Category: Labor and employment

The deliberations and voting on the report of Executive Order (MP) No. 905/2019, scheduled for Tuesday, March 3, have motivated various discussions on the subject, especially in public hearings scheduled for this purpose.

MP 905/2019 instituted the Green and Yellow Employment Contract with the main objective of relieving the payroll charges of workers aged 18 to 29 seeking their first job with a CTPS registration.

The Brazilian Congress has already set up a joint committee to consider MP 905/2019, composed of deputies and senators, under the chairmanship of Senator Sérgio Petecão (Social Democratic Party), vice-chairman Lucas Vergilio (Liberal Party), and rapporteur Christino Aureo (Progressive Party).

The opinion of deputy Christino Aureo was already discussed at the deliberative meeting held on February 19, but the vote was postponed after a group request from the joint committee to evaluate the terms of the text.

After the report is approved by the joint committee, the bill for conversion into law will be sent to the Chamber of Deputies, and, once approved, will proceed to the Federal Senate. If approved with modifications, the text will be returned to the Chamber of Deputies for consideration, where the amendments promoted by the Federal Senate will be accepted or rejected. The matter will then be referred for sanctioning (if the conversion bill is approved) or promulgation (if the original text of the MP is approved) by the Brazilian President’s Office.

The report suggests changing hiring by the Green and Yellow Employment Contract system, including in the list of beneficiary workers aged 55 and over who have not had a formal employment contract for more than 12 months, under the same conditions thought up for the hiring of younger workers, that is, with exemption from payroll charges and the possibility of hiring for a fixed term.

It was also suggested that the applicable rate for calculating the number of contracts authorized by the Green and Yellow Employment Contract modality be increased, from 20% to 25%, precisely in order to increase the number of potential beneficiaries.

Christino Aureo's proposal as rapporteur aims to allow work on Sundays under the justification that, for various sectors of the economy, Sunday is the day with the highest turnover and, therefore, represents the best earning opportunity for employees. The situation is different as regards the possibility of opening bank branches on Saturdays, limited to places and services which do not pose a risk to public safety, in accordance with the terms of the proposal.

In labor matters, the report submitted to the Brazilian Congress for a vote also intends to support the indexation of interest to the savings account rate and adjustment for inflation to the IPCA-E rate, when calculating the updated labor debt.

In relation to profit sharing and results, the proposal does not accept the intention of MP 905/19 to remove union representative from the joint bargaining committee, on the argument that this measure would devalue labor unions and the role of collective autonomy of wills in labor law. However, the report proposed a deadline for the labor union to take up its negotiating position through its representative.

The report also proposes some amendments to the original text of MP 905/19 in relation to bank employees' working hours, although it maintained the possibility of offsetting between the bonus for function and overtime for the 7th and 8th hours worked, in the event of a judicial decision that rules that the bank employees’ position is not a position of trust.

The new labor oversight mechanisms were maintained by the report, including the equivalence of consent orders signed by labor inspectors, under the Executive Branch, to consent decrees (TAC) negotiated by federal prosecutors.

The conversion bill is expected to be voted on by the Joint Committee and forwarded for approval by the Brazilian Congress. The text must necessarily be approved by April 20, 2020; otherwise, it will lose its effectiveness.

The prospect of converting MP 905/2019 into ordinary law, albeit with several proposals for amendment, will have a significant impact on labor law, which is why it will once again require companies to adapt to the new guidelines, including in relation to procedures, contracts, and internal policies.

Category: Labor and employment

It is an increasingly common trend at companies to create areas of innovation to stimulate the creativity of employees and reinvent the business model, in relation to both internal processes and flows and products and services.

This initiative requires caution from a legal point of view in order for there to be no illegality or questioning of what is truly legitimate to explore a certain idea or innovation, especially since ideas, because they are generic in nature, are not susceptible to protection from the National Institute of Industrial Property (INPI).

According to the labor laws and regulations, employees' inventions, when arising from their personal contribution and employer resources, will be common property, in equal parts, unless the purpose of the employment contract is scientific research.

The current context of proliferation of innovation areas at companies generates many doubts on the subject. For example, who could explore the idea or invention developed by a certain employee, encouraged by the company's internal policies, to optimize the business model adopted thus far or establish new areas for investment.

The labor law expressly mentions only two situations involving employee inventions: (i) those arising from their personal contribution and the use of employer resources; and (ii) those related to the very purpose of the employment contract.

In order to avoid problems concerning the right to explore a particular idea or invention, it is important to observe the specific laws on the matter, as well as disseminate the rules defined in a specific internal policy.

According to article 91 of Law No. 9,279/96, when the ownership of an invention or utility model results from an employee's personal contribution and from employer resources, an exclusive right of license for exploitation may be granted to the employer, provided that the employee is assured "fair remuneration."

The term "fair remuneration" has no objective legal definition, which is why the amount to be fixed in order for the company to become the real owner of the invention or utility model must consider the potential for exploitation of the employee's creation. The objective is to prevent the organization from being subject to litigation administratively or judicially for misuse in the future.

The case law is not settled on the matter, since "fair remuneration" may vary from a fixed amount per technique implemented, for example, to a percentage of the economic result obtained with the exploitation of the utility model. It is important that all these variables are considered in the company's innovation strategy, including for the implementation of its own internal policy.

Another issue that may be raised in such situations is the possibility that a company may find originality in an idea or invention and, depending on the result, penalize or dismiss a given employee for cause. The lack of protection of mere ideas by the INPI makes confirmation of such confirmation impossible, which can be done, however, in the case of a product or a computer program, for example.

All these precautions also apply to cases of open innovation, which involve the acquisition of fintechs and startups by companies wishing to expand their business model, as the purchaser will absorb the employees of the fintechs and startups and submit them to its own working conditions, including its internal policies.

Among the precautions necessary, it is suggested that the creation of innovation areas at companies be accompanied by express rules in a contract, including after the actual licensing of the right of exploitation by the employer, if any, as well as in an internal policy that will be observed for this purpose.

As the creation of innovation areas at companies and the takeover of fintechs and startups becomes more and more common, it is necessary to adopt labor precautions in order to avoid disputes and even loss of the right to exploit these innovations in the future, which, most of the time, may go unnoticed by companies and not be provided for in internal policies.

Category: Infrastructure and energy

Resolution No. 806/2020 of the ANP (National Agency of Petroleum, Natural Gas and Biofuels) establishes new procedures for the control and reduction of flaring and losses of oil and natural gas in exploration and production (E&P) activities.

The new regulation replaces ANP Ordinance No. 249, which has been in effect since 2000 and is therefore out of date vis-à-vis the operational reality of natural gas flaring in Brazil in a highly technological field such as the petroleum industry. For this very reason, the ANP had already been adopting complementary norms in response to the constant challenges in the sector. Since 2002, the ANP has signed consent orders with the operators of the fields responsible for the largest volumes of natural gas flaring in order to define targets for use of the input and associated plans for reducing flaring volumes.

The recent changes regarding natural gas in the national and international scenario have significantly contributed to the ANP's revision of this ordinance, which were obviously outdated.

Internationally, natural gas has been seen for years as an oil by-product. Its low sales value, coupled with the complex logistics of disposal, discouraged producers from monetizing it. However, as a fossil fuel with very low carbon emissions, natural gas has recently gained prominence in the transition to a renewable energy grid and in the reduction of greenhouse gases.

In Brazil, the product began to gain protagonism for a number of factors, such as the discovery of pre-salt deposits with large gas reserves, its growing use as a raw material in thermoelectric power generation (especially as of 2013, with the worsening of the water crisis and the impact on hydroelectric energy generation), Petrobras' decision to leave the activities of the natural gas exploration chain, the interest of market agents in the sector, Brazil's ratification of the Paris Agreement, and the CNPE Resolutions[1], which expressly mentioned the need to reduce natural gas flaring in E&P activities.

In this context, the ANP inserted in its regulatory agenda the revision of the regulations applicable to natural gas flaring and started to collect contributions from regulated agents. The result was the new resolution published this year, among which the following points are highlighted:

• The ANP shall annually approve the forecasts for flaring and associated natural gas losses, together with the Annual Production Programs (PAP) approvals and define the quantities that shall not be subject to the payment of royalties;

• The volumes of flaring and losses of natural gas are not subject to the payment of royalties for reasons of security and/or proven operational necessity;

• The flaring or loss of non-associated natural gas and the flaring of oil are prohibited;

• The limits for ordinary flaring have been redefined;

• The flaring or loss of non-associated natural gas may exceptionally be authorized for safety, emergency, testing, or well cleaning reasons; and

• The flaring of oil may exceptionally be authorized for emergency reasons or in well tests with a total free flow time of up to 72 hours.

Resolution 806 also establishes that operators of the activities covered by the standard will have 180 days, as of its publication on January 17, 2020, to implement the necessary adjustments related to maritime production units and fully comply with the provisions contained therein.

At a moment when companies are currently pulling off their process of adaptation to the new design of the sector that is being revealed in Brazil, it is essential to eliminate regulatory gaps such as this. In this sense, the ANP has demonstrated its commitment to the development of the Brazilian oil and natural gas industry.

[1] CNPE Resolution No. 17/2017 and CNPE Resolution No. 16/2019.

