Category: Infrastructure and energy

In January, the state government of São Paulo enacted Law No. 16,933/2019, which regulates the institutes of contract extension, early extension, and rebidding in the State of São Paulo. This law is similar to the rules set forth in Law No. 13,448/2017, which governs the same institutes in the federal public administration sphere.

In both of the laws abovementioned, the institute of extension refers to two distinct modalities. The first one consists of the extension of contract, carried out due to the advent of its original term, by means of which its length of validity is modified. The second one consists of the early extension, which, under federal law, is conditioned on the provider making new investments not originally provided for in the contract and which are not amortizable considering its initial term. It is worth noticing that in the State of São Paulo, the obligation for the provider to include new investments under contractual terms is also a condition for the pure and simple extension of contract.

Certain requirements provided for at the federal level regarding the extension institute were not mentioned in the text of the state law. An example is the lack of a reference in the São Paulo rule to the need for explicit authorization in the public notice or in the original contract as a requirement for the adoption of the processes of extension of contract and early extension.

In addition, the state law does not define a deadline term for the presentation of a request for the extension intended by the interested party, in contrast with the provisions set forth in the federal law. The latter requires that the request for an extension shall be submitted at least 24 months in advance, counted as of the end of the original contract signed, and must also occur when the contract has reached between 50% and 90% of its original term.

Other requirements of the federal law that were detached from the São Paulo version of the rule are the prohibition that the same contract is extended more than once and the limit on the term of its extension. While extensions of federal contracts may only occur once and with its duration limited to a period equal to or shorter than the extension period originally established or admitted in the contract, in state contracts these limitations do not exist. This is because, in the state rule, there is no prohibition on successive extensions and their duration is not linked to a specific framework based on the original term of the contract, but, in fact, is related to the (i) amortization of investments not originally provided for or (ii) the mitigation or resolution of economic and financial imbalance.

In order to justify the extension and support its decision, the competent entity shall present a technical, economic, and environmental study demonstrating the advantage of the extension in relation to promoting a new bidding procedure. In addition to the requirements already enforced at the federal level, the State Administration must contemplate additional analysis and information, namely: (i) the reasons for maintaining or changing the remuneration criteria; (ii) mechanisms that demonstrate mitigation or resolution of the economic and financial imbalance found in relation to the private partner; and (iii) guarantees that will be given to the private partner as a way to mitigate the contractual risks and reduce the associated costs. At this point, the state legislature was especially concerned with guaranteeing the economic and financial balance of contracts in the context of changing their term of duration.

The most relevant procedural change in the state law, in comparison with the federal law, is the fact that it is silent with respect to prior public consultation and the submission of the extension process to the scrutiny of the accounting court.

The rebidding provided for in the federal law also inspired the São Paulo legislator. This administrative procedure provides for a friendly termination of partnership agreements and the signing of a new business arrangement for the ventures, under new contractual conditions and with new contracting parties, by means of a bid promoted for this purpose. Both laws provide for the possibility of rebidding existing contracts that: (i) are not being complied with by providers; or (ii) whose providers show an inability to fulfill the contractual or financial obligations assumed.

On the one hand, the federal law establishes that the regimes for judicial and extrajudicial reorganization provided for in Law No. 11,101/2005 (except in the case provided for in paragraph 1 of article 20 of this law) do not apply for the rebidding procedures intended by the public authorities. The state law, on the other hand, does not mention these regimes.

Another important provision of the state law also inspired by the federal rule is the possibility for the parties to submit their calculation of the compensation to an arbitration proceeding, carried out alongside the administrative proceedings for the new bidding. The state legislature reveals the same intent to make the process more efficient, since the discussion of compensation in the judicial sphere is one of the main factors for delay in cases of the termination of contracts. Thus, both laws recognized faster means for the resolution of conflicts: amicable termination and arbitration.

The definition of property right, in order to allow the submission of the termination procedure to arbitration, gained an amendment in the state law. The text finds that divergences regarding the technical execution of a contractual obligation shall also be considered an economic right subject to arbitration, in addition to those other situations already considered in the federal law, namely: (i) questions related to the recomposition of the economic and financial balance of the contracts; (ii) calculation of compensation resulting from the termination or transfer of the concession contract; and (iii) default in contractual obligations by either party.

The state rule has also required the execution of a public consultation before deciding to rebid a contract. However, instead of sending the studies to the accounting court after the public consultation, the Commission of Control and Oversight of the Legislative Assembly will be the institutional body responsible for expressing its opinion on the process in São Paulo.

As a way to mitigate risks and reduce costs associated therewith, the São Paulo law established a general authorization for the creation of a public guarantee in common concession contracts, public-private partnerships, concessions governed by sectorial legislation, permission of public services, and other public-private deals. This provision seems to bring in an important component of innovation, with no corresponding provision in the federal law: The State Administration, which was only authorized to provide guarantees under public-private partnership contracts, could now do so in relation to other various types of contracts.

The federal law restricts its scope of application to road, rail, and airport industries, considering that others sectors already have a specific rule regarding those institutes. In turn, the state law referred to health, sanitation, piped gas services, and transportation infrastructure sectors (such as highways, road, rail, metro, railway, and waterway transportation).

Both laws reflect an increasingly well-founded understanding that conventional bids bring with them their own costs and therefore cannot be considered the only legally valid alternative available to the public administration. Both extensions and rebidding, if the precautions for their correct application are observed, can minimize opportunity costs and provide greater speed and economy in the implementation of new investments, in addition to accomplishing termination of unsuccessful contracts, resolving the imbroglios, and giving continuity to the projects of the State’s interest.

Category: M&A and private equity

Law No. 13,800/2019, enacted in January, converted into law, with various modifications, Presidential Decree No. 851/18, published shortly after the fire at the National Museum in Rio de Janeiro. The purpose was to regulate endowments and other heritage or philanthropic funds. Among the changes promoted are simplification of the governance of the endowment funds and the expansion of the causes to be supported by them, with the express inclusion of human rights, public safety, and other causes of public interest.

Endowment funds are sets of private assets organized, managed, and administered by an independent organization with the purpose of providing a long-term funding for the supported institutions or the institutions holding the funds. As a general rule, only the net income of the endowment, discounting for inflation, but not its principal amount, may be applied to projects. These funds serve as a regular and stable source of funding for institutions whose purpose is to develop projects for education, science, technology, research and innovation, culture, health, environment, social assistance, sports, public safety, human rights, and other purposes in the public interest. For the time being, such institutions may be public or private non-profits.

Law No. 13,800 has brought in important advances in encouraging donations in Brazil by improving the corporate governance of endowment fund management organizations, therein providing for a separation of responsibilities among those who manage these funds and the institutions supported by them. The endowment fund manager must include in its bylaws, among other matters: (i) its name, which should include “endowment fund manager"; (ii) supported institutions (the change requires a qualified quorum); (iii) the obligation to set up a board of directors, audit committee, and investment committee (the latter for funds with equity exceeding R$ 5 million), as well as rules regarding the composition, operation, competencies, form of election or appointment of its members, and (iv) the form of approval of policies regarding management, investment, redemptions, and use of fund resources; (v) transparency and accountability mechanisms; and (vi) prohibition on the allocation of funds to a purpose other than that provided for in the bylaws and prohibition of granting guarantees to third parties over the assets that make up the fund.

The regulations also require endowment funds to (i) maintain accounting books and records in accordance with Brazil’s generally accepted accounting principles, with annual disclosure of the financial statements and management and use of resources on their websites; (ii) submit, every six months, information on investments and, annually, on the use of resources; (iii) adopt internal mechanisms and procedures for integrity, auditing, and incentives for reporting irregularities; and (iv) establish codes of ethics and conduct for managers and employees. Fund management organizations with shareholders' equity exceeding R$ 20 million must have their financial statements reviewed by independent auditors.

Law No. 13,800 also provides that the managing entity’s board of directors shall be composed of a maximum of seven members. It is the responsibility of the board to decide on changes to the bylaws, investment policy, management rules, and rules for the redemption and use of resources, as well as financial statements and provision of accounts of the fund management organization, among other matters.

The investment committee, to be appointed by the board of directors, is responsible for recommending to the board the investment policy and the rules for the recovery and use of funds, in addition to coordinating and supervising the actions of those responsible for managing funds, and to prepare an annual report on this management work. Another important advance of Law No. 13,800 for the professionalization of management of endowment funds is the authorization for management organizations to outsource the management of the fund to a legal entity registered with the Brazilian Securities and Exchange Commission (CVM), allowing the payment of a performance fee.

The audit committee must be composed of three members appointed by the board of directors, and members who sit on the board of directors in the three years prior may not be appointed. The members of the board of directors, audit committee, and investment committee may be compensated in accordance with the fund’s income.

The endowment funds’ managers will only be held liable for damages that they cause when they engage in (i) acts of management with willful misconduct or by virtue of gross error; or (ii) acts that violate law or statute.

Law No. 13,800 created the role of the executive organization, a non-profit institution or an international entity recognized and represented in Brazil, which may be engaged by the managing organization to assist and coordinate the supported institution in the development of projects and programs. The law regulates the relationship between the supported institution and the management organization, therein requiring the execution of a partnership instrument and the execution of programs, projects, and other purposes within the public interest, which must establish, respectively, (i) the cooperation link between them and the purpose of the public interest to be supported; and (ii) how the funds will be spent.

Endowment funds may receive grants under the following modalities: (i) permanent non-restricted, which refers to funds whose principal is incorporated into the fund's permanent assets and cannot be redeemed, but income may be used in general programs and projects; (ii) permanent restricted to a specific purpose, which defines resources whose principal is incorporated into the permanent assets of the fund and cannot be redeemed, but the income may be used in projects related to the purpose previously defined in the instrument of donation; and (iii) specific purpose, which includes resources allocated to previously established projects, the principal of which may be redeemed in accordance with the terms and conditions set forth in the donation instrument.

