I – Editorial

Dear friends and clients,
In spite of the pandemic, we continue to try to bring you interesting articles on the legal world.

The first topic in this edition deals with the “Green and Yellow” Contract, created by Provisional Presidential Decree 905/2019, which seeks to encourage the qualification and hiring of young people, thereby reducing unemployment in this segment of the Brazilian population.

The article regarding the ruling that makes the intentional non-payment of ICMS a crime relates to the decision of the Federal Supreme Court in the judgment of Ordinary Appeal in Habeas Corpus (“RHC”) no. 163.334.

The last topic deals with the Retention of Title Clause and conditions for its validity in international transactions, since Brazilian law has established certain rules that must be complied with in order for the retention of title clause to be effective here in Brazil.

We should also like to include a quotation from Albert Einstein:

“Without crisis there is no merit. In crisis there emerges the best of each, because without crisis all winds are only mild breezes. Talk of crisis means increasing it, and silence in the crisis is to exalt conformism. Instead, we work hard. Let us stop, once and for all, with the only dangerous crisis, which is the tragedy of not being willing to overcome.”

Good reading! The Stüssi-Neves team is at your disposal for any further explanation you may require.

With kind regards,
Gustavo Stüssi Neves

II – Articles

1 . The “Green and Yellow” Contract created by Provisional Presidential Decree 905/2019

On November 11, 2019, Provisional Presidential Decree no. 905/2019 was published, which, in furtherance of the reforms in the Brazilian labour legislation, altered various provisions of the Consolidated Labour Laws and created a new labour contract, known as “Green and Yellow”, with the object of encouraging the hiring of youngsters, aged between 18 and 29, who have not yet started their first job.

The definition of first job does not include temporary or intermittent work, apprenticeship or contract of probation. Therefore a young person, in the age group established by the Provisional Decree, who has been hired previously in one of the categories mentioned above, is not disqualified from applying for the new type of contract.

The hiring may occur between January 1, 2020 and December 31, 2022, with a maximum duration of 24 months. The limit of December 31, 2022 applies to the date of hiring and not to the duration of the contract. In other words, if the person is hired on December 30, 2022, he may remain under contract until December 2024.

On exceeding the maximum term of 24 months, the “Green and Yellow” contract will be converted automatically into an agreement for an indefinite term, in complete accordance with the already existing rules of the CLT.

This type of contract may be used both for temporary and permanent activities. However, it is expressly forbidden to replace regular employees with this type of contract, which serves, therefore, only for new job positions created by the companies. It is also prohibited for a period of 180 days from the date of lay- off to rehire a worker hired under a different sort of contract, unless he is taken on as a temporary worker, on an intermittent or apprenticeship basis or under a probation contract.

Companies may hire up to 20% of their workforce under this contractual method, with the exception of those companies that have up to ten employees, which are limited to hiring only two employees.

Non-compliance with this percentage has the immediate effect of transforming these agreements into contracts for an indefinite term, without prejudice to other administrative sanctions to be applied by the tax auditors attached to the Ministry of the Economy. It is also prohibited to hire workers who are subject to special legislation.

Young persons hired under this contractual form are assured all the labour rights listed in the Federal Constitution, in the CLT and in the collective conventions/agreements relating to the category of worker, unless these conflict with the rules established in the rule in question.

The maximum salary payable to these youngsters is 1.5 minimum salaries, that is, R$ 1.567,50 (considering the adjusted minimum salary of R$ 1.045,00). At the end of each month worked or other period agreed on between the parties, which must necessarily be less than one month, the young professional will be entitled to receive immediate payment of his salary, proportional 13th salary and vacation pay, plus, as regards the latter, the one third bonus guaranteed by the constitution.

The companies, in turn, will not pay their quota of the Social Welfare contribution, nor the rates of System “S” and the education salary. In addition to this significant reduction of the tax burden for the employer, the rate of FGTS is also reduced to 2%.

The penalty due on FGTS deposits, of 20%, and not 40%, may be anticipated, monthly, or in another work period agreed on between the parties, necessarily less than one month. It will be due on any event of rescission, including any of the serious faults listed in article 482 of the CLT.

The working day follows the general rule, allowing the working of overtime, the setoff of hours in the same month or by means of an individual “hour bank”.

In the event of rescission of a “Green and Yellow” contract, the young worker will be entitled to receive the severance items due, in addition to the FGTS penalty and the Unemployment Insurance Programme, provided the legal requirements are met.

It is important to emphasize that early rescission does not give rise to payment of the indemnity corresponding to half of the period left to run stipulated in article 479 of the CLT, constituting, therefore, an effective exception to the general CLT rule. It is possible, however, to establish an insurance clause for early rescission.