Category: Labor and employment

Prejudices and systematic practices of discrimination against people with disabilities in the work environment have motivated international bodies such as the International Labour Organization (ILO) to have this problem covered in their conventions and recommendations.

This is the case of ILO Convention No. 111, promulgated by Decree 62.150/68, concerning discrimination in employment and occupation. This standard encourages the adoption of affirmative action policies, with the cooperation of employers' and workers' organizations and other appropriate bodies as the main instrument. The aim is to promote equal opportunities and equal treatment in employment and occupation by methods appropriate to national circumstances and customs.

In Brazil, the legislator established affirmative action in article 93 of Law No. 8,213/91, providing that companies with one hundred or more employees are obliged to fill from 2% to 5% of their positions with rehabilitated workers or qualified persons with disabilities. It is further established that the unjustified dismissal of these employees may only occur after the hiring of a substitute in a similar condition.

This state protection has limited the employer's power to dismiss without cause employees who are within the legal quota. In order for a discriminatory act not to be presumed or found, employers must be doubly cautious when they need to dismiss an employee with a disability.

According to the prevailing case law of the Superior Labor Court (TST), "the dismissal of a rehabilitated worker or of a disabled worker, without cause, in employment for an indefinite term, may only occur after the hiring of a substitute in a similar condition, with dismissal without just cause being void when the legal requirement is not observed." In other words, according to the majority opinion of the Superior Court, termination of employees hired under article 93 of Law No. 8,213/91, outside the conditions set forth therein, may result in their reinstatement into the post until the requirement imposed by law is met. This reinstatement is considered a provisional guarantee of employment.

The nullity of the termination with reinstatement of the employee to the functions previously performed is not considered job stability, but a guarantee of employment until the employer fulfills the legal requirement to replace the disabled person under the same conditions and with the same level of adaptations.

Doubts arise, however, about the meaning of the expression "substitute in similar condition." Can the legal obligation of substitution be satisfied only if the replacement employee has a disability of the same type and grade as the employee being replaced?

According to this interpretation, the dismissal of an employee using a wheelchair, for example, could be considered discriminatory if the replacement was a worker with a slight disability, to the detriment of maintaining the employment of the one who evidently has less chance of obtaining and keeping a job, since it does not require greater adaptations in the working environment.

The 6th Panel of the TST positioned itself in interpreting the provision in Appeal for Review RR-779-16.2012.5.03.0069. In the case in question, the trial labor court, as well as the Regional Labor Appeals Court (TRT), adopted the understanding that the replacement should be for a person with the same type of disability, ordering reinstatement of the former employee who had been dismissed. However, as the 6th Panel decided, the legal standard does not make any distinction, but only requires the hiring of employees under the same conditions - "person with disability", and not a person who has the same disability. The employer was absolved of the reinstatement and judgment by the trial and regional appeals court.

Another issue that generates discussion on the issue of quota compliance: may a company that exceeds the required percentage dismiss a disabled employee or must it follow the rule imposed by article 93, paragraph 1, of Law No. 8,213/91, according to which dismissal of a rehabilitated worker or of a qualified disabled person at the end of a fixed-term employment contract for a determined period of more than 90 days and the dismissal without cause, in the contract for an indefinite period, only occur after the hiring of a substitute with a similar condition?

The law is not clear on whether such a prohibition should be applied in all cases or only when the company does not meet the legal minimum quota, a fact that has led to many judicial disputes. For years the labor courts have taken the position that the prohibition should be applied in all cases, even when the employer already had the minimum number of disabled persons required by law. The argument was that the intention of the law is the social and professional integration of these people, regardless of whether or not quotas are met.

However, in mid-2017, the TST's Individual Disputes Section I issued a decision in case No. 0010740-12.2005.5.17.0012 recognizing that there is no legal impediment to dismissal of a disabled employee, even without the hiring of a substitute, when the company maintains in its workforce a percentage of employees in this condition above that stipulated in article 93 of Law No. 8,213/91 (minimum quota).

After this decision, the courts have increasingly found that the prohibition of paragraph 1 of article 93 should only be applied when the employer does not comply with the minimum legal quota, although there is still a lot of controversy on the subject.

Faced with legal controversies, the federal government, through the Bureau of Labor Affairs, issued a question and answer booklet to inform and guide employers, employees, and the public in general about affirmative action and to ensure social inclusion and compliance with the rules prohibiting discrimination in labor relations.

If discriminatory practice is proven, the Bureau of Labor Affairs may assess the company with an infraction notice, under penalty of administrative liability, according to article 628 of the Consolidated Labor Laws (CLT).

Also as an affirmative action, the federal government, through Executive Order (MP) 905/2019 (article 19), instituted the Program for Physical and Professional Qualification and Rehabilitation, Prevention and Reduction of Accidents in the Workplace, with the purpose of financing the professional qualification and rehabilitation service provided by the INSS.

There are, therefore, actions by the Brazilian government and the intense internalization of international standards with the purpose of eliminating discriminatory practices against people with disabilities in the work environment, either by adhering to the rules of the conventions and their recommendations, or by promulgating laws and affirmative actions. In this context, employers should adjust their practices and policies to the provisions of law, case law, and international recommendations, implementing affirmative action to eradicate discrimination in the workplace and prevent lawsuits.

Category: Environmental

After the entry into force of Law No. 17,110/19, which prohibits the supply of plastic straws, Law No. 17,261/20, which prohibits the distribution of plastic disposables in commercial establishments in São Paulo starting next year, was passed on January 13.

As a result, it will be forbidden to provide customers with disposable plastic utensils such as cups, plates, cutlery, beverage stirrers, and balloon sticks. The ban extends to children's party spaces, nightclubs, dance halls, cultural events, and others.

Instead of plastic products, the law suggests offering others with the same functions, but made of materials considered biodegradable, compostable, and/or reusable, to allow recycling after use.

As the municipal law will come into effect on January 1, 2021, merchants will have one year to make the necessary changes in their establishments. As with the supply of plastic straws, it is possible that other municipalities will pass similar laws and regulations.

The new law does not prohibit the sale of plastic disposables, only the supply thereof to customers for immediate use. In any case, the measure is expected to affect trade in these products considerably.

The Brazilian Plastic Industry Association (Abiplast) has published criticism on its website^[1] regarding the approval of rules that prohibit the use of plastic utensils, since there has been no actual discussion of improvement in solid waste management in Brazil, an issue essential for the proper final disposal of any waste, including those containing plastics.

According to the association, "prohibition laws bring about legal uncertainty, interfere with the competitiveness and financial planning of companies, causing an impact on investments, job creation, and even the maintenance of industrial activity.

As with the ban on plastic bags and straws, the measure should provoke great debate on the constitutionality of municipal laws that prohibit the distribution of certain products and materials. Especially since, as of January 1, 2021, commercial establishments that fail to adapt will be subject to penalties ranging from the application of warnings and subpoenas for adapting the activity to monetary fines and, in more serious cases, closing the business.

[1]http://www.abiplast.org.br/noticias/lei-de-proibicao-de-fornecimento-de produtos-plasticos-posicionamento-abiplast/.

Category: Real estate

In effect since December of last year, Executive Order (MP) No. 910 provides for changes in land regularization procedures for occupations on lands of the Federal Government, with the objective of reducing the bureaucracy in the process of granting definitive titles to settlers, especially small rural producers.

The measure may be seen as a way of including small rural producers in the system of production by facilitating access to credit through land regularization. Critics, however, believe that the loosening of procedures could be used to regularize the occupation of lands arising from land grabbing.

Among the main changes brought about by the MP, we highlight the following:

• Possession time. The date from which the interested party will need to prove the occupation and direct, undisputed, and peaceful use of the property for purposes of regularization was changed from July 22, 2008, to May 5, 2014. Specifically for properties of less than 15 fiscal modules (unit of measurement that varies between 5 and 110 hectares depending on the municipality in which the property is located), proof of this has been simplified and may be done by remote sensing (for example, images obtained by drones or satellite).
• Regularization by self-declaration of the interested party. The MP expanded the scenarios in which the regularization of rural properties may be based on a declaration by the interested party itself (subject to criminal, civil, and administrative liability, if not true) without prior inspection of the property by the public authorities: this mechanism is now available for properties with up to 15 fiscal modules - previously the limit was four. For these cases, the in-person verification shall only occur when (i) the interested party is represented by means of a power of attorney; (ii) the property is subject to an environmental ban or environmental infraction; (iii) there is evidence of fraudulent division from the economic unit of use; (iv) there is a conflict declared or registered with the National Agrarian Ombudsman; or (v) there is no evidence of occupation or use prior to the required date.

This was the point that generated the most discussion regarding the MP even before its publication. Critics of the measure fear that the expansion will lead to an increase in cases of land grabbing, on the grounds that self-declaration, until now restricted to small rural properties and especially occupations by low-income persons, will now cover larger areas. This fear is aggravated by the fact that the MP was published soon after the disclosure of alarming rates of burns in the Amazon region, a practice commonly associated with land grabbers who, after falsifying documents, resell the land cleared with the burning for the performance of other activities, especially ranching.