Provided that they are intended for cultural projects, the amounts relating to specific purpose restricted donations and specific purpose donations may be deducted from the tax due on the donor's income tax return at 100% or 80% of the donation made to individuals, subject to the global deduction limit of 6% of the tax due; and 100% or 40% for legal entities taxed on the basis of the real profit regime, subject to the limit of 4% of the tax due, depending on the classification in the Rouanet Law.

Presidential Decree No. 851 originally extended the deductibility of donations to other causes, such as human rights, public safety, and other causes in the public interest. However, these provisions of Law No. 13,800 were subject to a presidential veto due to concerns about the relinquishment of government revenues. By limiting the deductibility of income tax only to donations for cultural projects, the law has missed an excellent opportunity to encourage donations to other social causes and thus to make endowment funds a useful tool for the third sector in general. These presidential vetoes will still be evaluated by representatives and senators within 30 days as of February 2, 2019.

Discussions on the enactment of the law were also an opportunity to address, at the national or state level, another recurring problem in the third sector: the application of the Tax on Transfers Causa Mortis and Donation of Any Goods or Rights (ITCMD) in donations to social causes. In the specific case of the state of São Paulo, the ITCMD is the responsibility of the grantee, incurred at the rate of 4% (the maximum established by the Federal Senate is 8%) over the amount donated. Entities whose social objective is to promote human rights, culture, or the environment have an exemption from this tax. Pursuant to the terms of article 4, item IV, of Decree No. 46,655/02, the ITCMD does not affect the transfer of assets and rights to the equity of educational and social assistance institutions that enjoy immunity only in relation to assets linked to essential purposes, which do not include assets for use as a source of income (as would be the case of endowment funds).

Considering that the ITCMD would be applicable to donations to funds and, in most cases, to donations from funds to supported institutions, a concern with double taxation of funds intended for social causes arises.

According to a study by a researcher with FGV, Rafael Oliva, and the report Sustentabilidade econômica das organizações da sociedade civil – Desafios do ambiente jurídico brasileiro atual ["Economic Sustainability of Civic Society Organizations - Challenges in the Current Brazilian Legal Environment”], FGV Direito SP, the funds raised with ITCMD, including inheritances and donations, correspond to 1% of net current revenue of the state of São Paulo, and only 1% of the total collected (therefore, 0.0168% of the net current revenue of the State of São Paulo) refers to donations to legal entities, including civil society organizations, which demonstrates the financial viability of this tax relinquishment.

Regulation of endowment funds through Law No. 13,800 provides greater legal certainty for donors and managers of social projects, as well as improved transparency and corporate governance for the third sector. However, limitations on tax deductibility stemming from the presidential veto cast doubt on the success of endowment funds as a tool for developing a culture of donations in Brazil.

Category: Labor and employment

Federal Decree No. 9,571/2018 has been drawing the attention of companies by assuming effective legal rules on liability for the chain of production. The decree stipulates the guidelines on human rights to be adopted by Brazilian and multinational companies of all sizes, in the context of their whole operation.

The regulation deserves attention in labor matters, since current norms and case law are based on the principles of promoting human rights and the dignity of the person for the protection of the worker, such as issues related to safety and occupational medicine, although there is divergence as to the existence of rules effectively based on a law governing corporate liability for the chain of production, as the decree presupposes.

In general, the text seeks to promote human rights in the business environment in compliance with the norms established in the Federal Constitution, infra-constitutional norms, and international conventions to which Brazil is a signatory.

The decree also proposes that companies adopt various measures to contribute to the defense of human rights, among which the following stand out:

1. monitor respect for human rights in the chain of production linked to the company;
2. adopt procedures to evaluate respect for human rights in the chain of production;
3. identify the risks of impact and violation of human rights in the context of their operations;
4. implement human rights education activities for all employees and partners; and
5. provides courses, lectures, and evaluations to all employees and partners.

By directing companies to monitor their entire operation, including the chain of production, the decree stipulates that, necessarily, companies should be concerned with the defense of human rights not only within the scope of activities of their employees, but also in relation to all workers who contribute to the preparation of the product or provide it with a service, such as suppliers of raw materials or inputs.

Until then, the justification used by the bodies of control, notably the Labor Prosecutor’s Office, to impute corporate liability for the chain of production was based on principles, encompassing the Federal Constitution, international conventions, the Civil Code, and the Consumer Defense Code, among others. Since the publication of the decree, it is envisaged that, although companies may voluntarily comply with the guidelines provided, the Labor Prosecutor’s Office will begin to use it as a legal basis, and no longer a principle, for imputing liability for the chain of production.

Although the imputation of this liability based on a federal decree is questionable, companies must protect themselves and comply with the guidelines therein, since if the chain of production is not monitored and measures to control suppliers are not adopted, inevitably the company will be liable.

The decree alludes to the liability of companies for the chain of production in the provisions related (i) to the duty to monitor and respect human rights; (ii) identification of risks of impact and violation of human rights in the context of its operations; (iii) adoption of procedures to evaluate respect for human rights in the chain of production; and (iv) adoption of measures to prevent and remedy human rights violations in the chain of production.

To avoid imputation of liability, it is advisable to adopt some measures not only to highlight the company's concern with social responsibility, but also to strengthen its image in the market, especially in the current context of prominence of the compliance culture. Among them are the following:

1. prepare a check list of the requirements to be fulfilled in contracting with suppliers;
2. revise agreements for the provision of services with suppliers; and
3. revise the current code of conduct to implement guidelines suggested by the decree.

As part of this effort to adopt measures to defend human rights and eliminate risks of violation, whether within the company or in the chain of production, we recommend not only preparing or revising internal policies (codes of conduct), but also investing in education on the subject (courses and training) and in supervision (mapping and auditing of partners).

Category: Intellectual property

With the adequacy season to the Brazilian  Personal Data Protection Law (Law No. 13,709/2018), aka LGPD, opened and reinforced by the creation of the National Data Protection Authority (or ANPD, Presidential Decree No. 869/2018), managers and organizations are being bombarded with risk analysis, recommendations, market solutions, and a multitude of information and cross-cutting discussions that, although relevant, may be of little use or even disrupt them, if they do not have the right mindset and travel plan.

Click here to acess the ebook that we prepared to help you to develop action plans that give attention to relevant environments of influence.

Category: Tax

The system of precedents established by the Brazilian Procedure Code published in 2015 (CPC/2015) is based on the premise that trials of given instruments will have a binding effect on the Judiciary and that, solely for this reason, decisions that do not follow the understanding of such precedents will be challenged by a special lawsuit named “Reclamação”. Decisions with binding effects resulting from: i) trials held by the Federal Supreme Court (STF) in concentrated control of constitutionality; ii) stare decisis (“súmula vinculante”) issued by STF (here, also binding on the Administration, not just for the Judiciary); iii) trials in incidents for assumption of jurisdiction or resolution of repetitive claims; and iv) trials of extraordinary or special repetitive appeals by the STF or the Superior Court of Justice (STJ), respectively.

The CPC/2015 establishes that (i) the publication of the stare decisis by the STF and the STJ and (ii) decisions issued by a special body of the courts must be observed by the trial and lower courts. However, these decisions have reduced binding force at the option of the lawmakers, which is why we believe that their relevance is greater in the persuasion of trial in lower courts.

Precedents with binding force in the system of the CPC/2015 therefore emerge from the fact that the decision was rendered in a trial of a certain instrument, and there is no specific discipline regarding the content that effectively binds the bodies of the Judiciary. Is it the majority opinion? Is it the theory set out in the conclusion of the trial? Is it the briefs leading to the understanding that prevailed? These inquiries are not adequately established by the CPC/2015.

At least in relation to decisions resulting from the trials of extraordinary or special repetitive appeals, it is possible to conclude that the matter analyzed has a binding effect (article 1,039). This is despite the fact that 1,038, paragraph 3, of the CPC/2015, states that the decision published shall comprise a review of the relevant grounds of the matter debated.

Although this rule is specific to the binding effect of decisions rendered in repetitive appeals, which establishes similarity with the binding precedents, since there is only one extract indicating, in a summarized form, the understanding that must be followed, we believe that the system established by the CPC/2015 did not give that much prestige to the briefs for the decisions.

Thus, by rendering a decision that, according to CPC/2015, will assume a binding nature for the Judiciary as a whole, the Court will act, in an indirect way, as if it were a legislator. This situation occurs because the summary of the theory decided will be similar to any section of a given law that should be interpreted by the judge when applying the law at the moment of deciding a specific case.

For this, the discussions raised after the trial of Theory of General Repercussion 69. Upon concluding the trial of Extraordinary Appeal 574.706-PR, on March 15, 2017, the STF ruled that “the ICMS tax cannot be included in the calculation basis of PIS and Cofins contributions." Many inquiries regarding the scope of the theory ruled could be resolved if the CPC/2015 provided that, upon conclusion of a decision whose decision would be binding, the panel would not only ruled the summary of the precedent, but also indicate the reasons guiding the interpretation of the statement of law in an additional chapter of the decision that contemplates the analysis of the relevant grounds accepted by the majority, the so-called average opinion or vote.

Such a procedure would prevent the issues raised from the interpretation of the binding precedent from remaining on the agenda of the courts.

Therefore, we believe that the system of precedents designed by the CPC/2015 will fail in its objective of giving priority and promoting legal certainty and stability of case law if the issue pointed out in this article is not fixed.

And the harmful effect of the current system is verified empirically, since, once a theory is ruled in a trial of an instrument with binding effect, the precedent has been applied without distinction. In addition, in the cases of misinterpretation done in conjunction with the reasons of the trial rendered, the supposed objective of re-discussing that subject already decided and whose decision is qualified by binding force is invoked as a ground to not assess the merits of the special or extraordinary appeals.

Therefore, that the system of precedents of the CPC/2015, as mentioned above, results in a mere mechanism for managing cases that deal with similar matters and one more argument to be used by so-called "defensive case law" as an obstacle to hearing appeals.

Category: Infrastructure and energy

In a letter sent to Cade, ANP analyzes measures necessary to promote competition in the natural gas market and advocates for the implementation of a gas release program to ensure a smooth transition.

