Rollback of payroll-tax cuts will test ruling coalition

With the ruling coalition mired in infighting for space, the provisional measure (MP) that rolls back the payroll-tax cut will be the government’s first big test after the Chamber of Deputies shelved a charge against President Michel Temer for crime of passive corruption. The bill is one of the most important for the economic team to settle this year’s and 2018’s accounts but its effects may expire on August 10.

Fearing the MP will expire, Mr. Temer appealed on August 6 at the Presidential Palace to the presidents of the Chamber, Rodrigo Maia (Democrats, DEM, Rio de Janeiro) and of the Senate, Eunício Oliveira (PMDB of Ceará), to accelerate voting on the bill. Worried about government revenues, Finance Minister Henrique Meirelles also attended the meeting.

Mr. Oliveira told he had promised Mr. Temer to schedule a Senate vote on August 09 if the Chamber sets its vote for the 8th of  August. But Mr. Oliveira stressed that he will not admit having senators “rubber stamp” provisional measures from now on. In order to get a vote, the decrees should arrive at the Senate one month in advance. Nevertheless, because of the relevance of economic issues, he has agreed to schedule the vote despite the tight deadline.

The base of 263 to 280 votes (if those absent on the floor are considered) that emerged from the vote on the charge will be tested in an extremely unpopular agenda (a tax hike) that displeases business leaders and former campaign donors and has potential of causing layoffs, as the affected sectors claim.

The government was already facing resistance even before the accusations that emerged from the plea bargain of JBS owners weakened Mr. Temer, and will have more problems this week, with the need of deputies passing the proposal on August 08 to avoid the risk of it losing the validity. The MP needs to be passed by the Chamber and Senate floors by August 10 in order not to expire.

The government’s original proposal, of preserving payroll-tax cuts only for three industries (passenger transportation, civil construction and communication), would add R$4.75 billion to the fiscal revenues, because of being in effect only from July, and R$12.5 billion next year, when it would be valid for the entire year.

But the committee of senators and deputies analyzing the MP has already approved significant alterations, which the government will try to reverse on the floor, such as the postponement — from July 2017 to January 2018 —, of the end of the payroll-tax cuts, which allow companies to pay social-security contributions based on a percentage of their gross sales, instead of collecting 20% over their payrolls.

The lawmakers also increased the activities that may continue opting for the tax cut from the six proposed by the MP to 16. The draft preserved the sectors initially contemplated in the first round of the program, launched by ex-President Dilma Rousseff in 2011: information and communication technology, call center, leather, footwear, apparel.

Moreover, others were included after the threat of rising costs, such as cargo transportation, bus manufacturing, infrastructure construction, newspaper and radio companies, “strategic defense companies” (Avibras, Embraer and Iveco), industrial and agricultural machinery and equipment.

To justify the change, Senator Airton Sandoval (PMDB of São Paulo), rapporteur of the MP, argued that the exclusion of the sectors from those benefited by payroll-tax cuts would cause the dismissal of 258,000 people and increase spending on unemployment insurance. “The awareness that the MP 774 will cause unemployment in other sectors, as loudly expressed by several deputies, senators, forces us to a Sophie’s choice, expression that denotes the imposition of choosing between all bad options,” he said.

The committee’s lawmakers, of the ruling coalition and the opposition, rejected the government appeals to maintain the original proposal, and there is not much sympathy either for the government text on the Chamber floor. The Chamber speaker has already warned Finance Minister Henrique Meirelles of the difficulties and was not even scheduling the matter for vote.

The MP was put in the backburner with the attentions turned to the charge against Mr. Temer and will lose validity if it is not passed until August 10 by the Chamber and the Senate. Since the MP was issued this year, another version could only be issued in 2018, reducing the revenue of the two years. The government could have as alternative also passing a bill in fast-track regime, but this strategy didn’t work in previous years and would also require to fulfill a 90-day period for the tax to begin being collected.

The deadline gets even tighter because there are two other provisional measures also close to losing the validity — to increase the fine for health infractions of products of animal origin and to permit that municipal governments include in their education budgets funds from the regularization of unreported assets held abroad that will arrived late last year — and that will have to be voted before.

Moreover, the opposition says it will continue obstructing the agenda. “Each matter they put to vote, we will impose difficulties for them to understand that the base is not solid and to understand they don’t have force to vote the pension [reform] neither now, nor at the end of the year,” said the Workers’ Party (PT) leader, Deputy Carlos Zarattini, of São Paulo.

