Category: Labor and employment

Brazil has one of the most complex regulatory environments in the world for those who want to start up a business venture, according to the publication Doing Business 2019,¹ of the World Bank Group.

Among the 190 economies surveyed in 2018, Brazil is at 109^th position in the overall in the ease of doing business ranking. Among the BRICs, Russia is in the 31^st position, China in the 46^th, and India in the 77^th. In the specific ranking for ease of starting a business, Brazil occupies the 140^th position, behind Russia (32^nd), China (28^th), and India (137^th).

Much of the complexity of this regulatory environment is directly related to labor law: as if the ever-changing tangle of laws, decrees, ordinances, and norms were not enough, companies also have to be always vigilant regarding new rulings, jurisprudential guidelines, and judicial precedents which, at one time or another, have a direct impact on legal certainty, thus generating unexpected labor uncertainties and liabilities.

The long-awaited and necessary Labor Reform itself has already been amended by two presidential decrees, the first of which was published less than two days after its entry into force in order to address controversial points, and the second, at the beginning of March of this year, in order to change the rules related to the collection of trade union contributions.

Despite this challenging business environment, in Brazil, certain cities, especially São Paulo, Santa Catarina, Minas Gerais, Paraná, and Rio de Janeiro,² have been transforming themselves into important poles for development of startups, some of which have already achieved market value exceeding US$ 1 billion, such as the companies 99, PagSeguro, NuBank, and Stone.

According to Censo StartSe 2017: Brazil Startup Ecosystem Report,³ 70% of the startups analyzed were founded between 2016 and 2017 and, although young, only 5.4% are in the initial stage, 38% are in the validation stage, 36% are in the business stage, and 20.6% are already in the scaling stage, beginning their period of accelerated growth.

In this context and seeking to contribute and collaborate to the growth of innovative businesses that transform realities, Machado Meyer Advogados launches the series Startups: Labor Law and the Labor Reform.

The series will be composed of weekly articles focused on the labor regulatory environment and aims to explore in a simple and practical manner the main areas of this complex of laws and precedents that impact on the daily life of startups throughout their developmental stages.

In fact, in its early stages, when a startup is a promising idea or an innovative project, contact with Labor Law is still very incipient. The Consolidated Labor Laws, known as the CLT, and the main players present in the day-to-day business of traditional companies, such as trade unions, the Labor Courts, the Labor Prosecutor's Office, and the now-defunct Ministry of Labor (now part of the Ministry of the Economy), seem to be distant points on the horizon.

However, as a startup develops and grows through the raising of external funds via investment rounds, issues related to Labor Law become more and more present and, if not addressed correctly, may turn into labor liabilities capable of directly affecting the raising of capital contributions from investors.

After all, even though startups as a rule are based on an innovative and disruptive business model, their legal structure is embedded in a regulatory environment common to any other company and, as such, is subject to the regulatory, administrative, and judicial complex to which the other traditional companies are exposed.

In view of this, our series proposes to hold a dialogue on legal solutions and opportunities for problems commonly faced by startups, through topics such as trade union classification, forms and structures for hiring employees and executives, work hours and alternatives, compensation and incentives linked to stock (stock options, phantom stock, and stock grants), intellectual property, confidentiality, non-solicit, and non-compete obligations, termination of employment, and liability of partners and investors.

The first article, which will address issues related to trade union classification, will be published on this portal on March 25.

If you want some specific topic to be covered throughout the series, please send your suggestion by clicking here.

Category: Corporate

Law No. 13,792/19, published in the Official Federal Gazette on January 4, provides more flexibility to limited liability companies by reducing the capital stock necessary for dismissal of managing partners named in the articles of association from a two-thirds majority to a simple majority, without preventing the partners from agreeing, if they so wish, to any greater minimum. This amendment, made in article 1,063, first paragraph, of the Civil Code, will allow majority partners to remove minority partners from the position of manager more quickly, thus avoiding extended disputes that could affect a company’s operation.

In addition, the amendment of article 1,085, sole paragraph, provides that only companies with more than two partners must convene a general meeting or special meeting to exclude a minority partner (when provided for in the articles of association) in order to guarantee the right of defense to the partner excluded.

In limited liability companies with only two partners, therefore, the process becomes more flexible and less bureaucratic, as they are exempted from convening a meeting to exclude a member, thus assuming that such a meeting would be of no effect. If, on the one hand, the legislative amendment aims at preserving the proper functioning of the company, from the point of view of minority partners the measure represents a source of legal uncertainty, since they will have to resort directly to the Judiciary, and no longer to a meeting of quotaholders, to challenge any violations of their rights.

An amendment to the minimum vote for removal of a partner appointed as manager in the articles of association should not cause further discussion, but exempting a general meeting for the purpose of excluding a partner in a limited liability company that has only two partners may become controversial if it constitutes a form of reducing rights of minority partners. It remains to be seen how these matters will be understood by the boards of trade and how new case law will be formed regarding the exclusion of partners in companies with two partners.

Category: Tax

At the end of 2017, Justice Regina Helena Costa, of the First Panel of the Superior Court of Justice (STJ), admitted an appeal against a divergent decision filed by a taxpayer (EAREsp No. 1.078.194/RJ) against an appellate decision that established the understanding that the ICMS-ST is not a tax different from the ICMS-normal, but merely a form of collection, while maintaining the application of article 13, paragraph 1, I, of Complementary Law No. 87/96, which would legitimize the inclusion of the ICMS-ST in its own base.

The decision seems entirely correct, as the current case law of the STJ has precedents allowing the use of article 8 of LC 87/96, including to ascertain the ICMS/ST taxable base, in addition to other judgments that differentiate normative treatments recognizing that article 8 deals with the taxable base of the ICMS/ST, while article 13 deals with the taxable base for the ICMS-normal, which was well identified and pointed out by the Justice in her decision.

The subject is quite contested and controverted. It is worth remembering that, shortly after the decision handed down by the Second Panel of the STJ in Special Appeal No. 1.454.184/MG, in which it was decided that the ICMS-ST is included in its own taxable base, following the “inside taxable” base of the ICMS itself, the states of the Federation decided to promulgate ICMS Convention No. 52/2017, which, among other unconstitutionalities and illegalities, defined, in its article 13, that the ICMS-ST is included in its own taxable base.

In view of the controversy created with the publication of ICMS Convention 52/2017, the issue also reached the Federal Supreme Court (STF), through ADIN No. 5.866, which even seems to have influenced the repeal of that rule by ICMS Convention 142/2018 at the end of last year.

There is an important distinction to be made regarding the issues to be faced by the Higher Courts, since while in the Federal Supreme Court the debate should revolve around formal aspects for the institution of the ICMS-ST, in the STJ it should stick to the taxable base provided for in national complementary legislation.

Considering the materiality of the debate, the review of this case by the First Section of the STJ may, finally, put an end to the matter, by defining whether the tax authority may make use of the provision (article 13 of LC 87/96) that regulates the taxable base of the ICMS-normal for the calculation of the ICMS-ST or whether it should be governed by article 8 of LC 87/1996.

Surprisingly, contrary to her own well-founded decision of 2017, Justice Regina Helena Costa issued a new decision in early 2019; now, however, to not hear the appeal against a divergent decision, which may lead to the filing of an interlocutory appeal by the taxpayer.

Assuming that the last decision will be reviewed by the Justice, which is expected in view of the relevance of the issue, and the case is again submitted for analysis by the First Section of the STJ, the ruling to be delivered by the Justice of the STJ that make up this body will have a direct impact on all legal relationships and on the ongoing claims in which the inclusion of the ICMS-ST in its own taxable base is debated.

The correct and timely assignment of such a relevant topic to the First Section of the Superior Court of Justice will, in fact, prioritize the legal certainty demanded by litigants, in addition to justifying the greater purpose of that Superior Court, which is to standardize the application of ordinary legislation.