The natural gas market in Brazil is undergoing significant but still timid progress towards greater openness to competition. Initiatives like the public call for bids of TBG are viewed favorably, scheduled for this month of February, and the public call for purchase of natural gas promoted by some significant distributors are being received by players in the industry.

Following the publication of Decree No. 9,616/2018, in the last weeks of the government of former President Michel Temer, the year 2019 has already begun with another important sign for the market. In early January, the National Petroleum, Natural Gas and Biofuels Agency (ANP) released a technical note sent in 2018 to the Administrative Council for Economic Defense (Cade) addressing competitiveness in the Brazilian natural gas market, currently marked by a monopoly, and suggesting that the body take action on the topic.

The letter sent to Cade is another of the actions in which the agency has invested to promote competition in the natural gas industry and that evidences the increasing activism of the ANP in advancing an agenda in favor of opening to competition. Technical Note No. 14/2018-SIM addresses the market power exercised by Petrobras in the end-to-end natural gas industry, describing the dynamics present in the different segments (exploration and production, outflow, processing, import, transportation, and marketing and distribution), and proposes measures deemed necessary to promote competition in the industry.

Although the Gás para Crescer [Gas to Grow] initiative did not receive the support necessary in the National Congress, the respective debate at least served for the agency to find a favorable environment for advancing discussions on the topic and preparing the technical note sent to Cade. The document was designed with a competitive approach, and the agency even took care to adopt the same analysis tools as the antitrust authority, raising issues such as barriers to entry, economies of scale, new bidders, and guarantee of equal access.

In the first part of the document, the ANP outlines the performance of Petrobras in the current scenario, confronting public interest and economic efficiency. In the next section, it analyzes some actions that it considers necessary to promote competition in the industry. In the context of Petrobras strategic decision to sell part of its assets in the gas sector and the potential for opening it represents, the agency's proposals include guaranteeing third-parties equal access to essential facilities (infrastructures), de-verticalization of natural monopolies in transportation, and in the distribution and implementation of measures that make feasible new natural gas offers and price competition among new suppliers.

Regarding the application of the principle of free access, the regulatory agency advocates for obligatory access for third parties (market players who do not own gas pipelines) to infrastructures considered essential: gas pipelines, Natural Gas Processing Units (UPGNs), and the LNG terminals, always on a non-discriminatory and transparent basis and compatible with the undeniable preference of the owner. Considering that regulations should not impose a mere restriction, but rather optimize the use of assets by different agents in order to avoid a monopoly scenario.

For the de-verticalization of natural monopolies in transport and distribution, the agency proposes effective separation and independence of transport players in relation to the other activities in the chain, along the lines of the European experience. It also proposes, in relation to distribution, to eliminate non-public commercial transactions between related parties to serve a captive market, which would limit or curb self-dealing practices and promote the full disclosure of contracts for the sale of gas to distributors.

Regarding the implementation of measures to enable new offers and competition through price, ANP stresses the importance of introducing competition and deconcentrating the gas supply through gas release programs. Other recommendations explored by the agency are a limitation on the monopoly player’s participation in the market, restriction on re-contracting of the entire volume of natural gas from Bolivia via Gasbol, and prohibition on shareholding participation of shippers in the voting capital of transporters.

The technical note is rich in references to European models, drawing on the experience of Directive 2009/73/EC of the European Union, which gave rise to the three independence models adopted by European countries for the transport segment, and the experience of the British with the programs of mandatory sale of natural gas, the so-called gas release. Designed to overcome the lack of equal access to gas supply or transport capacity, this type of regulation was successfully introduced in the United Kingdom in the 1990s to boost competition in the natural gas industry and has since been adopted in different countries and regions as a transitional measure to address well-established monopolies or oligopolies in the natural gas market.

According to the ANP, the measures aim to achieve in the long run a single and paramount objective: to move towards liberalization of the captive market in a progressive and planned manner, promoting competition through transparent and fair-trade transactions until producers can sell gas directly to final consumers at competitive and fair prices. Only with more supply and an effectively competitive and deconcentrated market would it be possible to generate more benefits for the captive market.

With no major advances in the legislative sphere, in the face of the paralysis of the progress of Bill 6,407/2013 (the Gas Bill) in the Chamber of Deputies, or any other significant legal development to date, the ANP’s activism is more than expected, finding even a receptive industry, which hopes that all this awakening of regulatory and cooperative activity with other agencies may intensify, so that at least in the administrative sphere progress is being made. The release of the technical note renews the confidence of the sector, which provides for greater regulatory and competitive activity under the Cade-ANP Cooperation Agreement for the refining and especially natural gas markets.

Category: Infrastructure and energy

A draft legislative decree (PDC) is pending before the National Congress which scope is to eliminate the provision for mandatory registration as “support facilities for water transport” of FSRUs (Floating Storage and Regasification Units – i.e., gas vessels) with Antaq (the National Agency of Waterway Transport).

PDC No. 1,091/2018, proposed by Representative Hugo Leal (PSD-RJ), considers such registration rule to be illegal and contrary to the principles governing water transportation in Brazil. Because of that, the PDC-RJ seeks to halt the effects of paragraph 3 of article 2 of Antaq Normative Resolution No. 13/2016, which provides for the registration of waterway support facilities before the agency, among which FSRUs are included:

“Article 2.

I - Floating installations anchored in Brazilian jurisdictional waters, including interior waterways, in a geo-referenced position, duly ratified by the Brazilian Navy, not connected to an onshore installation, used for reception, storage, and transfer of solid, liquid, and gaseous bulk cargoes;

(...)

Paragraph 3. An exception is made for the provisions of item I of the head paragraph, with regard to the prohibition on connection to a terminal located on land, in the case of vessels adapted for regasification bottoming operation while bottomed/moored, even when located within the limits of the Organized Port."

Based on the interpretation of this rule, foreign-flagged FSRUs registered as waterway support facilities would not need to comply with the chartering rules governed by Law No. 9,432/1997. This is because, in practice, such infrastructure would be used as port support facilities and not as vessels, which would lead to the conclusion that their operation would not be restricted to Brazilian shipping companies (EBN).

Through PDC 1,091/18, Representative Hugo Leal argues that "the repeal of paragraph 3 of article 2 of Resolution No. 13/16 is necessary to restore competitiveness in the sector and legal certainty in operations, preventing the opening of the market for foreign shipping companies without any investment in Brazil."

The representative also argues that Law No. 9,432/18, upon listing vessels that would not be subject to its provisions (article 1) did not include FSRUs and that, if such exclusion were intended, it should have been expressly referred to in a formal law. For this reason, Antaq was said to have exceeded its regulatory power by passing the resolution challenged, thus violating the principles of public interest, reasonableness, and proportionality.

However, representative Hugo Leal's argument is built on an assumption that, after a more accurate analysis, cannot be sustained: that foreign-flagged FSRUs would be released from the EBN chartering rules only if they were explicitly listed among the vessels excluded from the scope of Law No. 9,432/97.^[1]

The focus of the discussion, in fact, should not be on whether or not FSRUs are subject to the terms of Law No. 9,432/97, but rather on the activities they carry out. Attention should be paid to the fact that FSRUs used for receiving, storing, and/or re-gasifying LNG, when connected to land facilities, do not engage in any type of navigation, and are anchored for long periods of time (even decades).

The rule that requires the chartering of foreign-flagged vessels by EBNs, on the other hand, is provided for in article 7 of Law No. 9,432/97, which applies to the transportation of goods in coastal shipping and inland navigation through national waterways, as well as port support and maritime support navigation.^[2]

There is no doubt that FSRUs connected to port infrastructures do not carry out the navigation activities listed in Law No. 9,432/97 (maritime support, port support, coastal shipping and deep sea navigation).^[3] Thus, even if the FSRUs are not considered excluded from the scope of Law No. 9,432/97, the fact that they do not carry out shipping activities would eliminate, by itself, the requirement for FSRUs flying a foreign flag to be chartered by an EBN, since it would not be subject to the terms of article 7 of Law No. 9,432/97.

Antaq’s management has already expressed, in specific cases, the understanding that FSRU does not perform shipping activity, and therefore would not be subject to the chartering rules provided for under Law No. 9,432/97, and could be registered as a port facility under Resolution No. 13/16.

Therefore, the intended revocation of paragraph 3 of article 2 of Resolution No. 13/16 would not have the effect of automatically achieving the objectives allegedly targeted by representative Hugo Leal. This is because, even if the FSRU registration framework is terminated under the aegis of Resolution No. 13/16, the argument that Law No. 9,432/97 would not in any way impose the need for an FSRU flying a foreign flag to be chartered by an EBN for domestic waterway operations, does not lose force. Quite to the contrary, the repeal of this provision would only create a loophole with respect to the regulation of these vessels by Antaq, thus aggravating the legal uncertainty which PDC No. 1,091/18 allegedly seeks to eliminate.

It is also possible to deconstruct the argument that the measure taken by Antaq through Resolution No. 13/16 is an overstepping of the regulatory power of the agency and should be preceded by a formal law. In creating Antaq, Law No. 10,233/2001 attributed to the agency the power to regulate waterway transport and the use of federal waterway infrastructure.^[4] Thus, whether or not Antaq has delegated mandate by law to regulate the sector (as done by Resolution No. 13/16) cannot be questioned.

In respect to the need for a formal law for such regulations, applicable law does not establish that classification of water transport support facilities (the subject matter of Resolution No. 13/16) should be regulated by law. Thus, there is no obstacle to regulation of the matter by Antaq. Along these lines, the majority administrative law doctrine recognizes that the administration has ample leeway to regulate when it is granted legal competence, and should not only act as a mere "mechanical arm" of the law, per the words of Professor Carlos Ari Sundfeld, in verbis:^[5]

"As the legal mooring of the contemporary Administration is carried out, along with the formal law, by various other sources and mechanisms, the viability of the Rule of Law is not compromised due to the mere fact that the administration exercises broad creative competences by legal authorization."

