Adversities Faced by the Supermarket Industry Under Brazilian Legislation

Overview

Addressing the legal barriers of companies in Brazil is an extremely difficult task. Brazilian legislation is one of the most complex in the world, which makes foreign investors be surprised with the huge bureaucracy characteristic of the country and find it difficult to fit the standards of Brazilian Law. A simple example of the unique character of this law order is the fact that the Brazilian tax system may require from taxpayers, according to World Bank data, 2,600 hours per year to pay taxes, worst indication in Latin America and 149 countries analyzed by Latin Business Chronicles'.

In this context, and considering the current Brazilian scenario, this paper addresses the legal adversities and the impacts faced by the supermarket industry under Brazilian legislation that should be carefully analyzed not only by foreign investors, but also by domestic investors on a daily basis. Through reported experiences of the segment companies, such as Zaffari Group; AGAS (Supermarket Association of Rio Grande do Sul)'s president, Antônio Longo, and strongly established jurisprudence research with a direct impact on the sector, the goal is to make the foreign investors aware of essential concepts of tax law, labor law and consumer law, about seeking an investment in the supermarket sector in Brazil.

Difficulties in Tax Law Area: High tax burden, complexity of tax laws and secondary problems.

It is common sense the fact that, in Brazil, the biggest concern of the productive sectors in general is the density of the tax legislation, which can cause insecurities and errors that could be avoided if a simpler classification of products was adopted.

Regarding the supermarkets, the tax burden in the products is on average 36%, similar percentage to the Brazilian tax burden in GDP, which encouraged the creation, in a state of the federation, of the Fiscal Transparency Booklet, project which main aim is to explain to consumers the tax charge levied on goods and services.

Due to the inability to determine exactly what the value of each product taxes is, resulting from the complex Brazilian tax law, the project was not implemented. Currently, in a large company, a technical team is necessary just to read and interpret the tax collection laws. There are many different tax rates in Brazilian states and different rules for similar products, which generates a real tax confusion and negative impacts to the supermarket, to the consumer and product prices.

The main Brazilian taxes highlighted are IPI, ICM, IR, PIS, COFINS, INSS, Finsocial, and Social Contribution.

A usual problem faced by the supermarket industry is tax evasion by many smaller competitors, leading to unfair competition.

The Tax Substitution emerged in order to correct these failures. It is a tax collection mechanism used by state and federal governments, mainly used in the collection of VAT, where the aim is to monitor and prevent taxes from being charged more than once. However, changes in the Tax Substitution regime will only take effect in 2016, standardizing products and negatively affecting the sector.

The computerized systems which function is to send files do the Federal Revenue are also a reason for caution because of the required investments. The President, through a decree, may also change the taxes' rules, especially regarding advanced payments or changes in tax rates.

Difficulties Related to Labor Law: Effects of a paternalistic legislation, eSocial and insalubrity.

Recurrent complaint by most of the entrepreneurs of the supermarket chain, high charges as FGTS, INSS, SEBRAE, SENAC, SESC, FAP, vouchers, vacation, 13th salary, childcare assistance, among others, may cost the employer almost twice the employee's wage. In addition, hiring employees to work per hour is not allowed.

Several laborer claims, such as overtime work, insalubrity, 13th salaries, job deviation, salary parity, risks, work breaks, moral damages and labor accidents are common in the Brazilian supermarkets' workplace. In corporate vision, Brazilian legislation is outdated by granting excessive protection to the employees, because they are often wrongly required. Besides, the employment contract's termination, which is very expensive to the employer, can often difficult or prevent the dismissal. When the employee is dismissed without cause, the employer is obliged to pay a fine of 50% of the FGTS balance and to offer a prior notice – 30 to 90 days, according to the proportionality of the service time.

Also known as "SPED Folha", the eSocial is an electronic tool that will unify the provision of tax information, social security information and labor information from companies to the government. The project aims, among other objectives, to enable compliance with the employees' obligations, which should provide complete information about their employees and invest in technology systems, which will cause great difficulty in labor compliance and, consequently, higher expenses.

