Category: Litigation

One of the biggest controversies under the Company Judicial Reorganization Act (LRE) is the limit on the Judiciary's role in controlling the legality of the judicial reorganization plan. Recently, this discussion has gained another chapter. In deciding Special Appeal No. 1.630.932/SP, filed by a São Paulo company in judicial reorganization, the Superior Court of Justice (STJ) ruled that the Referential Rate (TR) is valid as a criterion for correction of bankruptcy claims, if so approved by the creditors.

With this, the STJ modified a decision by the São Paulo Court of Appeals (TJSP), which had invalidated a provision in a judicial reorganization plan approved by the creditors, which provided for adjustment for inflation of the claim amounts based on the TR + 1% per year. The STJ considered that the most current case law limits judicial control over the reorganization plan to issues of the legality of the procedure, prohibiting the interference of the judge in the economic content of the provisions thereof.

Noting that the TR does not reflect the inflationary phenomenon (throughout 2018, the rate remained at 0%), the STJ argued that if the general meeting of creditors approves the use of the TR as an index for adjustment for inflation, it is not incumbent on the Judiciary, considering eminently economic content of the matter, to discuss the decision of the creditors. Regarding interest, the reporting judge, Justice Paulo Sanseverino, stressed that “there is no general rule in the Brazilian legal system that sets a minimum threshold, a floor, for the interest rate (whether default or remuneratory interest), nor is there a rule that prohibits annual frequency,” and so the 1% monthly adjustment ordered by the TJSP is not applicable.

With this precedent, the STJ is taking yet another step in consolidating case law involving judicial control of the provisions contained in judicial reorganization plans, conveying the message that the Judiciary is only allowed to review those issues that are strictly linked to the legality of the procedure and lawfulness of the content, such that what is approved by the meeting must control and drawing attention to the importance of negotiations and the dispute of forces preceding such approval.

This does not mean, however, the end of controversy in the context of judicial reorganizations. After all, since the concept of legality is open and elastic, there is always room for creditors to question points they consider to be of public order. Indeed, a brief analysis of case law shows that, until a few years ago, the TJSP, prompted by creditors, took the view that a discount over 80% proposed by the reorganization plans was illegal.^[1]

Currently, however, the Judiciary clearly has not annulled^[2] discounts even above the 80% mark, indicating a trend that judicial control in judicial reorganization plans should be limited to strictly public policy issues^[3] and cogent rules, such as the supervision period provided for in article 61 of the LRE. In any case, the precedent of the STJ is an important step towards consolidation of matters of bankruptcy law, aiming to provide greater legal certainty to all stakeholders in the judicial reorganization process.

^[1] TJSP. Interlocutory Appeal No. 055083-50.2013.8.26.0000. Reporting Judge Ricardo Negrão. Decided on July 25, 2014.

^[2] TJSP. Interlocutory Appeal No. 2192960-22.2018.8.26.0000. Reporting Judge Cesar Ciampolini. Decided on February 28, 2018.

^[3] TJSP. Interlocutory Appeal No. 2192960-22.2018.8.26.0000. Reporting Judge Grava Brazil. Decided on November 12, 2018.

Category: Infrastructure and energy

Created by Law No. 12,431/11 to promote the participation of private investment in financing the infrastructure sector in Brazil, infrastructure debentures have been gaining ever more force since 2016, with the reduction of the participation of the National Development Bank (BNDES) in the financing of new projects and the stabilization of Brazilian macroeconomic conditions.

According to information released by the Economic Policy Bureau of the Ministry of Economy, in 2018 the issuance of infrastructure debentures reached R$ 23.9 billion, compared to only R$ 9.1 billion in 2017 and R$ 4.4 billion in 2016.

In general, the main attraction of these instruments for investors is the levying of reduced income tax rates on the income earned.

They may benefit from the issuance of infrastructure debentures for investment projects developed in the sectors of logistics and transport, urban mobility, energy, telecommunications, broadcasting, basic sanitation and irrigation, provided that they are members of the Investment Partnership Program (IPP) or are considered priorities by the industry regulator under Decree No. 8,874/16.

In this context, the government has been looking into possible changes to the current regulations of infrastructure debentures in order to create an even more favorable environment for private investment, with particular attention to pension funds, fixed income funds, and foreign investors. To this end, a set of amendments to Law 12,431 and Decree 8,874 are under discussion related to the following topics:

• possibility of issuing a new type of “series 2” infrastructure debentures, which would not be exempt from income tax for individuals, but would offer higher returns to investors in general in consideration for the possibility that the issuer may deduct from taxes levied on its income more than 100% of the interest to be paid to investors. This change aims to improve the prospects of return for corporate investors, in particular by favoring the attraction of large pension funds, which, as a rule, are more concerned with the return on investments than with tax benefits related to investment results;

  income tax exemption for income earned by foreign investors, improving the attractiveness of infrastructure debentures and encouraging fundraising abroad to finance the infrastructure sector;

  increase, from 24 to 60 months, in the term of expenses reimbursable with funds raised through the issuance of infrastructure debentures. The purpose of this change is to ensure greater flexibility for the development of infrastructure projects, since, in order to partially mitigate project risks to be borne by investors, it is quite common to issue infrastructure debentures only after projects are more advanced and have already received much of the investment required for their implementation;

  change in the rules for classifying funds as infrastructure investment funds, which currently have two years to create a portfolio with at least 85% infrastructure debentures. As such a deadline may discourage the receipt of new contributions by such funds in order to avoid possible disruptions over time, the creation of a 6-month moving average to assess the composition of the funds is discussed, ensuring that managers have more flexibility in time limits to meet thee portfolio composition requirements defined by Law No. 12,431; and

  changes in the process for classifying investment projects as priority under Decree No. 8,874. In short, the proposal would be to establish a simplified procedure for the analysis and classification process, so that, once certain relevance requirements are met, projects no longer need to be screened by the responsible ministry, as is the case today with those that are included in the Investment Partnership Program (PPI).

The amendments are still being discussed by the government and were not per se subject to a bill submitted to Congress thus far, but it is unquestionable that we are facing a new chapter in the history of infrastructure project financing in Brazil. Addressing much of the current market demands regarding infrastructure debentures, the changes under discussion may make it possible to create better conditions for the private sector to assume a dominant position as a long-term financier of infrastructure projects in Brazil.

Category: Tax

With the main objective of combating delinquent debtors and strengthening the collection of outstanding debt within the federal tax administration, the Ministry of Economy presented to the Chamber of Deputies, in March, Bill No. 1,646/19. Some aspects of the text deserve special attention, such as the extrajudicial procedures applicable to delinquent debtors, defined in the Bill as “taxpayers whose tax behavior is characterized by substantial and repeated tax delinquency.”

The first point to be highlighted concerns the characterization of “substantial and repeated tax delinquency,” defined in paragraph 1 of article 2 as the existence of debts in the name of the debtor or related individuals or legal entities, whether or not recorded as outstanding debt and in the amount of R$ 15 million or more, in an irregular situation^[1] for a period of one year or more. The wording of this article may give rise to misinterpretation, since the text does not identify the nature of the legal relationship between the debtor and the individual and legal entity that may justify the calculation of their private debts in order to characterize their repeated default.

The only interpretation compatible with the Federal Constitution and the national tax system, in our view, is that which restricts the possibility of considering the debt of third parties in the calculation of the debtor's debt to the effective existence of a legal scenario for joint and several liability or tax liability of these third parties. In fact, the National Tax Code strictly defines the circumstances in which persons other than the taxpayers themselves may be held liable for tax debts, precisely in articles 124 and 128 to 135.^[2]

Any other interpretation will violate the autonomy of the legal entity with respect to its partners, shareholders, or related companies and will be unconstitutional. This is because the Federal Constitution reserves for complementary law, in this case, the National Tax Code, the competence to establish provisions of law governing tax obligations (article 146). An ordinary law cannot therefore create a scenario for presumed legal liability.

The Bill also provides that the bodies of the federal tax administration may institute administrative proceedings against delinquent debtors in order to impose administrative restrictions which, if applied, consist of (i) cancellation of tax registration - CNPJ or CPF; and (ii) prohibition on enjoyment of any tax benefits for a period of ten years.

To initiate the procedure, the Bill is very clear in requiring not only the characterization of the taxpayer as a delinquent debtor but also the presence of evidence of the commission of an unlawful act (willful, fraudulent, or feigned). This is another aspect that deserves attention: it is not the characterization of debtors as delinquent that authorizes the establishment and subsequent application of administrative restrictions, but the existence of effectively inappropriate behavior by them. Incidentally, this is the tonic of the Bill, expressed in its explanatory memorandum: the objective is to reach taxpayers who perform unlawful acts, not those who have only tax debts.