Category: Tax

The State of Rio de Janeiro Finance Department (Sefaz-RJ) enacted the Resolution Sefaz No. 24, on March 27, 2019, allowing taxpayers to request or to rectify the Digital Tax Bookkeeping, the so-called EFD, without the previous payment of the Charge for State Services.

Previously, taxpayers who wished to rectify the EFD already submitted or who were notified by the tax authorities to rectify it had to pay the given charge in advance.

With the new regulation, in place since April 1st, the payment of the charge will no longer be a condition for the rectification of the EFD. Taxpayers should only access Sefaz-RJ website to make the request and, as soon as authorized by the tax authorities, submit the rectification of the EFD within a 60 day-term.

Category: Labor and employment

Union classification is the means by the which a company defines which union will represent its employees. Currently, only one union represents the employees of one company^[1]/professional category (what we call union unity), but this may change.

And why is it important to know which union represents the employees of a startup?

Because the rights of the employees of startups, as well as any traditional company, are provided for in the Brazilian Federal Constitution, the Brazilian Labor Law (Consolidação das Leis do Trabalho – CLT), and collective bargaining agreements (also known in Portuguese as dissídio).^[2] It is very common for collective bargaining agreements to guarantee additional rights and benefits, such as health insurance, dental care, food assistance, and meal vouchers.

Incorrect union classification may have a number of negative consequences, in particular the risk of payment of salary and benefits differences for all employees regarding the last five years.

The definition of the union classification is a responsibility of the company and, by law, it must consider: (i) the main economic activity of the company; and (ii) the location of its establishments.

The problem is that the law does not provide an absolutely objective rule to define what the “main economic activity” is. Many companies end up conducting their union classification only on the basis of their CNAE.^[3] This is a very common mistake and an important point of attention for startups.

The fact that many startups in Brazil have software as a service (SaaS)^[4] as their main activity is not enough to classify these startups into unions of this economic activity, such as data processing.

In other words, even if startups often use technology tools for their businesses, they do not necessarily perform services related to technology or data processing as a main economic activity.

Another interesting example is fintechs: it is not correct to assume that only because it is a fintech that its employees will be represented by the Union of Finance or Banking Professionals. Depending on the actual business, they may have their trade union classification set as data processing, financial, banks or, even advising and consulting (which ends up happening in most cases).

Union classification should be done taking into account its main source of billing/revenues and also the number of employees involved in each activity.

The correct union classification is extremely important when planning the operations of a startup because it may directly influence the cost structure and feasibility of the project, as well as avoid potential labor liabilities arising from non-compliance with the applicable collective bargaining agreement. Therefore, the advice of a specialized attorney is fundamental at that time.

But not only that: a correct union classification guarantees a startup the possibility of negotiating conditions relevant to its structure and the peculiarities of its daily life through collective bargaining agreements with the employees' union.

Among the issues that may be negotiated directly with the employees' union, we especially highlight alternative forms of control of work hours, which guarantee greater flexibility for employees and startups, and profit-sharing programs, which may generate substantial savings related to the payment of variable compensation.

We will cover all of these topics in the next articles in this series. Stay tuned!

Click here to see the other articles in this series

^[1] Except for regulated professions.

^[2]The term dispute is often used as a synonym for collective agreements, even though such use is not technically correct.

^[3] It is the National Economic Activity Register indicated on the company's CNPJ card.

^[4] According to data from the Brazilian Association of Startups.

Category: Tax

 I. Introduction

In a recent decision handed down in Special Appeal No. 1.733.560/SC, the Second Panel of the Superior Court of Justice (STJ) recognized the non-applicability of the Corporate Income Tax (IRPJ), Social Contribution on Net Income (CSLL), PIS and COFINS on real estate swap arrangements carried out by companies opting for the presumed profit taxation regime.

In analyzing the Special Appeal of the National Treasury, the decision by the STJ established that swap arrangements involving real estate units do not represent an increase in revenue, income, or profit, but rather a substitution of assets.

The decision is important because it contradicts the understanding adopted by the Federal Revenue Service of Brazil (RFB) to compel real estate companies to withhold amounts required for IRPJ, CSLL, PIS, and COFINS in these transactions.

II. Analysis of swap arrangements in Civil Law

The National Treasury maintains that "real estate swaps produce the same effects as the purchase and sale, including as regards the entry of income for legal entities engaged in real estate activities and which calculate income tax based on presumed profit regime."

In general, swaps may be defined as contracts that involve the exchange of assets (assets and rights) that may be appraised in cash. It is not necessary that the assets exchanged have the same value.

Although it does not contain a definition of a swap contract, the Civil Code recognizes the transaction as a legitimate legal deal, to which the general rules of purchase and sale transactions apply.^[1] Even so, this institute has specific characteristics, such as, in general, the inexistence of payment in cash, as opposed to a purchase and sale. In this sense, Orlando Gomes^[2] clearly describes this relevant distinction between the institutes: "In swaps, one of the parties promises one thing in exchange for another. In purchases and sales, the consideration must necessarily consist of cash. In the swap, there is no price, as in purchases and sales, but it is irrelevant that the things exchanged have unequal values."

In fact, a swap involves an exchange of goods and rights, and the payment of any difference in the value of the assets with money (called torna [“returns”]) is an occasional element of this legal deal.

Thus, Orlando Gomes clarifies that the analogy between a purchase and sale and a swap (exchange) does not mean identity, and it is not possible to fully subject the swap to the legal regime for purchases and sales.

Based on this rationale, it is possible to say that swap arrangements should be considered to be exchanges of assets between the parties, with a nature different from that of purchases and sales.

III. Comments on the tax treatment of real estate swap arrangements

In relation to legal entities adopting the real profit regime, the tax treatment of real estate swap arrangement was ruled by SRF Normative Instruction No. 107/88 (IN 107/88). For the purposes of income tax calculated according to the real profit regime, this instruction ruled swap arrangements carried out between legal entities or between legal entities and individuals.

Pursuant to item 1.1 of IN 107/88, a swap is considered to be any and all transactions aimed at the exchange of one or more real estate units with another or other units, even if one of the parties to the contract makes payment of a supplementary installment in cash (torna [”returns”]).

The tax treatment for swaps provided for by IN 107/88 will depend on the existence or lack thereof of the payment of returns, as set out below:

As provided by Items 2.1.1. and 3.2.1 of IN 107/88, under a swap arrangement with no additional payment in return the parties shall have no result to determine, considering that each party will attribute to the asset received the same accounting value recorded for the asset disposed.. In this scenario, the exchanger that promises to deliver a real estate unit to be built should consider the cost of producing it as being part of the cost of the unit purchased.

In the event of a swap with payment of a return (items 2.1.2 and 3.2.2 of IN 107/88), the party that receives the additional payment shall consider this corresponding amount as income of the assessment period of the transaction, and may deduct from that revenue the portion of the cost of the unit given in a swap that corresponds to the return received or receivable. In turn, the party who pays the return should consider it in the cost of the real estate unit delivered.

It follows from the foregoing that the purpose of taxation in swap transactions is the return, that is, the cash value delivered to one of the swapping parties. This is because, specifically in the case of swapped goods, the acquisition costs are maintained, and therefore, there is no increase in value.

Although not expressly justified, it can be said, based on the concept of a swap mentioned above, that the legal basis for such tax regime is the fact that the mere exchange of assets does not result in the acquisition of economic or legal availability of income, as provided for in section 43 of the National Tax Code (CTN), which is a taxable event for the IRPJ and, indirectly, also for the CSLL. Thus, the availability of income or taxable profit would not be the result of a swap arrangement.

Considering the concepts outlined regarding the nature of swaps and the provisions of IN 107/88, it is clear that swaps (without receiving returns) carried out by companies that calculate the IRPJ and CSLL based on actual profit are not subject to taxation.

