Middle East are also already taking steps to help the region's major airlines. According to Iata, the loss for these companies should increase to US$ 4.8 billion in 2020. The Dubai government has already committed itself to supporting Emirates and injecting capital into the company, although it has not yet announced any specific amount.

Also in the Middle East, the Egyptian airline El Al Israel, which has extended its suspension of operations until June 30, has not yet received financial support and is still without capital to pay its debts and resume operations. El Al has sought government guaranteed loans worth $400 million to survive during the crisis. Of this amount, US$ 150 million would come from the purchase of shares in the company by the state and the remainder from a loan.

In Brazil, the air market situation is no different. According to the National Civil Aviation Agency (Anac), in May 2020 there was a 91% reduction in demand for domestic flights and 97.6% for international flights compared to May of 2019. Due to the impact of the pandemic on the sector, Brazilian airlines will also receive government support. The National Economic Development Bank (BNDES) will offer a line of financing through private financial institutions. The official figure has not yet been released, but it is expected to be between R$ 4 and 7 billion. According to the Ministry of Infrastructure, 60% of this amount will come from the BNDES, 30% from bond issuances in the market and 10% from private banks. Brazil's major airlines - Latam, Azul, and Gol - are still negotiating the terms of this package with the government.

The difference in amounts between the aid packages made available by the Brazilian government and those of other countries is significant. Brazilian airlines have suffered losses in the billions equal to or even greater than most international companies and depend on the contribution of these funds to get through the crisis and continue with their operation without resorting to local bankruptcy or reorganization mechanisms. Despite the scenario, the Minister of Infrastructure, Tarcísio Gomes de Freitas, says that the situation of Brazilian airlines is under control and that they are confident that the BNDES line of credit will be granted.

Considering the strategic importance of air transport service, timely government assistance, such as that adopted in other countries, is increasingly needed. The future of Brazilian airlines remains permeated with uncertainty.

Category: Aviation and shipping

On July 8, the House of Representatives approved the new wording of Executive Order No. 925/20 (MP 925), which establishes emergency measures for the Brazilian air sector due to the covid-19 pandemic.

Initially published on March 18 of this year, the original wording provided for the possibility of extending the deadline for payment of fixed and variable contributions due from airport concessionaires and established a period of 12 months for reimbursement of amounts relating to the purchase of airline tickets. MP 925 was the first reaction of the federal government to try to prevent a collapse of the domestic air market, which was practically paralyzed due to movement restrictions imposed to contain the spread of the coronavirus.

With validity about to expire, MP 925 was approved by the House with some important inclusions and awaits consideration by the Federal Senate. If the final draft of authored by Representative Arthur Oliveira Maia is approved without amendment, the following provisions will be converted into federal law.

Fixed and variable contributions

The amounts from by the airport concessionaires as fixed and variable contributions and due this year may be paid up to December 18, 2020, with the updates due calculated based on the National Consumer Price Index (INPC). Mere postponement of the payment of contributions will not give rise to economic and financial rebalancing of the contracts by the federal government.

Reimbursement of air tickets

Refunds due for cancellation of flights between March 19 and December 31, 2020, may be made by airlines within 12 months of the date of the cancelled flight. Reimbursement may be replaced with the granting of a credit to the consumer for an amount equal to or greater than the amount of the ticket cancelled. The credit will be valid for 18 months and may be used by the consumer himself or by a third party to purchase products or services offered by the company.

Wherever possible, carriers must offer the possibility (i) of rebooking on a company flight or one operated by another carrier, or (ii) rebooking the ticket under the same conditions as the ticket originally purchased and at no additional cost. Consumers will also be allowed to choose (i) a credit for the amount corresponding to the ticket, without any penalties being applied, or (ii) to withdraw from the flight, in which case reimbursement must be made within 12 months, subject to any contractual penalties. In this case, if the withdrawal pertains to a ticket purchased seven days or more in advance of the date of boarding, and if it is done within 24 hours from the receipt of the ticket, the penalties will not be applied.

Changes to the Brazilian Aeronautical Code - liability for damage to passengers and cargo

The new wording brings in proposals to amend the Brazilian Aeronautical Code (CBA - Law 7,565/86) that were not contemplated in the original text of MP 925. It was suggested that a new article (251-A) be created providing that the compensation for non-economic damages resulting from failure to perform the contract will be conditional on the demonstration by the passenger (or shipper/consignee of the cargo) of the actual occurrence of the damage. If the proposal is not vetoed by the President of Brazil or modified by the Senate, claims for compensation for non-economic damages shall be subject to proof of their actual existence.

The text also seeks to amend the rule dealing with carrier liability in cases where delays occur due to force majeure or determination by the aviation authority. The new wording provides that the carrier shall not be liable for damages arising from delays only if it proves that, for reasons of unforeseeable circumstances or force majeure, it was impossible to take the measures appropriate and necessary. The requirement of proof of inability to adopt the measures does not exist in the current wording of the CBA.

A new paragraph is being proposed to define as unforeseeable circumstances or force majeure (i) landing and take-off restrictions due to weather conditions, unavailability of airport infrastructure, order by civil aviation authorities or other government authorities; or (ii) decree of a pandemic or publication of acts of government due to a pandemic.

Subsection I of article 264 of the CBA may also be amended. The current version exempts the carrier from liability for damage to cargo when it proves that the delay was caused by an order of the aviation authority or by facts the effects of which could not have been foreseen, avoided, or prevented. The House's suggestion is that such exemption should only occur in the event of the unforeseeable circumstances or force majeure highlighted in the previous paragraph.

Guarantee Fund for Length of Service (FGTS) for pilots and airline workers

In response to a request made by Caixa Econômica Federal, the Representatives inserted a provision stipulating that pilots and airline workers with an FGTS escrow account and who have their salary suspended or reduction as a result of the pandemic will be entitled to withdraw the funds, up to the limit of the balance existing in the account, in six installments of: (i) R$ 3,135.00, in cases of total suspension of salary, or (ii) R$ 1,045.00.

National Civil Aviation Fund (FNAC)

Another novelty is the proposed amendment to Law No. 12,462/11, which provides for the creation of the FNAC. The new wording provides that the fund's resources may also be invested in (i) the development, expansion, and restructuring of public concession airports, provided that the investments do not constitute an obligation of the concessionaires; (ii) the cost of any expenses arising due to civil liability vis-à-vis third parties, in the event of damage caused by acts of war or related events against aircraft registered in Brazil operated by airlines.

The biggest novelty, however, is the possibility of using the resources to guarantee loans taken out before December 31, 2020, by by airport concessionaires, regular air transport service providers, and ancillary air transport service providers that prove losses due to the pandemic.

A measure that was initially simple and emergency in nature was embodied in the amendments proposed by the House of Representatives. The health crisis caused by covid-19 has caused significant changes in the world aviation market, affecting labor relations, company business models, and commercial relations. Of all the possible changes to be implemented should MP 925 be converted into law, the most promising is the new rule regarding application of FNAC resources. The permission for them to be used as collateral is a positive signal to the market and may be crucial for the survival of some companies in the sector. Access to credit will certainly be less costly if banks and investors have their resources guaranteed by a fund with billions in assets.

MP 925 has already been referred to the Senate and is awaiting approval to be converted into law. The only certainty in the midst of chaos is that aviation will yet go through some turbulence.