Although the opening of the procedure requires only the presence of indicia, the effective application of restrictions requires proof of the performance of the unlawful acts described in the rule.^[3] Despite this provision, it is of doubtful constitutionality to apply such severe administrative sanctions that may prevent individuals or legal entities from exercising their professional or corporate activity without prior judicial control. This seems to use to be clear violation of due process of law. There is no way to consider, in satisfactory compliance with the right to a full defense and adversarial proceeding, a procedure, especially when it involves drastic limitation of rights, in which the judge is not vested with jurisdictional powers and is not impartial precisely because he is an interested party.

Moreover, the measure seems to us disproportionate to the purposes intended. If the idea is to create mechanisms that make receipt of the taxable amount more effective, it is not via the cancellation of the tax identification (CPF and CNPJ) of individuals and legal entities that this objective will be achieved. Quite to the contrary: the creation of restrictions on the exercise of corporate and economic activity prevents the production of wealth and, consequently, the payment of taxes.

It is quite true that alleged exercise of economic activities cannot lend itself to covering up the commission of unlawful acts, which must be stopped. For this, however, the Public Treasury already has very effective mechanisms in the current legal system, such as the tax motion for preliminary injunctive relief, which the Bill itself, in other provisions, seeks to strengthen.^[4]

It would be better if the procedure to establish administrative restrictions constituted a preparatory mechanism for the collection of evidence to justify the future filing of a judicial measure against the debtor, even if it is intended to cancel a tax identification (CPF or CNPJ), if deviation of purpose in the exercise of the economic activity is proven in court, used as a subterfuge for the commission of tax offenses.

The Bill also allows the Office of the Attorney General of the National Treasury (PGFN) to offer differentiated conditions for the settlement of debts recorded as outstanding debt and classified by the tax authority as irrecoverable or difficult to recover. In these cases, provided that there is no evidence of a loss of equity, discounts of up to 50% of the consolidated amount of the debt may be granted. Discounts may be applied on fines and interest, for payment in cash or payment within up to 60 installments. Discounts shall not apply to (i) fines that, in the opening of an assessment, are intended to punish tax evasion, fraud, and collusion, as provided for in Law No. 4,502/64;^[5] (ii) payable taxes related to the Simples Nacional or FGTS; (iii) payable taxes registered as outstanding debt for less than ten years.

The PGFN is responsible for regulating the setting of discounts, including based on the recoverability of the payable taxes and the term for the repayment thereof.

The proposal here seems reasonable and effectively intended to receive the tax debt. It contemplates the possibility of entering into extrajudicial settlements between the Public Treasury and taxpayers, in the midst of modern and effective alternative means for dispute resolution.

The main criticism concerns the minimum time for which the debt must be enrolled as outstanding debt (ten years) before it may be submitted to an extra-procedural legal settlement. If the objective is to resolve the tax dispute, and if the tax authority is already free to classify the payable tax as unrecoverable or difficult to recover, as well as to set discount percentages based on the degree of recoverability and the time to receive the amounts, this time period may make actual satisfaction of the tax debt unfeasible, even if partially.

It is hoped that during the democratic debate that should permeate the legislative process, these and other aspects will be the subject of greater reflection, so that the collection and receipt of tax debts meet the public’s wishes without violating taxpayers' fundamental rights.

^[1] Debts the enforceability of which is not suspended.

^[2] Participation in the taxable event, succession, link with the taxable event, responsibility of managers for acts committed in violation of the law or the statutes or with excess of powers, among other situations expressly provided for.

^[3] Article 2 of the Bill allows the establishment of an administrative proceeding to establish and apply administrative restrictions in the event that there are indicia that: (i) the legal entity has been established for the commission of structured tax fraud, including for the benefit of third parties; (ii) the legal entity is organized by intermediaries other than the true partners or shareholders or the real owner, in the case of a sole proprietorship; (iii) the legal entity participates in an organization formed for the purpose of not paying taxes or circumventing tax debt collection mechanisms; and (iv) the individual, principal or co-responsible debtor, deliberately conceals assets, revenue, or rights for the purpose of not collecting taxes or circumventing tax debt collection mechanisms.

^[4]The purpose of this article is not the part of the Bill dedicated to changes in Law No. 8,397/92, which regulates the tax motion for preliminary injunctive relief. In any case, it is important to clarify that this instrument, as currently regulated, already confers sufficient (perhaps excessive protection for payable taxes. Some of the proposed new rules are clearly unconstitutional, as they once again confuse the person of the alleged debtor with third parties, creating rules of liability for mere non-payment of the tax.

^[5] Articles 71, 72, and 73.

Category: Tax

There are two main forms of defense in tax foreclosures: the pre-foreclosure  exception and the motion to stay enforcement. The first is presented in the record, without the need to guarantee the tax debt under debate, that is to say, it is less costly for the taxpayer. However, its scope is limited to situations that do not require production of evidence or where the issues may be heard by the judge ex officio, pursuant to Precedent No. 393 of the Superior Court of Appeals (STJ).

Given this restriction, taxpayers/debtors have as the sole means of defense, in the vast majority of cases, the motion to stay tax enforcement. The requirement for them to be admitted is the provision of collateral under Law No. 6,830/80 (the Tax Foreclosure Law - LEF), which is more expensive for taxpayers.

With the promulgation of Law No. 13,043/14, which gave new wording to article 9, II, of the LEF so as to provide to judgment debtors the possibility of “offering a bank guarantee or performance bond,” and with the STJ's understanding that both guarantees are equated with a judicial deposit, such means have become the most common forms of guarantees in tax enforcements, precisely because they are less costly for taxpayers than full deposits of the amount in dispute.

Nevertheless, in the event that the taxpayer's appeal or motion does not have supersedeas effect, the tax authorities are increasingly requesting that the guarantee or bond be converted into a judicial deposit by issuing a official letter to the taxpayer’s financial institution or insurer to immediately deposit the amounts in dispute.

As a rule, these requests by the tax authorities are based on Precedent No. 317 of the STJ, according to which execution of an extrajudicial enforceable instrument is definitive, even if the appeal against the judgment that dismisses the motion is pending, and based on decisions by the 2nd Panel of the STJ^[1] that admit the settlement of the guarantee or the bond, conditioning the withdrawal of the amount deposited on the final and unappealable judgment.

This condition results from the interpretation of paragraph 2 of article 32 of the LEF: “After the decision has become final and unappealable, the deposit, monetarily adjusted for inflation, shall be returned to the depositor or delivered to the Public Treasury, by order of the competent court.”

Only a hasty reading of this provision could lead to the conclusion that only deposits, and not other guarantees, are effective pending a final and unappealable judgment and that, therefore, a plea by the treasury to execute the bond or guarantee is legitimate when the appeal or motion to stay execution by the taxpayer has no supersedeas effect.

However, from the systematic reading of articles 9, paragraph 3, 15, I, and 32 of the LEF and an analysis of the STJ's understanding, it is concluded that  both the guarantee and the bond have a legal status equivalent to that of a cash deposit, and settlement thereof (conversion into deposit) is only legitimate after the final judgment and unappealable judgment on the dispute.

The 1st Panel of the STJ reached this same conclusion^[2] when it stated that the execution of the bank guarantee offered as a guarantee of the tax execution is also conditional on the final and unappealable judgment on the definitive action, under the terms of the same paragraph 2, of article 32 of the LEF.

As with the deposit, the guarantee and bond are instruments for rapid settlement and bring security for the satisfaction of the judgment creditor's interest, since they are automatically convertible into cash at the end of the execution phase. They are also not subject to depreciation, as there is a provision to have the amount guaranteed automatically updated for inflation following the same parameters as the debt being executed.

From a legal or economic point of view, it makes no sense to give separate treatment to the types of guarantee. For the judgment creditor, in the case of the Public Treasury, there is no difference. Therefore, the position of the tax authorities, named the “Guarantee Project,”^[3] is a measure that is incompatible with the applicable laws and regulations and the case law of the STJ, clearly in breach of the principles of reasonableness, proportionality, and continuity of the business activity. The sole objective of the judgment creditor in such cases is to use the amounts deposited in court to settle its commitments.

That is because the amounts deposited are transferred to the single account of the public entity, entirely at the federal level and partially at the state and municipal level,^[4] being used in the budget financial activity to pay expenses.

It is certain that tax foreclosure should be operated in the manner least burdensome for the judgment debtor, but also that its purpose is to satisfy the interest of the judgment creditor. As recognized by the 3rd Panel of the STJ,^[5] the guarantee and bond represent the perfect harmonization between the principle of effectiveness of protection in execution for the judgment creditor and the principle of the smallest burden for the judgment debtor, giving greater proportionality to the means of satisfaction of the judgment debt for the judgment creditor.

