Category: Labor and employment

Startups are known for developing transformative and disruptive businesses, due to the very entrepreneurial and bold essence of their founders and employees. Their three primary and valuable assets are: (i) human capital, the people who strive to develop businesses to solve problems; (ii) inventions, products to be offered; and (iii) strategic and confidential information on the business.

The Intellectual Property Law assures protection against disclosure, exploitation, or use of confidential information or data usable in industry, commerce, or the provision of services, obtained by virtue of a contractual or employment relationship, even after expiration of the contract.

In addition, the Intellectual Property Law provides that rights relating to computer programs (software) developed and prepared by employees during the term of their employment belong exclusively to the company.

Information protected by law, therefore, is restricted to information considered confidential or, in the case of the Intellectual Property Law, only information related to the development of computer programs (software).

The result is a group of information, materials, and products that, while not expressly protected by law, may cause serious harm to companies and their businesses if disclosed or used without consent.

How then does one ensure the protection of this information? How does one prevent ideas and projects from being revealed in a highly competitive market?

Firstly, it is important to remember that startups, as employers, have the right to use all creations made by employees in the exercise of their daily duties, as these creations are part of the scope of work.

Because this is a copyright relationship, employees may negotiate these rights. Thus, the inclusion of provisions dealing with the ownership of innovations in employment agreements, especially in the case of employees working in the fields of creation and development, is an essential measure to ensure a startup’s business.

Moreover, considering that there is no legal definition of “trade secrets” in Brazil, nor of “confidential information”, a practice highly recommended for startups is the inclusion of specific provisions in contracts defining in detail which information is considered confidential within the business, in addition to additional obligations establishing, for example, the return of documents to the company at the time of termination of employment, under penalty of damages.

This type of measure has become very common in employment relationships. However, some requirements must be observed to allow the contract to be enforced quickly and efficiently in the event of breach.

Failure to observe legal requirements, however, may make it difficult to demonstrate that the information discussed in any litigation was, in fact, confidential.

Confidentiality obligations, therefore, are essential to ensure the conditions necessary for mitigating (or at least reducing) risks of leakage of confidential information by employees and, especially, former employees.

Category: Tecnology

What can be connected will be connected. This is the most important rule of the internet of things (IoT).

There is still no consensus on the concept of what it is, but the IoT may be understood as an environment of physical objects connected to the internet that facilitates people's daily lives through functional solutions for day-to-day processes.^[1]

In the current context of hyperconnectivity, the IoT represents an aspect of machine-to-machine (M2M) communication and relates to the concepts of big data and data science. This combination will significantly affect the way we live, so the IoT has been receiving strong investments from the private sector and increasing attention from society.

To regulate and encourage this situation, the federal government established the National Internet of Things Plan through Decree No. 9,854, of June 25, 2019. The purpose is to implement and develop the internet of things in Brazil, based on free competition and the free circulation of data and subject to the rules of information security and protection of personal data.

The plan conceptualizes the internet of things as "the infrastructure that integrates the provision of value-added services with physical or virtual connection capabilities of things with devices based on existing information and communication technologies and the evolution thereof, with interoperability." The document also provides that M2M communication systems are considered to be “telecommunication networks, including access devices, for transmitting data to remote applications for the purpose of monitoring, measuring, and controlling the device itself, the environment around it, or data systems connected to it through such networks."

The objectives of the plan are: i) to improve people's quality of life and promote efficiency gains in services through the IoT; ii) to promote professional training for the development of IoT solutions and job creation in the digital economy; iii) to increase productivity and foster the competitiveness of Brazilian IoT companies, through innovations in the sector; iv) to seek partnerships with the public and private sectors for the implementation of the IOT; and v) to increase Brazil's integration in the international IoT scenario.

To that end, it establishes actions and projects to facilitate implementation of the plan and defines the Management and Monitoring Chamber for the Development of Machine-to-Machine and Internet of Things (IoT) Communication Systems as the party responsible for monitoring and advising on this implementation.

Regarding potential tax debates regarding the IoT, the main element of attention may perhaps be maintenance of the definition of value-added service contained in article 61 of Law No. 9,472/1997 as being the "activity that adds to a telecommunications service that supports it and which should not be confused with new utilities related to access, storage, presentation, movement, or retrieval of information." This definition corroborates a separation between the telecommunication service intrinsic to the IoT and the resulting services.

Another important element is the exclusion of credit card machines as M2M communication systems, such that the Installation Inspection Fee set forth in article 38 of Law No. 12,715/2012 is inapplicable.

The plan is commendable and reflects another stage of Brazil's creative solutions to its information technology regulatory agenda, which has a unique character: although it is not a major innovation center in the area, it has a relevant market in the sector and a target public with capacity to adapt to new technologies.^[2]

The full plan may  be viewed at: http://www.in.gov.br/en/web/dou/-/decreto-n-9.854-de-25-de-junho-de-2019-173021041

^[1] MAGRANI, Eduardo. A internet das coisas [“The internet of things”]. Rio de Janeiro: FGV, 2018, p. 20.

^[2] MAGRANI, Eduardo. A internet das coisas [“The internet of things”]. Rio de Janeiro: FGV, 2018, p. 11.

Category: Compliance, investigations and corporate governance

Among the actions taken this year to combat corruption, one of the main goals of the federal government, the promulgation of Decree No. 9,764/19 certainly represents one of the most relevant milestones in improving public-private interaction and dialogue. In summary, the decree regulated how bodies and entities that are part of the structure of the direct federal Public Administration can receive donations of movable goods and services from private individuals or legal entities without costs or charges.

Historically, contributions by the private sector to the public sector have always been a point of attention for companies, which were reluctant to do so because they were concerned about the risks of potential illegalities in the relationship with the Public Administration. The main reason for this concern was the lack of legal regulations on the subject. There were only legal constructions to justify the validity and legitimacy of private collaboration with the Public Administration, based essentially on general principles of law (such as good faith) and those that guide the exercise of public functions, such as those found in article 37 of the Federal Constitution. The issuance of a decree that deals expressly with the subject, therefore, guarantees legal certainty and provides clear guidelines on the limits for actions by companies and individuals in this interaction with the Public Administration.

In force as of August 12 of this year, Decree No. 9,764/19 provided adequate clarification on the procedure and conditions for the donation of movable property and services to the federal Public Administration, especially when there is unanimous concern by companies with corporate governance and the strengthening of compliance practices.

With the publication of the Anti-Corruption Law (Law No. 12,846/13), there is a growing number of companies that adopt corporate integrity programs concerned with establishing adequate parameters for the relationship with private and, above all, public entities. In this context, Decree No. 9,764/2019 serves as a relevant legal reference to guide the drafting of corporate policies on this type of relationship.

The normative text of the decree establishes that bodies and entities of the federal Public Administration, semi-autonomous entities, and foundational bodies, provided without cost or charges, receive movable property or services from individuals or legal entities governed by private law, having as its purpose attendance to certain public interests or public needs. The regulations do not cover entities that are part of the indirect federal Public Administration, notably public companies and mixed capital companies, and do not apply to entities and bodies of the Public Administration of the states, municipalities, and the Federal District.

Bearing in mind the principles governing the Public Administration, donations should aim to promote improvements in public management, that is, they should be directed to a specific public body or entity, and not to specific public a gents. In this manner, the donor mitigates risks related to violation of the principle of administrative morality and, especially, questions of undue benefits to public agents.

A key point of the decree is the determination that donations be made free of charge or costs. This means that the Public Administration is authorized to receive donated movable property and services, provided that it does not assume the obligation to provide consideration in favor of the donor or third parties. On this point, the decree dealt specifically with the issue of advertising linked to the donation, stating that, as a rule, the use of movable property and services donated for publicity purposes is prohibited, except for, as soon as possible after delivery of the goods or provision of services, an indication of the donation on the donor's website or a mention by name of the donor on the website of the beneficiary body or entity when it is aid to a government program or project.