The measure adopted by Antaq in considering FSRUs as support facilities, contrary to what is argued in PDC No. 1,091/18, complies with applicable legal and constitutional principles. This is because, by reducing the cost and bureaucracy required for natural gas import and regasification projects, it creates an environment of incentives for such projects and (i) promotes economic and social development; (ii) guarantees the national supply of natural gas (and, consequently, the supply of electricity); (iii) promotes free competition among market players, providing a more efficient end-user service; (iv) it does not harm the national naval industry, since there are no FSRUs built by national shipyards; (v) it does not contravene the principles of reasonableness and proportionality, since the analysis of these issues was carried out by Antaq in preparing the resolution and deciding on related matters (as set forth above), and there is no justification in the PDC that demonstrates a breach of these principles; and (vi) serves the prevailing public interest for the various reasons set out in this paragraph.

---

^[1] Warships and state ships not employed in commercial activity, sport and recreational craft, tourism vessels, fishing vessels, and research vessels.

^[2]“Article 7. Foreign vessels may only participate in the transportation of goods in coastal shipping and inland navigation through national waterways, as well as in port support navigation and maritime support navigation, when chartered by Brazilian shipping companies, in compliance with the provisions of articles 9 and 10."

^[3] As defined in article 2 of Law No. 9,432/97.

^[4] Law No. 10,233/2011, articles 20 and 23, I and V

^[5] Sundfeld, Carlos Ari. Direito Administrativo para Céticos [“Administrative Law for Skeptics”]. Malheiros, 2014, 2nd edition. São Paulo

Category: Labor and employment

The Superior Labor Court (TST) granted relief to an appeal filed by a company seeking to recognize as valid a collective bargaining agreement that authorized the use of an alternative system for controlling work hours, in which the employee only records overtime and not the other points of the workday. The decision was rendered on October 9 as part of Case No. 0002016-02.2011.5.03.0011.

Many companies have in the past adopted time card control by exception (system in which only overtime is recorded) due to the practicality of information management, since the system minimizes effort and reduces the work of checking data and accounting for hours and overtime.

In the case under review, the Regional Court of Labor Appeals (TRT) of the 3rd Region had considered invalid a collective norm authorizing the recording of the workday via exception on the grounds that such a system contravened the provisions of article 74, § 2, of the Consolidated Labor Laws (CLT), which mandates the recording by the employer of the hours of entry and exit of employees.

Modifying the decision that had been handed down by the TRT, the TST acknowledged that the form of marking the workday is not a part of the list of inalienable rights of workers, which is why there is no obstacle to negotiating so as to rule out the application of article 74, § 2, of the CLT in order to serve the interests of the negotiating parties.

Invoking the terms of article 7, XXVI, of the Federal Constitution (CF), the TST stated that the Labor Courts have a constitutional duty to encourage and guarantee compliance with decisions reached via collective mutual agreement. Therefore, if collective entities (companies and trade unions) act on an equal footing and with parity of arms in the context of collective bargaining, legitimate working conditions are agreed upon when the legal limits are respected, as is the case with the system of institution of alternative workday controls.

The TST also underscored the understanding of the Federal Supreme Court (STF) regarding the controversy about the Jurisprudential Guideline No. 270 of the Individual Disputes Secretariat 1 (which sets forth the Voluntary Resignation Incentive Program), in which collective autonomy of will is given precedence as a form of overcoming conflict that plays a very important political and social function,” and “the systematic invalidation of collective bargaining agreements should not be viewed favorably on the basis of a logic that limits the autonomy of the will exclusively applicable to individual employment relationships" (Extraordinary Appeal No. 590.415 – Published on 05/29/2015).

The decision handed down by the TST not only represents an important precedent for companies that have used alternative controls of working hours in the past but also reinforces the legitimacy of similar negotiations in the future, including in light of the provisions of article 611-A, item X, of the CLT, recently introduced by the Labor Reform.

This article establishes the collective norms that prevail over the law regarding the modality of registration of working hours, exactly the case submitted to the TST for review, since the decision recognized the validity of a collective agreement that instituted control by exception to the detriment of the provisions of article 74, § 2, of the CLT (which provides for the annotation of hours of entry and exit).

Category: Infrastructure and energy

On the eve of the end of the government and with frustrated expectations regarding the advance of Bill No. 6,407/2013 (the Gas Bill), President Michel Temer enacted on December 17, Decree No. 9,616 in order to amend Decree No. 7,382/2010, which regulated Chapters I to V and VIII of the Gas Law.

The measure came as a result of the many debates held between industry and government agents and after various initiatives developed over the last few years. In general terms, the amendments envisaged in the decree are in line with the provisions of the Gas Bill and the proposals presented as part of the Gas to Grow (Gás para Crescer) initiative, thus laying the general foundations for structuring the natural gas industry and leaving the regulation of specific topics to the National Petroleum, Natural Gas, and Biofuels Agency (ANP).

The decree gives continuity to the strategic guidelines for the design of the natural gas market published by the National Council of Energy Policy (CNPE) in 2016 and seeks to meet the expectations of the market players. Its main objective was to flexibilize regulatory and legal criteria and procedures related to the natural gas industry, in addition to granting the ANP greater regulatory autonomy so that the changes necessary for the development of the natural gas industry may be implemented continuously.

With the new decree, gas pipelines that do not fit into the definitions of the modes of disposal, transportation, or transfers may be classified according to the criteria established by the ANP.

The regulatory agency is in charge of establishing the criteria of autonomy and independence in the exercise of the transport activity for both new transporters and for existing transporters. The objective is to promote free competition, transparency of information, non-discriminatory access to pipelines, and efficient use of facilities.

Criteria and procedures for the expansion (extension and construction) of Brazil's pipeline network were made more flexible. Some provisions in the public call notice and the bidding process were repealed. Thus, the provision that established that the criterion for the selection of the winning bid would be the lowest annual revenue was deleted, which, in turn, would correspond to the annual amount to be received by the carrier for the provision of the transportation service. The provisions dealing with the reference pipeline, used to define maximum annual tariffs and revenues, considered for purposes of public call for bids and concession bids, were also repealed.

Specifically regarding the bidding document, the decree revoked provisions regarding the mandatory items that should accompany the technical proposal, namely: preliminary pipeline design; description of the equipment to be incorporated into the infrastructure; material specification; local content ratio; list of shippers who signed a commitment agreement in the public call process; among others.

With respect to third-party access to transportation pipelines, the decree provides that the tariffs for the transport activity are to be proposed by the carriers and approved by the ANP in accordance with the criteria established by the agency. The previous wording stated that the ANP would establish both the criteria for the definition of the amounts due from third parties interested in accessing the pipeline as well as the form of payment and its allocation.

One of the most significant changes brought by the decree, however, was the provision regarding natural gas transportation systems, defined as those formed "by interconnected transmission pipelines and other facilities necessary to maintain their stability, reliability, and safety, in accordance with the ANP’s regulations", as defined in the Gas Bill. Again, the ANP was responsible for the specific regulations regarding the transportation system. The transportation services will be offered in the entry-exit model, whereby entry and exit capacities may be contracted for independently. There was great expectation in the industry regarding the treatment of the topic since the beginning of the debates, in the middle of 2016.

The decree expressly stipulates that the new entry-exit model for natural gas transportation services will not affect the rights of carriers with contracts currently in force. In addition, the ANP may establish "incentives" in relation to the maximum revenue allowed for transporters so as to adjust current transportation contracts to the new modality.

Regarding access to essential infrastructure (gas pipelines, natural gas processing and treatment units, and LNG liquefaction and regasification terminals), a provision was included in the decree to provide that refusal of access that constitutes anti-competitive behavior will subject the agent to the sanctions applicable in accordance with Law No. 15,299/2011 (the Cade Law). The ANP was received the attribution to establish guidelines for facility owners and operators in order to develop common access codes in conjunction with the agency.

With respect to the treatment of free consumers, one of the most sensitive issues in the natural gas industry today, the decree merely stated that "the Federal Government, through the Ministry of Mines and Energy and the ANP, shall liaise with the States and with the Federal District for the harmonization and improvement of standards related to the natural gas industry, including in relation to regulations with respect to free consumers." The wording suggests that an additional effort will be required by the Federal Government in order to ensure free consumer regulations in the states.

The publication of the decree brings about new momentum for the industry, which expects intense regulatory activity from the ANP in the coming months in order to implement the measures necessary to put the changes into effect.

Category: Labor and employment

The need to create specific breastfeeding areas for employees of shops is a matter that has not yet been settled among the panels of the Superior Labor Court (TST). In September, over a few weeks, the court handed down judgments in diametrically opposed terms, in two cases whose claims were identical: the creation of space for safekeeping, security, and assistance for shop employees.

In a decision published on September 10, the 8th Panel of the TST ruled that shopping malls are not required to create such spaces and that it is incumbent on the employers (the stores in them) to meet that specific need. A few days later, on the 19th, the 2nd Panel of the same court issued a decision exactly to the contrary, published on the 28th, stating that the shopping mall "should ensure a place for breastfeeding for shop employees."

The matter is relevant as it may also apply to similar public spaces such as airports, commercial buildings, community markets, and shared offices.

Section 389, paragraphs 1 and 2, of the CLT establishes that every enterprise, in establishments where at least 30 female employees over 16 years of age work, must have an appropriate place for their children to stay during periods of breastfeeding:

“Article 389 - All companies are required to:
(...)
Paragraph 1 - Establishments in which at least thirty (30) women older than sixteen (16) years of age work shall have an appropriate place where employees are allowed to keep their children under supervision and assistance during periods for breastfeeding.
Paragraph 2 - The requirement of paragraph 1 may be met through district daycares maintained, directly or through agreements, with other public or private entities, by the companies themselves, under a community regime, or by the SESI, SESC, LBA, or trade union entities."

The heading of the article is intended for "companies." On the other hand, paragraph 1 establishes the obligation based on each "establishment." As paragraph 1 is found within article 389, the legislator’s idea was to think of each establishment of the company, since if a company has establishments in various localities in Brazil, it would not be imaginable to think only of the number of 30 employees in the company’s total.