Premature settlement of the letter of guarantee or guarantee only brings harm for taxpayers/judgment debtors, who must immediately repay amounts that may have been spent by the financial institution or make a deposit in response to contractual obligations.

The conversion of the guarantee or bond into a judicial deposit is equivalent to conversion into income of deposits for the satisfaction of the judgment debtor’s debt, a measure applicable only after the final and unappealable judgment. This is what was decided by the 2nd Panel of the STJ,^[6] in view of the specificity of article 32, paragraph 2, of the LEF.

It is worth remember further that article 19, II, of the LEF only admits the summons of the financial institution to pay the judgment debt when the motion to stay execution has been definitively rejected, that is, the judgment has become final and unappealable.

To allow premature settlement of guarantees such as a letter of guarantee or bond goes against the intent of the legislature, which provided the taxpayer with less costly measures to secure the tax debt without compromising the company's cash flow and regular activity, in line with the principles of access to justice, an adversarial proceeding, and a full defense.

Justice Ayres Britto,^[7] specifically addressing the issue of settlement of bank guarantees, stated that “the lack of a definitive ruling by the court cannot, however, pose a threat to taxpayers' legal certainty, especially when it entails a serious risk of potentially undue constraint on assets. It is evident that the danger of damage in this case runs against the taxpayer.”

To allow premature settlement of appropriate guarantees in an indiscriminate and unjustified manner, in the final analysis, has an impact on the financial system, as insurers and banks will offer higher-interest letters of guarantee and security, depleting these institutes and further burdening the taxpayers.

Despite the absence of prejudice for the Public Treasury and the irreversibility of conversion of guarantees into judicial deposits, the application or non-application of article 32, paragraph 2, of the LEF to guarantees and bonds generates divergence of understandings among the circuit courts and causes insecurity for taxpayers.

Because it affects many taxpayers, the issue requires a definitive ruling from the STJ on these questions, as this Court is the highest interpreter of infraconstitutional laws and regulations, in view of its function as the harmonizer of Brazilian case law. The establishment of the most correct and reasonable interpretation of article 32, paragraph 2, of the LEF is essential for application of the principles of maximum effectiveness of the execution and lowest burden for the judgment debtor.

^[1] (AgRg na MC 18.155/RJ, Opinion drafted by Justice Castro Meira, Second Panel, DJe 8/16/2011; RCDESP na MC 15.208/RS, Opinion drafted by Justice Mauro Campbell Marques, Second Panel, published in the Electronic Gazette of the Judiciary on April 16, 2009)

^[2] (REsp 1033545/RJ, Opinion drafted by Justice Luiz Fux, First Panel, decided on April 28, 2009, published in the Electronic Gazette of the Judiciary on May 28, 2009)

^[3] Companies are required to exchange bond for deposit in foreclosures. Valor Econômico, 2019, available at: <https://www.valor.com.br/legislacao/6376875/empresas-sao-obrigadas-trocar-seguro-por-deposito-em-execucoes>. Accessed on: August 05, 2019.

^[4] At the federal level, the discipline is provided in Law No. 9,703/98, article 1, paragraph 2. In the state of São Paulo, the transfer to the Treasury’s single account is 75%, as per Decree No. 62,411/17, article 1, I

^[5] (REsp 1691748/PR, Opinion drafted by Justice Ricardo Villas Bôas Cueva, Third Panel, decided on November 7, 2017, published in the Electronic Gazette of the Judiciary on November 17, 2017)

^[6](AgRg no AREsp 123.976/RS, Opinion drafted by Justice Herman Benjamin, Second Panel, decided on June 26, 2012, published in the Electronic Gazette of the Judiciary on August 1, 2012)

^[7] (AC 1776 AgR, Opinion drafted by Justice Ayres Britto, Published in the Electronic Gazette of the Judiciary DJe-113 on October 1, 2007)

Category: Intellectual property

The Central Bank and the National Monetary Council (CMN) approved the missing rules^[1] in order to regulate the Clean Record Law (Law No. 12,414/11), the wording of which was amended by Supplementary Law No. 166/19. Despite the regulations, there are still doubts about the implications of these laws for the privacy and security of personal data of Brazilian citizens, a topic that requires special attention because of the General Data Protection Law (LGPD). The interface between the Clean Record Law and the LGPD, considering its convergent and divergent aspects, is analyzed in this article.

CONVERGENCES

Effective July 9 of this year, the new wording of the Clean Record Law changes the system for data inclusion for the formation of credit history of Brazilian consumers, which is now automated. This means that the data subject will no longer have to expressly consent to the inclusion. The data will be processed to generate consumers’ credit score based on their history, which will help to inform how much of a “good payer” they are.

The system of the express consent to authorize and legitimize the processing of personal data was taken by many as the golden rule, including for the purpose of the Positive Record, according to the original model of the standard. It so happens that, from a practical point of view, having prior consent as the sole legal basis for processing personal data may end up making important economic activities unfeasible.

For this reason, and as was done in the General Data Protection Regulation of the European Union (GDPR), the legislator softened the leading role of consent in the LGPD by listing, in article 7 of the law, other legal scenarios for the processing of personal data (legal bases), necessarily linking them to the observance of bases (article 2) and principles (article 6). In such cases, the processing of personal data without the consent of the respective owners does not necessarily imply breach of the LGPD.

One of these legal scenarios is protection of credit, established in article 7, X, of the LGPD. According to this article, the processing of personal data without the consent of the holder would be authorized by the LGPD in view of the purposes established in article 7 of the Clean Record Law: i) perform credit risk analysis of the registrant (holder of the personal data); and ii) support the granting or extension of credit and installment sales or other commercial and business transactions that entail risk to the consultant.

The Clean Record Law also provides for the possibility of deleting the information entered in the register upon request by the registrant. The registration system, therefore, ceases to be opt-in, by removing the need for consent, and becomes opt-out, allowing registrants to request their exclusion at any time, in line with the LGPD.

There are other aspects of the Clean Record Law that show the legislator's concern with the principles of the LGPD's purpose, adequacy, necessity, and transparency, such as: i) the guarantee to the registrants that they may demand the correction or cancellation of the registration (article 5, I and III); ii) the possibility of access by registrants to their information in the database (article 5, II); iii) information to registrants on the criteria considered for the credit risk analysis (article 5, IV); and iv) the need for prior information to registrants regarding the identity of the manager responsible for the data and regarding the storage and the purpose of the processing of the personal data (article 5, V), which must be in accordance with fulfillment of the purpose for which the personal data were collected (article 5, VII).

DIVERGENCES

Although the legal basis of article 7, X, of the LGPD supports the format for collection of personal data proposed by the new Clean Record Law, there was no concern in this latest legal text with following the definitions of the LGPD, which, because they are general in nature in relation to the specific laws for protection of data, should be observed.

This is what happens, for example, with the term “sensitive personal data,” defined in article 5, II, of the LGPD, which has the same meaning as the expression “sensitive information,” article 3, paragraph 3, II, of the Clean Record Law:

Another mismatch occurs as to the legal basis for joint and several liability of the database, the source, and the consultant for damages caused to the registrant. Although the LGPD expressly establishes the possibility for controllers and operators to be jointly and severally liable for damages caused to data subjects, the new wording of the Clean Record Law does not refer to the LGPD, but only to the Consumer Defense Code.

In addition, the new Clean Record Law has some gaps in its text regarding how its obligations should be fulfilled, which may lead to confusion about responsibility for processing personal data.

The first of these concerns the absence of further details about the operation of the channel for cancelling the registration, which must mandatorily be provided by all managers. Nor is there sufficient information about the right of data owners to have easy access to information about the processing of their personal data. According to the LGPD, this processing includes all operations carried out with personal data, such as those relating to the collection, production, reception, classification, use, access, reproduction, transmission, distribution, processing, filing, storage, discarding, assessment, or control of the information, modification, dissemination, transfer, diffusion, or extraction.

In this sense, although the Clean Record Law provides for the obligation to clarify which elements and criteria will be used to make the credit score, which is also a form of data processing, there is no obligation to provide transparent information about the life flow of the personal data of the owner.

And that is not all. The lack of designation of a single competent authority to oversee compliance with the Clean Record Law is another problem.

Although many of the legal relationships of registrants consist of consumer relationships, which attracts the oversight of the bodies of the Brazilian Consumer Protection System, the central body in this process should be the National Data Protection Authority (ANPD), responsible for ensuring for the protection of personal data.

The figure of the ANPD was created by Presidential Decree No. 869/18, which was recently converted into Law No. 13,853/19. Among the new features included by the law in the text of the LGPD, it was established that the rules on the ANPD have been in force since December 28 last year, while the other provisions of the LGPD enter into force in August of 2020.