In addition to the opposition, the government has problems in its own allied base, with the PMDB and the formerly known Centrão block (smaller parties) demanding the resignation of Brazilian Social Democracy (PSDB) ministers to take their places.


Source: Valor Econômico

Senate passes labor reform and government promises adjustments

The Senate passed on June 11, by 50 votes to 26, with one abstention, the bill that modifies more than 100 items of the Consolidation of Labor Laws (CLT). The bill will now go to the president’s sanction. The session that passed the labor reform was marked by an unprecedented protest in which female senators of the opposition occupied for more than seven hours the dais in the plenary.

Among the main alterations promoted by the reform are the permission for agreements between employer and employees to prevail over the legislation; the creation of new types of work contract, including intermittent work; the expansion of the possibility of individual agreements, including a 12-hour shift with 36-hour rest and reduction of the interval during the shifts; and the establishment of hour banks to compensate overtime without the need of collective bargaining. Moreover, the bill makes it more difficult and costlier to file suit with the Labor Justice, eliminates the mandatory certification of terminations by unions, removes the obligation of companies negotiating mass layoffs with unions and ends the mandatory nature of the union tax.

After the vote, the government leader and sponsor of the labor reform on the floor, Romero Jucá (Brazilian Democratic Movement Party, PMDB, of Roraima), reinforced the promise of President Michel Temer of issue a provisional measure (MP) with adjustments to the reform, along with vetoing some points in the text.

The MP is expected to alter the article about the 12-hour shift with 36-hour rest, to stipulate that it can only be adopted by collective agreement; the article about non-material damages, to delink the value of indemnity from the workers’ salary; the article that allows pregnant and breastfeeding women to work in unhealthy places; and to veto the figure of the exclusive autonomous worker. Moreover, the government will change the article about intermittent work, to stipulate an 18-month quarantine for dismissed workers to be hired under that regime. And it will adjust the figure of the employees’ commission, created by the reform, to prevent it from replacing the role of unions in collective bargaining.

“We have the commitment that these points agreed upon will continue open to receive suggestion until the eve of the MP,” Mr. Jucá said. “This law is modern and will create jobs.” A preliminary version of the MP circulated among senators of the governing coalition, with changes proposed in some articles.

Without sufficient support to reject the reform, the senators tried to prevent the proposal from being voted. Senators of the Workers’ Party (PT) and of the Communist Party of Brazil (PCdoB) — and later others of the Democratic Labor Party (PDT), the Brazilian Socialist Party (PSB) and even Kátia Abreu, of the ruling PMDB — took the seats of the upper-house speaker and members of the directorate that would conduct the session. Furious, Speaker Eunício Oliveira (PMDB of Ceará) ordered off lights and microphones of the floor and suspended the session.

The female senators had lunch in the dark. The occupation of the dais was arranged since Monday, one source said. Gleisi Hoffmann (PT of Paraná) was even advised not to participate, since she is the party’s president. But she ended up commanding the occupation, cellphone in the hand the whole time, broadcasting live what was going on.

Negotiations were conducted during the whole afternoon. The opposition, however, demanded an agreement to pass a modification to the proposal, which in practice would force sending the matter back to the Chamber of Deputies, which was precisely what the government wanted to avoid.

The governing senators even considering holding the session at another space in the Senate. Cássio Cunha Lima (Brazilian Social Democracy Party, PSDB, of Paraíba), the deputy speaker, collected signatures. There were doubts, however, about the regimental validity of the change of location, which could be disputed later.

Finally, Mr. Oliveira, the speaker, went to the plenary and said that, without agreement, he would submit the matter for vote regardless, on the floor or at any other place. “I am deeply shocked with what I am seeing today. I have already waited for more than seven hours. The problem is not the merit of the matter. It is the demoralization of the house. It is the first time I see this in my life,” he said.

Mr. Oliveira argued that the opposition broke the agreement that stipulated several sessions for discussion of the proposal. “We could have voted on this matter last Tuesday. I permitted open mic on Wednesday and Thursday for all to speak. I didn’t put for vote for the opposition to make its speech. The understanding was broken today.”

Without agreement, Mr. Oliveira first sat in a side chair to the dais that would command the work and, microphone in hand, from there began the proceedings. Since it would be impossible to give the word to the caucuses in that situation, the opposition senators finally relented and left the dais.

Ms. Hoffmann said they took the extreme measure because “there was nothing else to do. Times of exception demand abnormal reactions of our part,” she justified. Senator José Medeiros (Social Democratic Party, PSD, of Mato Grosso) filed a complaint against the female senators for breach of parliamentary decorum.