• Waiver of consent of abutting property owners for land rectification. The MP also amended the Public Registries Law, by dispensing with the need for signature of the owners of the land abutting the rural property whose description is intended to be rectified with the Real Estate Registry Office. This formality will no longer be required where the applicant has completed the georeferencing of the property (form of surveying used to measure and describe rural properties on the basis of vertex coordinates, calculated using GPS and magnetic coordinates, via satellite).

Thanks to another change made by Federal Law No. 13,838/19 in the Public Registries Law, the georeferencing of rural real estate, necessary for processes of subdividing, parceling, combining, and transferring rural real estate, could already be carried out without the consent of abutting landowners, supported by a declaration of the applicant itself that it respected the limits and boundaries. On this subject, already explored in an article published on this Portal, one reiterates the concern regarding the legal certain of the procedure, which has now been relaxed, since there is room for future litigation by neighbors who feel harmed.

Principal impacts

This loosening should speed up administrative proceedings related to the subject, but this may come at the cost of questioning the legal certain of registration procedures for opening and updating real estate registries, since they should now occur without full documentation and exhaustive confirmation.

It is too early to say that the changes in the MP will necessarily be negative or positive, but the attempt to cut red tape is evident. In order to evaluate the actual results of the measure, it will be necessary to monitor how it will be applied by the bodies of the Public Administration, whether the MP will be converted into law, and, especially, whether there will be an increase in actions for dissolution and rectification of public records.

Meanwhile, it is recommended that acquisition of rights over rural properties be preceded by careful legal and technical diligence, in order to minimize the risks of self-declaration or dividing line rectification procedures that may affect the exercise of the rights intended.

In order for the MP to be converted into law and have definitive effects, it must be reviewed and approved by the National Congress within 120 days of its publication, that is, by April 8 of this year.

Category: Real estate

The São Paulo City Hall is preparing to discuss a draft bill to amend Law No. 16,402/16, the current Land Division, Use, and Occupancy Law (LPUOS), with the purpose of adapting real estate production to the urban policy guidelines defined by the Strategic Master Plan. The document was submitted for review by the public on October 31 of this year, through a participatory process in public hearings mediated by the Municipal Department of Urban Development (SMDU).

As presented, the draft bill brings in targeted adjustments to the parameters of land use and occupation, with the intention of meeting some of the wishes of the real estate market in order to reduce construction costs in the city of São Paulo.

The last stage of the participatory process to discuss the draft bill, which is in its second version, occurred on December 2, 2019. The final version will be sent to City Hall, on a date yet to be defined by City Hall, to be review and debated by city councilmembers.

In summary, the main changes proposed are as follows:

1. Increased construction standards for buildings on terrain with vehicle access made for a street with a width equal to or greater than 12 meters and a minimum setback from the street of 25%, inserted in ZC (Centrality Zones) and ZM (Mixed Zones). The increase, applied on the maximum construction standards currently in force for ZC and ZM, corresponds to 12 meters in height in ZC and 20 meters in ZM. The change will be an exception to the general parameters for these areas, as already contained in Table 3 of the current legislation. Even if the setback requirement is met, the increase will not apply to lots found in the Metropolitan Structuring Macro Area (MEM), or adjacent to ZER (Exclusively Residential Zone) or ZCOR (Corridor Zone), except for the specific parameters of Urban Operations and Consortium Urban Operations. In the material published on its website, City Hall justifies this increase with the expectation of a reduction in the overall cost of construction due to the possibility of building higher towers instead of multiple lower towers.

2. Explicit possibility of pedestrian path exemption on blocks with irregular geometry or other impediments, on perimeters of blocks longer than 150 meters. This possibility was expressly provided for only for lots and slopes with a more than 20% grade.

3. Increase in the maximum number of parking spaces in residential uses of the Urban and Metropolitan Transformation Structuring Zones (ZEU, ZEUa, ZEUPa, ZEM, and ZEMP), with a provision of one parking space per housing unit or one parking space every 60 square meters of computable built area. Controversial, this rule was widely debated when the current law was published, which until then had chosen to limit the number of parking spaces. Critics of this change claim privilege for vehicle transport and increasing vehicle traffic in regions that may already be saturated with slow traffic.

4. Incentives for renovations, with an increase in areas in hospitals, educational establishments, and hotels located in certain categories of Urban and Metropolitan Transformation Structuring Zones (ZEUa, ZEUPa, ZEM, and ZEMP) and in Centrality Zones (ZC), with the possibility of increasing the maximum utilization coefficient by 50% of the general maximum coefficient. Currently, this increase was only provided for ZEU.

5. Provision for requalification of licensed buildings based on the law in force before September 23, 1992, with possible expansion of noncomputable area up to a maximum limit of 20% in relation to the existing built area. However, the implementation of this mechanism is subject to regulation by means of an Act of the Executive.

6. General rule changes in Special Zones of Social Interest (Zeis). The main ones are the detailing of criteria for the installation of public equipment and the application of a minimum percentage allocation of units in these areas, as well as an incentive for the construction of units for the population with an income of up to three minimum wages in Zeis (the draft presents the possibility of granting up to 20% of additional construction potential not computable when there is construction of at least 80% of units for this population).

The draft brings in other changes, such as increasing the Incentive Factors in Zepecs (Special Zones for Cultural Preservation), adjustments in the area parameters for clubs located in Sapavel (System of Protected Areas, Green Areas, and Open Spaces), detailing the calculation of areas in storefront areas and in non-building strips, detailing of the extinction of villas and the opening of public paths, and voluntary adherence to the solidarity quota in developments with a computable built area of less than 20 thousand square meters.

The document does not, however, address the issues of reducing the value of onerous grants and increasing the maximum quota of land per residential unit. This agenda item has already been discussed for the publication of the current law and, according to city hall, the proposals run counter to the provisions of the Strategic Master Plan. 

Category: Tax

Since the Federal Supreme Court (STF) recognized, in 2016, the right to a refund of the difference in the Tax on Circulation of Goods and Services (ICMS) paid in excess of the tax substitution regime when the actual tax basis of the transaction is lower than the presumed one (Extraordinary Appeal (RE) No. 593.849) there has been discussion of whether the states of the Federation, supported by the same precedent, could charge the ICMS-ST supplement in transactions where the actual amount of the transaction is higher than the presumed amount.

The STF’s decision was reached in the joint judgment of extraordinary appeal and Direct Action of Unconstitutionality (ADI) No. 2,777, considered unfounded by the justices. By majority and in accordance with the decision reached in an appeal admitted due to general repercussion, the STF granted relief to RE 593.849 and declared the constitutionality of article 66-B, II, of State Law 6374/89 of São Paulo, which ensures the right to a refund of tax paid in advance, "if it is proven that in the final transaction with goods or services there is a tax obligation that is less than the presumed amount."

The issue of the ICMS-ST supplement was subject to debate in the motion for clarification filed by the Minas Gerais State Revenue Service in light of the appellate decision handed down, in order for the justices to rule on the possibility of requiring supplementation of the ICMS-ST in cases where products are sold for an amount higher than the presumed basis. However, the STF found that this was a matter foreign to the dispute.

Since 2009, the state of São Paulo has had in its tax law a specific provision of law (article 265 of RICMS/SP and article 66-C of State Law 6,374/89) authorizing the tax supplement by substituted taxpayers when the amount of the transaction or final installment with supply of the goods or service is higher than the withholding calculation basis, if it has been established pursuant to the terms of article. 40-A (which deals with the rules governing tax matters). However, considering STF's previous understanding that the ICMS-ST is definitive, this provision of law was not used by the São Paulo State tax authorities to collect ICMS supplements.

The question now hanging over São Paulo taxpayers is whether the state of São Paulo could base ICMS-ST supplements on this provision of law and what the risks involved and the tax consequences throughout the chain would be.

According to opinion on the matter provided by the São Paulo State Attorney General's Office (PGE) (set forth in PAT Opinion No. 23/2018), the premise that the ICMS-ST calculation basis is not definitive reaffirms the legitimacy of the provision contained in article 66-C of State Law 6,374/89, which imposes on the substituted taxpayer the obligation to pay any ICMS-ST supplement when the price is higher than the basis presumed.

According to the PGE, this position is supported on the same basis that would oblige the state to refund the tax. As set out in the opinion, this alternative was made explicit by the STF in the opinions in ADI No. 2.777 and RE No. 593.849 and, from the standpoint of São Paulo laws and regulations, it is supported by article 66-C of Law No. 6,374/89.

The opinion was, however, was directed at the administrative processing of applications for ICMS-ST refunds. At the conclusion of the document, PGE instructs the tax authority, when processing an application for a refund, to verify in advance whether prices higher than the presumed tax basis are realized in order to then fix the amount to be refunded, as detailed in paragraph 73 of the document: "In fact, in addition to the burden on the interested party to prove (i) the realization of prices lower than the presumed tax basis and (ii) the assumption of the economic burden of the taxation, it is also up to the tax authorities to investigate the possible realization of transactions in which prices may have been higher than the presumed tax basis, an issue of greater relevance in ascertaining whether the interested party is entitled to the refund and, if so, to define how and delimit the 'quantum' of the refund, to be provided according to the rules issued by the State of São Paulo to govern the matter.