In this sense, the legislator was inattentive with respect to the provisions on the ANPD, as it could have used them in the drafting of the Clean Record Law, published in the Official Gazette on April 9 of this year.

Even if the new Clean Record Law enters into effect almost a year before the LGPD's entrance into force, the designation of the ANPD would undoubtedly demonstrate a more effective concern by the legislator regarding the protection of Brazilian consumer data in the process of formation of credit history. Even so, considering that it will be incumbent on the ANPD to supervise data processing operations and promulgate supplementary norms on the subject, it will probably be incumbent upon it to impose additional measures of care and transparency to clarify the legality or illegality of certain conduct under the new Clean Record Law.

CONCLUSIONS

Interestingly, among the laws dealing with personal data protection around the world, Brazil is the only one to provide for protection of credit as one of its legal bases for the processing of data.

This provision has allowed the new Clean Record Law to be in line with the LGPD, as it is no longer necessary to obtain the consent of the data subject/registrant to use the data in accordance with the purposes of the law. In this respect, the two texts converge and talk to each other.

However, this conversation could be clearer. Even if the LGPD were not in force when the new Clean Record Law was enacted, it could have used concepts from the LGPD without any prejudice.

After all, the adjective “general” contained in the LGPD should not be overlooked: this law is the normative basis for the Brazilian personal data protection microsystem, which can lead to debates regarding the legal regime applicable to the Clean Record in which the two laws otherwise conflict or are not perfectly harmonized.

^[1] Resolution No. 4,737 and Circular No. 3,955 regulate the operation of the system for registration with the Central Bank and the formation of the registration form.

Category: M&A and private equity

It is undeniable that technology is increasingly becoming a part of our routine. Who would have said ten years ago that we would pay our bills, invest, hail a cab, or shop with just a tap on a smartphone? These habits are so commonplace today that the next novelty is no longer greeted as a big surprise.

These innovative companies, with great potential for growth in a market that seeks disruptive ideas all the time (and that, therefore, require funding), are increasingly attractive to large investors. In 2018, according to ABStartups research, five Brazilian technology companies exceeded the US$ 1 billion appraisal value: iFood, 99, Nubank, PagSeguros, and Stone. They are the Brazilian unicorns.

This growth has attracted the attention of local and international investors eager to allocate their resources to innovative projects with the potential to generate fast and robust returns. This move has resulted in a staggering growth of M&A transactions in the sector.

Following the logic of the international market and the typical dynamism of this segment, technology entrepreneurs are looking for “cheap” and, perhaps more importantly, investing capital that does not impose too many restrictions and obligations. This desire, however, is confronted with a codified legal system like the Brazilian one, where interpretation must be carried out according to the established rules, and this system cannot be quickly adjusted to the new way of doing things brought about by these companies. The approval process for changes in law is bureaucratic and time consuming. As examples, we have recently seen extensive discussions on how to classify the activities performed by app car drivers and a heated debate about the regulations on scooter and bicycle sharing.

Aside from the regulatory debates arising from the activities performed, issues related to tax and labor contingencies (with the corresponding risks of contamination not only of the target companies, but also of the investors themselves) remain one of the major focuses of discussion and negotiation in investments in technology companies (among others, such as data privacy and protection). There is often a "clash" between the dynamism and speed of technology entrepreneurs and a more rigorous process of doing due diligence for and negotiating an indemnity package that protects investors against potential losses and contamination.

Thus, the challenge of securing protection of investors while securing financing for technology companies without hindering long-term negotiations creates some mismatch in M&A’s in the industry. Investors with more risk appetite tend to take a “less demanding” stance and often obtain an advantage over their peers in the increasingly competitive Brazilian market.

On the other hand, the structuring of M&A transactions involving technology companies gains new weight in order to provide greater shielding of investors from the risks associated with the investment. In this context, investment structures based on convertible debt or investments made through foreign holding companies are common.

It is undeniable that each transaction has its own peculiarity, which is why it is even more fundamental to analyze the specific aspects of each investment. In any case, the market has developed alternatives so that the security desired by investors does not prevent the financing of these new platforms, which operate with a peculiar dynamism. Over time, the market will settle the right measure between such dynamism and the typical conservatism of M&A transactions.

Category: Competition

The Administrative Council for Economic Defense (Cade) has established new rules on the process in administrative proceedings for assessing merger acts (Apac), through which the agency investigates and punishes the early consummation of these acts, also known as gun jumping, and defined parameters for calculating the applicable fine. The changes were published in Resolution No. 24/19.

Pursuant to Law No. 12,529/2011 (the Defense of Competition Law), the total or partial consummation of a merger prior to obtaining Cade's approval may be punished by a fine between R$ 60,000 and R$ 60 million and cancellation of acts performed, without prejudice to the potential opening of administrative proceedings for investigation of anticompetitive conduct.

Before the new resolution was issued, Cade calculated the fine for gun jumping based on the general factors provided for the calculation of any penalty under the Defense of Competition Law, such as the severity of the infraction, the offender's good faith, economic situation, negative economic effects produced in the market, degree of injury to free competition, and recurrence.

The agency had imposed or negotiated gun jumping fines in 17 transactions thus far. In ten of them, the amount disbursed by offenders was less than R$ 1 million. In six other cases, the fines ranged from R$ 1 million to R$ 3 million. The record fine imposed was R$ 30 million.

The new resolution stipulates that the fine in gun jumping cases starts from a base penalty of R$ 60 thousand, being increased: (a) for the lapse of time, at 0.01% of the amount of the transaction per day of delay, counted from the date of consummation until the notice of the merger or amendment, if any; (b) for the severity of the conduct, up to 4% of the value of the transaction; and (c) for intentionality, up to 0.4% of the average revenue of the economic groups involved, according to the offender's good faith.

The amount of the base fine plus these aggravating factors may be reduced depending on the time of notice: 50% in the event of voluntary notice of the transaction before receiving a complaint or representation by Cade; 30% in the case of notice after receipt of a complaint or representation by Cade, but before the establishment of an Apac; and 20% in the case of notice after an Apac was commenced and before the final decision imposing a conviction.

The purpose of Resolution No. 24/19 is to provide greater predictability for the amount of the fine applicable, but not completely eliminate the discretion of the agency in the dosimetry of the fine. In addition, the resolution provides clear incentives for voluntary reporting of transactions that may be be subject to gun jumping issues. On the other hand, sanctions are also expected to be tightened, especially in the case of high-value transactions between large groups, which, according to the parameters stipulated, will invariably be subject to fines in the millions, even if they do not present any competitive concerns.

Category: Labor and employment

The Labor Reform (Law No. 13,467/17) expanded the use of judicial performance bonds in the labor sphere. Already employed to ensure enforcement due to suppletory application of the Code of Civil Procedure, it was also provided for also by the new law in order to replace the appeal deposit, pursuant to paragraph 11 included into article 899 of the Consolidated Labor Laws (CLT).^[1]

Considering the express provision of law and the ceiling to file appeals in the labor context,^[2] the measure has attracted an increasing number of companies interested in avoiding the potential decapitalization associated with the exercise of their right of defense.

However, even with the precision in the provision, the issue is still far from settled in the judiciary, nearly two years after the Labor Reform entered into force. The decisions coming from the different circuit courts and the Superior Labor Court itself (TST) are varied. While some judicial panels find that the measure cannot be used, others decide that it must comply with certain requirements, and a third group claims that there is no legal provision for imposing requirements on insurance policies, for which reason the measure should always be accepted.

All of this creates a climate of legal uncertainty for litigants in the labor courts regarding the acceptance of a performance bond. Linked to the equity issue involved in the discussion of the claims, the possible dismissal of the use of this form of satisfying appeal costs also constitutes patent curtailment of defense, since it would impede the parties' right to have their claims reviewed on appeal.

How does one prepare in order to mitigate risks of possible rejection of the use of a performance bond in satisfying the costs of a labor appeal?

Although, in fact, the law does not impose any conditions for using performance bonds as an appellate guarantee, the Judiciary's greatest concern in rejecting the measure is that the bond will not be able to effectively guarantee enforcement when enforcement begins.

 A large number of decisions establish that the performance bond cannot be accepted because it contains a date for expiration of validity. The argument is that the guarantee should continue indefinitely, which is not feasible for this modality, as is extracted from article 760 of the Civil Code.^[3]

Therefore, in order to mitigate risks of rejection of the policy, companies must demonstrate that the insurance purchased provides the worker with the same security as an appeal deposit.