The PMDB had only four votes against the reform: Renan Calheiros (Alagoas), Kátia Abreu (Tocantins), Roberto Requião (Paraná) and Eduardo Braga (Amazonas). Senator Hélio José (PMDB of the Federal District), who lost posts in the federal government for vociferating against the reform, didn’t appear to vote.

Ronaldo Caiado (Democrats, DEM, of Goiás), who had spoken against the impossibility of the Senate altering the text, voted for its passage. Ex-President Fernando Collor (Christian Labor Party, PTC, of Alagoas) voted against the reform. The two senators of the recently created Podemos (We Can), Álvaro Dias and Romário, were also against it. The only abstention was of Senator Lúcia Vânia (PSB of Goiás).



Source: Valor Econômico

Companies get court orders to extend payroll-tax cut

Taxpayers have been winning provisional court orders to maintain payroll-tax cuts until December 31 of 2017. The program to lower the payroll burden, created in 2011, allowed some sectors to pay between 1.5% and 4.5% on gross revenue — the Social Security Contribution on Gross Revenue (CPRB) — instead of 20% on payroll.

It was beneficial to most taxpayers. But provisional measure (MP) 774, of 2017, extinguished the regime from July with the justification that it didn’t contribute to economic growth.

There are already preliminary court orders at least in the Federal District and the states of São Paulo, Rio de Janeiro and Rio Grande do Sul, making companies that obtained the right to stay in the regime for at least six more months save millions of reais. The government can appeal of those decisions.

In Congress, several sectors have been putting pressure to avoid the suspension of the payroll-tax-cut regime. The sponsor of MP 774, Senator Airton Sandoval (Brazilian Democratic Movement Party, PMDB, of São Paulo), may read his report at the joint committee analyzing the matter on June 23.

The main argument of the lawsuits is that Law 12,546, which instituted the payroll-tax-cut regime, establishes that companies can’t back down from their option to paying taxes over payroll or over gross revenue, with the option valid for the entire calendar year. This way, they argue that the end of the regime in the middle of the year goes against the legal security and the good faith of taxpayers.

Recently, a large call-center company won a writ of mandamus from the 21st Federal Civil Court of São Paulo. For the judge, “the non-retractable nature created by the legislator himself must be respected by both parties, under penalty of the legal security be violated. Therefore, the same way that it is forbidden to the taxpayer to alter the taxation regime during a certain year, in accordance to its convenience, the tax authority can’t, for the same reason, promote such alteration in the same year.” The judge thus defined that the alteration promoted by the MP can only affect the taxpayer from January 2018.

Otherwise, if these decisions didn’t secure the taxpayers’ right, it could create room for discussing in court the change of option of taxation regime by real profit for taxation by presumed profit, or vice-versa, throughout the year, since it would be a similar discussion. “These orders guarantee the legal security, the predictability, since companies made the option based on their annual planning. You can’t change the rule of the game in the middle of the year,” he says.

An agricultural cooperative also won an order from the 1st Court of Santa Cruz do Sul, Rio Grande do Sul. Judge Dienyffer Brum de Moraes stated that it is “unassailable the commitment to respecting the option made by the taxpayer until the end of the fiscal year, being inadmissible that the public power itself comes to violate it or modify it in the meantime, in respect to the good faith while specific projection of legal security value, essential to a state that aims to be the rule of law.”

Judge Charles Renand Frazão de Moraes, of the 2nd Federal Court of Brasília, also granted order to a manufacturer of aircraft. For him, “since article 9 of Law no. 13,161/2015 instituted that the option made by the taxpayer would be valid, in a non-retractable way, throughout the entire year 2017, the state couldn’t modify or revoke the period of enforcement for the taxpayer’s option, and consequently apply a new legal tax regime as it so wishes, exactly as it happens in the present case.”

Source: Valor Econômico

Government wants to give power to BC to participate in leniency deals

The leniency agreement stipulated in Provisional Measure (MP) 784, which increased the punitive powers of the Central Bank (BC) and of the Securities and Exchange Commission of Brazil (CVM), exclusively reaches administrative infractions committed by agents of the financial system and of the capital markets. To encompass criminal conducts, such as money laundering and corruption, the government may submit a bill or an amendment to the provisional measure already being considered in Congress stipulating the joint action of the Federal Public Ministry (MPF, the public prosecutors’ office), the BC and the CVM. Only the MPF has the prerogative of criminal prosecution.