In the context of judicial decisions, the 8th Panel, in the judgment on the appeal submitted in case number 1487-13.2015.5.23.0002, ruled that there was no obligation on the part of the shopping mall to establish a place for breastfeeding, on the grounds that "the shopping mall assumes only general obligations as to the safety of workers, provision of toilets, and places for meals, but specific labor obligations derive from the employment contract entered into between the individual business establishments and their workers."

The decision also states that "such an obligation is intended exclusively for the real employer, as is drawn from an exegesis of article 389, paragraphs 1 and 2 of the Consolidated Labor Laws” and that it would be an "improper procedure to add all the employees of the stores to those of the shopping mall for this purpose."

Differently, the decision by the 2nd Panel of the TST rendered in the judgment on an interlocutory appeal in a bill of review (case No. 131651-27.2015.5.13.0008) was a little more extensive. The main argument for entering a judgment against the shopping mall was the principle of the social function of the company and article 227 of the Constitution of 1988 (CF/88).

It was also argued that the controversy cannot be an obstacle to the realization of the right vindicated and that "for the shop owner, the lessee of the 'commercial space', almost no freedom is assigned, everything is rigorously directed towards a standardization of facilities, actions, and procedures necessary to the ends of the collective enterprise." That is to say, for the 2nd Panel, "it is not, therefore, as the appellant claims, a mere lease agreement, but rather a relationship in which there is a strong interference by the respondent in the activity of the shop owners." In this same sense, it was argued that "shopping malls are, in fact, a commercial supra-establishment", acting in a "supra-business activity."

Moreover, according to the appellate decision, the judgment is based on structural subordination in the network and not on the economic group between the shopping mall and the stores:

"There is, therefore, among the employees of the shop owners and the condominium what the legal doctrine calls structural subordination in the network, thus justifying, also under this viewpoint, the liability of the respondent. That is, it is not liability based on the recognition of the existence of an economic group, as the appellant alleges."

Finally, the judgment pointed out that the law should be interpreted on the basis of the current context, such that it obliges establishments, and not companies, with more than 30 employees to provide space for breastfeeding.

The controversy is complex. To interpret in an expansive manner the applicability of section 389 of the Consolidated Labor Laws would result in other consequences in the labor sphere, especially when the concept of an "establishment" is expanded. Thus, sites including various companies could be compelled to meet apprentice quota, PCD [Persons with Disability Quota], set up an SESMT [Occupational Safety and Medicine Service], and an Internal Accident Prevention Committee (CIPA), according to the number of workers in those locations, even if they are not direct employees of the company that owns the structure.

Although section 227 of the Constitution ensures, as a matter of priority, to children all the fundamental rights provided for constitutionally, this constitutional provision does not show itself to be sufficient to conclude that section 389 of the Consolidated Labor Laws is intended for those who are not the real employer.

Such a conclusion is reached especially considering that the concepts of employer and establishment cannot be expanded by the judge beyond the labor conceptualization of the terms.

After all, section 389 of the Consolidated Labor Laws covers the "company." In turn, section 2 of the same law considers as an employer to be "the individual or collective company which, assuming the risks of an economic activity, hires, pays, and directs the personal provision of services." In addition, by establishment is understood, according to section 74 of the Consolidated Labor Laws, each place for provision of services, unlike the entire enterprise, which would be considered as being a "company."

Considering that shopping malls (or airports, commercial buildings, port complexes, common markets, and shared offices) would not pay nor direct the personal services of the employees of the companies, whose establishments are located in the interior of their enterprise, the decision by one of the panels of the TST could be legally opposed in view of these arguments.

Category: Tax

On April 7, 2018, the State of São Paulo published Complementary Law No. 1,320, of April 6, 2018 ("LC No. 1,320/2018"), resulting from Bill No. 25/2017, which establishes the Program for Stimulating Tax Compliance, “Compliance Program", defining principles for the relationship between taxpayers and the Tax Administration, as well as establishing rules for tax compliance.

By means of the principles established in article 1 of LC No. 1,320/2018 (simplification of the state tax system, good faith, and predictability of the Public Administration’s conduct, legal certainty and consistency in the application of tax legislation, publicity and transparency in the disclosure of data and information, and fair competition among economic agents), the Compliance Program aims at the following guidelines and actions:

I - facilitate and encourage self-regulation and tax compliance;
II - reduce compliance costs for taxpayers;
III - improve communication between taxpayers and the Tax Administration;
IV - simplify tax legislation and improve the quality of taxation by promoting, among other actions

According to article 5 of LC No. 1,320/2018, the Treasury Department of the State of São Paulo, for the implementation of the actions set forth in the Compliance Program, will sua sponte classify taxpayers into the following categories: "A+", "A”, “B”, "C”, "D", and "E” and" NC "(Not Classified), based on the following criteria:

(i) overdue ICMS tax liabilities;
(ii) consistency between bookkeeping or declarations and the tax documents issued or received by the taxpayer; and
(iii) profile of the taxpayer's suppliers, according to classification in the same categories and by the same classification criteria set forth in Complementary Law no. 1,320/2018.

According to the Complementary Law, for each criterion, the taxpayers will be classified into the categories, in descending order of conformity, considering all their establishments, subject to the forms and conditions to be established in regulations. The application of the classification criteria will only take into account the triggering events that occurred after the date of publication of LC No. 1,320/2018, and may take into account the taxpayer's business size and segment of the economic activity.

LC No. 1,320/2018 determines that the taxpayer’s classification, in any of the categories provided, will be reviewed periodically, according to regulations (which have yet to be published).

Taxpayers in a non-active registration situation, in the form and conditions established in regulations, will be classified into category "E". As regards the category NC, it will be transitory: (a) due to the need for gradual implementation of the classification system; (b) upon the commencement of the taxpayer's activities; (c) in the case of a supplier established abroad; and (d) other scenarios defined in the regulations.

Regarding the publicity of the classification, taxpayers will be informed in advance of the classification assigned to them, which will be available for public consultation on the electronic portal of the São Paulo State Treasury Department. Taxpayers may oppose the disclosure of their tax classification on the website, in which case their classification will not be prejudiced by said opposition.

In relation to the classification criteria, the rule in question states as follows:

(i) Regarding the first classification criterion (overdue ICMS obligations), article 7 of LC No. 1,320/2018 states that this will occur due to delay in the payment of the tax, such that the taxpayers with an tax obligation overdue by more than 2 months cannot be classified into the category "A+", and the taxpayer will be classified into category "D" when the obligation is pending for more than 6 months. Classification into the other categories will occur in the interval between the categories "A+" and "D".

Tax debts with suspended enforceability or subject to full collateral provided in court, or at a small amount fixed in regulations, will not be considered. In the event that a debit, previously suspended, loses said condition, it will be incumbent on the taxpayer to prove reinstatement of the suspension of enforceability at any time.

(ii) Regarding the second classification criterion (consistency), LC No. 1,320/2018 determined in its article 8 that the relationship between the amounts indicated in the tax documents issued and received by the taxpayer and those regularly recorded in the tax books or declared will be considered.

Taxpayers with 98% consistency will be classified into the category "A+” and taxpayers with less than 90% consistency will be classified into category "D". Classification into the other categories will occur in the interval between the categories "A+" and "D".

Taxpayers who agree with the divergence pointed out by the Tax Administration may request additional time for correction of their systems and procedures, noting that, in the event that the request is granted, and provided that the correction has been made within the time limit indicated by the Tax Administration, the divergence will not prejudice the taxpayer's classification.

(iii) Regarding the third classification criterion (suppliers), article 9 of LC No. 1,320/2018 determines that classification will consider the percentage of goods and services taxed by ICMS from suppliers classified into the categories of the Complementary Law.

Taxpayers with at least 70% of the total value of their entries from suppliers classified into the "A+" or "A" categories, and a maximum of 5% in the "D" category, will be classified into the "A+" category. Taxpayer with less than 40% of the total value of their entries from suppliers classified into the categories "A+", "A" or "B", or more than 30% into category "D” will be classified into category "D".

Supplier classified into category "NC" will not be considered for the purpose of the classification provided in the head paragraph of this article unless there is a relevant concentration of suppliers in that category in relation to the same taxpayer, in the form and conditions established in regulations.

In the case of taxpayers established in other Brazilian States that provide services and merchandise to taxpayers established in the State of São Paulo, the State Revenue Service may establish a separate procedure for registration and for electronic transmission of information, which shall be provided directly by the supplier itself or by means of an agreement entered into between the Revenue Service and the body responsible for the Tax Administration of the supplier and shall be used exclusively for criterion to classify the supplier. In the event of failure to transmit supplier information, classification into category "D" will be automatically adopted.

For taxpayers who collect state tax based on the Special Unified Tax Collection and Contributions Due from Micro-Companies and Small Enterprises - National Simple System, established by Complementary Law No. 123, of December 14, 2006, the regulations may establish parameters for conformity and respective forms for calculation different from those established for other companies.

Among the actions for self-regulation, the Revenue Service will institute the Preliminary Tax Analysis ("AFP"), which consists of analytical or field work by an Income Tax Agent, without the purpose of drawing up an infraction notice or imposing a fine. At the discretion of the Revenue Service, taxpayers may be notified of the finding of an indication of irregularity, in which case they will be exempt from penalties provided for in the legislation, provided that the irregularity is cured within the time limit.

The Preliminary Tax Analysis procedure does not constitute a start of an audit and does not rule out the spontaneity of the taxpayer. However, it should be noted that AFP's incentives do not cover cases of tax suits arising from a judicial order or duly established fraud.

Under the terms of the LC in question, depending on their classification, taxpayers will be entitled to the following benefits from the State:

(i) A+

· Access to the Prior Tax Analysis proceeding;
· Authorization for accrual of accumulated debt, observing simplified procedures;
· Effect of the refund referred to in article 66-B of Law No. 6,374/89 (presumed taxable event), observing simplified procedures;
· Authorization to pay ICMS for the tax substitution of goods originating from another Brazilian State, whose taxable amount has not been withheld in advance by means of compensation in an escrow account, or collection via a special form by the 15th of the following month;
· Authorization for payment of ICMS over the importation of merchandise from abroad by means of compensation in escrow account;
· Renewal of special treatment granted under Article 71 of Law No. 6,374/89, observing simplified procedures;
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures;
· Transfer of accumulated debt to a non-interdependent company, observing simplified procedures, in the form and conditions established in regulations, provided that it is generated in period of jurisdiction after the publication of this complementary law, subject to the annual limit established in regulations.