Category: Restructuring and insolvency

Challenged by the new reality imposed by the covid-19 pandemic, agencies making up the Judiciary have been issuing a series of acts and adopting a multitude of measures that seek not only to adapt the modus operandi of the Judiciary in Brazil to the social isolation rules, but also to provide alternatives that allow for the prevention or rapid and less costly resolution of disputes.

Among the solutions available for business conflicts, including those related to bankruptcy law, are the initiatives taken by different courts to encourage the use of mediation and conciliation.

The courts of appeal in the states of São Paulo and Paraná were pioneers in such measures. Already in April of this year they disclosed, respectively, GC Ordinance No. 11/2020 and the creation of a new modality of Judicial Dispute Resolution Center: the Business Reorganization Cejusc.

Along the same lines, on June 24th Normative Act No. 17/20, promulgated by the Rio de Janeiro Court of Appeals (TJRJ), was published and entered into force, aiming at the implementation of a special system for handling disputes related to business reorganization and bankruptcy, the RER, through which "businessmen, business companies," and "other economic agents" (article 1) may initiate procedures for mediating disputes arising from the covid-19 pandemic involving legal transactions for the production and circulation of goods and services.

Under the terms of Normative Act 17/20, the objective of the RER will be to promote mediation on issues related to bankruptcy law, both in the pre-litigation phase and in the midst of proceedings already initiated, regardless of the level of appeal in which they are being handled. This shall occur without the interruption of the action and deadlines provided for in Law 11,101/05 (LFR), unless there is a consensus between the parties or a supervening judicial order (article 2 and 13).

The following are included within the concept of "mediations on issues related to bankruptcy law”: (i) mediation between debtor and creditors regarding the ascertainment of claims and assignment of value to assets encumbered with a security interest in the respective incidental proceedings (article 2, paragraph 1); (ii) mediation between the debtor's partners and shareholders (article 2, paragraph 4); (iii) mediation regarding the participation of regulatory entities in the judicial reorganization process, in cases involving concessionaires or permissionaires of public services and regulatory agencies; (iv) mediation on lease disputes involving real estate of companies in economic and financial difficulty (article 2, paragraph 2); (v) regarding claims created during the period of effectiveness of the state of public calamity, even if the taxable event is subsequent to the filing of the petition for judicial reorganization, in order to allow the continuity of essential services of the company in difficulty or under judicial reorganization (article 2, paragraph 7); and (vi) involving creditors not subject to judicial reorganization, pursuant to paragraph 3 of article 49 of the Bankruptcy and Reorganization Law, or other non-bankruptcy creditors.

Within the scope of these mediations, and prior to the filing of any judicial reorganization, it will be possible to negotiate the amount of the debts and the forms of payment (article 2, paragraph 8). Furthermore, in the cases in which the petition for judicial reorganization has already been filed in court by several companies in the same economic group (by means of so-called procedural consolidation), agreements between creditors and debtors shall be permitted regarding whether there will also be substantial consolidation of the reorganization, breaching the asset barriers between such companies, where a single notice to creditors and the same plan for judicial reorganization shall be prepared, etc. (article 2, paragraph 3).

Mediations on classification of debt claims are prohibited and, in any case, renegotiation of judicial reorganization plans already proposed must observe the respective classes of creditors (article 3).

Settlements obtained through these mediations must not dispense with deliberation by the general meeting of creditors with respect to the matters required by law, nor may it set aside the control of legality to be exercised by the magistrate at the time of ratification.

Also according to the Normative Act No. 17/2020, requests for establishment of mediation must be accompanied by documents essential to understanding the dispute, containing a claim and cause of action necessarily related to the consequences of the covid-19 pandemic and observing the competence of the business courts (articles 8 and 9).

Such request should be sent to the Permanent Center for Consensus Methods of Dispute Resolution (Nupemec), of the TJRJ (e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.), which will contact the parties involved in order to obtain everyone's consent and schedule the mediation session via videoconference. At the end of the mediation session, the judicial mediator will draw up minutes, which will be forwarded by the Nupemec to the court overseeing the case.

The initiative to implement a special arrangement that gives concrete tools to those who wish to seek a consensual resolution for certain disputes is positive not only because it is suited to the moment we are living, but also because it gives the parties an opportunity to truly consider and adopt the path of negotiation before starting litigation or even during the course of the bankruptcy process, which is often extremely lengthy.

This weighting is applicable mainly in the face of decisions such as the 2nd Circuit Court for Bankruptcy and Judicial Reorganizations of the District of São Paulo[1] rendered on the same date that Normative Act No. 17/20 was published. It proposes a re-reading of the right of access to the judiciary for companies in crisis, defending the idea that economic agents, when filing for judicial reorganization, must bear the burden of proving that they have engaged in prior settlement talks with their creditors, made reasonable proposals, without the measures adopted having been sufficient to reach a consensual resolution that would allow the crisis to be overcome. According to Judge Paulo Furtado, companies in crisis, in order to demonstrate their interest in the suit, should also prove that they considered resorting to out-of-court reorganization, a mechanism provided by the Bankruptcy and Reorganization Law which, although faster and less costly than a judicial reorganization, has not been much used.

The São Paulo court decision also appointed, since the beginning of the judicial reorganization process, a mediator to assist the group in reorganization in discussions with its stakeholders (banks, tax authorities, employees, public authorities, among others) in order to obtain adequate and quick solutions.

Faced with all these novelties, there is no doubt that the exceptional situation we are experiencing will pass, but that its impacts will leave lasting (perhaps eternal) marks on the way we deal with crises in general and the means of solving them, including conciliation and mediation, already provided for in article 3 of the New Code of Civil Procedure.

[1]Decision dated June 24, 2020, issued in Case No. 1050778-50.2020.8.26.0100 (judicial reorganization of the Enpavi Group).

Category: Environmental

Instituted by Law No. 12,305/10, the National Solid Waste Policy (PNRS) defined as one of its instruments reverse logistics systems for the application of shared responsibility for product’s life cycles. Such systems consist of a set of actions, procedures, and means, after the use of products, to make viable the collection and return of solid waste to the business sector for reuse in its cycle, in other production cycles, or for another environmentally appropriate final destination.

The PNRS lists products and sectors subject to the obligation to establish a reverse logistics system, leaving open the possibility of expanding this list, considering primarily the degree and extent of the impact of the waste generated on public health and the environment, in addition to the technical and economic feasibility of the system. According to article 15 of Decree No. 7,404/10, reverse logistics systems may be implemented through three instruments, which cover the regulations issued by the public authorities.

Thus, on June 5, Decree No. 10,388/20 instituted the reverse logistics system for drugs, limited to those for domestic use that have expired or are in disuse, exclusively for human use, industrialized, and handled, in addition to their packaging, after disposal by final consumers. A commercial establishments are defined by the decree as a legal entity that offers these home remedies, while manufacturer has been widely regarded as the legal entity that manufactures or has manufactured home remedies, on its behalf or under its brand name. Thus, brand owners are also considered manufacturers, regardless of who is responsible for the manufacturing process itself.