Having made these observations, we should point out that this is not the first attempt by Brazilian governments to stimulate the hiring of young people. Among other initiatives, it is worth mentioning the First Employment Programme, created during the mandate of Lula, which was cancelled after the government recognized that the policy of subsidizing the creation of jobs for young people was wrong. It was discovered at that moment that it was necessary to invest in the professional qualification of the young, as a tool for their hiring. In 2005, still during Lula’s government, the CLT was modified by Law 11.180, raising the age limit for an apprentice to 24.
The deficiency in professional qualification is still a problem, to such an extent that it is recognized by the Provisional Decree in question, which establishes the priority of the young people hired under “Green and Yellow” contracts for actions in this direction, the guidelines for which will be issued by the Ministry of the Economy.
We trust that this time the attempt to qualify and hire young people will produce the results intended by the law, thereby reducing the unemployment that is rife in this section of the Brazilian population.
The MP, which is the target of severe criticism from the public, trade unions and political parties, runs the risk of losing its legal validity if it is not voted by the Federal Senate by April 20.

Maria Lúcia Menezes Gadotti
Partner in Labour Law Area – São Paulo

2. STF en banc rules that intencional non-payment of ICMS constitutes a crime

On December 18, 2019, the Federal Supreme Court (“STF”), sitting en banc on judgment of the Ordinary Appeal in Habeas Corpus – “RHC” no. 163.334, ruled as follows:

“A taxpayer who, persistently and with the intention of misappropriation, fails to pay ICMS charged from the purchaser of merchandise or services is guilty of the crime stipulated in art. 2, II, of Law no. 8.137/1990”

In fact, in the view of the reporting judge, Minister Roberto Barroso, whose opinion was endorsed by a majority of the Court, the amount charged by way of ICMS from the consumer (actual taxpayer) does not form part of the assets of the tradesman/vendor (legal taxpayer), since it only passes through the latter’s account pending its transfer to the public treasury.

In this respect, when it intentionally fails to transfer the declared amounts to the State Treasury, the taxpayer is guilty not only of non-payment of tax, but also of a veritable “misappropriation”.

The Minister emphasized, however, that, in order to constitute a crime, it is necessary to prove that the taxpayer acted with the intention of committing the crime, i.e. with fraudulent intent.

It is also clear that, according to the ruling of the STF, in order for the conduct in the specific case to be considered a crime, the taxpayer must also have the economic resources to make the transfer. Otherwise, the conduct does not constitute a crime, in view of the impossibility of acting in a different manner.

It should be noted that, as a general rule, the mere failure to pay tax is not a crime. Here reference may be made to the view confirmed by the STF itself through Binding Precedent no. 25 – which declared illegal the imprisonment of an unjust depositary – and also to the American Convention on Human Rights, also known as the Pact of San José, Costa Rica, of which Brazil is a signatory, which rejects the punishment of imprisonment for debt.

Therefore, in strict accordance with the law, the new concept established by the STF materializes only when, in the concrete case, there are present, apart from willful intent, the economic conditions necessary for the due payment of the amounts credited by way of ICMS, thereby making possible the characterization not only of non-payment of tax, but also of misappropriation.

Moreover, it is important to emphasize the third requirement established by the Supreme Court, in RHC no. 163.334, for characterization of the crime, consisting of the persistent conduct on the part of the taxpayer.

Therefore, in accordance with the ruling of the Supreme Court, in order to constitute a crime against the tax system in these circumstances, three requirements must be met, namely: 1) the taxpayer must fail to transfer to the public treasury the ICMS declared and charged from the consumer of the merchandise or service; 2) the taxpayer must act with the intention to misappropriate the amount of tax; and 3) the taxpayer must act in a persistent manner.

The team of Stüssi-Neves Advogados is at your disposal to provide any additional clarification on this matter.

Beatriz Valle R. Santana e Arthur T. Stüssi Neves
Associate lawyer and Partner in the Tax Area – Rio de Janeiro
beatrizvalle@stussi-neves.com e arthurstussi@stussi-neves.com

3. Retention of title (reserva de domínio) and conditions for its validity in international business transactions

We commonly find, in contracts for the purchase and sale of movable property, and even in more generic documents (for example in General Conditions of Sale), the existence of the so-called “retention of title” (reserva de domínio) clause, the purpose of which is to ensure that the seller continues as owner of the goods sold until the price for the said goods has been paid in full by the purchaser.