Another relevant aspect of the decree concerns the formal procedures for receiving donations: public calls (when the donation initiative arises from the Public Administration itself) or manifestation of interest (when a private entity announces the intent to make the donation on the website reuse.gov, created for this purpose). The conditioning of the donations on the completion of one of these procedures aims to ensure publicity and transparency of public acts and, mainly, equal treatment in relation to other interested parties, facilitating their cooperation with the Public Administration under the same rules and conditions.

With Decree No. 9,764/19, the expectation is that private players will feel more secure in cooperating with the federal Public Administration, just as occurred in other levels of government that have published similar rules. This is the case of the Municipality of São Paulo, with Decree No. 58,102/18, and the Government of the State of Minas Gerais, with State Decree No. 47,611/19. 

Category: Real estate

Federal Law No. 13,838/2019, published on June 5, sought to facilitate the geo-referencing process of rural properties. With the addition of a new paragraph 13 into article 176 of the Public Registers Law, the consent of abutting landowners in the geo-referencing process required in cases of subdivision, splitting, consolidation, and transfer of rural properties was dispensed with. Consent  will be replaced by a declaration by the applicant that he respected the limits and boundaries of his property.

Geo-referencing is a modern surveying technique used to measure and describe rural properties. It uses the coordinates of the vertices, measured with the help of GPS and magnetic coordinates by satellite (UTM), in order to specify the area, shape, and location of a property.

From a legal point of view, in order for a rural property to be considered geo-referenced, it is not enough to fulfill the technical requirements for surveying points and measurements, which are: (i) a technical survey in the field conducted by a professional qualified with the aid of GPS, (ii) preparation of a deed description, and (iii) payment of the respective Technical Responsibility Note (ART). A rural property will only be considered geo-referenced after certification of the respective deed description by the National Institute for Colonization and Agrarian Reform (the Instituto Nacional de Colonização e Reforma Agrária, or INCRA in its abbreviation in Portuguese), proving that there is no overlap of area, and after its annotation in the property record with the competent Real Estate Registry Office.

At the time of recording of the deed description certified by INCRA at the Real Estate Registry Office, it was formerly required to present the consent of the abutting landowners of the property being geo-referenced. This occurred because the Real Estate Registry Offices believed that the geo-referencing of rural properties is a kind of rectification of an area, following the procedure set forth in article 213 of the Public Records Law. This requirement ended up delaying the completion of geo-referencing process, which often ended up depending on the completion of lawsuits in order to take effect.

Undoubtedly, the change in the law represents an advance in speeding up the completion of geo-referencing and adding into the Real Estate Registry Office the complete and correct description of the property. However, dispensing with the prior and express consent of abutting landowners reduces the legal certainty of the procedure, since it opens the possibility of future claims from neighbors who feel harmed.

In addition, considering that the change occurred in article 176 of the Public Records Law and that article 213, which deals with the procedure for rectification of areas, has not been altered, there are doubts as to whether this dispensing with consent will be applied in all cases or if the Real Estate Registry Offices will continue to impose this requirement in situations where geo-referencing results in inclusion or alteration of the perimeter measurement and, consequently, in alteration of the area of the property undergoing the geo-referencing process.

Considering the objective of Law No. 13,838/2019, the best interpretation of the change, in our opinion, is that the dispensing of the consent of the abutting landowners, since it is subject to a more specific rule, should be a general rule for the geo-referencing process of rural properties, even if it results in an increase or decrease in the area of the property. However, this rule will have exceptions and should be analyzed on a case-by-case basis and according to criteria of reasonableness.

It is important to emphasize that geo-referencing aims to update property descriptions based on the Brazilian geodetic system and increase legal certainty, avoiding overlapping areas, and not creating a means to legitimize the acquisition of areas in an irregular way. Whenever the Real Estate Registry Office, for any reason, believes that irregular acquisition of an area has occurred, it may be required that the deed description of the geo-referenced property contains information on the description and area of the abutting properties, as well as the observance of the procedure set forth in article 213 of the Public Records Law and, consequently, the consent of abutting landowners in order to protect themselves from future claims.

Category: Litigation

The Special Court of the Superior Court of Justice (STJ) advanced to put an end to the controversy over the limitations period applicable to claims based on contractual civil liability. In a judgment last May 14, the Justices decided, by a majority vote (7x5), that the ten-year statute of limitations is what is appropriate in these cases.

The decision is the one with the greatest hierarchical relevance on the subject thus far handed down in Brazil and sets a binding precedent, which should be observed both by the panels and sections of the STJ itself and by the lower courts, per article 927, item V, of the Code of Civil Procedure (CPC).

The statute of limitations on the filing of lawsuits is an issue of unquestionable relevance, since the occurrence of a time-bar removes the possibility of obtaining in court the exercise of a right or liability for violation thereof. It is therefore desirable that such limitations periods be defined in a clear and stable manner without major changes over time.

This issue is especially important when any modifications may represent legal uncertainty should there be a sudden change of understanding shortening a limitations period. This would certainly frustrate the expectations of litigants in relation to the filing of lawsuits or arbitrations and would restrict the period that could be protected via these proceedings.

The issue gains even greater relevance in long-term contracts, in which the parties often choose to wait until the end of the agreement to initiate a dispute. After all, this choice does not affect the beginning of the limitations period, which coincides with the moment of the violation of the right (article 189 of the Civil Code), even if the contractual relationship continues in force.

Since the entry into force of the Civil Code of 2002, however, legal scholarship diverges regarding the limitations period applicable to claims based on contractual civil liability: some jurists claim it to be three years, due to the provisions of article 206, paragraph 3, item V of the Civil Code, while others argue that such a time limit would apply only to claims based on non-contractual civil liability. Accordingly, for contractual civil liability, the general ten-year period set forth in article 205 of the Civil Code is said to apply to those cases in which the law has not established a lesser limitations period.

The discussion is restricted exclusively to contractual civil liability, since it is settled that the non-contractual civil liability is covered by the provisions of the Civil Code cited above and, consequently, the respective limitations period is three years.

An attempt to settle the issue with regard to contractual civil liability was also made, through Restatement of Law No. 419 of the Fifth Workshop on Civil Law, of the Federal Justice Council and the Superior Court of Appeals, approved in November of 2011. The idea at the time was to establish that claims based on contractual civil liability as well as non-contractual civil liability should be governed uniformly by the three-year limitations period. However, the divergence persisted.

Contrary to the restatement in question, for example, the STJ itself has for the most part adhered to the general ten-year limitations period for contractual civil liability, although it has sometimes decided to apply a contradictory three-year limitations period for only certain modalities of contractual obligations.

In November of 2016, the divergence regarding the subject came about definitively within the STJ: in deciding Special Appeal (REsp) No. 1.281.594 - SP, the Third Panel of the STJ modified its understanding and decided that the limitations period in contractual civil liability is three years.

The decision generated an immediate reaction by the advocates of the general limitations period of ten years, where two nationally-known authorities on the civil law published an article supporting this position.^[1]

Apparently influenced by the arguments presented in this publication, in June of 2018, the Second Section of the STJ, composed of the Third and Fourth Panels, decided, in Motion to Settle Divergence in Special Appeal No. 1.280.825/SP, that the applicable limitations period is ten years.

Since these two judgments occurred, litigants in contractual relations have come to live with intense legal uncertainty as to the possibility of exercising their rights.