With these definitions, the decree, in its article 6, presents the situations of non-application of reverse logistics of medications. We highlight the health services waste generators whose activities involve the stages of waste management from services related to human or animal health care, acupuncture, piercing, tattooing, beauty and aesthetic salons, clinics and medical and dental offices and personal hygiene products, cosmetics, skin care products, perfumes, and sanitizers.

The decree also creates the obligation to establish a reverse logistics system and gives guidelines for its implementation, enabling the hiring or creation of a management entity, a separate legal entity, with the objective of structuring, implementing, and operating the system. Adhesion to the management entities will be voluntary, and more than one entity may be created to implement the system. The management entity is not to be confused with the representative entity, which represents the interests of the private sector for collaboration, support, and assistance to companies.

When the decree enters into force (180 days after the date of its publication), phase 1 of the structuring and implementation of the reverse logistics system will begin. Within 90 days, entities representing manufacturers, importers, distributors, and traders of home medicines will establish a performance monitoring group responsible for monitoring the implementation of the system. After the group is established, within 90 days a mechanism will be structured for the group to provide information, through an annual report, on the volume of medicinal products that have been delivered in an environmentally suitable manner.

Phase 2 will start 120 days after completion of phase 1 and will include qualification of service providers, preparation of a communication plan, and installation of fixed points for receiving medicines. For better effectiveness, it is provided that expired or unused household drugs are managed as non-hazardous waste during the stages of disposal, temporary storage, transportation, and sorting, until the transfer to the treatment unit and environmentally appropriate final destination, provided that there are no changes in their physicochemical characteristics and that they are kept in conditions similar to those of the products in use by the consumer. Likewise, the decree exempts the activities of receiving, collecting, storing, and transporting these medicines from environmental authorization or licensing. The transport may be carried out by the same vehicle that distributes the medicine for sale.

Due to the particularities and risks of the products and in view of the hierarchy imposed by the PNRS for solid waste handling and management, the decree provides that the environmentally appropriate final destination of expired or unused household drugs should be, as a priority, incineration, followed by co-processing and, finally, class I landfill for hazardous products.

Pharmacies and drugstores will be considered fixed waste reception points and will be obliged to acquire, make available, and maintain container dispensers, in the proportion of at least one fixed point for every 10 thousand inhabitants, in municipalities with a population of over 100 thousand inhabitants. In addition, they must record and report on the waste transportation manifest the mass of waste received and, if necessary, make available a place for primary storage at the commercial establishment. The decree also sets the schedule for the acquisition of the dispensers, such that in the first two years of phase 2 they should be made available only in cities with a population of over 500,000 inhabitants.

Manufacturers and importers are assigned the obligation to transport the expired or unused household medications discarded by consumers at the secondary storage points to the environmentally appropriate treatment unit and final destination. This transport should be funded in a shared manner by manufacturers, importers, and logistics operators. The environmentally appropriate destination of the drugs, on the other hand, should be financed directly by the manufacturers and importers.

Category: Social security

The discussion regarding the statutory limitations period applicable to actions for refund of amounts unduly paid to supplementary pension entities, based on unjust enrichment, is longstanding before the Superior Court of Justice (STJ). As a rule, the controversy lies in whether to apply the ten-year or three-year limitations period, provided, respectively, in articles 205 and 206, paragraph 3, subsection IV, both of the Civil Code of 2002 (CC/02).

Until recently, it was possible to state that the case law[1] of both private law classes of the STJ, based on the unjust enrichment of the entity, had been settled around the three-year period (article 206, paragraph 3, IV, of the CC/02), as decided by the 2nd Section in the judgment on Repetitive Topic No. 610/STJ, which addressed the issue from the point of view of health plan operators. However, the issue won another chapter before the STJ in June of this year.

By a majority, the 3rd Panel[2] found that the statutory limitations period for A refund is ten years (article 205 of THE CC/02), since enrichment of the pension entity had a legal issue as its cause, namely the prior contractual relationship with the plan participants. This would therefore not constitute a case of unjust enrichment, which would lead to the three-year statutory limitations period. At the time, Justice Ricardo Villas Bôas Cueva dissented and Justice Marco Aurélio Bellizze recused himself.

The 3rd Panel based its understanding on a precedent of the Special Court,[3] the highest body of the STJ, to the effect that "the discussion regarding the undue collection of amounts in a contractual relationship and undue payment does not fit within the three-year period, whether because the legal nature of the cause, in principle, exists (prior contractual relationship in which the legitimacy of the charge is discussed), whether because the action for refund of overpayment is a specific action.”

Although the case decided by the Special Court did not deal with undue charging for a supplementary pension, but rather for noncontracted telephone service, the Justice writing for the court, Justice Paulo de Tarso Sanseverino, found that the situation is similar, because, in the course of a benefit plan, there was undue charging of contributions, a refund of which was claimed.

In principle, the case decided by the 3rd Panel was classified as Representative Controversy No. 121/STJ[4] for potential assignment to the procedure for repetitive appeals, in order to reaffirm the STJ's guidance on the issue in a precedent qualified as being one of mandatory observance by the lower courts, under the terms of article 927 of the CPC/15. However, in the light of the Panel's amendment of the case law, the reporting judge rejected the indication of the subject as representative of the controversy.

Considering that the 4th Panel has precedents in the opposite direction of that of the 3rd Panel, the issue may be submitted to a procedure to resolve dissent by the 2nd Section, which is composed by both panels and has competence to standardize private law issues at the STJ. In this scenario, it is important to provide some comments on the new understanding of the 3rd Panel.

1. According to Justice Ricardo Villas Bôas Cueva, "it is not enough for the claim to be based on a prior contractual relationship between the parties to call for the application of the ten-year limitations period." This is so because article 205 of the CC/02, since it is a residual rule, should be applied in an exceptional manner, only when it is found that there is no specific provision of law, which is gathered from the wording itself: “A time-bar occurs in ten years when the law has not set a shorter period."

In this sense, the Justice continues, it is necessary to examine the nature of the claim in order to define the statute of limitations applicable: (i) if it results directly from the contract, it is ten years; or (ii) if it does not have any direct relationship with it or constitutes a logical consequence of recognition of some nullity, in whole or in part, of the agreement entered into, it is three years.

2. It cannot be disregarded that the 2nd Section, on three occasions, under the system for repetitive appeals, found for application of the three-year period in cases in which unjust enrichment arises from a prior contractual relationship, namely: a) claims of nullity of a readjustment provision for health care plans or insurance contracts (Topic No. 610/STJ);[5] b) claims to repeat indebtedness of a farm credit note contract (Topic No. 919/STJ);[6] and c) claims to refund amounts paid as brokerage commission (Topic No. 938/STJ).[7]

Despite the particularities of each case and the guidance that the theories defined in the repetitives appeals be applied exclusively in their specific scenarios,[8] the logic employed by the 2nd Section in the aforementioned repetitive appeals may be applied to situations involving supplemen tary pension plans, at least in relation to Repetitive Topic No. 610/STJ, cited in various precedents on the topic that defined as correct the statute of limitations of three years, with a basis on article 206, paragraph 3, IV.

In line with such precedents, since the claim is based on the absence of a legal cause for the collection of the contributions paid into the supplementary pension plan, even if there is a contractual relationship between the parties (termination of adherence), one should apply to the scenario the limitations period of article 206, pargraph 3, IV, CC/02, which sets at three years the limitations period for claiming compensation for unjust enrichment.