(ii) A

· Access to the Prior Tax Analysis proceeding;
· Authorization for accrual of accumulated debt, observing simplified procedures;
· Effect of the refund referred to in article 66-B of Law No. 6,374/89 (presumed taxable event), observing simplified procedures;
· Authorization to pay ICMS for the tax substitution of goods originating from another Brazilian State, whose taxable amount has not been withheld in advance by means of compensation in an escrow account, or collection via a special form by the 15th of the following month;
· Authorization for payment of ICMS over the importation of merchandise from abroad by means of compensation in escrow account;
· Renewal of special schemes granted under Article 71 of Law No. 6.374/89, with simplified procedures; and
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures.

(iii) B

· Authorization for the appropriation of up to 50% of the accumulated debt, observing simplified procedures, in the form and conditions established in regulations;

· Authorization for the payment of ICMS over the importation of merchandise from abroad, by means of compensation in an escrow account; and
· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures.

(iv) C

· Registration of new establishments of the same holder in the register of taxpayers referred to in article 16 of Law No. 6,374/89, observing simplified procedures.

In accordance with article 17 of LC No. 1,320/2018, there will be a regulation to discipline and measure the benefits of the Program for each category, depending on the length of stay in each category.

The drawing up of a notice of infraction and imposition of a fine that establishes willful conduct, the occurrence of fraud, or the practice of concealing of assets by the taxpayer will entail suspension of the benefits provided for in this chapter for the following periods: (i) up to a maximum of 1 year, if the respective tax debt is subject to extinction or agreed-upon installments that are being regularly fulfilled; (ii) up to a maximum of 2 years, which will be terminated in the event of a final decision favorable to the taxpayer at the administrative level. Hindrance of an audit or recurrence in the commission by the same taxpayer of an irregularity already indicated by the Tax Administration may also entail suspension of the benefits for a maximum period of 1 year, according to the regulations.

Noncompliant debtors will be subject to the Special Framework for the fulfillment of tax obligations, in the form and conditions to be established in regulations, thus considered to be the taxable persons who: (a) have declared and unpaid ICMS debt in relation to 6 calculation periods, whether or not consecutive, in the previous 12 months; (b) have ICMS debts registered as non-performing debt totaling more than 40,000 UFESPs and corresponding to more than 30% of their net equity, or more than 25% of the total value of the transactions of outsourced services rendered in 12 previous months.

For the purposes of calculating the noncompliant debtor, debts with suspended enforceability or subject to full collateral given in court will not be considered. If the taxable person is not in activity during the period indicated in items "a" and "b" above, the sum of up to 12 previous months will be considered.

The Special System for the fulfillment of tax obligations may consist, individually or cumulatively, of the following measures:

· The obligation to provide periodic information regarding the transaction or provision to be performed;
· Change in the calculation period, in the time limit and in the form of tax collection;
· Prior and individual authorization for issuing and recording tax documents;
· Freeze on the use of tax benefits or incentives related to ICMS taxes;
· Permanent duty of Tax Income Agent in the place where the ICMS audit is to be carried out to oversee the transaction or provision of services, tax documents, and other element related to the taxpayer’s condition;
· Requirement of proof of the entry of the merchandise or goods, or the receipt of the service for the appropriation of the respective debt;
· Assignment of the responsibility for the withholding and collection of ICMS due for subsequent transactions with goods subject to the tax substitution system, even if previously taxed or reported in the tax document relating to acquisition of the merchandise, in which case the appropriation will be accepted as a credit against the tax shown to have been collected in previous transactions;
· ICMS tax due, including that which is due by way of tax substitution, for each transaction or provision of services, at the time of the occurrence of the taxable event, observing at the end of the calculation period the system for offsetting the tax;
· Payment of ICMS due to tax substitution, until the moment of entry of the goods into the territory of São Paulo, in the event of liability for tax substitution
· Assigned to the recipient of the goods;
· Centralization of ICMS payments due into one of the establishments;
· Suspension or institution of deferral of ICMS payments;
· Inclusion in a special tax audit program;
· Requirement of periodic presentation of economic, equity, and financial information;
· Disqualification of credentials, qualifications, and special systems.

The application of the Special System mentioned above will be preceded, as provided for in paragraph 2 of Article 20 of the aforementioned LC, by a duly substantiated opinion, as will be set forth in regulations to be published.

Pursuant to article 26, LC No. 1,320/2018 shall enter into force on the date of its publication.

Category: Infrastructure and energy

In accordance with a "strategic reflection" process that redefines its central role in financing transactions to a profile that is more complementary to the capital market, BNDES has announced new financing conditions that establish priority areas for development of Brazil’s infrastructure, with smaller spreads and longer grace and amortization periods, aiming at the promotion of target sectors of the economy.

The changes in the bank's operational policies arise at a time when the Long-Term Rate (TLP), a substitute for the TJLP and responsible for this redefinition of BNDES's role, enters the initial validity phase, as announced last semester.

The new BNDES financing conditions will be based on two main points:

1. Smaller spreads in the priority sectors of innovation, public safety, sanitation, alternative energy, environment, professional qualification, and waste treatment, a list that could be changed after the bank’s strategic repositioning period.

In these priority cases, in projects above R$ 20 million, the fall in annual spread rates will be from 1.7% to 0.9%. In other sectors, the average reduction was lower, from 1.7% to 1.3%. However, spreads were not reduced in all cases: loans for working capital in large companies, for example, registered the most significant increase, to 2.1%; and

1. Longer grace and amortization periods for financing of infrastructure projects, especially for the railways, highways, waterways, and urban mobility sectors. They will be raised from 20 to 34 years. In alternative energy projects, ports, airports, export, and regional development, periods can reach 24 years. Financing in education, health, safety, telecommunications, and waste will have a 20-year term, while the working capital period was maintained at 5 years.

In redefining its role, BNDES has increasingly supported micro, small, and medium-sized enterprises. Its maximum stake in all financing lines in this segment can now reach 100%. For incentive projects for large companies, even in priority sectors, participation will reach only an 80% ceiling, while in other projects it will be limited to 60%. These participation percentages will be based not only on the financeable items, but will also take into account the overall value of the projects, following what is already being done by the market.

If, on the one hand, the TLP represented an initial loosening of the role of the development institution in relation to the capital markets, with the adoption of a greater profile of collaboration with commercial banks, on the other hand, the benefits of smaller spreads and time periods although they do not represent a diametrically opposite measure, indicate a movement to suppress possible loss of BNDES’s position that this loosening represents in the infrastructure financing sector.

As an important part of both the infrastructure sector and the capital markets, BNDES has a significant influence on the national economy. For this reason, the market yearns for the conclusion of the institution’s strategic reflection in order to know what course the new BNDES conditions will take to establish a firm long-term policy based on sound directives and support for clearly necessary expansion of the infrastructure sector.

The new BNDES president, Dyogo Oliveira, who took office in early April, indicated the course to be taken with the conclusion of this strategic reflection. While some of the new financing conditions indicate a possible balance in the institution's position vis-à-vis the TLP, the new president stated that the subsidized interest phase has already fulfilled its role in the national economy. Thus, with the conclusion of this process of reflection, BNDES is expected to maintain the TLP guidelines, that is, to strengthen and develop the capital markets, with the institution's share of financing in infrastructure. This would open space for other agents, thereby optimizing and properly mobilizing private financial resources for the most effective structuring of infrastructure projects.

Category: Infrastructure and energy

Antaq contemplated the main changes brought in by Decree No. 9,048/17 in relation to private port terminals (TUPs) in Normative Resolution No. 20/2018, published in May of this year, and revoked the previous resolution on the subject (Resolution No. 3,290/14).

Published in May of last year, Decree No. 9,048/17 amended the provisions of Decree No. 8,033/13, thereby introducing substantial changes to the regime applicable to public and private port terminals. With the objective of promoting immediate investments in the maintenance, construction, and modernization of Brazilian port terminals, some new mechanisms were provided for the benefit of potential private investors in order to give greater legal certainty to investments in the industry.

To that end, the decree relaxed industry regulations and debureaucratized some operating rules applicable to public and private terminals, which imposed a series of restrictions on the ordinary operations of tenants and authorized agents.

Due to the process of inspection of acts arising from Decree No. 9,048/17, currently in progress before the TCU, there were doubts as to the applicability of some provisions brought in by the decree. However, in May of this year, Antaq spoke on the changes regarding private terminals by contemplating them in its regulations.

The table below summarizes the main changes brought about by Decree No. 9,048/17 and contemplated in Normative Resolution No. 20/2018.

PRIVATE TERMINALS
Matter	Original provision of Resolution No. 3,290/14	Normative Resolution No. 20/2018
Change in the corporate control of the authorizing agency	It was subject to mere reporting to Antaq within 30 days of the occurrence of the transaction.	Depends on prior approval of Antaq.
Expansion of area through addendum to the adhesion contract (no need for new authorization)	It provided for the possibility of expanding the area of ​​the port facility, located outside the organized port, provided that it did not exceed the limit of 25% of the original area of ​​the terminal and the locational feasibility of the expansion was verified.	The words "located outside the organized port" and "not exceeding twenty-five percent of the original area" have been deleted. The locational viability requirement was maintained. If the intended expansion does not require a new locational feasibility study, approval of the MT is waived.
Increased traffic and/or storage capacity of the terminal	Subject to prior approval of the Ministry of Transport (MT).	Subject to mere reporting, 60 days in advance, to Antaq and the MT.
Initiation of the port operation	It should occur within up to three years, counted from the conclusion of the adhesion contract, renewable once, for the same period, at the discretion of the MT	It must occur within 5 years, counted from the conclusion of the adhesion contract, at the discretion of the MT. The words “renewable once" and "for an equal period" were deleted.