At the time of the issuance of IN 107/88, however, although the presumed profit regime already existed, companies that conducted real estate activity were obliged to calculate the IRPJ and CSLL based on real profit regime. Only after the enactment of Law No. 9,718/98, legal entities that carry out the activities of purchase and sale, subdivision, development, and construction of real estate were able to opt for the presumed profit regime.

Nevertheless, the RFB has consolidated its understanding that such transactions involving companies that adopt the presumed profit regime are subject to IRPJ, CSLL, PIS and COFINS taxation, since the arrangement results in the recognition of taxable gross income, regardless of the receipt of a return.

In this context, the RFB issued Answer to Advance Tax Ruling Request^[3] No. 207, published on July 11, 2014 (SC Cosit 207/2014), ruling that both the value of the unit received and payments in cash of any additional amount should be considered as gross revenue for CIT purposes (i.e., on which the percentages of that regime shall be applied) in real estate swap arrangement performed by real estate companies opting for the presumed profit regime.

Confirming its previous binding position, the RFB issued Cosit Normative Opinion No. 09/2014 (Cosit PN 09/2014) to the effect that both the value of the unit received in a real estate swap arrangement and the additional payment in cash, if applicable, should be considered gross income of real estate companies opting for the presumed profit regime. In general terms, the conclusions of PN 09/2014 are based on the following arguments of the RFB: 

1. The provisions of IN 107/88 are applicable exclusively to companies assessing CIT under the real profit regime, such that item 2.1.1 ("in the event of a real estate swap without any additional payment in return, the parties shall have no result to determine, considering that each person will attribute to the asset received the same accounting value recorded for the asset disposed”)") should not be extended to real estate swap arrangements involving companies taxed based on the presumed profit regime; 

2. Pursuant to section 533 of the Civil Code, the provisions relating to purchases and sales shall be applicable to swap arrangements, which indicates that these transactions are legally similar. Therefore, since the purchase and sale is subject to taxation, real estate swap arrangements should have an equivalent tax treatment; and 

3. In real estate swap arrangements involving companies adopting the presumed profit regime, the cost of the unit received in exchange will not affect the taxable result, so that the total revenue should be considered as taxable.

 In addition, the RFB recently published Answer to Advance Tax Ruling RequestNo. 339, on December 28, 2018 (SC Cosit 339/2018), analyzing real estate swap arrangements without additional payments in return, executed by real estate companies taxed based on the presumed profit regime. Following the position of PN 09/2014, SC Cosit 339/2018 maintains that the value of the property received in a swap is included in gross revenue and must be taxed in the period of calculation of the receipt.

IV. Administrative Precedents on the subject

The levying of federal taxes^[4] on swap arrangements for real estate units carried out by companies opting for the presumed profit regime has also been the subject of analysis in administrative precedents.

The Administrative Tax Court (Conselho Administrativo de Recursos Fiscais - Carf),^[5] in line with the current position of the tax authorities, explained above, has been adopting an understanding unfavorable for taxpayers, since its position is that the value of the unit received in a real estate swap arrangement will be considered gross revenue for real estate companies opting for the presumed profit regime, since tax neutrality, as provided in IN 107/88, does not apply to companies adopting such a regime.

In a decision issued in February of 2018,^[6] the Carf was of the position that, for companies that adopt the presumed profit regime, the value of the goods sold in the form of a swap should be treated as income and subjected to taxation. If the transaction involves a return, such amount is added to the revenue and should also be taxed. The decision was based on the premises established in IN 107/88 and in PN Cosit 09/2014 to equate swaps to purchases and sales, concluding that the value of the property, received by means of a swap, should be included in the gross revenue of companies engaged in real estate activities and, therefore, the calculation of the IRPJ and CSLL taxable basis

In addition, in analyzing the levying of the PIS and COFINS,^[7] the Carf adopted an even more restrictive understanding regarding the potential application of IN 107/88 for companies that adopt the presumed profit regime. This is because IN 107/88 would have three limits of applicability defined: it is only applicable to the IRPJ and CSLL; it exclusively covers periods in which the taxation follows the real profit regime; and has effects only on the value of the properties received in a swap. In this sense, the swap would be subject to the levying of PIS and COFINS, since the taxable basis of these contributions is revenue, understood as the total income earned by the legal entity, thus not allowing a transaction equated to a purchase and sale to be included within this total.

From an analysis of the precedents on the subject under discussion, it is not possible to extract a consolidated position on the topic, since the subject was dealt with in isolated decisions by the RFB and, later, the Carf. Such decisions, however, indicate a position equally unfavorable to taxpayers, on the same grounds as those established by the tax authorities in their formal responses and which are binding in nature.

V. Decision handed down by the STJ in Special Appeal No. 1.733.560/SC

The Second Panel of the STJ, in the decision handed down in Special Appeal No. 1.733.560/SC, recognized the non-applicability of the IRPJ, CSLL, PIS, and COFINS on real estate arrangements carried out by companies opting for the presumed profit taxation regime, thus diverging from the RRB's current position on the subject.

The plaintiff, a company engaged in the rendering of construction and real estate development services, filed a declaratory lawsuit under the Federal Court of Blumenau/SC aiming at the recognition of the illegality and unconstitutionality of the levying of said federal taxes on such swap promises, even when carried out by a party opting for the presumed profit regime (as already stated, legal entities that opt for the real profit regime already enjoy such neutrality per an express legal provision). The right to refund or offset taxes unduly collected by virtue thereof was also demanded. In the concrete case, the plaintiff entered into swap contracts through which it received the ownership and possession of certain land and, in return, committed to build residential projects, delivering to the parties some units of the development at a value corresponding to that of the land.

The claim was granted by the 1st Federal Court of Blumenau, and the trial decision was upheld by the 4th Federal Court of Appeals (TRF4). The court was of the understanding that swap arrangements without return involving real estate units does not represent an increase in revenue, income, or profit, as it is a mere replacement of assets.

In view of these decisions favorable to the taxpayer, the National Treasury appealed to the STJ. In its Special Appeal, it argued that swap arrangements, in accordance with section 533 of the Civil Code, are subject to the same provisions regarding purchases and sales and, therefore, would give rise to taxation on the same terms.

In reviewing the Special Appeal of the National Treasury, the STJ’s appellate decision fully accepted the understanding established by the TRF4, stating that the interpretation given to the swap contracts is correct. In this sense, it was concluded that "there will not be, in most cases, revenue, billing, or profit in the exchange." Per the terms of the decision, in the opposite sense to what was argued by the National Treasury, the STJ was of the understanding that section 533 of the Civil Code only reinforces that "the legal provisions related to purchases and sales are applied insofar as they are compatible with the exchange in the civil sphere, defining their general rules," concluding that swap contracts should not be compared in the tax sphere to purchase and sale contracts.

According to the understanding of the Second Panel of the STJ, swap arrangements are considered to be a mere replacement of assets, which will be booked by the parties with the same cost and, consequently, these transactions do not lead to the availability of income that would call for the levying of the IRPJ (even if the legal entity has opted for the presumed profit regime, since section 43 of the CTN would prevent such taxation).

Finally, as regards the argument that IN 107/88 is directed only at legal entities adopting the real profit regime, the decision emphasized that, at the time of the issuance of IN 107/88, legal entities dedicated to the purchase and sale, development, and construction of real estate could not opt for the presumed profit regime, which only occurred with Law No. 9,718/1998, for which reason this normative instruction could not restrict the taxpayer’s right.

VI. Conclusions

On the basis of what has been set out above, it is verified that the position of the RFB is unfavorable to the taxpayer, based on IN 107/88, on PN 09/2014, and on the issuance of binding formal opinions issued by the RFB according to which the value of the real estate units subject to a swap should be considered gross revenue subject to taxation by the IRPJ, CSLL, PIS, and COFINS.