Fortunately, however, the unsuccessful party in REsp. 1.281.594 - SP filed a motion to settle divergence against the decision (precisely to settle the case law with the courts of appeal). The appeal was then referred to the Special Court of the STJ, which decided in favor of the ten-year statutory limitations period.

Notwithstanding the divergence as to the binding effect of this decision also on arbitral tribunals, it is expected that it will also be observed in arbitration proceedings, as a means of ensuring equal protection to contract parties and ensuring legal certainty.

It is still necessary to await a final and unappealable decision so that the divergence may be definitively considered to have been overcome, but the expectation is that it will be upheld and the topic settled for a long period of time.

In addition, the decision favors legal certainty, since it removes the possibility that claims made in disputes initiated, or about to be initiated, three years after the beginning of the limitations period, and backed by the majority position, may be suddenly considered time-barred.

Also, in order to strengthen legal certainty, the decision stated that “the statute of limitations constitutes, in a certain manner, a rule restricting rights, and cannot entail an expansive interpretation of the guidelines laid down by the legislature" (page 33 of the appellate decision), which should serve as a parameter so that future decisions on the subject of the statute of limitations, even if in different contexts, favor restrictive interpretations.

^[1] MARTINS-COSTA, Judith; ZANETTI, Cristiano de Sousa; Responsabilidade contratual: prazo prescricional de dez anos [“Contractual liability: ten-year limitations period”]. Revista dos Tribunais, São Paulo, v. 797, p. 215-241, May. 2017.

Category: Environmental

Executive Order ("MP", in its abbreviation in Portuguese) No. 884, published last Friday, June 14, amended the Forest Code (Law No. 12,651/2012), so as to determine that registration in the Rural Environmental Registry (CAR) "shall be mandatory for all rural properties and holdings." The amendment redrafted the third paragraph of article 29, which sets forth the end date for registration in the CAR.

The time limit originally provided for in the Forest Code had been extended by regulatory changes, and was last defined as being December 31, 2018. The discussion was resumed following the non-conversion into law of Presidential Decree No. 867/2018, which had postponed that deadline to December 31, 2019.

The expectation is that MP No. 884/2019 and its effects will trigger debate. On the one hand, the elimination of the deadline for registration in the CAR implies the possibility of joining the Environmental Regularization Program (“PRA”, in its abbreviation in Portuguese) at any time. This is because article 59, paragraph two, of the Forest Code conditions the joining of the PRA on registration in the CAR. On the other hand, it may be thought that the amendment imposed by MP No. 884/2019 implies the immediate enforceability of registration in the CAR, subjecting all rural properties not yet registered to penalties.

Discussions may arise, for example, regarding the good standing of properties whose registrations are in progress and the respective practical effects if the presidential decree is not converted into law within the time limit determined in the Brazilian Federal Constitution. In addition, there are reports that two lawsuits have already been filed with the Federal Supreme Court (STF) challenging the constitutionality of the measure.

Category: Banking, insurance and finance

Legal entities and investment funds incorporated in Brazil have until August 15 to submit a report to the Central Bank of Brazil, detailing investments in their quotas and/or shares held by foreign investors on December 31 of the previous fiscal year, or the outstanding short-term trade debts owed to non-residents on the same date, in the following situations:

(a) legal entities must submit this report when, on December 31, 2018, they had a net worth equivalent to or in excess of one hundred million US dollars (USD 100,000,000.00), and, simultaneously, any direct ownership held by non-resident investors in their capital stock, regardless of the amount;

(b) legal entities must submit a report with respect to their current liabilities with non-resident lenders by means of debt instruments when, on December 31, 2018, they had an outstanding balance in short-term trade debts (due within 360 days) equivalent to or in excess of ten million US dollars (USD 10,000,000.00), regardless of any foreign equity ownership in their capital stock; and

(c) investment funds must submit a report when, on December 31, 2018, they had a net worth equivalent to or in excess of one hundred million US dollars (USD 100,000,000.00) and, simultaneously, quotas directly held by non-resident investors, regardless of the amount.

The reporting obligation mentioned above does not apply to the following persons and administrative bodies:

• individuals;

• direct administrative bodies of federal, state, Federal District, and municipal governments;

• legal entities who are debtors in the transfer of foreign loans granted by institutions headquartered in Brazil; and

• nonprofit entities maintained by the contributions of non-residents.

The report must be electronically submitted to the Central Bank through the website www.bcb.gov.br until August 15, 2019, at 6 PM.

The manual containing detailed information on the content and requirements of the report is available on the same website.

Those responsible for this report must store the supporting documentation for five (5) years, counted as of the base date of the report, available for submission to the Central Bank upon request.

Failure to submit the report, or submitting a report that does not comply with the applicable regulations, subjects the violator to a fine of up to two hundred and fifty thousand Brazilian Reais (R$250,000.00), pursuant to article 60 of BCB Circular No. 3,857, of November 14, 2017.

Held annually, the Census of Foreign Capital in Brazil aims to compile statistics of the external sector, especially the International Investment Position, in order to support the formulation of the economic policy and activities of economic researchers and international agencies. Results are scheduled to be released later this year, on November 25.

(BCB Circular No. 3,795, of June 16, 2016, Law No. 13,506, of November 13, 2017; and BCB Circular No. 3,857, of November 14, 2017).

Category: M&A and private equity

Resolution No. 241 of the Superior Council of the Labor Judiciary (CSJT), in force since June 6, amends some of the rules of Resolution No. 185, bringing in important changes in the use of the Electronic Judicial Procedure (PJe).

For the practice of labor law, there are some changes, such as the possibility of submitting an answer, counterclaim, and documents accompanying them under seal, without the magistrate being able to order them excluded, and the obligation to use the PJe-Calc tool to submit calculations of judgment debt.

The changes were provided for by law, respectively, in paragraphs 4 and 6 of article 22 of the new resolution. In the past, it was possible to file an answer, counterclaim, and documents in a confidential manner, provided that the parties supported the confidentiality based on the scenarios set forth in article 770, head paragraph, of the CLT (Consolidated Labor Laws) and articles 189 or 773 of the CPC (Code of Civil Procedure).

The first opportunity in positive law to file the briefs in question under seal arose with Resolution No. 94/13 of the same council. However, the change made by Resolution No. 185 created a paradox: either the documents were filed without confidentiality, exposing the theory in defense before the hearing, which changes the practice observed at the time of physical proceedings and relativizes the provision of article 847, head paragraph, of the CLT, or the briefs were presented under seal, delivering them for the subjective review of the magistrate.

In this subjectivity, of course, there are appellate decisions that modify the striking of documents ordered by trial judges and also those that uphold them.

Setting aside the decision by the trial court that ordered the striking of the answer and documents presented by the company, the judgment handed down in the record of case No. 0000622-18.2018.5.21.0009, of the authorship of appellate judge Ronaldo Medeiros de Souza, of the 2nd Panel of the Court of Appeals for the 21st Circuit, addressed in detail the topic of confidentiality:

"Law No. 11,419/2006, which provides for the computerization of judicial proceedings, promoted a radical change in the way the procedural acts are performed, so that, today, we are improving the electronic mechanisms and changing the procedural legislation order to ensure greater compatibility between the two.

However, it is the PJe-JT System and its peculiar rules that are subject to labor procedural legislation, not the other way around. In this sense, article  847, head paragraph, of the CLT indicates that the opportune time for the presentation of the answer in a labor claim is after the first attempt at settlement has been frustrated, being an option of the party, to do so orally or, per the terms of the sole Paragraph of the legal provision in question, to present it in writing via the electronic judicial proceeding system before the hearing.