3. The new understanding of the 3rd Panel indicates a change in the jurisprudential guidance of the STJ and, naturally, may be replicated in other cases. However, it is important to point out that, in the specific situation, Justice Marco Aurélio Bellizze, who cast the winning vote on Topic 610/STJ, recused himself from voting, which may have contributed to the result.

4. In the case examined, the entity report the existence of at least 55 precedents from the STJ regarding an identical issue involving beneficiaries of State Law No. 4,819/58. The three-year limitations period was applied in all of them. Several of them have become final and unappealable, and in 16, it occurred after the filing of a motion to resolve dissenting opiniosn by the beneficiaries, which was duly rejected.

The sudden change in the Court's dominant stance, without any new fact from the social, economic, and/or legal point of view, compromises the stability of legal relations and goes against the legal obligation of the courts to keep the case law stable, complete and coherent (article 926 of the CPC/15).

In order to safeguard the rights of both the insured and entities that have lawsuits in progress, it would be prudent to submit the matter to the sieve of the 2nd Section of the Superior Court of Justice for it to review, or for it to maintain, the Court's understanding and potential incompatibility with the theories established in the repetitive appeals. If the case law is overturned, the possibility of relaxing the effects of the decision must be assessed, for the theory established to be applied only to appeals lodged after the publication of the respective appellate decision, in accordance with article 927, paragraph 3, of the CPC/15.

This is justified by the institutional role of the STJ in giving the final word on the interpretation of infra-constitutional law. It is clear that the change in its understanding represents a real change in the applicable normative act, the retroactive effects of which must be examined by the Court.

[1] AgInt no REsp 1674510/SP, opinion drafted by Justice Nancy Andrighi, Third Panel, decided on June 8, 2020, published in the Electronic Gazette of the Judiciary on June 10, 2020); (AgInt no AREsp 1.322.956/SP, 3rd Panel, published in the Electronic Gazette of the Judiciary on February 1, 2019), and (AgInt no REsp 1.717.109/SP, 4th Panel, published in the Electronic Gazette of the Judiciary on November 20, 2018.

[2] REsp 1803627/SP, opinion drafted by Justice Paulo de Tarso Sanseverino, Third Panel, decided on June 23, 2020, in the Electronic Gazette of the Judiciary on July 1, 2020.

[3] EREsp 1523744/RS, opinion drafted by Justice Og Fernandes, Special Court, decided on February 20, 2019, published in the Electronic Gazette of the Judiciary on March 13, 2019.

[4] The following were also qualified: REsp No. 1838337/SP; REsp No. 1838335/SP, and 1838334/SP, in order to define “the statutory limitations period for the repayment of contributions paid into the supplementary pension plan known as ‘Plan 4819,’ the illegality of which was recognized in court.”

[5] (REsp 1360969/RS, Opinion drafted by Justice MARCO BUZZI, written for an Appellate Decision by Justice MARCO AURÉLIO BELLIZZE, SECOND SECTION, decided on August 10, 2016, published in the Electronic Gazette of the Judiciary on September 19, 2016)

[6] (REsp 1361730/RS, Opinion drafted by Justice RAUL ARAÚJO, SECOND SECTION, decided on August 10, 2016, published in the Electronic Gazette of the Judiciary on October 28, 2016)

[7] (REsp 1599511/SP, Opinion drafted by Justice PAULO DE TARSO SANSEVERINO, SECOND SECTION, decided on August 24, 2016, published in the Electronic Gazette of the Judiciary on September 6, 2016)

[8] (REsp 1756283/SP, Opinion drafted by Justice LUIS FELIPE SALOMÃO, SECOND SECTION, published in the Electronic  Gazette of the Judiciary on June 3, 2020)

Category: Tax

The natural gas industry in Brazil had its development guided, for many years, by the business plan of a single player, which controlled practically all stages of the product value chain.

The activities predominantly performed by this player included basically all forms of introduction of natural gas into the Brazilian economy, such as the production (and mainly the processing and outflow) of offshore natural gas, the importation of natural gas from Bolivia, and the import and regasification of liquefied natural gas (LNG).

Thus, even if a given company obtained the right to produce natural gas in Brazil, it had no choice but to sell the product to the dominant player, since the input of this energy source into the Brazilian economy can only take place after its specification, and all the infrastructure for processing and treating natural gas was held by this single player.

This control also reached the natural gas transport infrastructure, such that virtually all the capacity of the transport pipelines was exclusive to this one company.

In addition to transportation, significant participation also reached most natural gas distribution companies, impacting on the capacity from the supply to the point of consumption.

Although the concentration of such activities in a single player was essential for the initial structuring of the natural gas industry in Brazil, given the need for large investments in an environment, at the time, of much uncertainty, the current reality no longer allows for this configuration. Over time, such structural control of the industry ended up having an impact on the offer of the product itself and the implementation of new investments and projects, resulting in an increase in the price of natural gas due to absence of free competition.

In view of this environment, the Gas for Growth initiative represented, in 2016, the pooling of efforts between the public power and the private sector to map out the main aspects of the natural gas industry in Brazil with a view to preparing a transitional environment in order to finally enable the entry of new players and reduce the influence of the player that had been dominant until then.

The multiplicity of issues identified within the scope of the Gas for Growth initiative led the public power, especially the part responsible for regulatory policies, to deepen its analysis of some specific fronts, understood to be strategic for the final objective of opening the natural gas market in Brazil. One of the fronts considered strategic was taxation, given the importance of thoroughly assessing the challenges faced by the industry now and in the future.

With resources from the World Bank under the META Project, the federal government, represented by the Ministry of Mines and Energy (together with the National Petroleum Agency and the Ministry of Finance, now the Ministry of Economy), hired a specific study on the "Challenges of the Brazilian tax system in the natural gas industry", which would help build a new plan for the industry in Brazil. Machado Meyer was selected in a bidding process to develop the work, which began and ended in 2018, thanks to the joint efforts of the tax and infrastructure/energy areas of the firm.

Based on all the information accumulated, the federal government launched in 2019 the New Gas Market program, which aims to make natural gas more competitive based on four main actions:

• promote competition;

• harmonize state and federal regulations in the sector;

• stimulate the integration of the gas sector with the electrical and industrial sectors; and

• remove tax barriers that prevent market opening and competition.

Based on this important milestone, Brazil entered a new phase of projects in the various stages of the natural gas industry chain. As is natural in any new phase (even more of this magnitude) and in view of the already complex Brazilian tax system, new challenges are being faced and gradually overcome.

This article aims to contribute to the debate on some of the issues that most affect the market today.

Natural gas processing: tax aspects

One of the main challenges to transform natural gas produced in Brazil into wealth concerns access to processing infrastructures, called Natural Gas Processing Units (NGPUs).

While all the NGPUs are held by a single player, which performs the activity exclusively for its own benefit, natural gas processing does not present itself as a relevant tax challenge.

However, with the entry of new players into the market, who will need to access this infrastructure to adapt the crude natural gas produced in Brazil (known in the industry as "rich gas" because it contains several other gaseous hydrocarbon streams), it is now necessary to qualify, from a legal and tax standpoint, the processing activity performed by the NGPU holder for the benefit of the natural gas owner.