Although the insertion of such a clause in credit sales is a common practice and is even to be recommended, it is important to emphasize that the contractual provision of a retention of title clause does not by itself guarantee the protection desired, and may not produce the practical effect expected.

Brazilian law contains certain rules that must be complied with in order for the title retention clause to be effective, but many international contracts do not in fact observe such rules, which can cause disagreeable surprises for the seller when it tries to exercise its rights in relation to the retention of title.

In most cases, this occurs because foreign sellers simply enter into contracts and/or establish general conditions of sale based on their own laws, and choose to submit any disputes to the jurisdiction of their own country.

It is understandable that the foreign seller may often prefer to choose the law and jurisdiction of its own country in order to govern its contracts, on the assumption that such choice offers it more facilities and security. However, in matters involving international business, this may prove to be a serious problem if the seller is not aware of the legal rules that exist in the country of the purchaser.

In this respect, it should be pointed out that, in certain cases, the simple choice of foreign law and jurisdiction may not be the best option, even though foreign companies may have the false impression that such option will always be the one that best meets their interests. It must be remembered that, taking as an example a retention of title clause, any legal action to recover possession of the goods in the event of the purchaser’s default, will take place in the country of the purchaser, and for this reason it is essential to know whether such action is likely to cause conflict with the laws of that country.

In Brazil, the choice of law in itself is frequently the subject of controversy and must be considered on a case-by-case basis, since Brazilian law imposes certain restrictions on the parties’ freedom of choice on this topic. There are cases where there exists an imposition of the law of the country of the offeror, while in others there are special Brazilian laws regarded as being rules of public policy.

The choice of forum must also be considered very carefully, because even if it is possible to take advantage of a foreign jurisdiction, it must be remembered that any foreign decision needs to undergo a process of validation by the Brazilian Superior Court of Justice in order to be recognized and be enforceable in Brazil, which could lengthen the procedure.

With specific reference to the retention of title, Brazilian law establishes, among other requirements, that the contract containing such clause must be registered at a notary’s office (Deeds and Documents Registry) of the purchaser’s domicile, within a period of 20 days as from its signature. Late registration does not invalidate the contract, but retention of title is only effective as from such registration.

If the contract is written in a foreign language, it is also necessary to have the document officially translated into Portuguese by a sworn public translator before applying for registration.

Absence of registration of the contract at a notary’s office does not guarantee protection to the seller, whether vis-à-vis the purchaser or third parties. Thus, the seller cannot claim the property if the purchaser has sold it to a third party, or pledged it to a third party as security, or if the seller becomes insolvent, as in cases of judicial restructuring, where the clause will not be effective against other creditors, and the seller may end up as an unsecured creditor.

Apart from the need to register the contract at a notary’s office, it is also essential to put the debtor officially in default, by notification or protest of the “security”, as only then will the seller be able to claim recovery of the property. Here too there is another peculiarity of Brazilian law, since the exercise of the right to repossess goods sold subject to retention of title presupposes the existence of a debt represented by an enforceable instrument (for example, a promissory note, bill of exchange or even a contract containing characteristics of an enforceable instrument under Brazilian law).

In addition, Brazilian law now allows contracts to establish the rules relating to procedural matters that may arise between the parties and, in this respect, it is recommended that contracts containing a title retention clause provide, for example, for the possibility of search and seizure of the goods in the event of non-payment, the manner of appraising the goods for the purpose of calculating a debit balance, who will be responsible for the cost of such appraisal, the possibility of sale or assignment of the goods to a third party to avoid the risk of deterioration, among others.

Apart from the measures referred to above, special care must be taken when General Conditions of Sale are concerned. This is because such documents have a generic characteristic and, unlike specific contracts of purchase and sale, do not contain a description of the merchandise, which is essential for the effectiveness of the retention of title, because the Brazilian Civil Code stipulates that “An object that cannot be described perfectly cannot be the subject-matter of a sale with retention of title”. In principle, there exist means of complying with the legal requirements even in cases of retention of title in General Conditions of Sale (for example, registration of the said general conditions together with the invoice containing a description of the merchandise sold, inclusion of an express reference to the general conditions in the invoice itself, among others), but this must be evaluated in each specific case.

These brief comments make it clear that protection of the seller’s rights as regards title to the goods requires more careful consideration than the mere inclusion of a retention of title clause. A wider examination of the issue is always to be recommended, taking into consideration the peculiarities of the laws of the country of the purchaser, in order to ensure maximum legal protection for the seller. .

Frederico Amaral Filho e Charles Wowk
Associate lawyer and Partner in the Civil Area – São Paulo
frederico.amaral@stussinevessp.com.br e charles.wowk@stussinevessp.com.br