The text is aimed at taxpayers who file a claim for a refund and deals with the question of the supplement as an element in the settlement of the quantum of the refund claimed.

Recently, the Special Body of the São Paulo State Court of Appeals accepted Motion to Resolve Argument of Unconstitutionality No. 0033098-49.2018.8.26.0000, ruling out the limitation of the ICMS-ST refund provided for in article 66-B, II, paragraph 3, of Law No. 6,374/89 only in cases where the calculation basis is set by the competent authority (tax matters).

This recent decision by the Special Body of the TJ/SP, which is not yet final, recognized the unconstitutionality of paragraph 3 of article 66-B of State Law No. 6,374/89, which restricted the possibility of reimbursement of the ICMS-ST. If later upheld, this decision will represent a paradigm favorable to the taxpayer with respect to reimbursement, led by the STF’s guidance that recognized the right to a ICMS-ST refund, regardless of the method for setting the presumed calculation basis.

The possibility that the tax authorities may require supplementation of the tax has not been examined or mentioned in the appellate decision by the TJ/SP, which is why it would not be possible to draw a clear conclusion from that precedent that the tax authorities are authorized to do so.

In addition, based on the principle of strict legality set out in article 150, subsection I, and article 155, paragraph 2, subsection XII, of the Federal Constitution, and article 97 of the National Tax Code, it is possible to argue that there is no provision of law in LC 87/96 authorizing the states and the Federal District to require ICMS supplementation in cases where the presumed calculation basis is higher than the actual basis realized.

There are additional arguments to maintain that it is not fitting for the State of São Paulo to charge ICMS supplementation in a situation where the actual basis is higher than the presumed one. They are based on the fact that article 66-C of Law No. 6,374/89 would be insufficient to justify the existence of a legal basis in the state of São Paulo to require a ICMS-ST supplement in cases where the actual and final transaction is greater than the presumed one, since, in dealing with supplementary liability, the text of the article paraphrases the provisions of article 128 of the National Tax Code (CTN), according to which the law may expressly assign the liability for the tax debt to a third person linked to the taxable event triggering the respective obligation, thereby excluding the liability of the taxpayer or assigning to the taxpayer in a supplementary manner total or partial compliance with the obligation.

Article 66-C of Law No. 6,374/89 does not seek to support supplementation of the tax, but rather liability in the event that the substitute does not settle the tax debt, which does not occur in the event of ICMS supplementation.

After the publication of PAT Opinion No. 23/2018, there were no concrete changes in São Paulo's laws and regulations regarding the conditions for the requirement of ICMS-ST supplementation. Article 265 of RICMS/SP and article 66-C of State Law No. 6,374/89 were unchanged, which provide for a tax supplement when: (i) the price realized in the transaction is lower than the presumed calculation basis determined or authorized by the tax authority (tax administration office); and (ii) there is a supervening increase in the tax burden levied on the transaction. Therefore, according to the state’s laws and regulations, we believe that the São Paulo tax authorities continue to not be authorized to demand payment of the supplementation imposed in situations that go beyond these scenarios.

In our view, therefore, although there may be opposing positions on the part of the tax authorities, the requirement of an ICMS supplement in cases where the basis realized is higher than the presumed basis is not an immediate result of the STF's decision, nor does it find legal support in the current legal system, especially in the state of São Paulo.

Category: Tax

Section 54 of Law n.9,430/96 (Law 9430) provides that legal entities that adopt the presumed profit regime for purposes of corporate income tax (CIT) shall, in the first calculation period in which they are subject to that regime, submit to taxation the balance of the amounts whose taxation was deferred during the adoption of the real profit regime.

The Brazilian Federal Revenue Service (RFB) adopts a very broad interpretation of that provision, applying it virtually to any and all amounts excluded by the taxpayer that should be subject to some kind of control while the taxpayer was subject to the real profit regime - whether in Part B of the Real Profit Book (Lalur) or by any other means.

In our experience, we have noted that, in any inspection procedure involving a company that migrated from the real profit to the presumed profit system, tax authorities tend to demand taxation of the amounts mentioned in the above paragraph in the first quarter in which the company began to opt for the presumed profit system, without necessarily analyzing whether such exclusions refer to amounts that can be subject to taxation, that is, whether they constitute an actual addition to the assets of the taxpayer whose taxation had been deferred as a result of a benefit in the tax laws and regulations. We are even aware of inspections initiated against taxpayers solely because of the migration from the real profit to the presumed profit system.

In our opinion, the application of Section 54 of Law 9430 must be limited to the scope established by Section 43 of the National Tax Code (CTN), which defines the taxable event for the income tax. According to this provision, the income tax has as its taxable event the acquisition of economic or legal availability over income or profits of any nature, the latter being understood as an asset increase not included in the concept of income. Thus, the scenario for levying income tax does not only require the existence of an asset increase, but also requires that these factors be available to the taxpayer.

The requirement of effective availability of income or an asset increase for the levying income tax stems from the principle of taxpayer capacity, which requires the taxpayer to have the means to comply with the tax obligation. Thus, income unavailable to the taxpayer is not subject to the imposition of CIT, since it does not show the entity's ability to contribute with the payment of taxes.

According to Section 43 of the CTN, income or an asset increase is considered available when definitively incorporated into the taxpayer's assets (i.e., the taxpayer’s patrimonial sphere). This incorporation into the assets may occur because the object is in the taxpayer's possession or the taxpayer may demand it from a third party. On the other hand, as long as the income or asset increase is not definitively incorporated into the taxpayer's assets, levying of income tax cannot be contemplated.

In this sense, an exclusion from net income, per se, does not necessarily indicate a deferment, even if tax laws and regulations require the taxpayer to account for it in specific records for later addition to CIT basis under the real profit regime. In fact, there are many occasions when the taxpayer excludes certain amounts from the computation of CIT basis under the real profit regime and accounts for them simply because, at that first moment, such amounts do not represent available income for the taxpayer. Although registered in the entity’s P&L for accounting purposes, for tax purposes, the amount does not represent an income or asset increase subject to the imposition of CIT.

Therefore, when making the transition from real profit to presumed profit, the company must assess whether: (i) it has made exclusions from its CIT calculation basis under the real profit regime in the past and (ii) whether such exclusions correspond to events deemed as income tax triggering events under Section 43 of the CTN. In our view, the scope of application of Section 54 of Law 9430 may only encompass amounts excluded and accounted for due to a deferment, that is, a postponement of the payment of the tax arising from taxable events that already occurred.

The attempt to apply Section 54 to amounts accounted for and excluded due to the non-occurrence, whether temporary or definitive, of the taxable event violates Section 43 of the CTN. This is the case, for example, of gains from adjustment to fair value (GAFV), the exclusion of which is expressly authorized by tax laws and regulations, provided they are accounted for under a specific sub-account.

For accounting purposes, fair value is defined by CPC Technical Pronouncement No. 46 (CPC 46) as the price that would be received for the sale of an asset in a non-forced transaction between market participants on the measurement date. In such cases, when the legal entity submits its assets to this type of valuation, an income or expense will be recognized in its P&L and may, therefore, contribute to the formation of an accounting profit.

The inclusion of these amounts in the calculation of net income occurs because, from the accounting point of view, they already make up the taxpayer's assets. In fact, accounting sciences aim at demonstrating, for creditors, shareholders, and other stakeholders, the equity situation of the entity through a means that is different from that of the science of law, which is why accounting requires that some items on the balance sheet be subject to periodic self-valuation (or revaluation).

However, tax law adopts a different approach, as indicated by Section 43 of the CTN. The principle of taxpayer capacity requires that the income or asset increase be available to the taxpayer in order to be taxed. In this sense, taxpayers have no economic or legal availability of income resulting from the recognition of GAFV at the time they recognize it on their balance sheet. The adjustment is an estimate of the amount that could be realized under certain conditions, but does not represent an amount that may be demanded from third parties. In other words, no matter the extent to which the GAFV may represent an estimate of the market value of an asset, this adjustment does not have a transactional nature, an essential component to establishing the asset increase required by Section 43 of the CTN.

As there is no taxable event in the recognition of the GAFV, the law itself provides for taxation thereof under the real profit system only when the asset that gave rise to its recognition is disposed of (i.e., sold, depreciated, amortized, written off, etc.). Therefore, since they do not refer to a case of actual tax deferral, we believe that the amounts excluded on this account should not be added to the income tax basis when changing to the presumed profit system. And if the asset that gave rise to the recording of the GAFV is disposed when the taxpayer is subject to the presumed profit, there is nothing to be said of taxation of the GAFV, since Section 25 of Law 9430 expressly provides that the GAFV is neither included the CIT basis, nor is it included the asset acquisition cost for the purposes of calculating capital gains.

Similarly, Transition Tax Regime (RTT) adjustments do not represent income or an asset increase available to the taxpayer either. The RTT was introduced by Law No. 11,941/09 to neutralize the tax effects of new accounting rules, the adoption of which was provided for by Law No. 11,638/07. Thus, taxpayers were obliged to adopt the newest accounting techniques, but when calculating federal taxes, they had to make adjustments so that the tax assessment would comply with the accounting rules previously in force.