This condition of parity may be demonstrated by simple measures that do not burden companies, such as stipulating a period of validity compatible with the average duration of labor proceedings before the courts; inclusion of contract provisions allowing the guarantee to be renewed in the event that the expiration date is reached before discharge of the execution; and stipulation of the impossibility of revocation of the guarantee without an effective demonstration of fulfillment of the principal obligation.

These measures demonstrate the observance of litigants of the true legal nature of the system of appeal deposits, which is to ensure the right to an appeal, regardless of the guarantee used.

Therefore, until the matter is settled before the circuit labor courts, the performance bond may be safely used to enable guarantees of appeals and exercise of the right of defense with a lesser burden on the employer, based on the use of reasonableness and observing the principles that underlie the issue of appeal costs.

^[1] “The appeal deposit may be replaced by bank guarantee or judicial performance bond.”

^[2] Currently the amounts of the appeal deposit ceiling range from R$ 9,828.51 to R$ 19,657.02.

^[3] Article 760. The insurance policy or coverage must be nominal, to the order or to the bearer, and must mention the risks assumed, the beginning and the end of its term of validity, the guarantee limit, and the premium due, and, where applicable, the name of the insured and the beneficiary.

Category: Environmental

The breaking of a dam in Mariana in 2015 was not the first incident of its kind in Brazil, but it was a milestone for the mining industry for having caused extensive environmental and social damage in the states of Minas Gerais and Espírito Santo. As occurred after other large-scale events that were under wide media coverage in Brazil, the public understanding regarding the need for regulatory improvements, coupled with the opportunity for political action under the public’s attention, triggered legislative processes and amendments in dam regulations and disaster prevention in general. Thus, an intense process of changes in rules and regulations began after the incident.

In 2016, two norms were published at the federal level. Ordinance No. 187/16 of the National Protection and Civil Defense Bureau approved the Notebook of Guidelines for Supporting the Preparation of Municipal Contingency Plans for Dams, related to risks generated by the presence of dams in cities. Also focusing on disaster prevention, Ordinance No. 5,141/16 of the Ministry of Science, Technology, Innovation, and Communication, in turn, approved the internal rules of the National Center for Monitoring and Alerting of Natural Disasters, a scientific institution empowered to prepare relevant natural disaster alerts aiming at civil protection and defense actions in Brazilian territory, in addition to producing scientific knowledge on the subject and developing and implementing natural disaster monitoring systems, among others.

In the same year, the Government of Minas Gerais enacted Decree No. 46,993/16, which instituted a mandatory technical audit of dam safety in relation to all developments that perform the final or temporary disposal of mining tailings in dams that use or used the upstream elevation method. Through this instrument, the Government also stipulated that, by September 10, 2016, the developments must input an Extraordinary Declaration of Condition of Stability into the Environmental Declarations Database. In line with the new obligations, the Decree also created a type of infraction associated with the failure to perform any type of technical audit applicable to tailings containment dams that is rated as “extremely serious” in the scale of impact set by the regulation. In order to achieve its objectives, the Decree sought to impose obligations, but was not restrictive, as it expressly provided for the continuity of the environmental licensing processes for developments involving the final or temporary disposal of mining tailings in dams built via the upstream elevation method.

Accordingly, in the same year, the State Council for Environmental Policy (Copam) published Ordinance No. 210/16, which established criteria for the environmental licensing process for waste disposal activities, sterile block cave mining, and reuse of such materials when disposed of in piles, dams, or pits and amending provisions on environmental licensing and potential pollution of tailings disposal structures provided for in Copam Normative Ordinance No. 74/04, subsequently replaced by Copam Normative Resolution No. 217/2017.

In turn, in 2017, the National Department of Mineral Production (DNPM) published Ordinance No. 70,389/17, which created instruments for prevention and monitoring at the federal level in accordance with Law No. 12,334/10, which establishes the National Dam Safety Policy (PNSB). The ordinance created the National Register of Mining Dams, the Integrated Management System for Mining Dam Safety, and established the frequency of performance or updating, the identification of the technical responsible person, the minimum content, and the level of detail of the Mining Dam Safety Plan, Regular and Special Safety Inspections, the Periodic Dam Safety Review, and the Mining Dam Emergency Action Plan. Thereafter, Federal Law No. 13,575/17 created the National Mining Agency (ANM) and extinguished the DNPM.

Amid this process of changing dam and disaster prevention regulations, a new accident occurred on January 25 of this year, with the breach of a dam located in Brumadinho, also in Minas Gerais. The event pushed forward laws and regulations that were already pending and triggered new processes. Thus, 2019 has also been a year marked by the publication of norms that regulate the mining industry and the operation of dams in general.

Naturally, since it is the State most affected by the events, Minas Gerais was the first to publish specific rules on the subject. Precisely after the Brumadinho accident, State Law No. 23,291/19 established the State Dam Safety Policy (PESB-MG). One of the featured points of the law was the prohibition on the granting of an environmental license for the operation or expansion of dams intended for the accumulation or final or temporary disposal of tailings or industrial or mining waste that use the upstream method. In order to regulate the provision and to govern other issues, Semad/Feam Joint Resolution No. 2,765/19 was published, thereafter repealed by Semad/Feam Joint Resolution No. 2,784/19, which determines the decommissioning of all tailings and waste dams, built using the upstream method, arising from existing mining activities in Minas Gerais.

At the federal level, ANM Resolution No. 4/19, which had been published on February 15, was submitted for public consultation and repealed on August 8 by the publication of ANM Resolution No. 13/19. Possibly as a result of the public and media's desire for quick and firm solutions to a situation deemed urgent, the first resolution established short deadlines for meeting obligations, but after the public consultation, ANM Resolution No. 13/19 extended most of them.

The essence of the norm was maintained, that is, the imposition of measures to ensure the stability of mining dams. As expected, the resolution focuses on structures built or raised via the "upstream" method or a method declared to be unknown, precisely because it addresses concerns arising after the 2015 and 2019 events that involved dams built via the upstream method. It is clear, therefore, that ANM Resolution No. 13/19 represents a new paradigm for a legal framework that was established after 2015.

Already in article 2 it is established that “the use of the method of mining dam construction called the 'upstream' method is prohibited throughout the national territory.” Thereafter, article 3 prohibits developers responsible for any mining dams from designing, constructing, maintaining, and operating them at sites within the grant area or in areas noted on the respective mining title and found within in the Self-Rescue Zone (ZAS).

The deadlines for adaptation to article 3 were some of the ones modified by ANM Resolution No. 13/19, being established as (i) October 12, 2019, for deactivation or removal of facilities, works and services intended for administrative, living, health, and recreation activities, as well as any facility, work, or service that handles, uses, or stores radioactive materials; and (ii) between August 15, 2022, and September 15, 2027, for decommissioning of mining dams, depending on the capacity volume. The resolution created a number of other deadlines expiring within the next decade, including the installation of an automated full-time real-time instrumentation monitoring system and implementation of solutions to reduce operational water input into dams, among others.

ANM Resolution No. 13/19 also establishes a minimum safety factor and the immediate shutdown of dams whose safety factor is momentarily below the minimum levels set by ABNT NBR No. 13,028/17. In addition, it imposes on developers the obligation to report the fact  to ANM, implement control and mitigation actions to ensure the safety of the structure and to assess the need for evacuation of the downstream area until the safety factor returns to minimum levels.

Finally, it should be noted that the resolution amended the text of DNPM Ordinance No. 70,389/17 so as to, among other things, determine that the Dam Stability Control Declaration be signed by the technical person responsible for its preparation and by individual at the higher level in the hierarchy of the company responsible for direction, control, or administration within the internal organization of such company.

As may be seen, in addition to the direct impacts of these incidents on the environment and on mining and the public in Espírito Santo, the events of 2015 and 2019 created a general public expectation of legislative changes and, consequently, established a situation of legal uncertainty for mining companies, with the publication and amendment of existing and newly published regulation.

In addition, at least two legislative amendments that are under discussion and pending approval may be added to the legal framework on the topic: Bill No. 550/19, which seeks to amend Law No. 12,334/10, which established the PNSB, and Bill No. 2,790/19, which seeks to amend Law No. 12,608/12 (Protection and Civil Defense Statute) in order to include prevention of disasters induced by human action.

Category: Litigation

Signed by the President of the Republic on September 20, Executive Order No. 881/19, the Economic Freedom Executive Order, was converted into Law No. 13,874/19, instituting the Declaration of Rights of Economic Freedom, which establishes rules for the protection of free initiative and the free exercise of economic activity.

The principles that guide the new law are (i) freedom as a guarantee in the exercise of economic activities; (ii) the good faith of the private party before the public power; (iii) the secondary and exceptional intervention by the State in the exercise of economic activities; and (iv) recognition of the vulnerability of the private party before the State.