Following the position adopted by the tax authorities in their binding responses, the understanding extracted from the administrative decisions issued by the Carf also indicates that the value of the unit received in a real estate swap arrangements will be factored into the gross income of companies opting for the presumed profit regime, since the tax neutrality provided for in IN 107/88 does not apply to companies adopting such a regime.

In this context, although it has no binding effects and cannot be considered representative of the STJ's settled case law, the appellate decision handed down in Special Appeal No. 1.733.560/SC sets a major precedent for real estate companies, especially those that opt for the presumed profit regime, who are not able to enjoy the benefits provided for by IN 107/88.

The companies in this sector now have a precedent that capable of counterbalancing the unfavorable position adopted by the RFB in its last responses and also by the administrative courts to the effect that the real estate swap arrangements carried out by companies adopting the presumed profit regime give rise to the recognition of taxable income, regardless of the payment of a return.

^[1] Section 533. Provisions relating to purchases and sales shall apply to the swap, with the following modifications:

l - unless otherwise provided for, each party to the contract shall pay for one half of the expenses with the swap instrument;

II - the exchange of unequal amounts between ascendants and descendants, without the consent of the other descendants and the spouse of the seller, is nullified.

^[2] Orlando Gomes in Contratos [“Contracts”]. 23rd ed. Rio de Janeiro: Forense, 2001. p. 268).

^[3] Pursuant to the terms of section 9 of RFB Normative Instruction No. 1.396/2013, "Cosit Consultation Resolutions and Resolutions of Divergence, as of the date of their publication, have binding effect in the scope of the RFB, support the covered persons who apply them, regardless of whether it is an inquirer, provided that it fits within the scenario covered by them, without prejudice to the tax authority’s prerogative to, in an audit proceeding, confirm its actual classification.”

^[4] As already mentioned, the levying of IRPJ, CSLL, PIS, and COFINS is debated.

^[5] Appellate Decision No. 1302/001.2017 (November 8, 2013); Appellate Decision No. 1302/003.007 (August 15, 2018); Appellate Decision No. 1802-00.769 (February 25, 2011); Appellate Decision No. 1802-00.770 (January 25, 2011); and Appellate Decision No. 1201-001.813 (July 26, 2017).

^[6] Appellate Decision No. 1402-003.585.

^[7] Decisions No. 3301-002.052 (September 25, 2013) and 3301-002.053 (September 25, 2013).

Category: Labor and employment

The head section of article 464 of the Consolidated Labor Laws (CLT) provides that "the payment of salaries shall be accompanied by a receipt, signed by the employee." The sole paragraph of this legal provision provides that "proof of deposit into a bank account opened for that purpose, on behalf of the employee, with the consent of the latter, in a credit facility near the place of work shall be required." In other words, a bank deposit made by the employer into an account opened for this purpose, with the consent of the employee, is equated to a signed payment receipt.

As the legal provision was enacted in 1943, the possibilities for making payments have increased greatly since then. It is common practice currently to pay wages through electronic banking transactions. In this manner, employees no longer receive paper money at the end of the month and therefore cannot provide any individual receipt to the company.

In addition, it is no longer necessary for the current account to be opened at a banking institution located near the employees, since the Internet allows bank transactions anywhere and at any time, without requiring a physical presence at the branch.

In this context, the debate regarding the validity of payment slips as a means of proving payments made by employers arose, since these documents do not present individual signatures or vouchers of the deposits made.

When prompted to rule on the matter, Justice Douglas Alencar Rodrigues, of the Superior Labor Court (TST), issued a decision containing the understanding that payment slips issued by employers are not equivalent to the receipts referred to in article 464 of the CLT, since they do not have a signature.

The Justice further stated that, in accordance with the principle of suitability for the production of evidence, it would be incumbent on the claimant to challenge objectively the content of the payment slips.

"To do this, it would be sufficient to submit one of his paychecks that would eventually show the incorrectness of the amounts stated in the documents, which did not occur.”

This is not, however, the only position adopted by the TST on the topic. In an identical situation, Justice José Roberto Freire Pimenta agreed that proof of payment will only be valid if the receipt is signed or if the respective deposit receipt is presented.

Divergent decisions raise legal uncertainty and cause doubts for employers regarding how to proceed in order to avoid future judgments providing for payment of monies already paid.

As a result of these differences of opinion, the most cautious position is for employers to take the following preventive measures:

• Include in new employee packages, or even as a provision in the employment contract, a signed statement by which employees state the bank account in which they wish to receive their wages; and
• Keep the bank deposit vouchers for deposits made for employees, along with the payment slips, in order to prove that the payment was made into the current account provided by the employee at the time of hiring.

If employers adopt the above provisions, signature on payment receipts and bank vouchers becomes only measures of extreme caution, since, based on the sole paragraph of article 464 of the CLT, proof of bank deposit in a checking account provided by the employee would be enough to eliminate the need to sign the receipts.

These practices ensure employers are able to correctly demonstrate payments made to employees, thus satisfying the burden of proof for the payment required by law and avoiding possible questions of invalidity of the evidence presented.

Category: Infrastructure and energy

Federal Law No. 13,726/18, or the De-bureaucratization Law, enacted in October, not only authorizes, but also obliges public servants to dispense with or at least simplify formalities or requirements in their dealings with citizens. Among them are the following: 

• Authentication of signature.
• Certification of copies of documents, when presented together with the original, including personal documents of the citizen.
• Presentation of birth certificates, which may now be substituted by an identity card, voter registration, professional or work identity, work permit, military enlistment certificate, or passport.
• Presentation of voter registration (except to vote or register a candidacy).

 In addition to the removal of these formalities or requirements, the De-bureaucratization Law also limited the possibility for public agents to request certificates and documents issued by agencies or entities that are members of the same Executive, Legislative, or Judicial Branch, and thus require institutional dialogue. In this sense, the legislator authorized the creation of industry working groups aimed at (i) identifying legal or regulatory provisions that impose excessive or exaggerated requirements, as well as unnecessary or redundant procedures; and (ii) suggest legal or regulatory measures aimed at eliminating excess bureaucracy.

The De-bureaucratization Law goes beyond authorizing the citizens themselves to prove facts by means of a written and signed declaration, when the competent department cannot provide documentary evidence for reasons not attributable to the applicant: in practice, in cases of a strike by public bodies, for example, the documents issued by them may be replaced by a self-declaration during the shutdown period, with the declarant being subject to the administrative, civil, and penal sanctions applicable.

The law also authorized verbal, telephone, and e-mail communication between public agents and citizens, which already occurred in many cases, but was not formally regulated.

The legislator also instituted the De-bureaucratization and Simplification Seal, designed to recognize and encourage projects, programs and practices that simplify the functioning of the public administration and improve assistance to users of public services. Still pending regulations, the seal represents a mechanism of management by stimulus, which, although little used by the Brazilian public administration, can be very effective.

In short, the legislator sought to discipline rules to give concrete form to the principles of efficiency, informality, and substantive truth, which, although put into positive law since the Federal Constitution and the Federal Administrative Procedure Law, did not have normative parameters for their application. This gap has justified the bureaucratization, the interaction by civil servants with citizens, which should be mitigated by the new law, the more citizens are aware of their rights.

Category: Competition

In unanimously deciding to dismiss an administrative proceeding initiated to investigate an alleged cartel in the Brazilian and international market for electronic power steering systems (EPS), the Administrative Council for Economic Defense (Cade)’s Tribunal indicated last month that it will require a more robust standard of proof to demonstrate participation in antitrust conduct in cases originating from leniency agreements.

At Judgment Session No. 137, held on February 13 of this year, the Tribunal acquitted, due to insufficient evidence, the four companies accused (and their respective employees) who had not signed Settlement Agreements (TCC) with Cade throughout the case.