As the respondent has pointed out well, the fact that it submits its defense in advance through the PJe-JT System does not imply that the opposing party must have access to it before the appropriate procedural moment, i.e., after the first attempt at settlement. The logic that presides over this system is, as the respondent said, to "foster and preserve good dialogue in negotiation, delaying the adversarial nature of the process" (675).

Interestingly, the same court has a decision in the entirely opposite direction, ratifying the exclusion of the answer and its documents, as seen in the headnotes below:

HEADNOTES

Answer. Confidential nature. Non-receipt. Curtailment of defense. Nullity cured. Absence of prejudice. Ripe Cause. Decision on the request. The filing of the answer under seal does not impose an obstacle on the Court blocking its review, still more so when the time limit set by it for it to be presented is observed. Moreover, the scenario at bar does not challenge the application of the provisions of paragraph 2, of article 9, of TRT21 Act No. 634/2013, since, at the time of the filing of said briefs, the first hearing had not yet taken place. However, even rejecting the answer, the trial court did not declare default, and validated all the evidence submitted by the defendant, in addition to, during the course of the pre-trial phase, granting it full exercise of the right of defense, such that the suit was duly instructed, in such a manner that it is not possible to declare the nullity, due to application of the provisions set forth in article 794 and 796, a, of the CLT. (TRT-21 - ROPS: 00002731520185210009, Date of Decision: November 6, 2018, Date of Publication: November 9, 2018. Opinion drafted by: Ricardo Luís Espíndola Borges)

Thus, Resolution No. 241 of the CSJT comes in good time to end the debate regarding the use of the “confidentiality" option in filing the answer, counterclaim, and documents. The magistrates are expected to accept the content of the resolution, which, we should agree, did nothing more than ensure compliance with the head paragraph of article 847 of the CLT for lawsuits proceeding via electronic means.

The other important novelty brought about by Resolution No. 241 of the CSJT was the mandatory use of PJe-Calc, a tool developed to standardize the presentation of calculations in labor suits. This is a very complete solution that, although considered "didactic" and "intuitive" by its creators, has a complex instruction manual and several videos explaining its operation. Perhaps for this reason compulsory use was delayed until January of 2020.

Resolution No. 241 of the CSJT, therefore, brings the PJe closer to the labor practice, making technology work for the practice of law, and not vice versa, as it is not uncommon to find situations where practices affecting physical proceedings are hampered by the characteristics and functionalities of the electronic procedure.

Category: Tecnology

On July 9th, law No. 13,853/2019, which amended Law No. 13,709/18 (the General Data Protection Law - LGPD) was published in the Official Gazette. The main changes are summarized below:

Data Protection Officer: this may be an individual or a legal entity, contrary to what was established in the original text of the LGPD, according to which this role could only be exercised by an individual. In addition, operators must also appoint a person in charge, as defined in article 5 of the LGPD. However, article 41 of the LGPD has not been modified and continues to provide that only the controller should appoint the person in charge. The text submitted for presidential approval provided that the scenarios in which the operator should appoint the responsible party would be regulated by the National Data Protection Authority (ANPD). As this section was vetoed by the President of Brazil, it is not clear when the operator should appoint a responsible party.

Health sector: with respect to the legal framework for the processing of personal data, including sensitive data, wording has been added providing that health services or health authorities, in addition to health professionals, may also process personal data in order to safeguard the health of the data subject. Regarding the prohibition of shared usage of sensitive data among controllers of sensitive health data seeking an economic advantage, the wording added cites as an exception health and pharmaceutical assistance services – conducted in the interests of the data subjects in order to allow data portability and financial and administrative transactions resulting from the use and rendering of health services. Also, very relevant wording has been added for health plans, prohibiting the operators of these plans from processing personal data to manage risks in the acceptance and exclusion of beneficiaries.

Rights of data subjects: The old wording of the LGPD provided that the data controller must report any correction, elimination, anonymization, or blocking of data to the processing agents with whom they shared it, for them to perform the same procedure. According to the addition made to the original wording, the responsible party is not required to carry out such reporting in cases in which it is proved impossible or involves disproportionate effort. Regarding the right to review decisions made on the basis of automated data processing, the original wording provided for the review to be done by an individual. Presidential Decree No. 869/18 had excluded the need for review by an individual, and the new wording maintained this exclusion.

Data processing by Public Authorities: with regard to the shared usage of personal data by Public Authorities, items were added to the first paragraph of article 26 in order to provide that Public Authorities may transfer personal data included in databases to which it has access in the following cases: when required by law; when the transfer is supported by contracts, agreements, or similar instruments; or if the purpose is the prevention of fraud and irregularities, protection of the safety and integrity of the data subject, with any treatment for other purposes being prohibited.

Penalties: In cases of violation of the LGPD, the provision for penalties applicable to entities and public bodies listed in paragraph 3 of article 52 was excluded. In addition, a paragraph was also added to provide that the amount collected via penalties applied be allocated to the Fund for the Defense of Diffuse Rights, provided for in the Public Civil Action Law and the law that created the Federal Governing Council of the Fund for the Defense of Diffuse Rights. Lastly, paragraph 7 was added to article 52, providing that individual data leaks could be the subject of direct reconciliation between controller and data subject, and only in the absence of an agreement may the controller be subject to the penalties provided for in the LGPD.

The National Data Protection Authority (ANPD): the ANPD was created, initially as a part of the executive branch overseen by the President of Brazil. Its legal nature as a body of the federal public administration must be reassessed after a period of two years. Various duties, assigned to the ANPD, were also added, such as preparing guidelines for the National Policy for the Protection of Personal Data and Privacy; executing settlements with processing agents to eliminate irregularities, legal uncertainty or litigious situations; promulgating simplified and differentiated standards, guidelines, and procedures (including deadlines) for micro and small businesses, as well as business initiatives of an incremental or disruptive nature that declare themselves to be startups or innovation companies, to guarantee their adaptation; and ensure that data processing for the elderly is carried out in a simple, clear, and accessible manner.

Click here to see our table providing a complete comparison of the original wording of the LGPD, Presidential Decree 869/18, and Law No. 13,853/19:

Category: Infrastructure and energy

Competition law experts and businesspersons are following with apprehension the end of the term of office of the commissioners on the Administrative Tribunal of the Administrative Council for Economic Defense (Cade).

TheTribunal, which is composed of six commissioners and a chairperson, has been operating with only six members since January of this year, following the resignation of commissioner Cristiane Alkmin Junqueira Schmidt, who left office before the end of her term in order to assume the position of Secretary of Finance of the State of Goiás.

With the end of the term of office of three other commissioners this month (Polyanna Ferreira Silva Vilanova, João Paulo de Resende, and Paulo Burnier da Silveira, on the 8^th, 14^th, and 16^th, respectively), CADE’s Tribunal will not have the minimum seating quorum of four members as of July 17^th. The Competition Law (12,259/11) provides that in such case all legal  deadlines shall be suspended.

In view of this imminent issue, and without a forecast for when new commissioners will fill the vacancies, Cade sped up the pace of sessions even scheduling  extraordinary judgment session, and tried large cases that had been under review for a long time, such as those involving Google, Petrobras, and the subway cartel.

Another issue that gives rise to concern relates to the merger review procedure. According to Cade’s internal rules, the review of transactions by the Cade Superintendence-General is not suspended in the event of lack of quorum on the AdministrativeTribunal. If a transaction is approved by the Superintendence-General, its closing may only occur 15 days after the publication of the decision, provided that during this waiting period there is no regulatory agency / third party appeal or request for review by one of the Tribunal members. Merging parties that close the deal during the waiting period are subject to gun jumping penalties, including fine of R$ 60 thousand to R$ 60 million, among other measures.

However, the 15-day waiting period is also suspended when the Tribunal has no minimum quorum. Thus, merging parties will be unable to close deals before at least one new commissioner take office.