To instrumentalize these principles and the rights on which they are based, Law No. 13,874/19 amends provisions in specific legislation. Under the Civil Code, the rules for piercing of the corporate veil were modified to hinder improper loosening of the institute of legal personality. To this end, article 49-A has been included and the wording of article 50 has been amended.

In line with what is already provided for in article 1,024 of the Civil Code,^[1] article 49-A embodies the principle of equity autonomy in stating that “a legal entity is not to be confused with its partners, associates, founders, and officers and directors.” The sole paragraph of article 49-A provides that equity autonomy is a lawful means of allocation and segregation of risk between the equity of the partner and the company.

As regards article 50, the original wording stated generally that abuse of legal personality, characterized by misuse of purpose or mixing of assets, would authorize piercing of the corporate veil in order to reach the assets of the partners or officers and directors of the legal entity.

The new wording of article 50 brought in by Law No. 13,874/19 rightly stiffened the scenarios giving rise to piercing of the corporate veil. Among the changes implemented we highlight the possibility of piercing the corporate veil of only the partner or officer or director who has benefited, even if indirectly, from the abuse. Paragraphs were also inserted into article 50 that regulate the alternative requirements to be fulfilled in order to allow the corporate veil to be pierced.

The requirement of misuse of purpose shall be fulfilled when the legal entity is used for the purpose of harming creditors or for the commission of unlawful acts of any kind. In the original wording of the Executive Order, the term “intentional” was stated, that is, deviation of purpose is only occurs when the element of willfulness or intent is present in the commission of the injury. However, the term was deleted from the final wording of the law.

Still in relation to the requirement of mixing of assets, paragraph 5 establishes that “mere expansion or alteration of the original purpose of the economic activity” does not constitute deviation of purpose for the purposes of piercing the corporate veil.

Law No. 13,874/2019 clarifies that mixing of assets is the absence of de facto separation between the assets and shall be characterized by:

“I - repetitive fulfillment by the company of obligations of the partner or the officer or director or vice versa;

II - transfer of assets or liabilities without effective consideration, except for those of proportionally insignificant value; and

III - other acts of non-compliance with equity autonomy.”

Based on the wording of paragraph 3 of article 50, it may be stated that the requirements of deviation of purpose and mixing of assets also apply to extension of obligations of the partners or officers and directors to the legal entity.

Another relevant change is contained in paragraph 4 of the new wording of article 50. This provision expressly establishes that the mere existence of an economic group does not authorize piercing of the corporate veil of the legal entity in order to reach the equity of parent companies or affiliates. The article in question formalizes the understanding that, even in cases of an economic group, it is necessary to demonstrate the requirements have been met, either of misuse of purpose or of mixing of assets among the companies.

Although the premise that the legal entity is not to be confused with the economic group is obvious, there are judgments that admit improper loosening of the institute of piercing of the corporate veil. To this end, they find that the existence of an economic group gives rise to a presumption of fulfillment of the requirement of mixing of assets, especially when one of the companies is in judicial reorganization or insolvency, or even in the case of family businesses.

The fact that the new wording makes it clear that the existence of an economic group, by itself, does not allow piercing of the corporate veil will hinder the abuses committed based on the improper loosening of the institute.

Thus, the changes brought about by the new law regarding piercing of the corporate veil, while privileging the equity autonomy of companies, make the scenarios for application of the piercing more restricted, which is positive, since piercing of the corporate veil must be exceptional.

^[1] Article 1,024. The private assets of the partners cannot be foreclosed on for the debts of the company, only after the corporate assets have been executed.

Category: Labor and employment

In the previous article, we discussed the measures that can be taken by startups to protect their intellectual capital and the strategic information of their businesses by means confidentiality obligations and obligations relating to intellectual property.

Now we will discuss non-compete and non-solicit obligations.

Although these obligations are inherent in the employment relationship in the course of the employment contract, there is no specific legislation governing the scope of these obligations after termination of employment.

In any event, the Labor Courts maintained the understanding that it is fully possible to agree on non-compete obligations even after the termination of employment of employees and executives provided that the parties expressly define:

• the competing companies and/or the market segment in which the employee will not be able to work;

• the geographic area of the non-compete obligation;

• the time frame for the restriction agreed upon with the employee, which may not exceed 24 months after termination of employment; and

• the amount of compensation to be paid in consideration for the restriction, which must be compatible with the compensation previously received and take into account the extent of the scope of the restriction agreed upon with the employee.

In addition, it is recommended that post-employment non-compete obligations be agreed upon as soon as the employment contract is signed. Such a measure is intended to prevent employees from claiming in the future that the imposition of this obligation during the term of employment was a detrimental change, which could render the instrument void and the non-compete obligation unenforceable.

Recently, the Labor Courts even granted an injunction^[1] in favor of a company ordering an employee to refrain from working with a competitor after resigning, as his employment contract contained an express provision regarding the non-compete obligation upon termination of the relationship between the parties.

The decision was based on the fact that the conduct of the employee, who had access to confidential and strategic company information, could harm his former employer and, as a discouraging measure, imposed a fine of 60 thousand Brazilian Reais per day.

In addition to non-compete obligations, parties may also agree that employees are prevented from pursuing customers or inducing employees of the former employer to join them at a new company. Known as a non-solicit obligation, this restriction differs from the non-compete obligation as it generally does not require the payment of consideration. On the other hand, its enforceability is complex since it is difficult to prove breach.

Given the dynamics and daily life of startups, agreeing on non-compete and non-solicit obligations is critical and of utmost importance to maximize the protection of the company’s confidential and strategic information.

^[1] Case No. 000643-06.2019.5.02.0062.

Category: Labor and employment

There is much discussion today regarding the best ways to decommission, to deactivate, the rigs used in the oil and gas exploration and production process, as most of them are approaching or are already at the end of their useful life.

The discussion around decommissioning is relevant considering the numerous technical and legal impacts that the process can have. It is therefore essential to conduct it in accordance with the best practices observed around the world.

According to the IHS Markit Offshore Decommissioning Study Report,^[1] about 600 offshore units worldwide will be decommissioned over the next five years and decommissioning spending is expected to increase by approximately US$ 2.4 billion in 2015, to US$ 13 billion per year by 2040.

In Brazil, more than 160 offshore units are in operation, according to the ANP (National Agency of Petroleum, Natural Gas, and Biofuels), and 67 of them have been operating for over 25 years. Within this universe, there are 74 fixed platforms scheduled to be deactivated. In approximately 20 cases, the report to the ANP has already been sent and the decommissioning is already scheduled starting in 2020.

Considering the high cost of decommissioning an oil rig and the increased need for this service, it is expected that the process will attract investments from companies operating in this area in the coming years, which should generate new business and jobs.

Given this, it is essential to discuss the legal impacts arising from decommissioning in different scenarios: regulatory, environmental, tax, and also labor, since the process requires the use of skilled labor.

Evaluating decommissioning from the strictly labor point of view, we believe that Law No. 5,811/72 is applicable to employees who will render services in this area. This is because, as is well known to those who operate in the industry, this legislation contains various provisions for employees who work on platforms, such as the possibility of remaining on board for up to 15 days, among other rules that distinguish employees of this industry from others, which use the Consolidated Labor Laws (CLT) as the sole form of regulation.

Without this law, the exploration and production of oil and gas in Brazil would be practically impossible, due to the adversities and peculiarities of the activities involved.

In this sense, considering the challenge in the rig decommissioning process, which prevents employees from coming and going on the same day, as would be the case with any regular worker in another industry, the application of the rules established by Law No. 5,811/72 are of paramount importance in carrying out the activities provided for.

Article 1 of the law states, however, that it applies only to employees “who provide services in exploration, drilling, production, and oil refining, as well as the industrialization of shale, the petrochemical industry, and transportation of oil and its derivatives through pipelines.”

Based on an isolated analysis of the legal provision, it would not be possible, therefore, to ascertain its applicability to employees who will provide decommissioning services, as this activity is not explicit in the text. Therefore, it is necessary to analyze the issue together with the technical standards issued by the regulatory agency, the ANP.

According to article 1 of ANP Resolution No. 27/2006, which regulates the decommissioning of facilities used for exploration and production, this process is part of the oil production phase: “The Technical Regulation defining the procedures to be adopted in the decommissioning of facilities and specifying conditions for the return of concession areas in the production phase is approved.”

Thus, considering that the agency responsible for issuing technical standards related to the exploration and production of oil and gas in Brazil expressly relates decommissioning to the production phase, it may be concluded that the process is covered by Law No. 5,811/72, since, as specified in its article 1, the legislation applies to employees who also work in this stage of the production chain.