In this case, there is also no deferral, but only a process of making differences between the old accounting rules and the new rules established from 2008 onwards compatible. The exclusions, and additions, performed to comply with the RTT were only intended to prevent the new accounting rules from interfering with tax assessments before the law properly regulated the matter. The taxpayer's equity did not increase or decrease due to the new accounting standards. Therefore, income tax on amounts recognized according to these standards is undue.

Therefore, in this case, one also cannot apply Section 54 of Law 9430/96, in view of the non-occurrence of an income tax triggering event at the time of transition from the real to the presumed profit system.^[1]

This study does not suggest that Section 54 of Law 9430 is unconstitutional or always ends up violating Section 43 of the CTN. On the contrary, the provision is perfectly applicable to cases in which, in fact, there was a deferral of taxation while the taxpayer was opting for the actual profit regime.

On various occasions, tax law allows taxpayers to pay income tax on certain amounts over time, even if the taxable event associated therewith has already occurred. This is the case, for example, with the possibility of taxation on a cash basis of profits arising from a supply contract with a term higher than 12 months with a governmental entity.

In such cases, the taxable event occurs when the amounts become due by the public entity, even if it does not make the payment to the private party. However, the law authorizes the taxpayer to postpone the payment of the tax until the time when it actually receives the payment.

Another example is the case of a sale of non-current assets in order to receive the price, in whole or in part, after the end of the fiscal year following the deal. In such cases, although, from a legal standpoint, there has already been an actual addition to the taxpayer's assets, the law allows the taxpayer to recognize the gain in proportion to the portion of the price received in each calculation period.

In such cases, one finds a typical case of deferral, to which Section 54 of Law 9430 shall apply if the transition from the actual profit to the presumed profit system occurs.

One sees, therefore, that Section 54 of Law 9430 has its scope of application assured, which, however, should not go beyond the scenarios for application of income tax defined by Section 43 of the CTN so as to reach sums that do not constitute actual income or an asset increase.

^[1] Like the rules applicable to GAFV, tax law only provides for taxation of RTT differences when recognized by a company under the actual profit system. Considering the silence of the law regarding the taxation of such differences when recognized by a legal entity under the presumed profit system, it is possible to conclude that the law does not require the tax to be levied in that case.

Category: Tax

More than a decade after the decision granted by the First Section of the Superior Court of Appeals (STJ) recognizing taxpayers' right to claim an offset as a matter of defense in motions to stay tax foreclosure, precedents can still be found, even within the STJ itself, not authorizing the claim, based on a mistaken interpretation of the vote drafted by Justice Luiz Fux.

Although the Justices held a unanimous position in 2009 in granting Special Appeal No. 1.008.343/SP, after reviewing the scope of paragraph 3 of article 16 of Law No. 6,830/1980, the two Public Law panels of the STJ are still giving different interpretations. This becomes evident, for example, when comparing the decision in AgInt no REsp 1.694.942/RJ, of the authorship of Justice Mauro Campbell Marques, of the Second Panel, with the decision handed down in AgRg no REsp 1.482.273/SC, of the authorship of Justice Benedito Gonçalves, of the First Panel.

This divergence of interpretation will certainly lead again to further discussion of the matter within the First Section in order to provide the correct interpretation of the provision in question.

Although both positions defend the possibility of discussing offsets performed before the tax foreclosure in the context of a motion to stay, a part of the enforcers of the law believes that it is only possible to debate in court offsets already approved by the tax authorities, i.e., where the taxpayer's credit has already been recognized by the tax authorities themselves. The other part of the enforcers of the law duty only restrict the claim for an offset when it is done in the motion itself, which makes it possible to discuss the validity of administrative acts that do not approve an offset.

Those who argue that taxpayers could only raise a validated offset in the filing of a motion also argue that the review of a non-validated offset would be a form of judicial offsetting, which does not seem to us the best interpretation on the subject. This is because the limitation on the discussion of a validated offset is incompatible with the very existence of the tax debt being enforced, in addition to being far from the current reality surrounding the institute of tax offsetting at the federal level.

When taxpayers find that they have unduly paid a certain tax, they must fill out an electronic form using the PER/DCOMP program, created by the Brazilian Federal Revenue Service (RFB), and report that they owns a tax credit that they will use to offset (extinguish by offsetting) a certain tax debt that has become due or is yet to mature.

From the moment the electronic transmission of PER/DCOMP is carried out, the RFB has five years to approve or deny the offset performed by the taxpayer. In parallel, taxpayers register the debit in the RFB's system and report that it has been "settled by offsetting", therein listing the corresponding PER/DCOMP number in their declaration.

If the offsetting of the taxes is validated, the debit in the tax system is automatically extinguished. That is: if there is no debit, there will be no tax foreclosure. Consequently, if there is no tax foreclosure, there will be no motion to stay, much less any discussion as to the correct interpretation of paragraph 3 of article 16 of Law No. 6,830/1980.

Therefore, the advocates of the position that it is only possible to argue a validated offset as a matter of defense in a motion to stay are far from the current reality involving tax offsetting. It is not denied that there may be cases where the tax authorities mistakenly demand a debt already extinguished by offsetting, but that is not the rule. This is an increasingly rare exception, as the RFB’s procedures are all automated.

Thus, limiting the taxpayer's defense at the stage of a motion to stay enforcement on the basis of an extremely restrictive interpretation undermines the logic of the legal system.

It is worth remembering that the beginning of the vote given by Justice Luiz Fux demonstrates that the allegation that only a validated offset could be discussed is invalid. He clearly stated in his vote that “tax offsets acquire the nature of a subjective right of the taxpayer (also enforceable in the context of a motion to stay tax enforcement), in the event of simultaneous presence of three essential elements: (i) the existence of a tax credit, as a product of the administrative act of the entry or the standard act of the taxpayer that creates the tax credit; (ii) the existence of a tax debt, as a result of: (a) an administrative act invalidating the tax entry, (b) an administrative decision, (c) a judicial decision, or (d) an act of the taxpayer itself, when authorized by law, it being incumbent on the Tax Administration to inspect and subsequently approve the tax debt calculated by the taxpayer; and (iii) the existence of a specific law, promulgated by the competent entity, authorizing the offset, by force of article 170, of the CTN, according to which 'the law may, under the conditions and under the guarantees it stipulates, or the stipulation of which in each case it assigns to the administrative authority, authorize the offsetting of tax credits against liquidated and certain debts, past due or falling due, of the taxable person against the Public Treasury'.”

It is possible to note, from this part of Justice Luiz Fux’s vote, that the "tax authority’s debit" (or credit of the taxpayer) may arise in four different situations, were, in one of them (ii.d), the credit arises from an act from the taxpayer itself.

The fact that the tax administration is responsible for the inspection and subsequent approval of a given tax offset does not strike down the act performed by the taxpayer, since the liquidity and certainty of the tax credit are not related to its recognition by the tax authority, as professors Fredie Didier Jr. and Júlia Lipiani teach:

"In this perspective (of inapplicability of civil rules to tax offsetting), the only general conditions for the exercise of the right to offset in the tax field are that it occur between liquidated credits and fungible things (CC (LGL\2002\400), article 369) and that there be, between the taxable entity and the taxpayer for the tax obligation, reciprocal credits and debits.

Tax withheld in error is liquidated and certain when its current existence is found, that is, when it is not a credit that depends on a future event. The liquidity and certainty of the tax credit are not related to recognition by the tax or judicial authority or to the existence of evidence to that effect" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax foreclosure. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Thus, if a given taxpayer finds that he has paid more in tax based on a mistaken premise, which, incidentally, may be related to an (in)correct interpretation of the provisions of law in force, it suffices for him to perform settlement of his credit and so indicate in PER/DCOMP to offset against a tax debt due by the same taxpayer to the RFB.

In a large part of the orders with decisions not granting the offsets conducted by the taxpayer, the RFB merely interprets the current legal rules so as to conclude that the taxpayer would not be entitled to use the credit, i.e., the agency does not perform any assessment in order to say whether or not the amount calculated is correct according to the divergent interpretation.

An example is a case debating the theory of non-inclusion of the ICMS in the PIS and Cofins calculation basis. For years, various offsets were not granted by the RFB based on the interpretation that this state tax should be included the calculation basis of those contributions. The non-granting of these offsets caused the PIS and Cofins debts to reappear and led to the filing of countless tax foreclosures.

In this scenario, considering that the STF recognized the unconstitutionality of the inclusion of the ICMS in the PIS and Cofins tax basis, is it compatible with the Rule of Law to prevent the taxpayer from defending the validity of the offset that was not validated at the stage of a motion to stay enforcement or the illegality of the administrative act that did not validate the offsetting thereof? It seems obvious to us that it is not.

There are also cases where the RFB does not grant the offset on the grounds that the taxpayer does not have a credit, solely on the basis of cross-checking of information in its computerized system. Thus, the credit right of a given taxpayer may be affected, for example, by the fact that another taxpayer forgot to report the withholding of income tax in a certain assessment.

If the tax enforcement is brought by the Public Revenue Service, would the taxpayer be prevented from proving, at the stage of a motion to stay enforcement, that he owns a tax credit against the RFB? The answer again is no.