Created in 2000, after an amendment to the Competition Law in effect at the time, the Cade Leniency Program allows companies and/or individuals involved in cartels or other illegal collective anticompetitive conduct to enter into a leniency agreement with the antitrust authority and the Public Prosecutor's Office and receive immunity at the administrative and criminal levels in exchange for cooperation with investigations.

With the first agreement of this kind entered into only in 2003, the program has gained importance, became a crucial tool for fighting cartels in Brazil, and has been undergoing refinements based on the practical experience of the authorities. By the end of 2018, Cade had signed 88 leniency agreements, a number driven up by Operation Carwash as of 2015, and adjudicated 28 administrative proceedings derived from these agreements.

The administrative proceeding dismissed by Cade’s Tribunal in February was based on information and documents provided by the signatories to a leniency agreement and two subsequent TCCs agreements entered into by companies participating in the cartel. The documents submitted involving companies that did not settle were limited to business cards, internal meeting minutes and e-mails, travel receipts for alleged meetings and internal spreadsheets from the companies that cooperated with the investigation.

At the trial session, the commissioner rapporteur João Paulo Resende sustained that the set of evidence - composed of only the confession by the signatories to the agreements and indirect evidence - was not robust enough to prove the involvement of those four companies in the cartel.

A mere accusation on the part of those who benefit from an agreement with the agency is not sufficient to prove involvement by third parties. Along the same lines, documents produced unilaterally by beneficiaries (such as minutes and handwritten notes or internal e-mails) or that may have been obtained in a context other than the conduct investigated (such as business cards) have little evidentiary value.

Cade's position in this case is commendable, is in line with the practice observed in Brazilian higher courts, which tend not to enter judgments against the accused based exclusively on reports obtained through plea bargains, and contributes to preserving the quality of the Brazilian Leniency Program and legal certainty in administrative proceedings investigating cartels.

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Category: Banking, insurance and finance

In 2013, shortly after scandals involving the manipulation of exchange rates and interest rates became public, the International Organization of Securities Commissions (IOSCO) published a report in response to a consultation on rules applicable to financial benchmarks. Not surprisingly, concerns were raised about the fragility of certain benchmarks, particularly in terms of integrity and continuity.

In Brazil, in transactions carried out in the financial and capital markets, one of the benchmark parameters most commonly adopted is the Interbank Deposit (DI) rate. It serves as a benchmark for numerous bank loans (transactions between banks and clients), raising of funds through debentures, and various financial investments (e.g., DI funds), among other transactions.

In very simple terms, the rate (DI) used in all these situations derives from the interest rate used in interbank transactions. More specifically, the DI rate is calculated on the basis of interbank loans between institutions that are not members of the same conglomerate, based on pre-fixed rates and with a one-day term.

Therefore, determination of the DI rate for a date is always done according to certain procedures, through which a universe of eligible transactions is subject to scrutiny. The methodology used has remained fairly constant over time, although it has undergone occasional targeted improvements.

It so happens that, some years ago, there has been a significant reduction in the number of transactions carried out in the interbank market. In 2013, for example, when the DI rate began to show large deviations from the Selic rate (which traditionally accompanied it pari passu), this situation was officially recognized for the first time, and Cetip (succeeded by B3 - Brasil, Bolsa, Balcão S.A.) decided to change its calculation methodology, such that if, on a given day, there were less than ten transactions in the interbank market, the historical correlation between the DI rate and the Selic rate was used for the purposes of calculating the rate.

On October 1, 2018, following the recommendations of the Iosco (especially regarding the sufficiency of data for calculation of the benchmark, covered by Principle 7), the methodology for calculating the DI rate used by B3 was based on an observation, or lack thereof, of two conditions: (i) the number of transactions eligible for calculating the rate is equal to or greater than 100; and (ii) the sum of the volumes of transactions eligible for the rate calculation is equal to or greater than R$ 30 billion. The new rule, therefore, confers more transparency and robustness to the benchmark, which now depends on two variables: number and size of the transactions. Thus, if at least one of the two conditions above is not observed on a certain calculation date, the DI rate released will be equal to the Selic Over rate.

In view of this change, it may be possible to revisit the bases that led to the promulgation of the Superior Court of Justice's Precedent No. 176, of 1996, which states that "... a contractual provision is void that subjects the debtor to the interest rate disclosed by Anbid/Cetip," because this rate is supposedly "... submitted to the whim of one of the parties." This is because, with the new methodology, the risk that the DI rate may be manipulated is more remote, if not practically nonexistent.

Category: Labor and employment

Law No. 13,467/2017, known as the Labor Reform, has been in force for more than a year, but, to date, not all of the amendments it proposed to the Consolidated Labor Laws (CLT) have been reviewed by the Labor Courts. This is the case for the exceptions to salary equalization, such as organized career frameworks and job and salary plans.

Salary equalization per se was sought in 25,135 cases assigned to labor courts through Brazil in 2018.[1] However, there are no specific precedents for the new rules for organized career frameworks and job and salary plans to be used as an exception to equalization.

Prior to Law No. 13,467/17, salary equalization was regulated by the head section and paragraph 1 of article 461 of the CLT, according to which the employer must pay the same salary to employees who meet the following requirements cumulatively: (i) work in the same job; (ii) provide services in the same municipality or metropolitan region; (iii) equivalence of length of service (difference of less than two years in the same position); and (iv) same productivity and technical level.

The Labor Reform changed requirements (ii) and (iii). Per the new wording of the head section and paragraph 1 of article 461 of the CLT, workers seeking salary equalization must provide services in the same business establishment as the paradigm, and no longer in the same municipality or metropolitan region. In addition, it is imperative that they have the same length of service in the position (less than two years) and an equivalent length of service at the company (less than four years).

Pursuant to the previous wording of paragraph 2 of the CLT, salary equalization could be waived if the employer had personnel organized in a career framework, provided that it was approved or ratified by the Ministry of Labor, in accordance with what was established in item I of Precedent No. 6 of the Superior Labor Court (TST).^[2] 

In the current wording, there is no longer need for approval or ratification of the career framework by any public agency, and the employer may adopt it by means of an internal company policy or via collective bargaining (collective bargaining agreement or collective labor convention). With the amendment, item I of the TST's Precedent No. 6 must be canceled or amended, which has not occurred thus far.

According to the previous wording of paragraph 3 of article 461 of the CLT, promotions for positions covered by the career framework should be carried out, alternately, for merit and seniority. With the enactment of Law No. 13,467/2017, promotions may be carried out for merit or seniority.

Thus, in order to avoid salary equalization due to the existence of career plans and organized frameworks, it is necessary to fulfill two basic requirements. The first one consists of the objectivity of the criteria for promotions; if there is subjectivity, the plan may be disqualified. The second refers to satisfaction of the requirements of seniority or merit, and no longer alternatively due to merit and seniority.

Considering that the legislation in force allows for the establishment of a career framework through an internal company policy or collective bargaining, some parameters may be defined to guarantee its validity, such as (i) performing systematic evaluations of competencies for promotion due to performance; (ii) time in the position; (iii) complexity of the tasks performed; and (iv) completion of courses/improvement, among others.

The Labor Courts have already decided numerous cases, accepting or rejecting salary equalization suits, per a review of the new requirements set forth in the head section and paragraph 1 of article 461 of CLT for the purpose of applying the concept. However, with regard to the other changes brought about by Law 13,467/2017 (paragraphs 2 and 3) concerning career frameworks, the decisions handed down only address the obstacle to equalization due to the existence of the concept. They do not enter into the merits of the requirements for promotion for the purposes of declaration of validity or invalidity.

With the change brought about by the reform, in order to establish a lack of salary equalization, the question is no longer how to register, but rather the terms, requirements, form of implementation, objectivity, and clarity of the career plans and organized career frameworks.

If a company has a well-structured career plan (or a job and salary framework), instituted internally as a policy or under a collective bargaining agreement, with objective career advancement provisions (by merit or by seniority), this exception may be widely applied to its workers.