The first challenge that emerges from this new activity concerns a potential conflict of jurisdiction between states and municipalities, given the possible concomitant interpretation of both entities as legitimate to charge taxes within their jurisdiction, which are the ICMS and ISS (respectively).

Although the judicial precedents point to the jurisdiction of the states to tax such activities, qualified as a kind of "industrialization to order" operation, the absence of a clear normative rule still represents some legal uncertainty for the sector.

Although the issue related to the conflict of jurisdiction between states and municipalities has been overcome (assuming the prevalence of the current judicial position on the assessment of the ICMS), the absence of state regulation regarding compliance with the principal and ancillary obligations ends up being another tax challenge to be overcome.

This is because the common ICMS legislation was conceived with reference to operations with physical, tangible goods, whose quantification takes place before (and according to) the physical movement of the goods. Natural gas, however, is a fungible product that circulates through continuous flow pipelines, and it is not possible to apply the common rules provided for in state ICMS legislation.

There are also other elements of complexity, such as the times and movements of liquid derivatives of natural gas, obtained from the processing activity. Such liquid derivatives, such as liquified gas derived from natural gas (LGNG), can be transported by other modes, which would induce compliance with the common rules for issuing tax documents, generating conflict with the special rules applicable to natural gas.

These are just some of the tax challenges of the activity of processing. Many others are still under discussion for regulations at national level.

Regasification of imported LNG: tax and customs challenges

In addition to tax challenges, the structuring of imported LNG regasification projects faces customs complexities, which are being resolved by the competent authorities on a one-off and successive manner.

Among the customs challenges faced in implementing imported LNG regasification terminals are the need for customs clearance at the terminals, which are often designed in conjunction with stationary Floating Storage Regasification Units (FSRU), and the application itself of the customs procedure of temporary admission with total suspension of taxes for these goods.

The possibility of customs clearance of such terminals and especially of the FSRUs that make them up is an example of recent improvement of customs legislation to accommodate this new reality of the natural gas industry. The legal gap, which generated legal uncertainty, was resolved with the publication of Ordinance No. 473/20, of the Federal Revenue Service of Brazil, significantly reducing doubts with respect to the legal feasibility of such projects.

Other aspects, however, still need to be better regulated, such as the temporary admission of FSRUs in the economic use mode itself with total suspension of taxes, direct discharge and customs clearance procedures, the ancillary obligations applicable for receipt, storage, and regasification of LNG (notably when there is access from third parties in the terminal or shared loads), among others.

It is worth noting that third-party access to LNG terminals is also susceptible to the same type of conflict of jurisdiction between states and municipalities faced in processing activities, and the legal interpretation is similar.

On the other hand, the times and movements of LNG in the context of import, storage, and regasification thereof are quite different from those found for processing activity. It is therefore appropriate to have specific regulations that take account of such distinctions.

Importation of natural gas and LNG: conflicts of jurisdiction

The import of natural gas from Bolivia, through the Brazil-Bolivia Gas Pipeline (Gasbol) and the import of LNG may also face tax challenges related to conflicts of jurisdiction between the states in defining what entity has standing to charge the ICMS on importation.

This controversy arises from the possible inconsistent interpretation among the states regarding the criteria legally relevant in defining in which state the "legal consignee" of the import operation is located: for example, would it be the state in which the importing establishment is formally recorded, where the goods enter the Brazilian territory (citygate of Corumbá, in the case of natural gas imported from Bolivia), where the respective customs clearance occurs or where the regasification activity occurs (in the case of LNG)?

Case law points to certain criteria, recently reinforced by the judgment on the merits of Internal Rules Appeal No. 665.134/MG, under the general repercussion framework (in a context of operations not related to the natural gas industry).

However, there are still three civil lawsuits (ACOs) pending a decision that specifically deal with the case of natural gas imported from Bolivia. Given the peculiarities (in the most various senses) of natural gas, there would be greater legal certainty after the judgment of these specific cases, in which such particularities were brought to the debate.

Natural gas transportation: tax challenges

The activity of natural gas transportation is, without a doubt, critical making the supply and demand of the product viable in Brazil, given its continental dimension and the concentration of production and processing in a few states.

Moreover, as it is a product placed into a real “grid industry", the connection between the sources of input and the points of distribution and consumption of natural gas is decisive for the optimal functioning of the sector. Other relevant aspects of this industry are the dynamism resulting from the continuous flow of natural gas and its essential nature for Brazil's own energy security, considering the importance of this input for the generation of energy by thermal power plants.

While the natural gas industry was dominated by a single player, the transport aspects of the product were not so relevant since the entire capacity of the transport pipelines was purchased by a single company and all the natural gas transported was owned by the same company.

The opening of the market to new players necessarily depends on the supply of natural gas transport capacity to third parties with the aim of enabling new trading flows with the product, thereby encouraging the competitiveness desired and price shock at the end of the chain.

Given this need and the physical characteristics of natural gas itself (which does not allow for perfect physical identification and binding of each molecule input into the transportation grid to its respective holder), a unique model was conceived in Brazil (but already adopted in other countries) for contracting for transportation capacity based on the quantities of natural gas input and withdrawn from the transport system. It is called an "entry-exit model".

According to this model, different players (sellers and buyers of natural gas, technically referred to as "shippers") can contract their own capacities to input natural gas into each carrier's transport system and remove it.

The framework of this disruptive contractual model (considering the traditional Brazilian reality) in the tax system was also a significant challenge, especially at the state level, since ICMS is also levied on inter-municipal or interstate transportation services.

The regulation of this transport model was understood as one of the priorities to give support to the other initiatives to open the market, which was done by means of Sinief Agreement No. 03/18 (especially with the changes brought about by Sinief Agreement No. 17/19).

Although the tax basis for this activity is already structured, there are still other improvements that tend to be implemented with the maturation itself of the natural gas industry in Brazil, such as the interconnection of the pipeline systems owned by the different transportation companies and the establishment of grid codes, which will also trigger new tax challenges.

Thermoelectric generation from natural gas: tax challenges

Although not a new challenge in itself, the new phase of the natural gas industry tends to intensify the tax obstacles to the activity of thermoelectric generation from natural gas. This is due to the fact that natural gas is a transitional fuel to less polluting and more environmentally friendly sources and helps preserve Brazil's energy security. It is also due to the firm demand for gas created by thermal power plants in Brazil, which makes other investments in the industry as a whole feasible.

The main tax challenge relating to thermoelectric power generation from natural gas arises from the different ICMS assessment systems for transactions involving natural gas and electric power.

This is because the ICMS tax arrangement applicable to the natural gas supply chain is the traditional one, whereby the tax must be collected from the state where the selling establishment is located. Thus, the seller collects the ICMS tax on the sale of natural gas to the state in which it is located, indicating on the tax document the amount of tax due for the respective recording of a credit by the purchaser of the product. These tax credits may be used by the purchaser to offset other ICMS debts it may ascertain in its transactions, in compliance with the non-cumulative tax principle set out in article 155, paragraph 2, subsection I, of the Federal Constitution.