The Brazilian president indicated in May two candidates for the position of commissioners (the economist Leonardo Bandeira Rezende and Vinicius Klein, attorney-general of the state of Paraná). They still need to be confirmed by the Committee of Economic Affairs of the Senate and approved by the plenary session of the House before taking office. It is expected that the quorum issue will be solved by the first week of August.

Category: Infrastructure and energy

The evolution of the Brazilian economy in recent years has brought new challenges to those responsible for the management of closed private pension entities (EFPCs), governed by Complementary Law No. 109/2001 (LC 109) and by Law No. 6,404/1976 (the Brazilian Corporations Law). Unlike companies that have the purpose of obtaining profit for their shareholders and other stakeholders involved, however, EFPCs aim at the management of funds for the payment of pension benefits to their beneficiaries.

The adoption of bad management practices and the commission of illegal acts have been closely monitored by stakeholders since the wave of investigative proceedings inaugurated with Operation Car Wash and related matters. In the context of the liability of these managers for the actions performed in the management of entities and companies, we observed an increase in the number of civil liability actions against these agents seeking to obtain compensation for damages caused to these organizations.

This increased vigilance, coupled with a positive evolution of corporate governance of entities and companies, with the adoption of good practices for compliance, ethics, and management, ushered in a new era in relation to the liability of professional managers in conducting business, investments, and relations with civil society in general.

It is therefore appropriate to analyze the main aspects and limits applicable to these managers when committing acts that bring about damages to the entities or companies managed. In this article, we will briefly discuss the differences and similarities in the civil liability rules applicable to EFPCs and companies, by comparing the provisions of LC 109 and the Brazilian Corporations Law.

LC 109, which should be read in conjunction with Resolution No. 4,661/2018, delimits the scope of civil liability of directors and officers of EFPCs in its article 63. The provision states that directors and officers^[1] shall be liable for any damages or losses they cause, whether by action or omission. In addition, articles 35 and 39 establish a duty to inform the regulatory bodies regarding the executive officer responsible for the application of the entity's resources and order that the other members of the executive board be jointly and severally liable with said officer for the damages and losses to which they contributed.

In the Brazilian Corporations Law, civil liability is delimited by article 158. It establishes that the director or officer must repair the damages that they cause when they act out of fault or willful misconduct and/or violate the law or the company's by-laws. Paragraph 1 of the article establishes the joint liability of the other directors or officers only in the case of collusion, negligence, or contribution to the act generating the damage, granting them the possibility of withdrawal of joint and several liability when they unequivocally express an opinions contrary to the decision or harmful act committed.

In addition, the establishment of joint and several liability, according to paragraph 2 of the article, is independent of the duties assigned to each of the directors or officers, all of which must contribute to the fulfillment of the duties imposed by the law.

This establishment of joint and several liability independently of the functions assigned in the bylaws is removed in the case of directors and officers of publicly-held companies, as set forth in paragraph 3 of the provision. The directors and officers will also be jointly and severally liable with their predecessors if they note the commission of illicit and/or harmful acts by the old management and fail to report this to the general meeting of the company.

The civil liability of managers of EFPCs and companies will always depend on proof of the wrongful act, the existence of intent or guilt, and proof of the causal link between such act and the loss actually suffered by the entity or company. This analysis must be done on a case-by-case basis, since it is necessary to conduct factual adjustment to each of the above-cited requirements.

In conducting this exercise in comparison, it is possible to observe that there are several similar elements in LC 109 and the Brazilian Corporations Law for the civil liability of directors and officers. The great difference lies in the establishment of joint and several liability among them: while in LC 109 it is imputed without exemplification of the elements that could remove it, in the Brazilian Corporations Law this possibility is clearly expounded, either in the case of a vote to the contrary or in the obligations to report to the competent organs when any unlawful act is noted.

Despite this difference, the same elements mitigating joint and several liability contained in the Brazilian Corporations Law apply mutatis mutandis to the directors and officers subject to LC 109. The core of the fiduciary duties of management (diligence, loyalty, good faith, and information, among others) is applicable to all members of the management in Brazil. Therefore, it is necessary to adopt the same criteria of good practices, compliance, and ethics in both EFPCs and companies.

The conceptual difference in civil liability within the context of EFPCs and the companies is that directors and officers of entities, because they manage funds from third parties in order to guarantee retirement rights, should be even more careful in conducting their activities. In turn, the directors and officers of companies, whose objective is profit, always act with the intention of obtaining pecuniary advantages for their shareholders, although also they must shroud themselves with various precautions. Of course, this directly influences the actions of these two types of managers, as well as the elements establishing their civil liability.

^[1] They are also civilly liable for the damages caused by proxyholders with management powers, members of statutory boards {boards set up in the bylaws}, officers {administrators, managers} of promoters or incorporators {sponsors or assignors}, actuaries, independent auditors, management assessors, and other professionals providing technical services to the entity.

Category: Litigation

On May 14, the Fourth Panel of the Superior Court of Justice (STJ) reaffirmed its understanding that the presence of the same parties is not necessary to give rise to lis pendens in collective actions in which a party with extraordinary standing appears due to procedural substitution.

The ruling was handed down in the judgment of Special Appeal No. 1.726.147/SP, which originated in the public civil action filed by the Brazilian Institute for the Defense of Citizenship (Prodec) against Banco Nossa Caixa S/A (currently Banco do Brasil), which sought the inflationary purges referring to the Bresser and Verão economic plans.

Prodec filed an appeal against the trial judgment that dismissed the case without prejudice, on the ground that it had no standing to litigate the case, "since the defense of the interests of certain groups of persons may only be conducted by consumer protection associations when this is in the interest of the community, as a whole." In summary, Prodec argued that public civil actions also lend themselves to defending individual and homogeneous rights, noting that "millions of people who were the defendant’s consumers have been harmed, and hundreds of registrations of beneficiaries will be carried out in due time in the execution of judgment phase."

In its response to the appeal, the financial institution pointed out the existence of two other similar suits pending, seeking relief for the same interests (the rights of consumers affected by the economic plans at that time), in violation of article 485, V, and article 337, paragraphs 1 and 2, of the Code of Civil Procedure.^[1] This allegation was not accepted. The São Paulo State Court of Appeals (TJ-SP) ruled out lis pendens based on its understanding that the suits were filed by different legal entities and that, therefore, there would be no risk of duplicate relief.

The leading case on the subject before the STJ was the ordinary appeal in writ of mandamus (RMS) No. 24.196/ES,^[2] the opinion of which was written by Minister Felix Fischer and decided by the Fifth Panel of the STJ on February 18, 2008. On that occasion, it was ruled that "the subjective aspect of lis pendens in collective actions must be seen from the perspective of the beneficiaries affected by the effects of the decision, and not by a simple examination of the parties that appear as plaintiffs in the claims." The understanding was reiterated by Minister Eliana Calmon, who drafted the opinion in REsp 1.168.391/SC and others judgments that succeeded it.^[3]

For the Ministers of the Fourth Panel, in collective actions related to procedural substitution by parties with extraordinary standing –  in that case, Prodec –, it is not necessary the presence of the same parties to give rise to lis pendens. In line with the STJ's understanding in other judgments, the judge must eminently observe the identity of the potential beneficiaries of the outcome of decisions.

Thus, the issue regarding establishing lis pendens, even when there is no identity of parties, has been settled by the STJ. The Court's consolidated understanding seems to us to be correct, since standing in collective actions must be analyzed from the viewpoint of the beneficiaries of the decision, rather than simply by examining the form of identification of the parties (which is typical of lis pendens in suits of a private nature). This is especially relevant in view of the nature of collective actions, namely the protection of diffuse and collective rights, of an indivisible nature, and homogeneous individual rights, in order to safeguard the interest of an entire community.