Click here to see the other articles in this series

^[1] www.tst.jus.br/estatística (the most recurring subjects in the labor courts)

^[2] “I - For the purposes of the provisions of paragraph 2 of article 461 of the CLT, staff organized in a career framework is only valid when ratified by the Ministry of Labor, therein only excluding this requirement in the case of career frameworks for the entities governed by public law of the direct, semi-autonomous, and foundational administration approved by an administrative act of the competent authority."

Category: Labor and employment

The Labor Reform (Law No. 13,467/17) brought in various changes to labor law, especially from the point of view of collective rights. One of the most significant issues was the interest shown by the legislator in promoting collective autonomy, whereby it established, among other assumptions, prevalence of what is negotiated over what is legislated and a limitation on accrued rights, with the end of the applicability of collective rules after their abrogation, as previously supported by the case law.^[1]

Subject to some legal limitations,^[2] the bargaining power of trade unions and companies was increased, allowing them to adapt the measures negotiated to the factual context of the activities performed. With these changes, normative provisions that were historically settled and which no longer had the practical effect of serving the purpose for which they were originally intended may be revised by the parties and thereby adapt negotiations to the current scenario of the economic category involved.

This was what happened in the case of the bonuses for bank employees submitted to the differentiated trust established in paragraph 2 of article 224 of the CLT.^[3]

The labor law establishes a six-hour work day for bank employees. It may be increased to eight hours in cases where employees hold positions with differentiated trust, but this increase is conditioned on the payment of a bonus corresponding to at least 1/3 of the salary of the actual position.

Historically, collective bargaining agreements applied to bank employees established bonuses far above the legal minimum. Since 1987, all collective bargaining agreements applicable to bank employees have established that the percentage of the bonus should be 55%. The only exception is the State of Rio Grande do Sul, which establishes the percentage of 50%.

It so happens that the characteristics of banking activity over the last decades have changed a lot, mainly due to the high level of computerization of the services provided and the emergence of new models of banking institutions (investment banks, private banking, corporate banking, digital banks, etc.). With this, an analysis of the trust of positions by the Labor Judiciary has become increasingly complex.

However, this modernization is not always observed by the Labor Court, which limits its analysis of positions of trust to the old idea of branch bank employee, very present in the 1980s and 1990s. This behavior ends up leveraging the number of judicial decisions that disqualify a position of a bank employee as a position of trust.

In addition, the case law of the Superior Labor Court (TST), consolidated in Precedent No. 109, further established that, in cases of disqualification in court of a position of a bank employee as one of trust, the amounts received as a bonus could not be offset by the overtime allowed.^[4]

As a consequence, in situations where the Labor Courts did not deem the trust of the position sufficiently proven, the banks were ordered to pay again the 7th and 8th hours worked, regardless of the bonus paid in excess of the amount legally stipulated.

In view of this scenario, considering the enactment of Law No. 13,467/17, the labor unions of banking establishments opted to renegotiate issues related to bonuses in order to resolve the risks arising from the subsequent disqualification by the Judiciary of bank positions as being ones of trust.

By common accord, the union of the employers and the employees' union opted to maintain the bonus at the historically established percentage of 55%. On the other hand, they defined that, if an employee were disqualified from the exception of paragraph 2 of article 224 of the CLT by a judicial decision, the bonus would be deducted/offset with the overtime granted, thus changing the wording of section 11 of the collective bargaining agreement (CCT).^[5]

This change seeks to provide banks with greater legal certainty in order to prevent duplication of the same activity (work in the 7th and 8th hours of the day), which is supported not only by the reforms introduced by Law No. 13,467/17 regarding the prevalence of collective negotiations, as well as by the prohibition on unjust enrichment and the principle of collective autonomy, which have long been protected in our legal system.

The idea of the legislator, by imposing the 1/3 bonus, and of the unions, when negotiating an increase of the bonus to 55% of the salary, was always to compensate the two hours worked daily (beyond the 6th hour) by employees who hold a position with special trust.

Despite the determination in the collective agreement that the aforementioned offset is only possible for labor suits filed after December 1, 2018, it seems reasonable to us that it is also valid for suits filed before that date, precisely because of the intent of the legislator and the negotiations to impose a bonus that would compensate the two hours worked after the 6th hour in the workday. Moreover, of course, there was never any rule prohibiting such offsetting, but only a jurisprudential construction on the subject.

In this sense, with the new normative provision, it is expected that TST Precedent 109 will fall into disuse and will be subsequently canceled. This is because the Labor Reform also aimed to reduce intervention and activism on the part of the Labor Courts, limiting them to reviewing the collective instruments in order to verify the elements of validity of the legal transaction, in terms of article 104 of the Civil Code, therein establishing the principle of minimum intervention of the Judiciary in the autonomy of the collective will.

The expectation is to reduce labor suits on the subject, since double compensation (overtime + additional pay) ended up stimulating claims that were, in our opinion, mistaken. As a result, the banking industry's labor related provision will also decrease.

^[1] Precedent No. 277, TST - Collective bargaining agreement or collective labor convention. Effectiveness. Applicability after Abrogation (wording amended in a hearing of the Court en banc held on September 14, 2012), a Precedent whose application is suspended pursuant to the terms of an injunction granted in the record of STF-ADPF No. 323/DF, Opinion drafted by Justice Gilmar Mendes - Res. 185/2012, made available in the State Labor Court Gazette (DEJT) on September 25, 26, and 27, 2012.

The normative provisions of collective bargaining agreements or collective labor conventions are part of individual labor contracts and may only be modified or eliminated through collective bargaining.

^[2] See Article 611-B of the Consolidated Labor Laws (CLT).

^[3] Paragraph 2. The provisions of this article do not apply to those who exercise positions of direction, management, oversight, supervision, and the like, or that exercise other positions of trust, provided that the amount of the bonus is not less than one third of the salary of the actual position.

^[4] Precedent No. 109 of the TST

Bonus for position (maintained) - Res. 121/2003, Published in the Official Gazette of the Judiciary on November 19, 20, and 21, 2003.

Bank employees not fitting within paragraph 2 of article 224 of the CLT that receives a bonus cannot have the overtime wages offset by the value of that bonus.

^[5] Section 11: bonuses

The value of the bonus dealt with in paragraph 2 of article 224 of the CLT shall be supplemented for those in administrative and technical/scientific careers, provided that the respective amount does not reach the equivalent of 55% of the value of the VP of A1 + employee monthly bonus (VCP of the ATS). For those occupying positions to be extinguished in the career of Auxiliary Services the initial VP of that career shall be observed.

Paragraph one. If there is a judicial decision that declassifies the employee from the exception provided for in paragraph 2 of article 224 of the CLT, who is receiving or has already received the bonus, which is the consideration for the work performed beyond the sixth (6th) hour per day, so that work is only considered overtime after the eighth (8th) hour worked, the amount owed relative to overtime and related payments shall be fully deducted/offset, with the value of the bonus and related payments paid to the employee. The deduction/offset provided for in this paragraph shall be applicable to the suits filed as of December 1, 2018.

Paragraph two. The deduction/offset provided for in the paragraph above shall comply with the following requirements, simultaneously:

It shall be limited to the months in question in which overtime has been granted and in which the bonus payment provided for in this section has been paid; and,

The amount to be deducted/offset may not be higher than the amount earned by the employee, such that there can be no negative balance."

Category: Banking, insurance and finance

Individuals and legal entities resident, domiciled or with headquarters in Brazil, as provided for in tax law, must report to the Central Bank of Brazil the assets and amounts held by them outside the country. The reporting is mandatory to those holding assets abroad (assets and rights, including corporate interests in companies, fixed-income securities, shares, real properties, deposits, loans investments, among others) amounting to or exceeding the equivalent to US$100,000.00 on December 31, 2018.