The ICMS assessment system for transactions involving electric power is different, since the Federal Constitution itself establishes that the tax will not be levied on interstate transactions. The logic of the constitutional legislator in establishing such an assessment system was to assign the product of the ICMS tax collection to the states where electricity consumption occurs, since its generation tends to be concentrated in a few states, usually privileged due to natural circumstances. Consumption, on the other hand, occurs throughout the Brazilian territory. At the time when this system was conceived, the Brazilian electric grid was less diversified and massively composed of hydroelectric plants, which do not depend on inputs taxable under the ICMS.

Exit of goods exempted or not taxed under the ICMS are exceptions to the principle of non-cumulativeness, which leads to reversal of entry  of tax credits related to previous transactions (except if the ordinary legislation of the specific state authorizes the maintenance of such credits).

Additionally, the company acquiring the electric power in interstate transactions (such as a state energy distributor, for example) will have to pay the ICMS tax on its transactions selling the power within the state, which are often subject to higher rates than those for products in general (in the state of Rio de Janeiro, the ICMS tax rate on electric power corresponds to 28%, while in the other operations it is 18%, for example).

Analyzing the tax levied on the supply chain of natural gas for thermoelectric generation, it is possible to identify, therefore, a significant tax challenge related to the incompatibility of the ICMS assessment arrangements, which leads to cumulative taxation and, ultimately, higher cost in the electric power generated via natural gas, thus reducing the competitiveness of these projects.

The form usually adopted by states to mitigate the effects of the incompatibility of the ICMS taxation systems for natural gas and electric power is the use of special taxation arrangements (mainly through the granting of tax deferrals) or the granting of tax benefits (such as exemptions, in which situations there are other legal and political complexities for the valid institution of such incentives).

The incompatibility of ICMS assessment arrangements on transactions involving natural gas and electricity is, therefore, the main tax challenge to be faced with respect to natural gas thermoelectric projects.

Challenges in other sectors

In addition to the issues mentioned, which have not been completely exhausted and call for further inquiry and analysis, other important segments for the natural gas industry also face relevant tax challenges, such as fertilizer plants, the "Fafens" (regarding the fertilizer tax system, mainly imported fertilizers); intensive consuming industrial segments (sectors such as glass, ceramics, etc.); the chain for the sectors vehicular natural gas (VNG) and heavy fleet LNG; and the natural gas flow activity itself, among others.

Although the challenges are many, one may note a constant evolution in the business environment of the natural gas industry, contributing attract investments and generate wealth in Brazil. In this respect, a united effort between public authorities and the private sector is fundamental in formulating public policies that give support and legal certainty to the most modern and efficient business models for the industry.

Category: Tax

The Brazilian Federal Revenue Service (RFB) has once again expressed the understanding that the portions of the transportation voucher and food assistance paid for by the company and by the employee are treated differently for the purposes of social security contributions. On June 30, 2020, the RFB published the Cosit Consultation Resolution  No. 58/20, following some of the assumptions already adopted in Cosit Consultation Solution No. 04/19.

According to the RFB, the company hiring services through the assignment of labor may deduct from the calculation basis of the employer's social security contribution (gross amount of the invoice, receipt, or service receipt) the amounts defrayed by the borrower as transportation vouchers and food assistance, the latter in natura if before the Labor Reform, and also by means of ticket or card, if later.

The RFB highlights that the legislation authorizes the deduction from the tax basis of the withholding tax only of the portion of the transportation voucher and food assistance borne by the company. The same reasoning does not apply to the portion of co-pay deducted from employees' remuneration, which must be included in the calculation basis, since one could not contemplate "the possibility that the company would be able to deduct from the calculation basis the tax due a sum that does not belong to it."

A similar issue had already been addressed in Cosit Consultation Resolution 04/19, whereby the RFB clarified that, when the food assistance is paid by both the company and the employee, the treatment of these amount for the purposes of levying social security contributions should be different.

In that scenario, the understanding adopted was that the portion of the food assistance deducted from the employees in a co-pay system will be included in the calculation basis of the social security contributions as part of their remuneration, since the amount discounted constitutes employee salary. The share paid by the employer, in turn, would not be in the basis for calculating the contributions in question.

Although the consultation dealt only with food assistance, the discussion is similar for transportation vouchers, medical and dental assistance plans, and supplementary pension funded via co-pay with employees. There is a controversy as to whether such funds are taxed to employees and not employers, if the RFB's understanding is followed. What is discussed is whether or not these funds make up the contribution salary.

The two consultation solutions indicated are binding on the RFB and support the actions of other taxpayers, as per article 9 of Normative Instruction No. 1,396/13. Failure to comply with these guidelines may result in assessments of taxpayers and rejection of any refunds, which are rarely overturned in the administrative sphere.

However, there are favorable court decisions recognizing the possibility of excluding employees' co-pay installments from the calculation basis for social security contributions, since article Article 28, paragraph 9, of Law 8,212/91 established that the amounts received as transportation vouchers, food assistance, medical and dental assistance plans, and supplementary pension plans are not included in the contribution salary.

There are robust legal bases for it also be recognized that, in the period before the Labor Reform, the benefit of food assistance provided through vouchers or a prepaid card in the context of the PAT is not subject to taxation through social security contributions, in accordance with applicable regulations.

In view of this scenario, it is advisable for companies to carefully evaluate the treatment to be given given to the amounts paid in each case in order to ascertain the existence of excess withholding or even exposure, which may require adjustment of procedures or even the use of preventive measures.

Category: Corporate

Normative Instruction No. 81 of the National Department of Business Registration and Integration of the Ministry of Economy (DREI), issued on June 15, 2020, consolidated general rules and guidelines related to company registration procedures, which were previously scattered among various instructions and letters issued by the agency. In all, 56 rules were revoked, of which 44 were normative instructions and 12 were circular letters, regarding the incorporation, amendment, and extinguishment of companies, company names, holdings of foreigners, corporate transactions (transformation, take-over, merger, and spin-off), among other subjects.

In line with the measures and principles consolidated by the Economic Freedom Law (Law No. 13,874/19), IN 81 should simplify consultation of the general rules on the Public Register of Companies and cut the red tape for procedures relating to the registration of companies. The new instruction also amended the rules on the following subjects:

• Formation of company name. IN 81 consolidates all prohibitions for the formation of corporate names, especially the existence of a name identical or similar to another already registered with the same board of trade, indication of the size of the company, or indication of words or expressions that denote an activity not provided for in the corporate purpose. In addition, it no longer provides for the obligation to expressly indicate the corporate purpose. However, it is important to note that the Civil Code provides in its article 1,158, paragraph 2, that the name of the limited liability company must designate the corporate purpose of the company. Thus, respecting the hierarchy of the rules, IN 81 (infra-legal rule) should not contradict the Civil Code (federal law). It will be necessary to await the positions of the boards of trade, courts, and appellate courts on this issue.

• Notarization of signatures and authentication of copies. No longer will the notarization of signatures and the authentication of copies be required for acts or filings with boards of trade. All that is required is a declaration of authenticity signed by the interested party's lawyer, accountant, or book-keeper.

• Automatic filling. Previously possible only for acts organizing sole proprietorships, Eireli’s, limited liability companies (except publicly-traded companies), and cooperatives, automatic filling was expanded to acts of amendment and extinguishment, provided that specific parameters are observed and the provisions standardized by the DREI are used.