Category: Tax

A topic has been provoking debates in the administrative tax sphere in the State of São Paulo: the drawing up of infraction notices and impositions of fines (AIIM), based on article 84-A of Law No. 6,374/89, to disregard acts and legal transactions carried out by taxpayers.

This legal provision provides for the possibility that the tax authority may "disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the taxable event or the nature of the elements creating the tax obligation."

The tax authorities of the State of São Paulo maintain that article 84-A of Law No. 6,374/89 finds its basis for validity in the provisions contained in article 116, sole paragraph, of the National Tax Code (CTN), also known as the general anti-tax evasion rule .

Article 116 of the CTN was introduced by Complementary Law No. 104, of January 10, 2001 (LC 104/01). Its objective is to reiterate, in the scope of tax law, the illegality of feigned legal transactions, in the following terms:

Article 116 - Except as provided by law to the contrary, the tax triggering event shall be deemed to have occurred and to have its effects apply: (...)  Sole paragraph. The administrative authority may disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation, subject to the procedures to be established in an ordinary law.

The sole paragraph of article 116 of the CTN is the subject of a Direct Action of Unconstitutionality (ADI No. 2446) by the National Confederation of Commerce. In summary, it is argued that: (i) the provision violates the principle of legality and legal certainty, inasmuch as it enables the administrative authority to disregard legal transactions even though carried out per the terms of the law; (ii) there is a breach of the principle of separation of powers insofar as the administrative authority is authorized to institute and collect taxes in the place of the legislature; (iii) the subject to be legislated is under the purview of private law (article 109 of the CTN), and the tax legislature cannot change it; and (v) at a maximum, the rule set forth in the provision would establish taxation based on the final intention of the transaction, which would lead to the requirement of a tax by analogy, which is forbidden by article 108 of the National Tax Code (CTN). This ADI has been awaiting a decision by the Federal Supreme Court since 2001, and the written opinion is currently yet to be prepared by Justice Carmen Lúcia.

Apart from the debate regarding the constitutionality of this provision, in analyzing literally the norm published in article 116 of the CTN, it is found that it is not self-applicable, as it grants the ordinary law the competence to establish procedures that should be observed by the tax authorities in disregarding acts or legal transactions carried out by taxpayers, a law that does not exist as of the present moment.

This automatic inapplicability of the aforementioned article is reinforced by Opinion No. 1,257/2000 of the Committee on Economic Affairs of the Federal Senate, which, when approving Draft Complementary Law Bill No. 77 (converted into Complementary Law 104/01), expressly stated that the provision inserted in article 116 of the CTN is not self-applicable: "It is important to point out that the measure now being deliberated shall not be self-executing, as it shall depend on an integrating law to set the limits of the prerogative conferred on the Tax Administration." To corroborate this understanding, the Superior Court of Appeals (STJ), in the decision on Special Appeal No. 1,107/518/SC, concluded that it was impossible to reclassify legal acts and transactions, "since article 116, sole paragraph, of the CTN is a rule of limited effectiveness, devoid of a law in order for it to produce effects."

As a result of this scenario, there were numerous attempts by the Executive Power to introduce into the legal system, through Presidential Decrees (such as MP 66/02), the conditions and limits for “reclassification," for tax purposes, of lawful legal transactions. The reaction of the National Congress was immediate and resulted in the non-conversion into law of the articles of MP 66/02 that dealt with the matter. Even so, the tax authorities have been trying to apply principles similar to those of MP 66/02, regardless of whether or not they are provided for in the tax legal system.

Until an ordinary law is issued on the subject, it is not necessary to speak of an anti-tax evasion rule and, consequently, of disregarding of acts or legal transactions carried out by taxpayers on the grounds of dissimulation by any State.

That being the case, until an ordinary law is issued on the subject, it is not necessary to speak of an anti-tax evasion rule and, consequently, of disregarding of acts or legal transactions carried out by taxpayers on the grounds of dissimulation by any State.

In order to disrupt all this discussion and bring more legal uncertainty to taxpayers, some taxing entities, such as the State of São Paulo, considered themselves competent to deal with the matter delegated by the sole paragraph of article 116 of the CTN, probably under the cloak of article 24 of the Federal Constitution.

In fact, this constitutional provision sets forth concurrent jurisdiction between the Federal Government and the States to legislate on tax law. However, the first paragraph of the same provision clearly states that, within that jurisdiction, it is incumbent on the Federal Government to lay down general rules. Furthermore, in the second and third paragraphs of the same constitutional provision, States have additional jurisdiction over this matter and may exercise full legislative authority in the event of omission by the Federal Government.

The rule of the sole paragraph of article 116 is clearly defined as a general rule, as it is inserted within Title II - "Tax Obligations", Chapter II - “Tax Triggering Events", of the National Tax Code. Article 146, III, "b" of the Federal Constitution states that it is incumbent on complementary law to govern "tax liabilities, credits, the statute of limitations, and lapse."

In theory, it would even be possible to support the supplementary jurisdiction of the States to regulate the sole paragraph of article 116 of the National Tax Code (until the eventual occurrence of a federal law on general rules, where the effectiveness of state law would be suspended, in accordance with the fourth paragraph of article 24 of the Federal Constitution). Exclusively from this point of view, article 84-A of Law No. 6,374/89 could, in theory, be found to have some basis for constitutionality.

However, upon examining the wording of that legal provision, it appears that the ordinary legislature went far beyond what was theoretically assigned to it:

"Article 84-A. The tax authority may disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation. (Article added by Law No. 11,001, of December 21, 2001, São Paulo Official State Gazette of December 22, 2001)"

This article allows the administrative authority to disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event. That is, absolute competence is assigned, and based on entirely subjective criteria, to disregard the legal transactions, which diverges from the command contained in the sole paragraph of article 116 of the CTN.

This is because, even if using supplementary jurisdiction, the direction of the sole paragraph of article 116 of the CTN was to the effect that the ordinary legislator should institute and regulate procedures to be followed by the administrative authority in order to disregard acts or legal transactions carried out for the purpose of concealing the occurrence of the tax triggering event or the nature of the elements creating the tax obligation.

This is not, however, the content of article 84-A of the law of São Paulo State. There is no procedure provided for by law to be followed by the administrative authority for this situation. The state law simply gives the administrative authority full competence to disregard legal transactions, when it is charged with establishing procedures.

In our opinion, if neither the CTN, which is a complementary law by nature and has exclusive authorization from the Federal Constitution to provide general rules on taxation, has conferred on the administrative authority the competence to disregard legal transactions without a law that establishes procedures in this regard, a state law could not do so. That is, the ordinary legislator has assigned solely and only the competence to define the procedures to carry out the act of initiation which may disregard acts or legal transactions. Such an assertion is even more robust if the supplementary competence of the state legislature for this purpose is considered acceptable.

Although the legal provision that is the subject of this debate has existed in São Paulo legislation since 2001, it has seen little practical use by the administrative authorities in carrying out tax assessments. However, more recently, we noted the issuance of infraction notices based on article 84-A in order to disregard an act or legal transaction validly implemented and demand ICMS over the transaction understood as effectively carried out.

In our opinion, assessments by the São Paulo tax authorities based on article 84-A of Law No. 6,374/89 are clearly illegal and, sooner or later, will be definitively canceled because they are based on an invalid provision, thus jeopardizing the pillars of tax law, such as compliance with the principle of strict legality and the guarantee of legal security and certainty of the law.

Category: Labor and employment

With the enactment of Federal Law No. 13,467/2017 (the Labor Reform), various provisions of the Consolidated Labor Laws (CLT) have undergone significant changes, and a number of them have been incorporated into social security legislation through specific adjustments in Federal Law No. 8,212/91. Among the topics common to both universes, the controversy over the legal nature and the form of medical care granted by the company to its employees deserves special mention.

Prior to the Labor Reform, the understanding prevailed that medical care should be granted to all employees, with the majority interpretation by the administrative bodies being that this benefit should be provided in a uniform and homogeneous manner, without any distinction in the levels of values ​​and coverage offered, regardless of the position occupied in the company.

In the event of noncompliance with these requirements, whether by not granting the benefit to all employees, or by granting it in a different form among them, the understanding was that the amount allocated to the payment of the medical care should: 

• be integrated into employees' remuneration for all legal purposes, thus affecting the payment of salary and severance payments paid to them during the period; 

• be integrated into employees’ salary-contribution, especially for the purposes of application of contributions due to Social Security.

This understanding was the result of the interpretation conferred by the courts and administrative agencies to item "q" of paragraph 9 of article 28 of Federal Law No. 8,212/91, according to which the salary-contribution does not include amounts related to medical care when such coverage extends to "all of the employees and managers of the company."

The expansive interpretation given to the above provision led to the understanding that the mere existence of asymmetrical levels of types of plans and coverages would be sufficient to disqualify the medical benefit even if the position, remuneration pattern, or responsibility of the beneficiaries were not equivalent.

This position was based on the understanding that the mention of all the employees referred to in the law not only included the benefit for all the employees, but also at identical levels for all.

The Labor Reform changed this scenario substantially. First, by inserting paragraph 5 in article 458 of the Consolidated Labor Laws, providing that the value of medical or dental care, even when it is granted via different types of plans and coverage, is not included in employees' remuneration, nor in their salary-contribution. Secondly, therefore, it made an incisive change in the wording of the provisions of Federal Law No. 8,212/91 to specifically remove the final section, which mentioned all employees and managers of the company. The table below highlights the changes:
 

Legislation	Wording before the Labor Reform	Wording after the Labor Reform
Labor Law	Non-existent	"Paragraph 5. The value of the medical or dental care, whether or not provided internally, including the reimbursement of expenses for medicines, prescription glasses, orthopedic devices, prosthetics, orthotics, medical and hospital expenses, and the like, even when granted in different types of plans and coverages, is not included in the salary of the employee for any purpose, nor in the salary-contribution, for the purposes of the provisions of item q of paragraph 9 of article 28 of Law No. 8,212, of July 24, 1991.”
Social Security	“Article 28 (...) Paragraph 9. The salary-contribution for the purposes of this Law does not include, exclusively: (...) q) the value of medical or dental care provided by the company or purchased by it, including reimbursement of expenses for medicines, prescription glasses, orthopedic devices, medical and hospital expenses, and the like, provided that the coverage encompasses all of the employees and managers of the company; (...)"	Paragraph 9. The salary-contribution for the purposes of this Law does not include, exclusively: (...) q) the value of medical or dental care provided by the company or purchased by it, including reimbursement of expenses for medicines, prescription glasses, orthopedic devices, prostheses, orthotics, medical and hospital expenses, and the like; (...)"