The administrative act of the RFB in denying the offset can and shall be challenged at the motion to stay enforcement stage, irrespective of the grounds raised by the tax authorities to not recognize the right of credit. If it is proven that the assumption adopted by the RFB was wrong, the tax debt resulting from the denial of a given tax offset should be promptly extinguished, since it originates from an erroneous administrative act.

The lessons of Fredie Didier Jr. and Júlia Lipiani in the study cited above are along the same lines:

“An administrative offset performed by a taxpayer may be refused by the tax authority, which will have to issue a specific administrative act (infraction notice in the case of article 66 of Law 8,383/1991 (LGL\1991\39) and the decision not to validate in the case of article 74 of Law 9430/1996 (LGL 1996/1998), duly supported, by which it must set out the reasons for the inadmissibility of the offset.

This administrative act, of course, may be submitted to judicial review, since, as it is not a matter subject to the discretion of the government, the offset cannot be denied for reasons of expediency or convenience. On the contrary, it is a non-discretionary act, the motives for which are determinant and may be reviewed by the judicial authority if misapplication of the Law to the specific case is demonstrated.

The debt that arises due to a refusal by the tax authorities to validate the offset performed by the taxpayer can only have its validity questioned through evaluation of the procedure adopted. To believe that an administrative decision not validating the offset cannot be subject to review in a motion to stay enforcement is to ignore that the act of authorization is an administrative act, fully non-discretionary, which must be subject to judicial control, under penalty of violation of article 5, XXV, of the Federal Constitution. There is nothing to be said of administrative res judicata to the taxpayer's disadvantage.

In this case, the taxpayer will not be seeking offset by means of a motion to stay enforcement. On the other hand, the offset would have already been carried out previously, thus restricting the discussion, in the motion, to the validity or lack thereof of this administrative offset previously carried out.

Thus, there is no obstacle for the taxpayer, when charged for a debt resulting from a denial of an offset, to raise in court the non-existence of the debt, arguing that the administrative act that refused the offset for some reason is wrong. This objection may be made both in a lawsuit at its initiative and in response to a tax enforcement, through a motion to stay" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax enforcement. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Even so, the professors are rightly critical of the STJ's interpretation that an offset could only be debated at the stage of a motion to stay:

"It is worth noting here that, from an interpretation of that appellate opinion, it is not possible to conclude that the STJ allowed only the claim of an offset preceded by a lawsuit authorizing the repetition of the tax withheld in error, or of a credit already recognized by the Public Revenue Service. When it mentions that an offset may be used as a basis for defending a motion to stay tax enforcement "especially when, at the time of the offset, the requirements of the existence of a compensable tax credit, the establishment of tax withheld in error, and the existence of a specific law authorizing the extinction of said tax credit have been met", the adjudicatory body is reinforcing its theory in relation to the specific case, in which, in addition to having been offset by the taxpayer prior to the claim, all these other situations have been established.

(...)

To prohibit the administrative decision not validating the offset, in any case, from being subject to a judicial decision in a motion to stay enforcement would be to ignore that the act of authorization is a nondiscretionary administrative act, which must be subject to judicial control. The law could not be interpreted in this way, under penalty of violation of the principles of a full defense and mandatory jurisdiction (article 5, subsections LV and XXXV).

In cases where taxpayers allege, in a motion for stay of enforcement, a prior previous administrative tax offset not validated, they seek a decision, in this motion to stay enforcement, regarding the validity of this prior administrative offset that, once recognized, will extinguish the tax debt" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax enforcement. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Therefore, there can be no other interpretation of the appellate decision in REsp No. 1.008.343/SP and article 16, paragraph 3, of Law No. 6,830/1980, since the debate on the validity of the administrative act not recognizing the offset does not mean that the tax credit does not exist.

Faced with this scenario of uncertainty, it is more than welcome that the First Section again discuss the matter, expressly validating once again that the taxpayer may claim against the tax enforcer an offset previously performed during the motion to stay phase, regardless of whether or not it was validated by the tax authorities, in order to give value to the exercise of an adversarial proceeding and a broad defense. 

Category: Environmental

The practice of environmental law attorneys, whether advisory or focused on litigation, has been gaining prominence in times of growing interest and intense media coverage of events that cause impacts on the environment. Influenced by this trend, law firms themselves have begun to assess the sustainability of their internal structures and policies.

The concept of sustainability began to spread in the 1970s and 1980s and was coined by the World Commission on Environment and Development as being that which "meets current needs without compromising the ability of future generations to meet their own needs."^[1] Currently, when sustainability is mentioned, social, environmental, and economic issues are on the agenda, in a model that is translated well in the Sustainable Development Goals (SDGs) of Agenda 2030, adopted during the 2015 Sustainable Development Summit. In all, the document contains 169 goals distributed among 17 objectives in the social, environmental, and economic spheres. It is difficult, therefore, to address environmental aspects in isolation when dealing with initiatives considered sustainable without considering a holistic view of the natural and human environments.

According to the Sustainable Law Practice Guide of the Community Advocacy and Social Responsibility Committee of Cesa (Centro de Estudos das Sociedades de Advogados [“Center for Law Firm Studies”]), “[p]er the terms of the ISO 26000 Standard, in order to be sustainable it is necessary to incorporate into the management of an enterprise a set of practices that simultaneously aim at good economic performance of the enterprise, improvement of society, and conservation of environmental balance. The fundamental step for an organization to achieve this condition is to have socially responsible management."^[2] Thus, when one talks about the environment and the practice of law, one should address the issue within this broader context.

Law firms have been adopting sustainability and/or social responsibility policies and projects, important elements in the environmental and social pillars of sustainable development. In practice, it is common for firms to promote social responsibility actions such as donations to Campanha do Agasalho [the “Clothing Campaign”], promotion of events on Children's Day, participation in events that encourage reading and donating blood, and partnerships with different institutions. Another trend that has gained strength in recent years is the promotion of a culture based on values and practices connected with the social pillar of sustainability. There is a growing connection between the activity of the practice of law and the social measures present in SDG Nº 5, which deals with gender equality. At Machado Meyer, there are debate groups on ethnic and racial diversity (ID.Afro) and on LGBT issues (#1igualdade [“#1equality”]), as well as a mentoring group for women, another volunteer group, and areas of the firm focused on handling pro bono cases. In 2019, the firm had three female partners and four male partners on its executive board, in addition to a male CEO, which demonstrates gender diversity in the area of governance.

With regard to practices aimed at the environment, four major actions in favor of sustainability were carried out at Machado Meyer in 2019. The firm has replaced all its plastic cups and cutlery with glass and metal items. Each employee received a sustainable cup with the stamp “Menos um Lixo” [“1 Less Trash”], a 100% Brazilian product, helping to reduce the "emission of pollutant gases in long-distance transportation"^[3] and prioritizing local production and economy. Policies were also adopted to encourage the use of less polluting means of transportation, such as bicycles, and policies to reduce the use of paper in folders, through the scanning of files. In addition, the Green Team group was created and now meets monthly to discuss sustainable actions to be adopted in the workplace.

Public and private policies reflect today's society and concern for sustainability. In the corporate world, this issue has increasingly gained the status of a competitive advantage^[4] in a society that lives with scarcity of natural resources and is trying to reverse this situation. According to the Brazilian Code of Corporate Governance - Public Companies (in Portuguese, Código Brasileiro de Governança Corporativa – Companhias Abertas”), "corporate governance seeks greater security of investments made and greater social responsibility on the part of the company"^[5] and this is increasingly a trend.

The main law firms in Brazil have demonstrated that the adoption of sustainable practices as a differentiating feature is not limited only to the corporate clients of these firms - both are seeking to meet the demands of society and “meet the three bases of sustainability in strategy and management"^[6] to obtain better results.

^[1] United Nations. https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf

^[2] Cesa, Sustainable Law Practice Guide. https://probono.org.br/wp-content/uploads/2019/06/Guia-da-Advocacia-Sustent%C3%A1vel-Baixa-WEB.pdf

^[3] https://www.menos1lixo.com.br/o-copo

^[4] IBGC. Brazilian Corporate Governance Code - Public Companies. https://www.legiscompliance.com.br/images/pdf/ibgc_codigo_brasileiro_de_governanca_corporativa_companhias_abertas.pdf

^[5] MARQUES, Letícia Yumi; Zapater, Tiago. “Prática do Direito Ambiental na Defesa dos Interesses de Empresas Privadas” [“Practice of Environmental Law in the Defense of the Interests of Private Companies”]. Chapter “Direito Ambiental, Governança Corporativa e a Atuação da CVM” ["Environmental Law, Corporate Governance, and the Actions of the CVM”] by Roberta Leonhardt, Eliana Chimenti, Alessandra de Souza, and André Castilho. São Paulo: Letras Jurídicas 2019.

^[6] IBGC. Brazilian Corporate Governance Code - Public Companies. https://www.legiscompliance.com.br/images/pdf/ibgc_codigo_brasileiro_de_governanca_corporativa_companhias_abertas.pdf

Category: Labor and employment

The government sent to the National Congress, on November 26th, Bill No. 6,159/19, which aims to change the rules for filling quotas reserved for people with disabilities, established by Law No. 8,213/91.