Furthermore, the individuals and legal entities mentioned above holding assets abroad must also deliver to the Central Bank of Brazil a quarterly report relating to assets held abroad on March 31, June 30 and September 30 of each year, in case the total amount of such assets amounts to or exceeds the equivalent to US$100 million.

The report referring to December 31, 2018 must be delivered by means of the Brazilian Capital Abroad (CBE) reporting form available in the internet website of the Central Bank of Brazil at: www.bcb.gov.br, from February 15th, 2019 through 6PM of April 5th, 2019.

The manual containing detailed information about the content and requirements of the reporting is also available in the website of the Central Bank of Brazil mentioned above.

The late delivery, lack of reporting, or the submission of false, inaccurate or incomplete information subjects the violator to the imposition of a fine by the Central Bank of Brazil of up to R$250,000 (two hundred fifty thousand Brazilian reais).

(CMN Resolution 3,854, of May 27, 2010, BCB Circular 3,624, of February 6, 2013, and BCB Circular 3,857, of November 14, 2017, as amended).

Category: Litigation

When the Superior Court of Justice (STJ) decided at the end of last year to reinstate the bank freeze, or fiduciary assignment of receivables, which had been suspended by the court in a judicial reorganization case, it took into account the concept of capital goods provided for in article 49, paragraph 3, of the Bankruptcy and Corporate Reorganization Law (Law No. 11,101/2005, the “LRF”).

This legal provision deals with debt claims that are not subject to judicial organization, including those with a fiduciary guarantee. The final part of the article states that, during the 180 days of the stay period (article 6 of the LRF), capital goods essential to the debtor’s activity may not be removed.

The question of the essentiality of the goods in specific cases inevitably gave way to a discussion regarding the possibility of classifying receivables as capital goods, the possession of which should be assigned to debtor during the stay period by virtue of said provision.

Although the STJ has previously stated that receivables cannot be considered essential assets, the discussion was further elaborated in the special appeal in question (1.758.746/GO). The concept of essential capital goods was analyzed, and whether or not receivables could be included within it, given that this prohibition appears in the final part of article 49, paragraph 3, of the LRF, which served as a basis for companies in judicial reorganization to petition to the Judiciary to suspend bank freezes.

In summary, the appellants' petitions for “canceling bank freezes" lodged in judicial reorganizations were based on the need to maintain the source of production, the employment of workers, and the interests of creditors, which, in theory, would require the financial resources to be given as collateral via a fiduciary assignment to remain with the company under judicial reorganization to give it strength to overcome the crisis.

These arguments have always been strongly questioned, considering that receivables are not even within the assets of the company undergoing reorganization and, in the case of debt default, financial institutions, which already act as the fiduciary owner of the receivables, are entitled to immediate transfer of possession and ownership of the assigned receivables. The subject, therefore, has always generated controversy among scholars and judges.

Prior to delivery of the decision in Special Appeal No. 1.758.746/GO, and given the recurrence of the topic, Justice Aurelio Bellizzi had already indicated, in another case, the need to decide whether or not to categorize receivables that are subject to a fiduciary assignment as capital goods, emphasizing that this categorization could not be influenced by the essentiality of the goods, so as not to become something subjective, because, in fact, it should be objective.

By means of an appellate decision rendered in the special appeal, the STJ, in a unanimous opinion, finally set the criteria for classifying the assets of the debtor in possession as capital goods and, therefore, subject to the protection provided for in the final part of article 49, paragraph 3, of the LRF.

According to the decision, in order to be considered a capital good, the good must be in the possession of the debtor, it must be tangible, and its use cannot mean the vacating of the guarantee, such that, at the end of the stay period, it can be returned to the creditor.

Based on these assumptions, the STJ stated that a fiduciarily assigned receivable is not used materially in the productive process of the company in reorganization, since it is not a tangible asset, nor is it in the possession of the debtor. With that, he stated "the conclusion [was] peremptory that it is not a 'capital good’.” The Superior Court also concluded that "the term 'capital good' could not be interpreted as capable of rendering the fiduciary guarantee void.”

That being the case, based on its finding that receivables cannot be classified as capital goods, the STJ decided that the protection provided for in the final part of article 49, paragraph 3, of the LRF should not be applied to the bank freeze, and the guarantee must prevail intact, including during the stay period.

It is hoped that the new precedent of the STJ analyzed here will serve as a paradigm for the next cases in which the subject is presented, such that the case law will begin to be settled in line with the guideline of the Superior Court, thus generating greater legal certainty with respect to an issue that has hitherto been disputed.

However, even after delivery of the appellate decision in question, the São Paulo court rendered a decision to the contrary in the judicial reorganization of Livraria Cultura (case No. 1110406-38.2018.8.26.0100, in progress before the 2nd Court of Bankruptcy and Judicial Reorganization of the Central Civil Courts). In this case, an interlocutory appeal filed against the trial decision, upheld in limine by the appellate judge presiding over the appeal, is yet to be decided.

Category: Compliance, investigations and corporate governance

Effective since January of 2014, the Anti-Corruption Law (Law No. 12,846/13) has built a legacy of changes in corporate culture over the past five years. The scenario today is very different from the one observed at the beginning of its enactment, when corruption risks seemed far from the corporate reality, and companies still saw megaoperations of the Federal Police and the Public Prosecutor’s Office as episodes restricted to political agents.

The law has brought companies to the center of legal accountability for acts of corruption and investigations (in particular Operation Car Wash) have spread the idea that integrity risks are too great to be ignored by top management, which has given rise to a race to implement compliance mechanisms and procedures.

Although beneficial, this movement is often erratic. Often, companies are lost in a sea of legal uncertainties, derived, in part, from the absence of a legal framework. Such uncertainty can cause inaction, as in the case of leniency agreements (discussed in a prior article), in addition to risks, as occurs in internal investigations.

Corporate investigations are a primary part of a compliance program, which must rely on three basic principles: prevention, detection, and response to integrity risks. In this sense, a program that has preventive policies will be able to detect problems, which if ignored, can cause the program to become ineffective, in addition to exposing executives and managers to even greater risks arising from their inertia.

This fact is not ignored by business owners, compliance and legal officers, who in recent years have increasingly resorted to corporate investigations in cases of corruption, internal fraud, competitive issues, and labor problems (such as harassment), among others, to guide their decisions or prepare the defense of the company in an investigative or punitive proceeding.

The problem, however, is that corporate investigations are a relatively new subject in Brazil and, because they involve complex multidisciplinary and technical issues, they need to be conducted by skilled and experienced professionals in order to avoid the risk of increasing the problems instead of solving them.

Nevertheless, even for experienced corporate investigators, Brazil’s scenario presents challenges. The absence of legal guidelines fuels uncertainties and demands frequent use of foreign legislation and market practices in order to respond to questions from clients and partners.

Therefore, the approval of Provision No. 188/2018 of the Federal Board of the Brazilian Bar Association (OAB) came at a good time, being that it regulates the exercise of the lawyer's professional prerogative to carry out investigative diligence/procedures.

Although it does not have the strength and definitive nature of a statute and is still highly generic, it assists in drawing up a first normative outline capable of bringing legal certainty to lawyers involved in the investigation of breaches of integrity in the corporate environment and, especially, for their clients.

The provision defined the institute of defensive investigations as the "complex of activities of an investigative nature carried out by a lawyer, with or without the assistance of technical consultants or other legally qualified professionals at any stage of criminal prosecution, proceeding, or degree of jurisdiction, in order to obtain elements for the establishment of a lawful body of evidence, for the protection of their clients’ rights."

This definition comprises relevant issues. The first of those is that, although it focuses on the regulations of an investigation as a counterpoint to a potential criminal prosecution, the provision also includes in its conception any investigation conducted by a lawyer that seeks to gather evidence for the protection of a client’s rights.