Everything would indicate that the objective of the Labor Reform in making the above changes was to stimulate the offering of various types of medical or dental care by the employer, therein privileging health as an interest not only of the employee but also of the company.

An unequivocal fact is that the express wording no longer requires that medical care be provided to all employees. The concern of the Labor Reform in excluding precisely this language should not be disregarded, thus indicating the purpose of the proposed change.

Exactly for this reason, it is expected that the case law will adjust its position to the new legal provisions and, as a consequence, it will take the position that companies are no longer required to provide equal medical care to all their employees, therein maintaining the exclusion of these amounts from the concept of remuneration and, therefore, the calculation basis for salary, severance, and social security contributions.

Another possible interpretation, considering the changes imposed by the Labor Reform, would be that not only can companies grant medical care to their employees and managers at different levels, but they can also offer the benefit exclusively to some select workers, to the detriment of the others, without this, in itself, nullifying the nature of the granted benefit.

In that case, the deletion of the expression linking the benefit to "all of the employees and managers of the company" would be interpreted in its most pure and logical form. Before the rule inured to the benefit of all employees; now it is no longer necessary to extend the benefit to all.

Since the amendment is recent, there is still no guidance on the interpretation that will prevail in our courts. A conservative stance may be adopted to indicate that the benefit should be granted to all, even if with variations, in order to ensure legal protection. One alternative will be to recognize that the all-employees requirement has been eliminated with the removal of the language from the law, and it is up to the employer to offer the benefit to those it deems appropriate.

In addition, it is important to be aware that before any decision is reached in this regard, it is imperative that companies consult the collective bargaining rules applicable to their employees.

In fact, the Labor Reform, by raising collective bargaining to a level superior to the legislation itself, requires businesses to turn their attention to the particularities of each professional category. Thus, if the collective bargaining instrument requires granting medical care to all employees, or forbids any distinction in the form of coverage, it will be up to the company to comply with this obligation or to renegotiate this requirement through its employers’ union or collective bargaining agreement.

We can conclude that, as long as the collective bargaining rules and the prohibition on unfavorable contractual amendments are respected, it is fitting that companies, given the current nature of the change, carefully reevaluate the medical benefit offered to their new employees, as well as the levels and conditions which prevail among employees already benefited.

Category: Real estate

CVM Instruction No. 602, published on August 27, sets forth rules regarding public offerings of hotel collective investment contracts (CICs), the so-called condo-hotels. It repealed CVM Resolution No. 734/2015 (as amended by CVM Resolution No. 752/2016), which until then regulated the matter.

During the time CVM Resolution No. 734 was in force, offerors were obliged to comply with the provisions of CVM Instruction No. 400/2003, which waived the need for registration of the offer and the payment of any fees to the CVM. This changed with CVM Instruction No. 602, which is exhaustive in stipulating that "the provisions in the specific regulation on public offerings of securities do not apply to public offerings of hotel CICs." In addition, it is mandatory to register the condo-hotel offering with the Superintendence of Securities Registration (SRE), via a request for registration, which must be accompanied by proof of payment of a CVM inspection fee, among other documents.

The change in the definition of "offerors" brought about by CVM Instruction No. 602 deserves special mention. According to the new instruction, the developer and any other person that performs acts of public offering of hotel CICs are considered offerors. Therefore, the operator of the hotel development no longer fits, as a rule, within the concept of an offeror, unlike in the previous rule. Accordingly, the CVM was of the position that "in effect, the offeror is the one who, in fact, makes efforts to place the hotel CICs", therein recognizing that "[the hotel operator] is not usually responsible for the sales efforts of hotel CICs and, therefore, does not fit within the concept of offeror." But even without necessarily appearing as an offeror, hotel operators remain obliged to observe some rules regarding the disclosure of financial information concerning the development and hiring independent auditors.

Other important changes were (i) the possibility that the condominium owners may, gathered in a general meeting, as of the third year after the date of the disclosure of the annual audited financial statements in which the hotel operating income was recognized for the first time, waive the need for the hotel operator to prepare and make available to the public annual financial statements of the hotel development audited by an independent auditor registered with the CVM and quarterly financial statements pertaining to the hotel development, accompanied by a special review report issued by an independent auditor registered with the CVM; and (ii) the lack of approval by the CVM of the advertising material(s) to be used in the scope of the offer, without prejudice to the possibility that the offeror may submit, all at once, such material(s) for approval by the agency, together with the application for registration of the offering.

The table below compares the main rules applicable to offerings of hotel CICs, before and after the issuance of CVM Instruction No. 602:

Matter	Before CVM Instruction 602	After CVM Instruction 602
Concept of "offeror"	"The management company of the hotel development jointly with the real estate developing company or, absent that, the company responsible for offering the fractional units of the general condominium."	"The real estate developing company or any other person that performs acts of public distribution of hotel CICs."
Concept of CICs	"A set of contractual instruments publicly offered in the framework of a hotel development."	"A set of contractual instruments publicly offered, containing a promise of remuneration linked to the stake in the results of a hotel development organized through a condominium."
Need to register the offering	Waived, provided that the requirements of Resolution 734 are met.	Registration with the CVM (SRE) is required, with the possibility of automatic waiver only in the cases provided for in article 28 of CVM Instruction 602.
Waiver of registration of offering for qualified investors	Waiver of registration of the public offering and issuer of offerings of CICs involving efforts to sell: (i) autonomous real estate units intended exclusively for investors that hold at least R$ 1,000,000.00 of equity or invest at least R$ 300,000.00 in the offering; and (ii) fractional units in condominiums intended exclusively for qualified investors that hold at least R$ 1,500,000.00 of equity or invest at least R$ 1,000,000.00 in the offering.	There is no such difference in the waiver of registration for qualified investors or for investors who have significant equity or make an investment in the offering above a certain amount. In addition, there is no longer differentiation in the type of condo-hotel, since CVM IN 602 only deals with hotel CICs of structured projects under the condominium modality with individualized autonomous units.
Waiver of disclosure of audited financial statements	There was no provision for the possibility of waiver.	It may be waived by the condominium owners gathered in a general meeting, as of the third year after the date of disclosure of the audited annual financial statements in which the hotel operating income was recognized for the first time.
Deadline for disclosure of annual audited financial statements	60 days as of the end of the fiscal year.	90 days as of the end of the fiscal year.
Fee payment	There was none.	Need to pay fee relating to registration of the issuance.
Need to update the declarations of the hotel operator and real estate developing company	There was none.	Need for annual update, making the respective update available to the public on the webpage of the hotel project.
Offer deadline	There was no time limit set in Resolution 734. However, the term established in CVM Instruction 400 is 6 months as of the date of disclosure of the notice of initiation.	Maximum period of 36 months as of the date of publication of the notice of initiation, renewable once only for an equal time period.
Deadline for disclosure of the registration of the Project Development Memorandum	There was none, since there could also be condo-hotels structured in the form of fractional units of voluntary condominiums.	180 days after the disclosure of the notice of initiation.
Advertising material	Need for prior approval by the CVM.	CVM approval is not required, however, the offeror has the option of submitting it to the CVM for approval only once, concurrently with the request for registration of the offering.
Contents of the prospectus and economic feasibility study of the hotel development	The prospectus and the feasibility study should contain minimum information, described in the annexes to Resolution 734.	In addition to the information that was already required, new mandatory information was included and should be described in the prospectus for the offering and in the economic feasibility study relating to the hotel development, as set forth in Annexes 6-I and 6-II of CVM Instruction 602.

CVM Instruction 602 only applies to offerings of hotel CICs referring to autonomous real estate units that are part of developments created in the form of condominiums. Public offerings of condo-hotels structured in the form of sale of fractional units of voluntary condominiums, which were also covered by Resolution No. 734, must comply with the provisions of CVM Instruction No. 400. We believe, notwithstanding, that the CVM may accept the adoption of differentiated placement regimes for offerings of hotel CICs involving efforts to sell the units of voluntary condominiums, in the same way as was already the case with Resolution No. 734.

The CVM maintained the need for the offeror to demonstrate that the right of withdrawal of the purchasers of CICs from the same project, distributed after April 18, 2016, the date of publication of CVM Resolution No. 752, without registration or waiver of CVM registration, given that such placement is considered irregular by the agency.

CVM Instruction No. 602 entered into force on the date of its publication. Its provisions are immediately in effect, observing that, for offerings that have already been exempted from registration on the date of publication, the offerors may continue to follow the provisions of CVM Resolution No. 734 and, consequently, CVM Instruction No. 400. Alternatively, they may follow the regime established by the new instruction, including with respect to the content and updating of the prospectus and the economic and financial feasibility study of the development and as regards the possibility of waiving the preparation of financial statements, as indicated above. For this, the offerors will need to submit a report to the CVM within 60 business days from the date of entry into force of CVM Instruction No. 602. For offerings that are subject to a request for waiver by the agency, the offerors may, alternatively, continue to follow the provisions of CVM Resolution No. 734 and, consequently, CVM Instruction No. 400, or submit a new application for registration, wherein it observes the new instruction in full.

Instruction No. 602 finally fills a regulatory gap regarding the issue, which gained prominence in 2013 after the suspension of various offerings by the CVM, and resolves the debate regarding the classification of hotel operators as offerors, which has been generating much debate since the publication of Resolution No. 734, on March 17, 2015.