The decision by the STJ applies both to suits filed by civic associations and those brought by the Public Prosecutor's Office, entities and bodies of the Public Administration, and by the other entities with standing provided for in article 5 of Federal Law No. 7,347/1985 (the Public Civil Actions Law). This is a step forward that contributes greatly to promoting the discussion in the procedural sphere; to avoiding, in the name of procedural economy and speed, the uncoordinated filing of collective actions with a view to safeguarding the same legal interest and unnecessary movement of the judicial machinery, which is already so overloaded, in an inefficient and ineffective manner.

^[1] “Article 485. The judge shall not decide the merits when he: (...) V - recognizes the existence of estoppel, lis pendens, or res judicata;"
"Article 337. It is incumbent upon the defendant, before discussing the merits, to argue: (...) Paragraph 1. Lis pendens or res judicata is found when an action previously filed is reproduced. Paragraph 2. An action is identical to another when it has the same parties, the same cause of action, and the same prayer for relief.”

^[2] RMS 24.196/ES, Opinion drafted by Minister Felix Fischer, Fifth Panel, decided on December 13, 2007, published in the Gazette of the Judiciary on February 18, 2008, p. 46

^[3] REsp 1168391/SC, Opinion drafted by Justice Eliana Calmon, Second Panel, Decided on May 20, 20110, published in the Electronic Gazette of the Judiciary on May 31, 2010. In this same sense: REsp 427.140/RO, Opinion drafted by Justice José Delgado, Appellate opinion drafted by Justice Luiz Fux, First Panel, decided on May 20, 2003, published in the Gazette of the Judiciary on August 25, 2003, p. 263; REsp 1168391/SC, Opinion drafted by Justice Eliana Calmon, Second Panel, Decided on May 20, 20110, published in the Electronic Gazette of the Judiciary on May 31, 2010; REsp 925.278/RJ, Opinion drafted by Justice Arnaldo Esteves Lima, Fifth Panel, Decided on June 19, 2008, published in the Electronic Gazette of the Judiciary on September 8, 2008

Category: Litigation

The 3rd Panel of the Superior Court of Justice (STJ) affirmed, in a non-unanimous decision, that judicial reorganization plans approved by the majority of the creditors of a company undergoing judicial restructuring may suppress secured or unsecured guarantees, even without the express consent of the creditor who holds the guarantee.

The issue was raised in the judgment of Special Appeal no. 1,700,487/MT, which was reported by Justice Ricardo Vilas Bôas Cueva. The origin of the case was the judicial reorganization of Ariel Automóveis Várzea Grande Ltda. (Ariel)[1], in which the bank Banco Industrial e Comercial S.A., an unsecured creditor of the debtor, filed an appeal against the decision that ratified the judicial reorganization plan approved by the majority of Ariel’s creditors. The bank argued that the terms of the approved plan violated articles 49, paragraph 1,[2] 50, paragraph 1[3] and 59[4] of the Brazilian Bankruptcy Law (Law no. 11,101 of 2005, the “LRF”), by providing for the debtor’s release from all secured and fiduciary guarantees held against the debtor and third party co-obligors.

Prior to the pronouncement by the STJ, the Second Chamber of Private Law of the Court of Appeals of the State of Mato Grosso had found that "although the approval of the judicial reorganization plan entails a novation of the debts submitted to the plan, the existing secured or fiduciary guarantees are, as a rule, preserved"[5] and, consequently, declared the approved plan to be null and void.

On the one hand, the case involves the interpretation of articles 49, paragraph 1, 50, paragraph 1, 56, paragraph 3,[6] and 59 of the LRF, which, combined, expressly prohibit the suppression or replacement of any secured or fiduciary guarantee (unless, of course, there is an express agreement on the part of the creditor who holds the guarantee). On the other hand, there are those who argue that, in light of the provisions of article 49, paragraph 2[7] of the LRF and based on the majority principle and the principle of par condicio creditorum (which requires equal treatment of creditors of the same class), it would be possible for such guarantees to be released by the judicial reorganization plan, provided that the plan is approved by the majority of the debtor’s creditors during the general creditors’ meeting.

In other words, the STJ debated whether the will of the majority of the debtor’s creditors may override the legal requirement for release of a guarantee – i.e. express consent from the creditor who holds the guarantee.

The leading case on the subject was Special Appeal no. 1.532.943/MT,[8] which was decided by the 3rd Panel of the STJ on September 13, 2016. In that case, the majority of the 3rd Panel followed the Rapporteur’s (Justice Marco Aurélio Belizze) vote and found that the judicial reorganization plan that provides for the suppression or replacement of guarantees binds all creditors (including those absent and even those who voted against approval of the plan), provided that it is duly approved by the majority of the creditors present at the general creditors’ meeting.

In his opinion,[9] the Rapporteur acknowledged the protection granted to guarantees by the Bankruptcy Law, but affirmed that the LRF (especially in its article 49, paragraph 2) allows the judicial reorganization plan to alter the guarantees held by the debtor’s creditors.

It was found that, “even if a given creditor has chosen not to attend the meeting, or, though present, abstained from voting or voted against the approval of the plan (totally or partially), they are still bound by its terms." In other words, the majority of the 3rd Panel of the STJ found that the suppression of secured or fiduciary guarantees held by the debtors’ creditors binds the guarantee holders, as long as it was approved by the majority of the debtor’s creditors.

For the Justices in the 3rd Panel, there is no violation of the provisions of article 50, paragraph 1, of the LRF, because the guarantee holders can be considered to have consented to the suppression and/or replacement of their guarantees since such creditors are duly represented by their respective class during the general creditor meeting. Thus, for the Court, the will of the majority of each of the classes of creditors may be interpreted as an expression of the will of all of the creditors within each class – even those who are absent in the general creditor meeting or who vote against the approval of the plan.

The discussion was brought to the 2nd Section of the STJ after a motion for clarification was filed against the 3rd Panel’s decision, on the grounds that the decision handed down was contradictory with the existing case law of the STJ on the issue[10]. However, the 2nd Section found that the earlier precedents did not discuss the same legal issue and, therefore, the award rendered in Special Appeal no. 1.532.943/MT was upheld.

In the recent case of Special Appeal no. 1.700.487/MT, the 3rd Panel re-examined the possibility of suppression of guarantees by the judicial reorganization plan approved in the creditors’ meeting and the majority of the Justices followed the opinion issued by Justice Marco Aurélio Belizze, who reaffirmed that the plan duly approved the majority of creditors binds all creditors equally, given the risk that the selective application of the plan to some creditors but not to others could render its observance unfeasible and impede the debtor’s restructuring.

On the other hand, the Rapporteur of the appeal, accompanied by Justice Nancy Andrighi, contended that the novation that occurs as a result of the approval of the plan should only extend to the creditors who voted for its approval, without any reservation.

The issue, therefore, is not settled before the STJ and there is still dissent among the Justices of the 2nd Section regarding the possibility of extending the provisions of the plan that alter even secured and fiduciary guarantees held by creditors who did not participate in the general creditors meeting or who voted against approval of the plan.

The Court’s interpretation in favor of the preservation of the company vis-à-vis the preservation of creditors’ guarantees has been widely criticized not only because it contradicts express provisions of the LRF, but also because it voids the protection offered by secured and fiduciary guarantees whenever the debtor becomes insolvent and shields itself using judicial reorganization proceedings. As Justice Ricardo Villas Bôas Cueva noted in this case, "this scenario of uncertainty regarding the possibility of recovering debts that results from the weakening of guarantees is disastrous for Brazil's economy."