This means that any corporate investigation conducted by a lawyer may be included in the concept of the provision, since its primary objective will always be to seek elements of information that allow clients to thoroughly know a fact that may affect their rights, for example, to negotiate a leniency agreement, defend themselves in a sanctioning proceeding, or seek indemnification for damages caused by employees or third parties.

The provision establishes that corporate investigations are activities exclusive to attorneys and, recognizing their multilateral and multidisciplinary nature, provides for the role of technical consultants, exemplified in the text as "experts, technicians, and fieldwork assistants."

Experience in corporate investigation cases shows that the presence of lawyers is relevant for the outcome and confidentiality of the work, but that just as corporate investigations conducted without lawyers generally lose out in terms of organization, technique, utility, and legal certainty, those performed only by lawyers can sometimes end up being incomplete.

Good corporate investigation lawyers should be specialized technical experts and excellent project managers, but they also need to be able to identify where they need specialized help, which is often the case with technology and forensic accounting services.

In this sense, the inclusion of the role of technical consultants in the provision may be its most relevant aspect, especially as it extends to those professionals the right and duty to confidentiality, pointing out that, as advisors to a lawyer, they "do not have the duty to inform the competent authority of the facts investigated” and that "any report and disclosure of the result of the investigation shall require the express consent of the client."

Such protection is fundamental not only for the proper professional practice of the consultants (for whom the absence of confidentiality brings about profound risk exposure) but also for the security of clients who engage the investigation.

Category: Tax

Launched in October of last year as a very positive initiative by the Federal Revenue Service of Brazil (RFB) to guide taxpayers, in addition to avoiding default and potential litigation, the draft ordinance establishing a federal program to encourage tax compliance, Pro-Compliance, has some very questionable points that we shall review in this article.

The text was submitted to Public Consultation No. 4/2018 of the Federal Revenue Service of Brazil (RFB) to receive opinions and proposals from the taxpayers, but since October of 31, when the time limit for the contribution ended, no normative act was published to ratify or modify the draft of the original ordinance that will establish the program.

The proposal is inspired by the program named "Nos Conformes" (in English, "Compliant"), instituted by the State of São Paulo through Complementary Law No. 1,320/2018, and the Compliant Debtors Tax Registry, to be implemented by the Attorney’s Office of the National Treasury.

According to the explanatory memorandum of the RFB's draft ordinance, Pro-Compliance "seeks to encourage taxpayers to adopt good practices in order to avoid misconduct and comply with the law." These "good practices" are related to compliance with principal and ancillary tax obligations (payment of taxes and submission of returns and information to the tax authorities).

According to the draft, the program has the objective of settling tax debt, through measures that facilitate its payment, guide and support taxpayers, and prevent the creation of debts, delinquency, and litigation (administrative or judicial). To this end, taxpayers will be classified into categories (A, B, or C) according to their recent^[1] history of relationship with the agency. To create the classification, the RFB will take into account the following criteria: (i) registration and maintenance of a registration status compatible with their activities; (ii) filing with the RFB of returns and documents with integrity, accuracy, and timeliness; (iii) full and timely payment of taxes due (article 4 of the draft ordinance).

Taxpayers classified into category A, with the best history, will be entitled to the following benefits: (i) prior information on indicia of an infraction determined by the Federal Revenue Service before a tax proceeding is initiated, which would enable taxpayers to return them to good standing without imposing the penalties applicable; (ii) priority service when appearing in person; (iii) priority in review of claims by the RFB, including in relation to the receipt of refunds, subject to the priorities defined by law; and (iv) Certificate of Tax Compliance issued by the Internal Revenue Service (article 12 of the draft ordinance).

In turn, taxpayers classified into category C will be subject to "the rigors of the law",^[2] such as inclusion in the Special Inspection Regime addressed by the RFB Normative Instruction No. 979/2009, which imposes, among other measures, maintenance of uninterrupted supervision at the taxpayer’s establishment, reduction of calculation periods and tax withholding periods, compulsory use of electronic control of transactions carried out, and daily collection of the respective taxes, with special control in the issuance of commercial and tax documents.

These taxpayers will also be subject to the application of coercive measures, such as restrictions on those who do not bring into good standing debts subject to a Special Administrative Charge, among them, cancelation of tax benefits, inventorying of assets, and the exclusion from installment payment programs. As there is no provision regarding the treatment to be given to taxpayers classified into category B, it is inferred that they will not have differentiated treatment.

The points in the draft that may be considered fragile relate precisely to the criteria established for classifying taxpayers. Regarding the confirmation of the presentation of returns and documents with integrity and accuracy, for example, article 8, IV, of the draft establishes as one of the criteria to be observed the "results of requests for refunds, reimbursement, and returns and declarations of offsets." Once again, the RFB, like the isolated fine provided for in article 74, paragraph 17, of Law No. 9,430/96,^[3] seems to seek to penalize taxpayers in the event of mere rejection of requests for restitution, reimbursement, or non-recognition of offsets.

The adoption of this criterion may constitute a violation of the right to petition provided for in the Federal Constitution (article 5, XXXIV), as it ends up creating obstacles (including financial obstacles) for companies to petition the public authorities in defense of their right to recover taxes improperly collected. In this sense, the means of political sanctions is a kind of mechanism to discourage taxpayers from seeking to defend their rights.

It is also worth remembering that taxpayers who have their request for restitution or reimbursement denied, or who have an offset not ratified by the Internal Revenue Service, have the constitutional right to demonstrate in the judicial sphere the legitimacy of their claim or the good standing of the offset conducted. Therefore, as set forth in the draft ordinance, this criterion may lead to violation of the guarantee of the inalienability of the access to Justice (article 5, XXXV, Federal Constitution).

In order to analyze the presentation of returns and documents in a timely manner, the criterion of "repeated rectifications of returns" will be reviewed (article 9, III). The problem is that, within the legal deadline, taxpayers have the right to rectify returns without them being considered untimely, which would rule out the use of this criterion for the purpose of classifying taxpayers.

In addition, the provision that classification will consider periods prior to the issuance of the ordinance represents an unlawful retroactive effect of the rule, since it may lead to penalization of taxpayers for conduct adopted before even knowing the rules.

The greatest controversy, however, is related to the severe consequences and penalties imposed on taxpayers in category C. Among them, cancelation of tax benefits by means of an administrative act (the ordinance) and, more seriously, the imposition of penalties even in cases where the taxpayer is in good standing with the tax authorities, but has received this classification.

There is not even a provision regarding reporting to the competent authority for the application of penalties related to the cancelation of tax benefits, which may violate the principle of legality and the right of defense and an adversarial proceeding.

It is important to point out, however, that after being informed of their classification by means of an e-CAC, taxpayers may request a review of this classification within 30 days, “upon identifying an error in the application of the criteria" (article 5, paragraphs 1 and 2, of the draft ordinance). Thus, although there is no appeal against the RFB’s decision to review such a request, the draft ordinance provides mechanisms to review the classification. It is advisable, however, that this request be processed with supersedeas effect, in order to promote the right to an adversarial proceeding and a full defense.

There is also no provision regarding disclosure of the taxpayers’ classification to third parties, as in the Nos Conformes program. Such disclosure, as long as the taxpayer does not object, can be beneficial and bring about competitive advantages for those who are classified into category A.

In summary, even considering that a rapprochement between the tax authorities and taxpayers is always welcome, the Pro-Compliance program, as proposed in the draft ordinance that establishes it, may bring in uncertainties and questions. There are points that need improvement, including in order to avoid injustice in taxpayer classifications.

^[1] According to article 4, paragraph 3, of the draft ordinance, historical for the current year up to the last four years as of the calendar year of 2016.

^[2] According to the explanatory memorandum of the draft ordinance.

^[3] One-time fine of 50% applicable over the value of the debt subject to declaration offset that is simply not approved.