^[1] Available at: https://news.ihsmarkit.com/taxonomy/term/46897

Category: Tax

With their publication in the Official Federal Gazette last September 10, 33 precedents approved at the en banc meeting of the Superior Chamber of Tax Appeals (CSRF) of the Administrative Council for Tax Appeals (Carf), held in early September, entered into force. Publication of the minutes of the meeting marks the entry into force of the precedents approved.

The precedents reflect a consolidated and repeated understanding of discussions held under Carf. Their approval requires the consent of 3/5 of the members of the adjudicatory body concerned.

The approval of such a large number of precedents^[1] contributes to the institutional purpose of the agency to standardize case law, reduce the backlog of disputes, and reduce the period for litigation in administrative proceedings, because the subject matter of a precedent must mandatory be observed by Carf's adjudicatory panels (ordinary panels and the Superior Chamber of Tax Appeals) and prevents the admissibility of special appeals.

With the approval of 33 new precedents, Carf now has a list of 158 precedents. Of this total, 104 have a binding effect, also affecting the position of the Attorney General of the National Treasury and the Special Secretariat of the Federal Revenue Service of Brazil in all disputes on the topic.

For now, the proposals approved at the September session should only be applied to Carf, which does not prevent them, subsequently, via an act by the Minister of Economy, from becoming binding on the entire Federal Tax Administration.

The initial list submitted at the September session contained 50 precedents. Seventeen proposals that dealt with matters without a consolidated understanding in Carf's judgments or on topics that require case-by-case examination were not approved.

The rejection of part of the precedents indicates that, at least with regard to these topics, there is still room for debate in the administrative sphere, with the possibility of changing the body’s understanding.

Thus, precedents that dealt with the rules on the applicability of social security contributions over amounts paid under Profit Sharing Plans,^[2] the requirements for the deduction of goodwill amortization for Corporate Income Tax (IRPJ) and Social Contribution over Net Income (CSLL),^[3] of the conditions for deducting equity interest expenses for the IRPJ and CSLL,^[4] among others, did not pass the minimum quorum for approval under the rules.

Specifically regarding the matter of goodwill, a topic that probably involves discussions of higher amounts at Carf, the CSRF's 1st Panel did not approve either of the two proposed precedents: the first tried to consolidate that documentary proof of the bais of future profitability should be contemporary with the acquisition of the investment; the second, in turn, sought to endorse disallowance whenever the goodwill amortization expense originated from an intragroup transaction. This latest proposal had already been tabled at the 2018 en banc meeting and was rejected again.

The CSRF’s 2nd Panel en banc also did not approve the proposal that the rules on receipt of PLR should be established in an agreement signed before the beginning of the calculation period, a recurring topic and quite controversial in the discussions held at Carf.

Some of the approved precedents represent taxpayer-friendly understandings at the Council. The new Carf Precedent No. 149, in line with CSRF's repeated case law, states that undergraduate or graduate scholarships granted to employees shall not be integrated into the social security contribution salary, in cases where the entry points to, as the sole reason for the requirement, the fact that the aid relates to higher education.^[5] Also beneficial is the restatement of law in Carf Precedent No. 143, which provides for other forms of proof of withholding tax in addition to the income statement: “proof of withholding income tax deducted by the beneficiary in determining income tax is not done exclusively through the withholding slip issued in its name by the payer of the income."

However, understandings unfavorable to taxpayers were also consolidated, such as the statement that one must include the Withholding Income Tax (IRRF) in the calculation basis for the Contribution for Intervention in the Economic Domain (Cide), through Carf Precedent No. 158, a debate that has long been held among the oanels of the 3rd Section.^[6]

Another topic that resulted in a precedent refers to the initial term for counting the statutory limitations period of article 173 of the National Tax Code (CTN) in the drawback regime. It shall coincide with the first day of the fiscal year following the end of the period of thirty days following the deadline for the export repurchase and resale agreements.^[7]

The approval of the 33 new precedents materializes what has already been observed in recent years in the context of federal administrative litigation: a strong tendency to adopt measures that speed up the trial and reduce the backlog. However, the consolidation of an understanding into a precedent, of mandatory observance in judgments, is a measure that should be adopted with caution, so that there be no undue restriction in the field of discussion.

^[1]What draws attention in the data is the number of precedents approved in comparison with the total number of proposals submitted. In 2018, 21 precedents of a total number of 32 proposals under discussion were approved. Even with a significant increase in the total number of proposals submitted, from 32 to 50, the percentage of precedents approved remained stable, from 65.6% to 66% this year.

^[2]35th proposal: the rules for receipt of Profit Sharing (PLR, referred to in Law No. 10,101/2000, should be established in the agreement signed before the start of the calculation period.

^[3]28th Proposal: the deduction of goodwill amortization by future profitability is subject to proof of its economic basis, which, in accordance with the original wording of paragraph 3 of article 20 of Decree-Law No. 1,598, of 1977, occurs by means of documentation contemporary with the acquisition of the investment, with demonstration being inadmissible by means of a document prepared after the acquisition.
32nd Proposal: the disallowance of goodwill amortization expense that was generated internally for the economic group, without any expenditure, should be maintained.

^[4] 18th Proposal: interest on equity calculated on prior year's equity accounts is non-deductible.

^[5] Carf Precedent No. 149: undergraduate or graduate scholarships granted to employees, at a time prior to the effectiveness of Law No. 12,513, of 2011, shall not be integrated into the contribution salary, in cases where the entry points to, as the sole reason for the requirement of the social security contribution, the fact that the aid relates to higher education.

^[6]  Carf Precedent No. 158: Withholding Income Tax (IRRF) calculated on amounts paid, credited, delivered, used, or remitted, every month, to those residing or domiciled abroad, as compensation for obligations assumed, is included in the basis for calculating the Contribution for Intervention in the Economic Domain (Cide) referred to in Law No. 10,168/2000, even if the source of the payment assumes the financial burden of the tax withheld.

^[7] Carf Precedent No. 156: in the drawback regime, of the type suspension, the initial term for counting the five-year limitations period for a time-bar on the right to post suspended taxes is the first day of the fiscal year following the end of the thirty-day period following the deadline for the performing the repurchase and resale exports, per the terms of article 173, I, of the CTN.

Category: Litigation

Law No. 9,307/96 (the Arbitration Law), which regulates arbitration in Brazil, has provided in its article 1, paragraph 1, since the changes introduced by Law No. 13,129/15, that the "direct and indirect public administration may use arbitration to settle disputes concerning alienable property rights."^[1] It was already possible, therefore, to submit for arbitration disputes between private and public entities over compensation amounts due to an act of expropriation (which clearly concern alienable property rights).

The challenge was in putting into operation the choice to submit to private jurisdiction, especially in negotiating an arbitration commitment with the Public Administration, an instrument whereby, under the Arbitration Law, the parties may, after the conflict has arisen, declare their choice to use this means of dispute settlement in cases where there is no arbitration commitment that already binds them.

As for mediation, Law No. 13,140/15 only governs the initiation thereof between private parties, therein regulating, with respect to disputes with the Public Administration, a procedure for self-resolution of litigation before the chambers of prevention and administrative resolution of conflicts created and/or existing within the scope of the Public Advocacy bodies.

It is in this context that the Law No. 13,867/19, published on 27 August of this year, comes as good news for private parties who may have properties expropriated by the government and disagree with the amount offered as compensation.

Introducing salutary changes to Decree-Law No. 3,365/41 (the Expropriation Decree), Law No. 13,867/19 gives private parties the right to opt for arbitration or mediation when there is disagreement as to the compensation amounts due from the government by reason of expropriation, via a procedure that appears to be simple.

According to the new system, now provided for in articles 10-A and 10-B of the decree-law, the government must, as a first step in the dialogue with the private party, notify the owner with one offer of compensation, which must contain: (i) a copy of the act of declaration of public utility; (ii) the plan or description of the assets and their boundaries; (iii) the amount of the offer; and (iv) the express provision that the owner has 15 days to accept or reject the offer, with silence being interpreted as rejection.

Upon receipt of the notice, the private party has three options. It may:(i) accept the offer and enter into an agreement with the government; (ii) reject the offer (or even remain silent as to its terms), and wait for the public entity to initiate legal action against it (pursuant to article 11 of the Expropriation Decree); or (iii) initiate a lawsuit, arbitration, or mediation if it disagrees with the compensation offered by the Government.

That is to say, more than provide to private parties the power of choice between these two effective dispute resolution alternatives, Law No. 13,867/19 imposed a very different system from that provided for in the prior article 10 of the Expropriation Decree. ^[2] It imposes on the government, before the adoption of any judicial measure, the obligation to send to the owner an offer of payment of compensation as a way to reach an agreement, valuing the transaction, still in the administrative sphere, as a measure to be primarily sought by the expropriating public entity.