[1] Lawsuit no. 1512-10.2015.811.0002, in progress before the 4th Civil Court of the Municipality of Várzea Grande in the State of Mato Grosso.

[2] Article 49. All debts that exist on the date of the application, even if not yet overdue, are subject to the judicial reorganization.

Paragraph 1. The creditors of the debtor in judicial reorganization retain their rights and privileges against co-obligors and guarantors.

[3] Article 50. The following, among others, are means of judicial reorganization, subject to the legislation applicable in each case:

[...]

Paragraph 1. In the sale of property that is subject to a secured guarantee, suppression of the guarantee or its replacement will only be accepted with the express approval of the creditor holding the respective guarantee.

[4] Article 59. The judicial reorganization plan implies a novation of the credits that existed prior to the application for judicial reorganization and binds the debtor and all creditors subject to it, without prejudice to the guarantees and observing the provisions of paragraph 1 of article 50 of this Law.

[5] Appeal no. 0018190-72.2016.8.11.0000, before the Second Chamber of Private Law of the Court of Appeals of the State of Mato Grosso. Rapporteur: Appellate Judge Sebastião de Moraes Filho, judged on October 5, 2016.

[6] Article 56. If any creditor objects to the judicial reorganization plan, the judge shall convene a general meeting of creditors to deliberate on the reorganization plan.

[...]

Paragraph 3. The term of the judicial reorganization plan may be altered during the general creditors’ meeting, provided that there is express agreement by the debtor and that rights of absent creditors are not harmed.

[7] Article 49. All debts that exist on the date of the application, even if not yet overdue, are subject to the judicial reorganization.

[...]

Paragraph 2. Obligations constituted prior to the judicial reorganization shall observe the conditions originally contracted by the parties or defined by law, including with respect to charges, unless otherwise provided in the judicial reorganization plan.

[8] The appeal also originated from a judicial reorganization before the 4th Civil Court of the Municipality of Várzea Grande in the State of Mato Grosso  - the judicial reorganization of Dibox Distribuição de Produtos Alimentícios Broker Ltda., Andorra Logística e Transportes Ltda., and Exectis Administração e Participações S/A (Case No. 0012909-37.2017.8.11.0002).

[9] It should be noted that, in his dissenting opinion, Justice João Otávio de Noronha concluded that, under the LRF, it is not possible to admit the suppression of all secured and fiduciary guarantees by the judicial reorganization plan, without the guarantee holder’s express consent.

[10] In this sense, see (i) Special Appeal no. 1.326.888/RS. Rapporteur: Justice Luis Felipe Salomão, 4th Panel of the STJ. Judged on April 8, 2014 and published in the Official Gazette on May 5, 2014; and (ii) repetitive Special Appeal no. 1.333.349/SP. Rapporteur: Justice Luis Felipe Salomão, 2nd Section of the STJ. Published in the Official Gazette on February 2, 2015.

Category: Litigation

The text of The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (Hague Service Convention) was promulgated on March 21 through Decree no. 9,734/2019. Signed in The Hague on November 15, 1965, the Hague Service Convention was originally signed by six states and is now in force in 73 countries. With the enactment of Decree no. 9,734/2019, the Convention will come into effect in Brazil on June 1, 2019.

The Convention was overseen by the Hague Conference on Private International Law, one of the oldest organizations in the area of private international law, which was convened for the first time in 1893 and consolidated as a permanent intergovernmental organization in 1955. Today, the Conference has more than 75 signatory states,^[1] including Brazil, and is responsible for the harmonization of different legal systems, which it does by encouraging the administering international conventions and soft law instruments and encouraging their incorporation by its members.

The primary objective of the Hague Service Convention is to ensure speed and efficiency in the circulation of judicial and extrajudicial documents (in civil and commercial matters), with the desire to simplify the process of serving documents abroad to parties who reside in its signatory States.

Although Brazil already has already incorporated some international conventions on the matter of serving parties abroad – such as the Inter-American Convention on Letters Rogatory, inter alia – the fact is that the enactment of the Convention considerably expands the network of countries with which Brazil now has simplified mutual judicial assistance. With the entry into effect of the Convention, on June 1, 2019, the provisions of the text will become part of the framework of existing international agreements in Brazil. With regard to those States that do not have cooperation agreements with Brazil on the matter, the process of serving judicial and extrajudicial documents shall continue to occur through diplomatic channels, in accordance with Interministerial Ordinance MRE/MJ no. 501/2012.

WHAT CHANGES WITH THE ENACTMENT OF THE HAGUE SERVICE CONVENTION?

As of June 1, 2019, the process of transmitting judicial and extrajudicial documents between signatory States of the Convention will be done through a Request, Certificate and Summary Form, an instrument created to replace letters rogatory under the Convention.

The process of analyzing of the request for service should be simplified by the Convention, which now exempts the sender from any requirement of legalization of the relevant documents or other equivalent formality (article 3 of the convention) and provides that each signatory State should designate a so-called Central Authority (article 2 of the convention), which is nothing more than the governmental body that will centralize the country’s international legal cooperation efforts. In the case of Brazil, the Central Authority will be the Ministry of Justice and Public Security. Communication between the Central Authorities of the signatory States will eliminate the need involving the Ministry of Foreign Affairs in the process of reviewing requests for cooperation (a requirement of cooperation through diplomatic channels), thus making processing and enforcement of the requests faster.

Brazil has made reservations to the original text of the convention, which is why its application in Brazil will be subject to some peculiarities. In the first place, the process of summoning and notifying residents of the signatory States may not be carried out via post mail, diplomatic or consular agents, or even by judicial authorities and other competent authorities in that State. Secondly, the documents to be served must be translated into Portuguese and the Request, Certificate, and Summary Form must be signed by the competent judge or Central Authority of the requesting State.

ADVANCES DEMAND REGULATION

The Convention is an important step in the evolution of international procedural law and in the promotion of transnational trade relations, as it provides tools to simplify and expedite judicial and extrajudicial proceedings involving parties from different countries. Its impact and effectiveness will depend, however, on how the Brazilian government regulates the internal procedures within the Ministry of Justice and Public Security related to the summons and notification process (i.e. how the Convention will be implemented and enforced by the Central Authority).

^[1] See the full list of signatory States at: https://www.hcch.net/en/instruments/conventions/status-table/?cid=17

Category: Tax

The natural gas market is gaining more and more relevance in Brazil as a way to diversify the country's energy sources. To foster the development of the sector, changes in legislation and regulations have been discussed, especially since 2016, when the Ministry of Mines and Energy launched the Gas to Grow (Gás para Crescer) initiative, with the participation of the entire natural gas market and some government bodies.

The development of the market, however, depends on the success of public calls for the purchase and sale of natural gas, which will allow the integration of new agents and the diversification of a highly monopolized sector. Tax obstacles, mainly related to the ICMS tax, and other challenges, however, make difficult the advance of public calls and the development of the sector.

The ICMS is a tax whose competence is assigned to the states and the Federal District, and complementary law defines the structural aspects of the tax. An analysis of state legislation with respect to natural gas points to complexity, unevenness, and uncertainty as characteristic elements.

Among the points of unevenness that represent tax challenges, the following stand out: the diversity of rates applicable to natural gas; the difference of tax burden due to special tax regimes; and the difference in the treatment of non-cumulative credits.

As for the diversity of ICMS rates, there is a large disparity between the states in relation to intrastate transactions involving natural gas, which vary from 12% up to 25%. This is because some states have internalized ICMS Agreement No. 18/1996, which provides for reduction of the ICMS tax basis so that the effective tax burden results in 12%. However, some states did not adhere to the agreement, applying the general internal rate (ranging from 17% to 18%) for natural gas transactions. There is also the state of Amazonas, which adopts a 25% rate for natural gas transactions.