The objective of the change is to make it easier for some sectors and companies that face difficulties in doing so, due to their location and the nature of the services provided. The bill does not, however, propose changes in the percentage to be considered for the fulfilment of the quota: 2% to 5% for companies with 100 or more employees, depending on the total number of staff members.

The first change suggested is to allow the same employee to be computed for the purposes of compliance with both the quota for hiring apprentices, provided for in the Consolidated Labor Laws (CLT), and the quota for people with disabilities, if they meet the two conditions simultaneously, which was previously forbidden in the laws and regulations.

Doubling the computation for the hiring of people with severe disabilities has also been proposed. This is one of the controversial items of the bill, since, although it encourages the hiring of people who have more difficulty in entering the job market, it may reduce the quota for some companies by half and generally reduce the supply of opportunities to people with disabilities.

The bill also proposes that not only regular employees, but also temporary and outsourced workers be included in the calculation basis for the quota. Thus, outsourcing companies remove from their calculation basis employees made available to the recipients of services.

Another proposal in the bill is exclusion of positions that require the exercise of a dangerous activity from the basis for calculating the quota of persons with disabilities, as well as those positions for which the activities restrict or prevent the exercise of the role by such persons or for which the work hours are less than 26 hours per week.

Bill 6,159/19 also aims to facilitate compliance with the quota by allowing for the obligation to hire people with disabilities to be replaced with the payment of a monthly contribution, in the amount of two minimum wages, to the Ministry of Economy's Program for Physical and Professional Rehabilitation, Prevention, and Reduction of Accidents at Work.

This provision will certainly be the subject of a broad debate in the Chamber of Deputies, since it goes against the guidelines for inclusion of persons with disability, substituting the idea of engagement in hiring with that of payment in cash.

The bill also provides for the possibility of offsetting the surplus hiring of one company against the shortage of another, which has not yet been regulated by the laws and regulations.

The expectation is that Bill 6,159/19, if approved, even partially, will facilitate compliance by companies with the hiring quota for people with disabilities. The difficulties encountered by companies in complying with this provision of law are known and legitimate, and are often related to the level of training of professionals or to accessibility infrastructure issues in different regions of Brazil. The measure also has the potential to increase competition among professionals with disabilities, as the jobs available to them are usually quite limited.

Category: Banking, insurance and finance

Instruction 612/2019 of the Brazilian Securities and Exchange Commission (CVM) will enter into force in September of this year and bring in new obligations related to cyber security for securities market brokers.

Although it is becoming increasingly important, the subject is not exactly new in terms of financial regulations. Institutions authorized to operate by the Central Bank of Brazil (BCB), including brokerage houses and distributors, have already been subject to National Monetary Council (CMN) Resolution No. 4658/2018 since April of 2018.

The subject has also been widely explored for years via self-regulation, with the creation of parameters and good practices, especially through Anbima's guides and research,[1] which served as a basis for even state regulators to develop their standards. In addition, Law No. 13,709/2018 (the General Data Protection Law), in force as of August of this year, brings in various obligations related to the security of client data processing for activities of any nature.

As some recent incidents of data leakage at large companies in Brazil show, however, this issue is still critical. The dissemination of cases involving financial institutions after CMN Resolution 4,658 came into effect also showed that this sector is not immune to cyber attacks, despite the current regulatory framework.

Therefore, the new rule issued by the CVM introduces a series of additional obligations for brokerage firms in relation to CMN Resolution 4,658, without breaking with its logic or creating incompatibilities with the standards and practices in force.

The main changes involve a more detailed approach by the regulator. While CMN Resolution 4,658 is less thorough and gives institutions ample room to define their policies and models according to their own needs, ICVM 612 opted to detail the regulation of some points, defining minimum content for certain items of the policies established.

For example, while CMN Resolution 4,658 provides that it is incumbent on the institution to define what relevant incidents are without imposing specific content,[2] ICVM 612 requires that incidents affecting critical processes or sensitive information, as well as those with a significant impact on clients, must necessarily be on the list of incidents defined as relevant by the institution.[3]

A similar fact occurs with the classification of data. CMN Resolution 4,658 requires it to be done, but does not specify the content thereof.[4] In turn, ICVM 612 determines that, as a minimum, registration data and information that allow identification of client transactions are considered sensitive.[5]

The obligations in addition to CMN Resolution 4,658 created by ICVM 612 may be reviewed in the comparative table below:

* The articles in this column refer to the numbering of ICVM 505 as amended by ICVM 612.

[1] In this regard, see ANBIMA's Cyber Security Guide, published for the first time in 2016 and edited 2017, available at https://www.anbima.com.br/data/files/F5/62/AB/91/FBC206101703E9F5A8A80AC2/Guia-de-Ciberseguranca-ANBIMA.pdf. In addition, it is also interesting to review the research that has been conducted by the association on this subject since 2017: https://www.anbima.com.br/data/files/E4/93/9C/7E/156306101703E9F5A8A80AC2/GT%20Ciberseguran_a-Pesquisa%202017_ANBIMA.pdf.

[2] As per article, subsection V, item “d”.

[3] As per article 35-D, paragraph 4, included in ICVM 505.

[4] Cf. article 3, V, “c”.

[5] Cf. article 35-E, sole paragraph, included in ICVM 505.

Category: Banking, insurance and finance

The Central Bank of Brazil (Bacen) announced in February the launch of the Instant Payment System - PIX (SPI), which will allow the transfer of funds in real time between people and/or companies starting in November. In this article, we review the main concepts of this new type of service, which promises to transform the dynamics of the financial system in Brazil.

Evolution of the system

The sending or receiving of funds and payment of products and services are essential to the proper functioning and economic development of a country. These activities in the financial system are directly related to the Brazilian Payment System (SPB), regulated by the National Monetary Council (CMN), Bacen, and the Brazilian Securities and Exchange Commission. The SPB is a set of rules, procedures, and institutions that encompasses the entities and systems related to the processing and settlement of fund transfer operations, foreign currency transactions, or financial assets and securities (the SPB includes the entities operating Financial Market Infrastructure - IMF and the payment arrangements and institutions).

The SPB we know today has undergone various regulatory and technological updates to meet the needs of the market and to shape the dynamics and speed of the economy. In 2002, in order to significantly reduce risks and keep the Brazilian financial system among the most modern in the world, Bacen developed the "new SPB." At the time, among other changes, the Electronic Transfer of Available Funds (TED) was introduced as an option to send funds from one bank to another.[2]

Years later, in 2013, the regulatory framework applicable to payment arrangements and payment institutions was established, through the enactment of Law No. 12,865/13, which set forth the principles and concepts applicable to payment arrangements, payment institutions, and payment accounts.

Now, with the SPI, Bacen aims not only to meet the objectives mentioned above, but also to foster financial inclusion and competitiveness in the Brazilian financial system and encourage the digitization of retail payments (one of the most efficient of the SFN pillars of the BC# Agenda).

Characteristics of the SPI

Instant payments are electronic funds transfers in which the transmission of the payment order and the availability of funds to the receiving user occur in real time.[3] The service will be available 24 hours per day, seven days per week, and every day of the year.

The SPI will be operated through infrastructure developed and offered by Bacen itself, the PIX platform, which will encompass all institutions interested in providing this service (payment institutions and banks, among others) and will be available to users start in November of 2020.

Considering these characteristics, Bacen issued Circular No. 3,985/20, which governs the methods and criteria for participation in the arrangement for instant payments and in the SPI, as well as the criteria for direct access to the Transactional Account Identifiers Directory (DICT), further detailed below.

Principal concepts

In addition to the concept of instant payment discussed above, Circular No. 3,985/20 established a series of basic concepts regarding the SPI’s regulations. Among them, the following stand out:

• Instant payment arrangement: this is the new arrangement established to govern the provision of payment services related to instant payment transactions;

• Instant payment account - IP account: this is the account to be maintained in Bacen by participants (banks and payment institutions) for purposes of settlement within the SPI;

• Transactional account: this is the account held by an end user (customer) at a payment service provider (such as a bank or payment institution) and used to make or receive an instant payment. It may be a cash deposit account, a savings deposit account, or a prepaid payment account; and

• Instant Payment System - SPI: this is the centralized infrastructure for the settlement of instant payments where transactions between participants with an IP account will occur.

Participation modalities - instant payments arrangement

According to the provisions of Circular No. 3,985/20, the arrangement of instantaneous payments allows for two methods of participation:

• 1. payment service provider maintaining a transactional account: a bank or payment institution offering an end-user transactional account, including payment institutions not subject to authorization by Bacen; and

• 2. government entity: an agency of the direct administration that participates in the arrangement of instant payments exclusively to make or receive payments per se.

Obligation to participate - instant payments arrangement

Participation in the instant payments arrangement is mandatory for financial institutions and payment institutions authorized to operate by Bacen with more than 500,000 active customer accounts, considering cash deposit, savings deposit, and prepaid payment accounts.

According to the explanatory memorandum of Circular No. 3,985/20, the mandatory participation of larger institutions that focus on and operate in retail (offering transactional accounts to their clients) was on purpose. In this manner, the risk of non-adherence by institutions relevant to this market and the creation of various closed payment arrangements is mitigated,[5] which would represent inefficiencies and unnecessary costs, contrary to the real purpose of Bacen's plan. With the adoption of this criterion, Bacen was able to obligatorily incorporate into the new system a set of institutions that aggregates more than 90% of the total number of active accounts in the methods already mentioned.