The prosecutor general of the Central Bank, Cristiano Cozer, explained: “The leniency agreement with the BC only covers administrative infractions, not crimes. It wouldn’t make sense an offender to sign agreement only with the BC, because it would need to confess and run the risk of responding to criminal charge filed by the Public Ministry. Much less in cases of facts prior to the issuance of MP 784, when the fine was [and continues being] of at most R$250,000.”

Issued last week, the measure has been object of criticism by the MPF and of mistaken interpretations either in relation to its content or to the timing of its publication.

The BC attributes this noise to the climate of “animosity” now sweeping the country. This would be the reason to identify the publication of MP 784 with the expected plea bargain of ex-Finance Minister Antonio Palocci, involving players of the financial system, and with the investigations of insider trading that would have produced gains for JBS on the forex and interest markets.

Yet the measure has no guarantee of retroactive effect. In reality, there are two hypotheses. In the punitive law, new rules retroact only in benefit of the defendant. In the procedural law, the new legislation will be retroactive depending on the state in which the proceeding is. In that context, there will be a discretionary analysis of each case presented to the BC.

The provisional measure innovates by typifying the administrative infractions until then addressed only by resolutions of the National Monetary Council (CMN). For not being described in law, the Superior Court of Justice (STJ) was overturning administrative penalties imposed by the BC on the financial system. The MP describes 17 illegal actions that go from posing constraints to the BC supervision to providing incorrect information and data, acting as administrator of financial institution without prior BC approval, structuring transactions without economic grounds or misappropriating funds of third parties.

This description will not solve the stock of financial-system cases that is in the judiciary, but with it the STJ may consolidate a jurisprudence, public-sector lawyers reckon.

The provisional measure, in this sense, is structural. And the introduction of the leniency agreement is, in the view of the monetary authority, only an “appendix” to the new legislation.

The discussion on the terms of MP 784, which also updates the values of fines imposed on the financial system in case of infraction, is a recommendation of the G-20 and had beginning at the Central Bank in 2010, in the preparatory evaluation of the Financial Sector Assessment Program (FSAP) of the Basel Accord. The bill was sent to the Office of the Chief of Staff in the second term of Dilma Rousseff (Workers’ Party, PT). With the change of government, it returned to the BC and was taken as part of the “BC Plus” agenda at the end of 2016 by its president, Ilan Goldfajn.

In July there will be new FSAP evaluation, made by the IMF and World Bank, with impacts on the country’s rating and risk premium. Because of that, the BC opted for issuing a provisional measure, a faster initiative, abandoning the original idea of a bill.

The country was not appearing well on the picture of the international organisms, one government official says, for having a legislation of administrative proceedings dated of 1964, when law 4,595, which created the Central Bank, was enacted. The values of the fines imposed on the financial system were frozen since the 1990s at a maximum of R$250,000, value that MP 784 raised to as much as R$2 billion.

The terms of the provisional measure were inspired in the legislation of the Administrative Council of Economic Defense (Cade), even making use of its instruments, such as the leniency agreement, the terms of commitment and the cautionary measures. BC and CVM thus start to invest more in the intelligence activity, with more investigative capacity.

Administrative wrongdoing committed before the publication of MP 784 are likely to be punished with the fines existing until then, of R$250,000, charged by the BC, and of up to R$500,000, imposed by the CVM. Because of these small sums, there is no expectation that individuals or financial institutions will approach the BC and the CVM to make leniency agreements without crime. The most probable is that whoever committed crime will directly seek an agreement with the Public Ministry and, with that done, will go to the BC or the CVM to settle the accounts of potential administrative infractions committed.

On June 12, the BC released an official note in which rebuts sharp criticism made by prosecutors in stories and articles published in the press during the weekend. The note attests that the measure “in nothing alters or interferes in the capacity of investigation and substantiation of criminal wrongdoing of the Public Ministry. Nor does it alter the legal duty of the BC and of the CVM of communicating indications of crime to the MPF.” It is common for the Central Bank to act as an assistant of the accusation in proceedings it sends to MPF investigation and to lend analysts to help clarify the nature of infractions committed. It also says that the urgency of the provisional measure comes from the evaluation of Brazil in the FSAP, which begins next month.

The proposal of updating the legislation was widely announced and released in Agenda BC+ and, therefore, “the MP has no relation with rumors of plea deals that emerged later and whose content is unknown.”

Source: Valor Econômico