• Preferred quotas with voting restriction. It is now expressly permitted to file articles of association containing quotas of different classes, and various voting and financial rights may be assigned to their holders and even eliminate or limit their voting rights. Before IN 81, the various boards of trade had no uniform understanding on the subject. Some accepted the filling of articles of association contemplating quotas without voting rights or with restricted voting rights, while others rejected this possibility.

• Digital filling. Another important novelty brought by IN 81 and that, to a certain extent, demonstrates that the DREI is paying attention to the digital transformation we are going through is the possibility of digital filling, with the disclosure of guidelines on digital signatures. It will be incumbent on the boards of trade to choose whether to accept documents electronically signed through a third party system or signature portals or to have their own specific system for that purpose. In the event of the use of a third party system or signature portals, digital signatures should have a time stamp or other mechanism that attests to the date and time when the documents were signed, in addition to allowing for verification of authenticity over the Internet, without the need for payment for services and regardless of user authentication.

• Conversion of association into business company. The provisions relating to corporate transactions, i.e. acts of transformation, merger, amalgamation, and spin-off, have not undergone major changes. However, the prohibition on the conversion of non-profit associations into business companies and vice versa, previously provided for in IN DREI No. 35, no longer exists. With IN 81, the DREI began to regulate the scenarios for "conversion" of an association into a business company and vice versa, in addition to the sequence of acts necessary for the coordination of the filing of documents between the civil registry offices and commercial boards.

• Incorporation of a company with negative equity. IN 81 now expressly states that there will be no prohibition on the take-over of a company with negative net equity. For some time now, the specialized legal scholarship on the issue took the position that it is possible to perform such a corporate transaction, even in the case of companies with negative net equity, since there is no express prohibition in law and private law is governed by the principle of freedom of contract. However, various boards of trade had been presenting difficulties hindering filling of corporate acts in such circumstances, causing legal uncertainty for the business community.

The initiative demonstrates the effort of the recording department to simplify its processes and improve the organization of existing standards, seeking to offer more security to the Brazilian business community.

IN 81 is already in force and effect as of July 1, 2020, except for the automatic filing of acts of amendment and extinguishment of sole proprietorships, Eireli’s, and limited liability companies, as well as the incorporation of a cooperative, for which it will become effective 120 days after its publication.

We will deal with these and other changes promoted by IN 81 in more detail and depth in a series of articles in the coming weeks.

Category: Labor and employment

Following the procedure for approval of Executive Order 936/20 ("MP 936"), the Office of the President of Brazil sanctioned Federal Law No. 14,020/20. In spite of specific vetoes made to the text approved by Congress, President Jair Bolsonaro maintained the possibility for the Executive Branch to extend the maximum time limits for reduction of work hours and salary and suspension of employment contracts.

This had been one of the most relevant changes to the original wording of MP 936, especially since the first companies to enter into such agreements had already reached the deadlines for their validity, to the detriment of the employment level in Brazil.

Among the parts vetoed by the President of Brazil, the following stand out:

• Expansion of the scenarios for deduction of compensatory aid paid by the employer starting in April of 2020. According to the text approved by the Brazilian Congress, it would be possible to deduct this amount from: (i) income from the individual's nonsalaried work; (ii) taxable income received by in-home employers; and (iii) profits from farm activity, as an expense paid in the base year; and

• Integration into the employment contract of the provisions of collective bargaining agreements that have expired or are due to expire while the state of public calamity persists, a phenomenon known as "supervening activity of the collective bargaining rule";

• Payment of the emergency benefit to dismissed employees who did not meet the requirements to qualify for unemployment insurance;

• Payment of the emergency benefit to employees who, in March or April of 2020, had received the last installment of unemployment insurance;

• All proposals from the Brazilian Congress to change the rules on entering into and paying the PLR. Among the amendments proposed and vetoed by the President, the following are noted: (i) the validity of negotiation via an employee committee without labor union participation, provided that, after receiving notice, the labor union has been silent for ten days; and (ii) the possibility of entering into an agreement at least 90 days before the date of payment of the sole or final installment; and

• Change in the criteria for adjustment for inflation of labor claims and the percentage of interest applicable.

Regarding this last point, we warned in our Informative Bulletin No. 8 that the Federal Senate had made a mistake in putting together the final text sent to the Office of the President of Brazil, since, although it had withdrawn the new rule from the Consolidated Labor Laws, it maintained this amendment in Federal Law No. 8,177/91, which deals specifically with the issue.

With the presidential veto, the mistake by the Federal Senate was duly corrected, thus avoiding having the wording provided for in Federal Law No. 8,177 be out of line with the text provided for in the Consolidated Labor Laws, which would worsen legal uncertainty on an already sensitive issue.

For more information on the alternatives provided for in MP 936, the changes made by the Brazilian Congress and other measures to confront covid-19, please see our special bulletins and E-book on the subject:

EXECUTIVE ORDER NO. 936/20: UPDATE FROM JUNE 19, 2020 TEXT APPROVED BY THE FEDERAL SENATE

MP 936: NEW LABOR AND EMPLOYMENT MEASURES TO CONFRONT COVID-19

E-BOOK: ANALYSIS OF THE GENERAL IMPACTS OF COVID-19 AND MP NOS. 927 AND 928 ON LABOR RELATIONS

Category: Tax

After a long period of discussion and debate, this year the federal government enacted Law No. 13,988, which, among other measures, regulated tax settlement with respect to federal debts. The measure was widely awaited, since the National Tax Code brought in the possibility of settlement since it was published in 1966. However, subject to regulation by law, the provision remained ineffective for 54 years.

In general terms, Law No. 13,988/20 established the requirements and conditions for the Federal Government, its instrumentalities, and foundations, to promote settlements aimed at settling disputes related to the collection of tax or non-tax debt.

As regards tax matters, three major groups, subject to their own rules, were covered by the legislation:

• Debts already enrolled as outstanding debt (in the modalities of adhesion or individual proposal);

• Debts arising from a relevant and widespread controversy (only in the modality of adhesion);

• Debts arising from litigation relating to a small amount (only in the form of adhesion).

Infralegal acts, ordinances to be issued by the Ministry of Economy, the National Treasury Attorney's Office, or the Federal Revenue Service and future notices, are responsible for disciplining in detail the criteria and conditions for each type of settlement.

This is the case of PGFN Ordinance No. 14,402 and Ministry of the Economy Ordinance No. 247. The first, issued on June 16, established the conditions for exceptional settlement in the collection of debts already enrolled as outstanding debt of the Federal Government, while the second established the requirements for adhesion to tax litigation of a relevant and widespread legal controversy and/or litigation of small value. We will look at the two acts in more depth below.

PGFN Ordinance No. 14,402 - exceptional settlement for debts enrolled due to the effects of the coronavirus

PGFN Ordinance No. 14,402 brought in a set of rules for debtors and the Federal Government to enter into agreements regarding the debts already enrolled as outstanding, but with the effects caused by the coronavirus pandemic as a cause.

The objective, among others, is to enable the transitory overcoming of the economic and financial crisis and to ensure that the collection of debts is adjusted to the expectation of receipt and the capacity to generate income.

This exceptional settlement may include debts registered and managed by the PGFN whose value adjusted for inflation is equal to or less than R$ 150 million. Debts of greater value may be the subject to settlement, but via individual proposal.