Types of participation – SPI

The SPI allows the following methods of participation:

• 1. direct: is characterized by the direct connection of the participating institution to the SPI and the ownership of an IP account; and

• 2. indirect:[6] the participating institution has neither a direct connection to the SPI nor an IP account, and its participation occurs through a direct participant of the SPI, responsible for registering the indirect participant in the system and acting as a settler in the SPI for instant payments related thereto.

The methods were established in accordance with item 5 of Communiqué No. 32,927, of December 21, 2018, which disclosed the fundamental requirements for the SPI ecosystem. According to this item, the ecosystem must have a flexible and open structure for participation in order to foster the market and the emergence of new services. For this reason, Bacen allowed participation in both a direct and indirect manner.[7]

Obligation of participation – SPI

Participation in the SPI is compulsory for participants in the instant payment arrangement, for the purposes of the settlement dealt with in Circular No. 3,985/20,[8] and optional for clearing houses and providers of clearing and settlement services, exclusively for the purposes of settlement of private transactions for the provision of liquidity carried out between participants in the SPI within the infrastructure.

It now remains to be seen how the new system will be implemented and how it will unfold, as well as the benefits and regulatory impacts of its use. Once again, Bacen demonstrates proactivity, encouragement of innovation, and interest in market growth and development. The institutions win, with the structuring of a competitive and profitable market, and the users, with the possibility of using a more agile, simple, and less costly system.

For more information on the SPI, access: www.bcb.gov.br/estabilidadefinanceira/pagamentosinstantaneos.

[1] https://www.bcb.gov.br/estabilidadefinanceira/spb

[2] The function was launched as an option to perform a transfer of under the DOC - Credit Document modality.

[3] When a transfer is performed, the funds transferred are deposited into the recipient user's account in real time (within a maximum of 10 seconds from the time of transfer).

[4] Subsection VI of Article 2 of Circular No 3,985/20.

[5] According to Bacen Circular No. 3,682/13, a closed payment arrangement is one in which the management of electronic money or, cumulatively, the management of an account, the issuance, and the accreditation of a payment instrument are carried out: (a) by only one payment institution or financial institution, the legal entity of which is the same as the institution of the arrangement; (b) by a payment institution or financial institution controlling the institution of the arrangement or controlled by it; or (c) by a payment institution or financial institution that has the same controller as the institution of the arrangement.

[6] The following are prohibited: (i) participation in the indirect method for commercial banks, multiple banks with a commercial portfolio, savings banks, and clearing and settlement houses and service providers; and (ii) participation in the direct method for payment institutions that do not have authorization to operate granted by Bacen.

[7]Vote 32/2020-BCB, of February 12, 2020 - Explanatory Memorandum of Circular No. 3,985/20.

[8] According to Circular No. 3,895/20, instant payment transactions involving different institutions participating in the arrangement must be settled through the SPI whenever they involve transfer between IP accounts of different direct participants in the SPI. Furthermore, if different participants in the arrangement use the settlement service of the same direct participant in the SPI, the settlement of instant payment transactions between these different participants must be performed in the systems of the direct participant itself, without using the SPI.

Category: Real estate

After the historical slowdown of the Brazilian economy and the brake imposed on all segments of the real estate market for a record amount of time, the expected recovery in the sector has been showing some concrete signs since the second half of 2019. Growth has been experienced in several sectors (logistics, retail, commercial, and residential), reflecting current economic policy, approval of labor and social security reforms, and signs that the government will proceed with tax reform. The decrease in unemployment and inflation, the maintenance of interest rates at a record low level, the increased faith in the economy, and the evident improvement in credit conditions also contribute to optimism, all ideal ingredients for the resumption of the real estate market starting in 2020.

The exponential increase in the number of residential developments in some cities in Brazil is directly related to the low interest rates on real estate financing and the decrease in the unemployment rate. Caixa Econômica, for example, announced that it will launch financing with fixed interest rates and without adjustment for inflation in March of this year. The reduction in interest rates is a natural fertilizer for real estate funds, which have shown impressive capital funding power (in number of transactions and volume of funds), also attracting more conservative investors because they are less volatile than stock portfolios. The current restriction on the acquisition of real estate by pension funds (which have always been major investors in this market) also contributes to a greater interest in real estate funds.

The heating up of the economy leads to a greater search for locations in the logistics sector (spaces in commercial and industrial warehouses), retail and office spaces, and this means that real estate fund portfolios continue to be filled with assets with good income performance. While, in 2018, the market for high-end commercial spaces in São Paulo closed with a vacancy rate of around 18%, today it stands at approximately 15% and, in some regions considered premium, it has reached less than 10%, according to market consultants.

These positive indicators have an immediate impact on the type of activity that the market demands. The demand for appraisals and discussions involving the structuring of collateral and credit risk is decreasing. On the other hand, there has been an increase in the search for legal advice in structuring new business opportunities throughout the development process of ventures, with a special focus on meeting changes in the population's mindset, which seeks new forms of housing, leisure, and work in a increasingly shared economy.

There has also been an increase in transactions to expand real estate fund portfolios and new capital funding, as well as a growing interest on the part of clients in bringing properties into good standing for future transactions or new investments. It is not by chance that institutional investors in Brazil have begun to bet that the sectors with the best performance in 2020 will be retail and e-commerce, followed by the real estate market.

Another important and expected change, which will certainly bring positive results for the real estate market, is the flexibility of the rules regarding foreign investment in Brazilian companies that invest in agribusiness. The matter is not settled and still faces strong resistance. Even so, it is possible that some change will happen in this area in 2020 and that foreigners will return to invest in the acquisition and leasing of rural properties in Brazil with greater legal certainty, although subject to limitations.

All this expectation of growth must be monitored, but with caution and long-term vision. It requires aggregated knowledge and a complete view of the pros and cons of each bet and new development, especially those projects that requirement a large investment in infrastructure, sustainability, technology, and urban mobility.

A new cycle of growth in the real estate market has already begun, with repercussions in all sectors of the economy due to its high capacity for job creation. This new cycle of ours will have more cautious players, who are better prepared and capable of fueling more sustainable growth in the market.

Category: Competition

After a turbulent period, due to lack of a quorum at the Administrative Court, the Administrative Council for Economic Defense (Cade) begins its work in 2020 with four new commissioners on the tribunal and renewed energy at the Superintendency General, following the reappointment of the superintendent in October.

This year a more diversified performance by the agency is expected, increasingly closer to the other actors involved in promoting the current economic agenda in strategic sectors and that goes beyond the traditional functions of investigation of violations of the economic order and review of mergers.

Cade's actions in regulated sectors should gain more relevance in the face of joint action projects with other agencies. In the financial sector, for example, Cade and the Central Bank of Brazil have been holding discussions on fintechs, the implementation of open banking, and the adoption of regulatory sandboxes to promote innovations in the financial system and foster competition in the banking market. In the aviation sector, the agency should act on the revision of the rules on distribution of time slots at airports.

Cade has expressed growing concern about the possible anti-competitive effects of conduct related to practices and fees charged at public ports. In the telecommunications sector, the agency publicly expressed its intent to participate in the discussions on the auction of 5th generation mobile telephony.

It is also possible that Cade will reinforce its direct action in promoting competition in regulated sectors, a move that began in 2019 with the signing of cease and desist consents to close investigations against Petrobras. At the time, the company committed to sell refineries and assets related to the natural gas market, in addition to taking over ancillary commitments to solve problems in the gas market.

With regard to the prosecution of anticompetitive conduct, Cade intends to publish in the coming months a penalty guide to spell out the criteria for determining the penalties applied in the trial of administrative proceedings. The measure takes place in the context of discussions at the Administrative Court on a lack of uniformity and robustness in the decisions of the agency and on the need to take into account the advantage gained by offenders in setting parameters for fines for formation of a cartel.

Cade should also intensify and improve investigations of unilateral conduct, especially in the financial sector, where several practices related to means of payment are already in the agency's sights. The same should happen in relation to the issue of cartels in public bids, thanks to the consolidation of institutional partnerships with state public prosecution services and the use of artificial intelligence tools to search for evidence of anticompetitive activities in public procurement databases.

It is also expected that CADE will more effectively encourage private suits in the Judiciary for damages for competitive violations. In November of 2019 the agency issued an ordinance regulating the procedures  provided for in a resolution published in 2018, for interested third parties to access documents and information contained in administrative cases,

In mergers, Cade will play an important role in review the competitive effects of transactions that occur in the federal government's privatization program in the coming years. The agency has sought to increase and empower its staff to maintain speed in review of cases.

In line with the actions of international antitrust agencies, Cade has devoted much attention to transactions between companies operating in digital markets, whose competitive risks tend not to be identified and measured by traditional analytical tools. In general, the parts of these transactions do not meet the legal reporting requirement. Given the growing relevance of the digital economy and the need to form a critical mass to define its policy of action and intervention in highly dynamic markets, it is possible that CADE will require reporting of some of these transactions in the coming years, exercising an option provided for in the Competition Law that has thus far been used sparingly.