Please note, your browser is out of date.
For a good browsing experience we recommend using the latest version of Chrome, Firefox, Safari, Opera or Internet Explorer.


Covid-19 Legal Impact and Legislative Updates

The first coronavirus case arrived in Brazil on 25 February 2020. In the month and a half since, measures have been taken by the government to mitigate economic and social consequences. Below, we discuss the impact on civil and commercial relations as well as public contracts and import of medical equipment, followed by an overview of the legislative updates in the labor and tax spheres.  

I. Civil and Commercial Relations

The Brazilian Civil Code foresees that the advent of unforeseen and unpredictable facts at the time of entering into an agreement, that make it impossible, substantially hinder, or overburden the fulfillment of the contracted obligations, with an unreasonable advantage for one of the contracting parties, may allow the formulation of requests for revision or of contractual termination. In the same way, legislation establishes that force majeure events constitute situations that exclude responsibility, if there has been no express assumption of responsibility for the occurrence at the time of agreement. 

The current situation due to the coronavirus pandemic, considering its total unpredictability and its global impact, falls within the above contemplated and gives rise to the possibility of reviewing contractual obligations depending on the specifics of the signed contract. The concepts of arrears and contractual default also become more fluid. 

With specific regard to consumer relations, as the Code of Protection and Defense of the Consumer adopts the objective base theory, as a rule, the unpredictability of the fact is dispensed with as incidental, it being sufficient if the consumer has been disproportionately burdened by subsequent facts so that one can exercise the right to review contractual clauses (art. 6, V, CDC). On the supplier’s side, the pandemic may represent a break in the causal link in order to avoid liabilities in cases where adversities caused by the new coronavirus prevent the supplier from complying with its contractual obligation.

Whether in the scope of commercial or civil relations, or that of consumer relations, or even from a competitive perspective, there are means to avoid the abusive manipulation of prices or economic advantages, whenever they come to constitute expedients for enrichment without cause or for violation of the principle of objective good faith or even the principle of solidarity in the face of endemic situations at the global level, as appears to be the case with the coronavirus.

We recommend that each individual case is evaluated for the purpose of mitigating losses resulting from the new coronavirus. Also suggested is special and additional care when negotiating and entering into new contracts, so that, to the extent possible, protection mechanisms can be ensured. 

In the case of insolvent companies, both force majeure and the change of circumstances have been alleged in discussions with creditors and insolvency proceedings, in order to avoid liquidation in bankruptcy and enforcement proceedings with respect to restructured debt or efforts to restructure debt. The court decisions are still uncertain, as there is no governing case law which has been handed down by the superior courts. Congress is currently discussing a general moratorium intended to allow affected parties to restructure their debts amicably, a system similar to the European Union Directive for pre-insolvent companies. This is an effort to reduce the case load of the courts which could become unmanageable if all controversies will have to be decided on a case by case basis. Congress, the Central Bank and the large retail banks are discussing financing alternatives to alleviate the situation of companies, including affected medium and large companies. Up to now, except for restricted payroll financings and a loan program to small companies, nothing effective has been enacted in this area, because banks do not wish to run the risk of extending loans to pre-insolvent companies. Programs being discussed entail some type of risk sharing solutions and the purchase of loan portfolios and securities by the Central Bank funded by the Treasury.  In practical terms, the country is currently facing a credit crunch and higher interest rates. Therefore, work in progress is required to deflect massive insolvencies.  

II. Public Contracts 

According to Brazilian Law (especially the Public Procurement Law), contracts entered into by the Public Administration do not follow the same rules applicable to private contracts, i.e. the public party has what are usually called “extravagant” powers, which allow it to terminate or unilaterally modify the contract, as well as to apply penalties to the contracting party in case of default or non-execution. 

On the other hand, the Law grants the private party the right to an economic-financial balance of the contract in the event of force majeure, extraordinary events, or contractual amendments unilaterally imposed by the public party. Likewise, if the public party does not comply with its obligation to make due payments for more than 90 days, the Law allows the private party to suspend the execution of its obligations, exception being made to those contracts related to essential services/products (in these situations, suspension is expressly prohibited). Moreover, in case of a public calamity, public contracts cannot be suspended, even in case of default.

There is no question that the coronavirus pandemic can be considered as an unpredictable adversity, and consequently, in case of substantial increase of the price of goods, supplies or services related to a public contract, it is possible to request the revision of the original values agreed on in order to reestablish the economic-financial balance. As a final option, the parties can agree on terminating the contract without consequences. It is important to highlight, however, that the recognition of force majeure in public contracts is not automatic but, on the contrary, needs to be expressly recognized either by the contracting party or by a judge. Difficulties in delivering goods for reason of problems related to the import operation are normally not considered as a force majeure event thus allowing the contracting party to declare the non-execution of the contract.

The Brazilian Government is currently allowing the postponement of payment of certain obligations related to concessions, for instance, airport concessions. However, as mentioned above, except in cases of a judicial order, it is the Government and not the private party which has the power to establish new values or to allow the deferral of obligations. 

III. Import of Medical Equipment

The Brazilian Government has enacted rules that expedite the import, as well as simplify the manufacture and commercialization, of medical devices necessary to fight the coronavirus, such as surgical masks, respirators N95, PFF2 or similar, surgical shoe covers, surgical caps, safety goggles, face shields, disposable aprons and equipment to help mechanical respiration.

The companies that manufacture and import these products are exempted from having Operating License (AFE) as well as health licenses.  Moreover, the commercialization may be carried out without previous notification to Brazilian Health Agency (ANVISA). However, technical parameters, such as labelling of the products, availability of use instructions, requirements of safety and effectiveness and good practices of fabrication, continue to be an obligation.