Taxpayers who have debts considered irrecoverable or difficult to recover and who adhere to the exceptional settlement should pay the downpayment of 0.334% of the consolidated value of the debts within 12 months. The residual value, with discounts that vary depending on the debtor's situation or activity, should be paid in installments as follows:

a) For individual businessmen, microenterprises, small businesses, educational institutions, Charitable Hospitals, cooperative societies, and other civil society organizations covered by Law No. 13,019/14 whose debts are considered irrecoverable or difficult to recover:

• Reduction of up to 100% of the amount of interest, penalties, and legal charges, observing a limit that can vary between 30% and 70% of the total value of each debt subject to negotiation and a variation of 36 to 133 monthly and successive installments.

b) For other legal entities under judicial reorganization, judicial liquidation, extrajudicial liquidation, or bankruptcy proceedings:

• Reduction of up to 100% of the amount of interest, penalties, and legal charges, observing the limit of 50% of the total value of each debt subject to negotiation within up to 72 monthly and successive installments.

c) For individuals whose debts are considered irrecoverable or difficult to recover:

• Reduction of up to 100% of the amount of interest, penalties, and legal charges, observing the limit of 70% of the total value of each debt subject to negotiation within up to 133 monthly and successive installments.

d) For other legal entities whose debts are considered irrecoverable or difficult to recover;

• Reduction of up to 100% of the amount of interest, penalties, and legal charges, observing a limit that can vary between 35% and 50% of the total value of each debt subject to negotiation in monthly and successive installments that may vary from 36 to 72 months.

For purposes of classification of a debt as recoverable or difficult to recover, the degree of recoverability of the debts enrolled will be assessed by the PGFN, taking into account the economic situation and payment capacity of the debtors.

The ability to pay, in turn, will be measured after an examination of the actual impact of the new coronavirus pandemic on the legal entity's gross revenue or the monthly income of the individual (i.e. an assessment of the percentage reduction in revenue or gross income from March of 2020 to the date of adhesion, compared with the same period in 2019).

Adherence to the exceptional settlement will be done exclusively through the Regularize portal, on the PGFN website, between July 1 and December 29, 2020.

ME Ordinance No. 247 - settlement for significant litigation and for small value litigation

ME Ordinance No. 247 establishes the general rules for the settlement of debts linked to litigation that is significant and subject to widespread legal controversy. This modality allows the concession of a discount of up to 50% of the debt, with a maximum discharge period of 84 months.

Adherence to this modality also requires publication of a notice from the PGFN or RFB, in which the matters approved by the Minister of Economy and the other criteria will be listed. In addition to the RFB, the PGFN, and the Carf, the OAB and the confederations of the economic category may suggest to the Minister of Economy the subjects that may be joined as theories of relevant and widespread legal controversy.

A relevant and widespread legal controversy is considered to be that which goes beyond the subjective interests of the cause and, preferably, has not yet been subject to a judgment by the procedure for repetitive appeals along the lines of article 1,036 et seq. of Law No. 13,105/15.

The controversy will be considered widespread when it involves: (i) claims in at least three different federal circuit courts; (ii) more than 50 lawsuits by different taxpayers; (iii) an incidental proceeding for resolution of repetitive claims whose admissibility has been accepted by the court; and (iv) claims involving a significant portion of a certain economic or productive sector.

Relevance will be considered demonstrated when there is: (i) economic impact equal to or greater than R$ 1 billion, considering known cases; (ii) divergent decisions between the ordinary panels and the Superior Chamber of Carf; and (iii) divergent judgments or decisions in the judicial sphere.

The ordinance also establishes that, in this type of settlement, adhesion must cover all disputes existing on the date of the request and related to the theory at issue in the settlement.

The act of the Ministry of Economy also dealt with litigation of small values, exclusive to individual taxpayers, microenterprises, or small businesses and whose amounts of principal and penalty, per individual case, do not exceed 60 minimum wages.

For this modality, adhesion also requires the publication of a future public notice, which will establish the discount criteria (up to 50% of the total value of the debt), payment terms (installment payment within up to 60 months), or offer and substitution of guarantee.

Category: Infrastructure and energy

In return for Rio de Janeiro's adhesion to the tax recovery regime proposed by the Federal Government in 2017, the National Bank for Economic and Social Development (BNDES) modeled the concession of public services for drinking water supply and the collection and treatment of sanitary sewage in 64 municipalities in the state of Rio de Janeiro. Currently, these services are provided by Companhia Estadual de Águas e Esgotos do Rio de Janeiro (the “Rio de Janeiro State Water and Sewage Company”, Cedae).

Recently, the state of Rio de Janeiro submitted drafts of the public notice, concession contract, and other documents related to the project for public consultation, which will extend until July 8. The project will also be presented to the population and potential investors at two public hearings scheduled for June 25 and July 6.

BNDES has distributed the municipalities of the State of Rio de Janeiro into four lots, which may be granted to the same concessionaire or to different concessionaires for a period of 35 years. The regulation of the concessions will be under the responsibility of the Energy and Basic Sanitation Regulatory Agency of the State of Rio de Janeiro (Agenersa).

As some municipalities had already delegated sewage collection and treatment services to the private sector, the draft concession contracts even provided for the possibility that these services may be taken over in the future by the new concessionaires, especially to provide stability to performance of contracts and avoid future legal clashes.

The modeling proposal is based on a premise of associated sanitation management, according to which the municipalities (holders of these public services) delegate to the state of Rio de Janeiro the right to exploit and grant such activities to the private initiative. To structure the associated management, the following were prepared: (i) draft cooperation agreements and program contracts were prepared to regulate the conditions under which these services will be delegated from the municipalities to the State and from it to Cedae and the new concessionaires; and (ii) management contracts, the subject matter of which is the transfer to Agenersa of the inspection and regulation prerogative, including rates, of public services.

Although the concession represents a substantial reduction in Cedae's duties {assignments}, the company will be preserved to capture and treat the water to be sold to future concessionaires, in addition to, exceptionally, continuing to supply water to certain municipalities included in the lots that will be granted. This function is provided for under the terms of the interdependence contracts to be entered into between the concessionaires and Cedae.

Regarding universalization of access, the modeling proposed by BNDES has set the goal of universalization related to water supply for 99% of the municipalities referred to and the collection and treatment of sanitary sewage for 90%. An 8 to 14 year time frame was estimated for the achievement of the water supply target and 15 to 20 years for the collection and treatment of sewage. The differences in the reality of each municipality justify this variation. In parallel with the goals of universalization, investments will also be required to reduce water losses through the distribution network, which is quite common in concessions and PPPs in this sector.

In relation to public bidding, as is already common in the infrastructure sectors, the system adopted is that of an international competition with phased investment and a live auction. The judgment criterion will be the highest grant amount, which must be paid in two installments (60% as a condition for signing the contract and 40% after the term of transfer of the system).

In summary, the model proposed by BNDES for the concession of basic sanitation services in the state of Rio de Janeiro assigns: (i) to Cedae the collection, treatment, and supply of water; (ii) to the concessionaire(s) the distribution of water, collection, and treatment of sewage, and investments in infrastructure, including for the expansion of capacity and reduction of losses in the distribution network; and (iii) to Agenersa the regulation of the provision of these public services.