Also pursuant to the terms of article 10-B of the Expropriation Decree, when opting for mediation or arbitration, the private party must indicate one of the bodies or institutions specialized in the aforementioned alternative methods of dispute resolution that have been previously registered by the entity responsible for the expropriation. The legal mandate says nothing regarding how this indication must occur, but it is recommended for the private party to, once the choice has been made, notify the government indicating the institution responsible for administering the procedure to be initiated.

Regarding the costs of arbitration or mediation, one should call attention to the presidential veto of paragraph 5 of article 10-B which was found in Bill No. 10,061/18. The provision established that the "arbitrators' fees are advanced by the government and, at the end of the proceeding, shall be paid by the losing party or proportionally, as established in the regulations of the agency or institution responsible."

With its exclusion from the text of the law, there is no doubt that the arbitrators’ fees, as well as all other expenses (administrative costs, hearing expenses, expert witnesses and experts, for example) should be borne by the parties in accordance with the rules of arbitration and/or mediation of the institution appointed.

Law No 13,867/19 is applicable to all expropriations occurring as of August 27 (its date of publication). Thus, for the changes brought in by it to have full practical effectiveness, the process of registering the mediation and arbitration chambers must be regulated and initiated shortly by public entities, with the disclosure of a list of institutions that may be appointed by the private party.

The need for prior registration of arbitration institutions by the Government is not new in our legal system. This system was also adopted by the Federal Government, within the scope of Law No. 13,448/17, which deals with extension and rebidding of the Investment Partnership Program (PPI) contracts; and by the  states of Minas Gerais (Law No. 19,477/11), Rio de Janeiro (Decree No. 46,245/18), and São Paulo (Decree No. 64,356/19), which already regulated the use of arbitration to resolve conflicts with the Direct Public Administration and its instrumentalities and entities.

The Attorney General’s Office of the State of Rio de Janeiro makes available on its website^[3] a list of institutions already duly registered. In Minas Gerais, the chambers must be found in the General Registry of State Suppliers.^[4] In São Paulo, there is news that registration has started and that the list will soon be released.[5] At the federal level, no information on registration was found. With respect to the other entities, it is important to pay attention to the publication of executive acts governing the registration process and lists indicating the mediation and arbitration chambers that may be elected.

The changes introduced by Law No 13,867/19 to the Expropriation Decree is of paramount importance because, in addition to improving the administrative stage, of the expropriation process, allow the private party to opt for the procedure it believes more appropriate for the case in order to determine the compensation, thus promoting greater speed and more legal certainty.

^[1] This change in the text of the law only reflected in the law an already established position of the case law regarding the matter.

^[2] Article 10 of the Expropriation Decree provided (and still provides) that “[the] expropriation shall be performed via agreement or legal action within five years from the date of issuance of the respective decree and shall expire after the lapse thereof. " Read on its own, in the absence of the current articles 10-A and 10-B, the provision gave the public entity a choice between seeking a friendly settlement and immediately filing a judicial suit. There was no legal preference for settlement, and it was possible, under this old regime, for the Public Administration to move the machinery of the Judiciary unnecessarily, filing a dispute against an owner willing to accept the compensation offered.

^[3] https://www.pge.rj.gov.br/entendimentos/arbitragem

^[4] https://www.cagef.mg.gov.br/fornecedor-web

^[5] For now, the arbitration chambers that administer arbitration proceedings in which the state of São Paulo is a party may be looked up here: http://www.pge.sp.gov.br/arbitragens/arquivos/arbitragens.pdf. 

Category: Infrastructure and energy

Resolution No. 4,751 of the National Monetary Council (CMN), issued on September 26, regulated the possibility of settlement through redemption and offer of redemption of debentures supported by Law No. 12,431/11, which deals with raising funds for infrastructure investment projects. This scenario was prohibited under the terms of subsection II of the sole paragraph of article 1 of that law.

The change offers more security for companies to issue this type of security, as they can better manage their debt without being exposed to inflexible debt in the Brazilian capital markets.

To perform the early redemption provided for in the resolution, the issuing company must meet all of the following requirements:

• The weighted average term of the payments elapsed between the issue date and the settlement date of the debentures must be greater than four years, calculated in accordance with CMN Resolution No. 3,947/11;

  There must be an express provision in the Indenture Instrument regarding the possibility of early settlement of the debentures and regarding the criteria for determining the amounts to be paid to debenture holders upon settlement;

  The prepayment fee is less than or equal to the sum of the government bond rate yielded by the same debenture index with the duration closest to the debenture duration on the early settlement date, with the spread over the federal government bond rate remunerated per the same index as the debenture with a duration closest to the duration of the security on the issue date; and

  There must be provision in the Indenture for possible early settlement dates at intervals of not less than six months between them and the calculation formula that will be used at the time of settlement.

The latter two requirements may be disregarded if debentureholders representing at least 75% of outstanding debentures approve the settlement. This approval must be formalized by means of a resolution at a meeting of debentureholders or accession to the purchase offer made by the issuing company, in compliance with the rules issued by the Brazilian Securities and Exchange Commission (CVM).

The early settlement must be performed via the total early redemption of the same series (infrastructure) debentures, and partial early redemption is not allowed.

The new rules apply to debentures issued after publication of the resolution, which entered into force on September 26.

Category: Environmental

Recent environmental accidents in Brazil have generated intense legislative debates, including with respect to changes to the law that establishes the elements of environmental crimes. On June 25 of this year, the Chamber of Deputies approved Bill No. 2,787/19 (PL 2,787/19),^[1] which, among other provisions, establishes the elements of the crime of ecocide. The main justification for approving the text was that criminal law on disasters of this type supposedly still proves to be fragile.

After approval by the Chamber of Deputies, PL 2,787/19 was referred to the Senate Environment Committee. Last September 11, Alessandro Vieira, rapporteur of the proposal, approved the bill with an amendment.^[2]

In legal scholarship, ecocide is the term used to refer to any “extensive damage that causes the destruction or loss of one or more ecosystems in a given territory, whether by human agency or other causes, to such an extent that the enjoyment of the right to peace, health, and quality of life for the inhabitants of that territory have been severely compromised.”^[3]

The origin of the concept of ecocide is social pressure to punish environmental disasters of great repercussion both in Brazil and abroad. The potential elements of the crime are the result of a certain societal dissatisfaction with the legal treatment given to environmental accidents that cause extensive damage, even though there is liability based on conduct usually typified as an environmental infraction.

PL 2,787/19 intends to amend Law No. 9,605/98 (the Environmental Crimes Law) by inserting the elements of the crime of ecocide as follows: “to cause an ecological disaster by atmospheric, water, or soil contamination, significant destruction of flora or slaughter of animals, which generates a state of public calamity.”

The Environment Committee has amended this wording so as to provide that the state of public calamity must be recognized by the Federal Government and/or the States.

As proposed by the bill, anyone who causes an environmental disaster meeting the elements of ecocide shall be subject to imprisonment from 4 to 12 years and a fine. Willful misconduct is provided for, with a penalty of 1 to 3 years and a fine.

The bill also seeks to establish that, in the event that the accident causes the death of people, it is possible to apply the penalty of ecocide regardless of application of the sanctions for the crime of homicide.

The effectiveness of this type of provision will depend on the practical application of the administrative procedure and the criteria that will be used to characterize an ecological disaster of great repercussions.

We believe that, even in situations of a strong reaction from the public, the judiciary should seek to review cases considered as “ecocide” in an impartial manner, deliberating on the penalty in a reasonable and proportionate manner and avoiding allowing social pressures to influence the application of harsher penalties.

In addition to the elements of the crime of ecocide, the bill aims to modify the amounts of fines for administrative environmental offenses, also provided for in the Environmental Crimes Law. If the text is approved, the minimum amount of fines will rise to R$ 2,000, while the maximum will be R$ 1 billion.

The bill is now proceeding to the Constitution and Justice Committee and, subsequently, to the Senate floor, and is due to return to the Chamber of Deputies for a second review in the event that the proposed amendments are approved.

In the event of approval of inclusion of ecocide in the environmental liability system in force in Brazil, it is expected that the environmental authorities will not bring charges for this crime unreasonably, only as a more severe form of punishment for situations that already necessarily have a legal treatment provided for by the laws and regulations in force.

^[1]https://www.camara.leg.br/propostas-legislativas/2201529

^[2] https://www25.senado.leg.br/web/atividade/materias/-/materia/135651

^[3] HIGGINS, Polly. Eradicating Ecocide: laws and governance to stop the destruction of the planet. 2 ed. London: Shepheart-Walwyn, 2015, p. 62 – free translation from the Portuguese translation, English original not available at time of publication).