Entrepreneurs should be aware of Ordinance 702 of the Ministry of Labor and Employment, which deals with the extension of work journey in unhealthy activity. According to this ordinance, any extension of unhealthy activities can only be practiced with the authorization of the head of Health and Safety at Work Unit of the corresponding Regional Superintendence and Employment.

Difficulties Related to Consumer Law: damages, theft, flawed product and replacement of expired products:

1. Damage and theft:

It is very common to the supermarket industry to face consumers' allegations regarding theft and damage to the vehicles in the parking lot, as well as theft and personal objects damage.

Despite the Precedent 130 of the Superior Court of Justice, which gives the company the responsibility of consumer compensation for damages or vehicle theft occurred inside the establishment, recent court decisions support the thesis that the customer must produce minimum evidence concerning the alleged damaged goods.

Gradually, the Judiciary has realized the huge attempt of fraud from customers seeking unfair enrichment, claiming to have various valuable items inside their vehicles without any means of proof. Thus, any conviction to pay compensation for material damages will depend on proof offered by the costumer. As for the theft allegation of personal objects, the case-law understanding is to deny the requests for compensation because it is believed that the clients are responsible for their own property.

Still, it is important to note that in cases of damage caused by third-party exclusive fault - once identified - the supermarket is exempt from any responsibility whatsoever for any repairs.

Regarding moral damages, it is common not to assign responsibility to the supermarket, because the former court decisions understand that the theft of personal goods is mere unpleasantness.

In this sense, the precedents RI 71004999231, RI 71005367172 and RI71005063839 from Rio Grande do Sul Court of Justice.

There is a large number of customers who claim to have purchased a product considered unfit for consumption. If the product is within the expiration date, if it has not been opened and if the manufacturer is clearly identified, the company can claim passive illegitimacy, assigning responsibility to the manufacturer. It is an exclusion of responsibility, often accepted by the Judiciary.

With regard to moral damages, the simple purchase of the product is not more than mere unpleasantness. It is necessary to effectively prove the consumption to characterize the damage of a moral nature, as REsp 1131139 / SP and Civil Appeal 70040863656.

Several supermarkets in different states of the Brazilian Federation have signed an agreement called "Eyes on expiration", which determines the free replacement of the product that is found expired on the supermarket shelf. However, because it is an optional membership agreement, and the absence of law related to this issue, there are no free replacement obligation to expired products.

Conclusion:

The list of legal problems faced by the supermarket industry in Brazil is not exhaustive. Although the most recurrent problems have been exposed, and perhaps are the ones in need of greater attention, Brazilian legislation is very confusing, complex and, in some aspects, outdated. Because of that, different interpretations are constant in all areas of Law, and the legal rules eventually reverse its social rule, becoming real obstacles to the good entrepreneurship.

The solutions found in Brazil still need to be better prepared. The Government promises to send the Congress a reform proposal for the tax law, aiming taxes unification, tax rates reduction and the closure of the tax war among Brazilian states. Regarding labor, the search for mediation and arbitration grows, institutes widely used in European countries and the US, which replaced the deficient corporate labor agreements and strikes - allowed in Brazil. In the consumer law scenario, the culture of judicial conflict is very strong. A viable alternative, however, is the attempt of conciliation at PROCON, as well as a greater flexibility from that agency.

Therefore, knowledge about the rules and procedures faced when undertaking the supermarket industry in Brazil and the necessary caution when investing are essential elements to foreign investors and, ultimately, can become decisive factors for achieving success.

About the Author:

Rodrigo Resende Scarton is a Law student at Pontifical Catholic University of Rio Grande do Sul (PUCRS) in Porto Alegre, Brazil, where he is also a scholarship student of Scientific Initiation. He was an intern in the Attorney General's Office of the State of Rio Grande do Sul.

Additional Resources:

Legal Reports - AGAS