In addition, it should be noted that some states establish additional rates for internal transactions, which usually correspond to 1% or 2% of the ICMS tax basis.

Many states also have unclear legislation regarding the application of tax benefits to imports of natural gas or liquefied natural gas, creating legal uncertainty for importers.

An additional point of dissimilarity concerns the existence of different special regimes for the taxation of natural gas. Some states have introduced tax benefits or differentiated regimes in the supply of natural gas to thermoelectric plants (PPTs) in relation to certain industries or import operations, in order to neutralize points of redundant taxation. This is the case, for example, of the granting of internal outputs of natural gas for electricity generation, which favors the development of PPTs in some states where it is applied, while others have no plans to solve the problem.

Also in relation to tax benefits, some states instituted obligatory payment of a percentage over the economic advantage obtained with the tax benefit to the State Tax Equilibrium Fund (FEEF), accentuating the discrepancy in treatment.

Another relevant aspect is the divergence in the treatment of non-cumulative ICMS credits. There is a lack of clarity and uniformity in the legislation that defines the treatment of credits in transactions benefiting, for example, from the reduction in the calculation basis or other special regimes. There are states that allow the maintenance of credits recorded, while others require the reversal of these credits, burdening the natural gas value chain and making it less competitive compared to other energy grids.

Finally, the assignment of responsibility for tax substitution in state legislation is an ingredient that reinforces the complexity of the system. The asymmetry between the various state laws obviously creates complexity, increases compliance costs and distortions in the chain, and often aggravates the cost itself of operations. Standardization and rationality are essential for proper development of the market.

The viability of many transactions is also dependent on regulations regarding compliance with ancillary obligations, especially those related to transport through gas pipelines. They are simple measures that should not change tax collection. Their implementation gains complexity because of our tax system, but they are essential for us to take this step forward.

Category: Tax

Normative Instruction No. 1,888/2019 (IN 1,888), which establishes and disciplines the provision of information related to cryptoasset transactions, shows the concern of the Brazilian Federal Revenue Service (RFB) with providing transparency in transactions with virtual currencies. Although it represents an increase in compliance costs for companies operating in this market, the measure may give more credibility to the industry and help attract new players.

RFB's effort to publish a specific regulation on this matter confirms what the market and industry experts already knew: the volume of cryptoasset transactions has taken off in recent years and still has strong growth potential. In fact, the explanatory memorandum accompanying RFB’s Public Consultation No. 6/2018 on the subject already showed an estimated movement of R$ 18 to 45 billion in bitcoin transactions only in 2018.

Although bitcoin is the best known of the "virtual currencies," it is already possible to identify in an avalanche of new “altcoins” and other types of cryptoassets in the market. Aware of this new trend, the RFB was concerned with giving cryptoassets a comprehensive definition, rather than just using the term "virtual currencies," and deeming them as equivalent to financial assets, as it had been doing in the most recent editions of the Individuals Income Tax Questions and Answers.

According to IN 1,888, a cryptoasset is " the digital representation of value denominated in its own unit of account, the price of which may be expressed in local or foreign sovereign currency, transacted electronically using encryption and distributed recording technologies, which may be used as a form of investment, an instrument for the transfer of funds or access to services, and which does not constitute legal tender."

The broad definition adopted by the RFB suggests that tax authorities will seek to impose the obligations brought in by IN 1,888 on all kinds of transactions or investments involving encryption, including the so-called security and utility tokens, and not just crypto-coins. For this reason, we also believe that one cannot rule out the possibility that, in the future, the RFB will require transactions with fictitious virtual game currencies, or even credits used in certain applications, be reported on the basis of the new rule.

“The broad definition adopted by the RFB suggests that tax authorities will seek to impose the obligations brought in by IN 1,888 on all kinds of transactions or investments involving encryption, including so-called security and utility tokens, and not just crypto-coins.”

Following the effort to broaden the scope of persons required to provide information, the RFB also defined the concept of a cryptoasset exchange. According to IN 1,888, a cryptoasset exchange is “a legal entity, even if non-financial, that offers services relating to transactions performed with cryptoassets, including brokering, trading, or custody, and which may accept any means of payment, including other cryptoassets."

The RFB further clarifies that the concept of brokerage of cryptoasset transactions includes "the provision of environments for the execution of cryptoasset purchase and sale transactions carried out among the users of its services."

As explained below, the classification of a legal entity as a cryptoasset exchange is important because IN 1,888 imposes rigid obligations to these entities, including the control of their clients and the transactions they execute. On the other hand, the above definition refers only to legal entities that provide services related to transactions performed with cryptoassets, and does not cover entities that only accept or use cryptoassets as a payment method. Thus, companies that merely exchange their products or services for bitcoins, for example, should not be subject to the obligations imposed on exchanges.

In the same sense, IN 1,888 also does not refer expressly to companies that provide platforms for users to exchange products or services for cryptoassets, without the cryptoassets themselves being bought and sold for cash. Thus, in principle, marketplaces hosting vendors that accept cryptoassets as a form of payment would not qualify as exchanges.

After establishing the definitions above, the RFB required individuals or legal entities that carry out transactions involving cryptoassets to provide, on their own account or through a proxy, the information required by IN 1,888 in relation to transactions exceeding the monthly volume of R$ 30 thousand. These transactions include the purchase and sale, barter, donation, and even the "withdrawal" or "deposit" of cryptoassets in an exchange. These individuals and legal entities must report, among other information, the date, type, value, and persons involved in the transaction, the cryptoassets used, and the address of the sender's and the recipient's wallet.

These users, however, are only required to provide the above information in the event of transactions without the involvement of an exchange or of transactions involving a foreign cryptoasset exchange. In the case of cryptoasset transactions in a Brazilian exchange, the obligation to provide the information on the transactions is transferred to the exchange, and not the individual users or legal entities mentioned above.

In turn, exchanges domiciled in Brazil are obliged to provide the same information on the transactions carried out by their users. In both cases (delivery by users or by the exchanges), the frequency is monthly.

In addition, by the end of January of each year, exchanges must report the balances of fiduciary currency and cryptoassets held by their users as of December 31 of the preceding year, as well as the acquisition cost of each of these cryptoassets, if disclosed by the user. These rules seem to aim at controlling the capital gains earned by users in transactions with cryptoassets, which, according to the position adopted by the RFB, are subject to the imposition of income tax.

The entities covered by the RFB's definition of a cryptoasset exchange will need to maintain computerized management systems in order to be able to generate all the information required by IN 1,888 in a timely manner to meet the deadlines established. Likewise, these exchanges must be prepared to guide their users in relation to the new procedures required by the RFB.

Delay, omission, inaccuracy, or incorrectness in the delivery of the information requested by the RFB subjects the declarant to fines ranging from R$ 100.00 to 3% of the value of the transactions to which they refer, depending on the qualification of the declarant and the type of infraction.

From a reading of IN 1,888, it is possible to predict that the RFB will require the reporting of any and all relevant transactions involving digital assets. In fact, IN 1,888 is part of an effort by the RFB already felt in other sectors, such as the management of investment funds, which aim at increasing the transparency and reliability of transactions that, in the view of tax authorities, have a high potential to facilitate or cover illicit conduct. This effort is aligned with an international tendency to demand greater transparency of financial institutions and similar organizations regarding the transactions carried out by their clients.

Thus, despite increasing compliance costs, IN 1,888 may ensure the credibility of cryptoasset operators who meet its requirements. From this point of view, the RFB's new measure has the potential to attract sectors that have hitherto been resistant to the use of cryptoassets, as may be the case with institutional investors and financial institutions.