Approval of the Economic Freedom Act and other measures to the growth and openness of the Brazilian economy
On August 21, 2019, the Brazilian Senate approved the conversion of Provisional Measure 881/2019 into law, called the Economic Freedom Act. The text now goes to presidential sanction.
The Senate made few adjustments to the text that, days before, had been approved by the House of Representatives. In particular, the senators decided to withdraw from the measure the amendment to the Consolidation of Labor Laws – CLT that allowed work on Sundays and holidays.
The Economic Freedom Act’s main goal is to reduce bureaucracy, protect free enterprise and limit the state’s regulatory power. It is divided into two main sections: the first, general, for the declaration of rights of economic freedom and free enterprise guarantees; and the second, special, dedicated to specific legal changes.
Among the principles established in the general part of the law, we highlight the freedom as a guarantee in the exercise of economic activities; the good faith of the individual before the public authority; the subsidiary and exceptional state intervention on the exercise of economic activities; and recognition of the vulnerability of the individual before the State.
In this context, the law guarantees individuals, among others, the rights to develop low-risk economic activities without the need for prior licenses; develop economic activity at any time or day of the week; freely define, in unregulated markets, the price of products and services; develop new types of products and services when infralegal standards become outdated; test and offer a new product or service to a restricted group of people, without requiring prior licenses.
The general part of the law also established the so-called silent approval of the public administration. According to the text approved by the Congress, individuals, in requests for public acts of liberation of economic activity, will be informed of the deadline for the analysis of their request, and once the deadline has elapsed, the silence of the competent authority shall imply in the tacit approval of the request for all purposes.
With regard to free enterprise guarantees, the text establishes the duty of the public administration and other entities subject to the law to avoid abusing the regulatory power in order to unduly create a market reserve; redacting statements that prevent new domestic or foreign competitors from entering the market, or that prevent or retard innovation and the adoption of new technologies; among other prohibitions.
Lastly, the general part of the law introduces the requirement for regulatory impact analysis whenever federal government authorities intend to enact or amend norms of general interest of economic agents or services users, containing information and data of the possible effects of such normative act, to verify the reasonableness of its economic impact.
In the special part, the Economic Freedom Act introduced a series of legal changes with important impacts on civil, corporate, tax and labor laws, among others.
In the Civil Code, for example, the applicable rules to the disregard of the corporate veil were amended, in order to reinforce its exceptional character; and also the rules regarding the interpretation of agreements, establishing the principle that, in private contractual relations, the principle of minimum intervention and the exceptionality of contractual review shall prevail.
Also within the scope of the amendments to the Civil Code, the law now allows for the constitution of sole limited liability companies, as well as regulates investment funds, allowing the fund’s regulation to limit the investor’s liability to the value of their quotas, as well as fund’s service providers liability, without solidarity.
The law also brought news regarding the digitization of documents. In the text, it is established that scanned documents shall have the same proof value as the original document. Similarly, the law authorizes documents subject to public records to be provided, publicized and kept electronically.
On the other hand, the law simplifies the registration procedures of companies in the boards of trade, consolidating rules that had been introduced by other provisional measures. One of the main innovations is the automatic filling of articles of incorporation, their amendments and extinctions regardless of prior government authorization, in certain cases. In addition, document authentication may be performed by comparing the original and its copy by the public servant to whom the document is presented, being this procedure waived when the attorney-at-law or accountant of the interested party declares, under his personal liability, the authenticity of the document.
In the tax sphere, the law allows for a committee formed by members of the Administrative Board of Tax Appeals (“Conselho Administrativo de Recursos Fiscais”), the Special Secretariat of the Brazilian Internal Revenue Service (“Secretaria Especial da Receita Federal do Brasil”) and the National Treasury Attorney General’s Office (“Procuradoria-Geral da Fazenda Nacional”) to edit precedent statements (“súmulas”), which must be observed in the administrative, normative and decision-making acts performed by the federal public administration agencies. In addition, new hypotheses for the dismissal of appeals by the National Treasury Attorney General’s Office, as well as for not constituting notices of infraction were established. These measures aim to reduce litigation and to adjust the actions of the tax authorities to the decisions rendered by the superior courts in tax matters.
The law also introduced major changes in labor law. Among them, we highlight the creation of the electronic work papers (“carteira de trabalho”); the requirement for push card control only for companies with more than 20 workers; authorization for punch card control by exception, that is, only in the event of overtime, delays, absences and leave, if entered into by individual or collective agreement; and the replacement of the Tax, Social Security and Labor Obligations Digital Bookkeeping System (eSocial) by a simplified social security, labor and tax liabilities digital system.
The Economic Freedom Act is one the of several government initiatives aimed at stimulating the growth and opening of the Brazilian economy. Beyond the ongoing structural reforms, such as social security and taxation reforms, we highlight the recent execution of the Mercosur–European Union Agreement, the efforts to integrate Brazil into the Organization for Economic Cooperation and Development – OECD, and the recently announced privatization program of several state-owned companies, including Eletrobrás and Correios.
For further information about the contents of this newsletter, please contact:
Rosi Costa Barros