The certification of good manufacturing practices (CBPF), that is still required for in vitro diagnostic tests, has also been simplified.  During the pandemic period, ANVISA will prioritize the analysis of manufacturer’s certification and is accepting documents/information from Foreign Regulatory Authorities. The Brazilian Government has also facilitated the process of importing in vitro diagnostic tests, by no longer requiring the submission of Consular Documents and complete stability studies.

In parallel, the National Institute of Metrology, Standardization and Industrial Quality (INMETRO) has suspended the need for certification of surgical masks for the next 12 months, which means that these products can be imported and commercialized without waiting to be certified. 

Finally, ANVISA is expanding its digital services, with an emphasis on the procedures of import and regularization of products and documents. The import process, which is totally electronic, has professionals who have been instructed to prioritize the customs clearance of essential products to combat the coronavirus.

IV. Labor

Since March 2020, two Provisional Measures (No. 927 and 936) were issued to expedite, simplify or eliminate administrative procedures as well as to provide employers with flexibility to negotiate certain labor rights – employment terms or conditions, for instance – without requiring the intervention of the applicable Union.

Employers are able to propose a proportional reduction of hours and salaries (25%, 50% or 70%) for a period of up to 90 days or the suspension of the employment agreement for up to 60 days, which may be divided in two periods of 30 days each. No collective bargaining with the labor union is required with respect to employees who earn either R$3.135,00 or less per month or more than R$12.202,12 per month and have a university degree. Except for the case of a 25% reduction, collective bargaining with the labor union is required with respect to employees who earn between R$3.135,00 and R$12.202,12 per month.

The Provisional Measures also cover teleworking; collective vacation (48 hours advance notification required and procedure to be coordinated with the HR/payroll department); anticipation of individual vacation periods or of federal, state, district and municipal non-religious holidays (both of which require 48 hours advance notification); postponement of FGTS payment; leave of absence; establishment of a bank of hours; reduction of wages up to the limit of 25%, respecting the minimum wage amount; suspension of the employment agreement for between two and five months; suspension of internship agreements; and  change in shifts, severance pay in instalments, voluntary dismissal plan and collective dismissal (all four of which would require Collective Bargaining Agreements). 

On 7 April 2020, Justice Ricardo Lewandowski, from the Supreme Federal Court, partly granted an injunction order that in effect prevented the adoption of the measures implemented by MP No. 936 with regards to employees who receive R$3.135,00 or less per month, in other words, the majority of the Brazilian workforce. On 17 April 2020, the court’s full panel discussed the case and reversed Justice Lewandowski’s decision, thereby recognizing the validity of Provisional Measure No. 936 in its full terms and conditions. This understanding is likely to prevail, bringing more legal certainty to employees and employers who have decided to enter into individual agreements.

Beginning 9 April 2020, the Brazilian Government is paying out emergency assistance, also known as the “coronavoucher”, in the amount of R$600,00 (or R$1.200,00 for women who are single parents) per month for a period of three months. Eligible beneficiaries are those who do not have formal employment, do not benefit from other social protection programs, have a monthly individual income of not more than R$522,20 or monthly family income of not more than R$3.135,00, declared income in 2018 of not more than R$28.559,70, and exercise activities as an individual microbusiness (MEI), freelancer, or informal worker.

V. Tax

The Federal Government has announced several tax measures with the purpose of preserving companies' cash. These measures are concentrated on the deferral / suspension of the tax payment period as well as the relief of payroll and the import and commercialization of products necessary to face the pandemic.

PIS/COFINS contributions and Employer's Social Security Contribution, Funrural and Social Security Contribution payable by employers that are due in April and May have been deferred to August and October respectively. FGTS contributions in March, April and May are now payable in up to six installments, as of July. The due dates of IRPJ, CSLL, PIS, COFINS, IPI and CPP taxes under the simplified tax regime and individual microbusiness (MEI) have been deferred, as have the due dates of ICMS and ISS taxes under the simplified tax regime.

The rates in the S System have been reduced until 30 June. Imposto sobre Operações Financeiras – IOF (Tax on Financial Operations) is at 0% for 90 days.

For the import and commercialization relief of products used to fight the pandemic, the Import Tax is also at 0% for medical and hospital products and facilitating clearance. There is a temporary release of the Imposto sobre Produtos Industrializados – IPI (Tax on Industrialized Products) in respect of goods destined to fight the pandemic.

Deadlines for various tax declarations have been extended, including the DCTF (Declaration of Federal Tax Credits and Debits), EFD Contributions (Digital Tax Assessment contributions), and DIRPF (Individual Annual Tax Declaration).

The Attorney General's Office of the National Treasury (Procuradoria-Geral da Fazenda Nacional - PGFN) announced that it will suspend collection actions, as well as facilitate the renegotiation of debts, a transaction already foreseen in the Provisional Measure of the Legal Taxpayer (nº 899/19). At the federal level, Ordinances no. 7,820 / 20, No. 7,821 / 20, Conselho Administrativo de Recursos Fiscais - CARF (Administrative Tax Appeals Council) No. 8,112 / 20 and Receita Federal do Brasil – RFB (Brazilian Federal Revenue Office) no. 543/20 provided for the suspension of certain administrative procedural deadlines. There are also studies to anticipate the Personal Income Tax (IRPF) refund and expand the deferral of tax payments.

Another measure that could be quite effective would be, for example, to allow the likely fiscal loss expected for 2020´s calendar to be offset without limiting the 30% lock in the future, when companies start to recover from the crisis.