Article – Coronavirus: Labor, Contractual and Tax Impacts in Brazil

The rapid increase in the number of people affected globally by the coronavirus has several impacts on the way society is organized. Residential isolation, flight cancellations, border closings, stock exchange and exchange rate fluctuations are some of the effects caused by the global pandemic.

At this time of crisis, businesses are also affected, causing companies to adapt their activities in order to survive the economic turbulence caused by the coronavirus.

We highlight below the main contractual, labor and tax measures that can be used to mitigate the effects of the global pandemic on business, as well as the first measures adopted by the Brazilian government to mitigate economic impacts. Further below, we present a detailed description of the possible measures for the three areas.


✓ Implementation of home office model

✓ Concession of collective vacation (shutdown)

✓ Anticipating employees’ vacations

✓ Temporarily suspension of the employment contract

✓ Flexible working hours

✓ Up to 50% workload reduction and cut wages


✓ Flexibility of contractual clauses and obligations

✓ Justified breach of contracts due to force majeure


✓ Installment payments

✓ Negotiation of Procedural Contract / Case Management (Negócio Jurídico Processual), which allows the payment of taxes in installments for up to 120 months under less onerous guarantees for the debtor

✓ Utilization of available tax credits

✓ Early execution of judgments with interim measures and injunctive relief (e.g. exclusion of the municipal service tax (ISS) / State VAT (ICMS) in the calculation basis of the federal contributions on gross revenue (PIS / COFINS))

✓ Use of preliminary measures (injunctive relief) to suspend tax debits

✓ Planning that optimizes the company’s tax efficiency


✓ Anticipated payment of the installment of the 13th salary for retirees and pensioners for April and May.

✓ Anticipation for June of the payment of salary allowances

✓ Deferral of contributions to the Severance Indemnity Fund (FGTS) for three months

✓ Deferral for six months of the federal portion of SIMPLES tax regime payments

✓ 50% reduction during three months of contributions to the S System

✓ Exemption (import tax and IPI) for medical and health products

FCR Law Corporate, Labor and Tax teams have extensive experience to assist companies with the matters included in this alert. We are fully available to review, together with you, the possible measures that could immediately be implemented to reduce or mitigate the negative effects caused by the coronavirus. For any additional information, please do not hesitate to contact us.



During the current pandemic crisis, it is essential that companies prepare and organize themselves in relation to the labor aspects of their activities. We list below some important measures that can be adopted to avoid the growth curve of coronavirus transmission and to mitigate the potential economic impacts:

A) Home office

Provided for in the labor legislation (CLT), home office is a type of work model that can be implemented by companies in relation to their employees as a means of avoiding interruption of activities. Home office as defined and treated by the labor legislation – must comply with specific rules and have a defined model for its implementation, which covers items such as: supplying the necessary equipment so that the employee can perform his/her activities remotely , preparation of contractual amendment by mutual agreement and deadlines for reversing the contractual model.

B) Collective vacation (shutdown)

Companies can grant collective vacation to their employees. This model, in theory, requires a 15-day prior notice to the union and the Regional Labor Secretariat, a requirement that could potentially be relaxed due to the pandemic.

C) Anticipating employees’ vacations

An employer can anticipate its employees’ vacations. Yet, by anticipating the vacation, the employer will be required to pay the additional one-third of a monthly salary to the employee.

D) Suspension of the Employment Contract

During the financial crisis of 2001, a provisional measure was issued that altered the labor legislation in order to allow companies suffering from the economic recession to temporarily suspend employment contracts for a period of 2 to 5 months. For the suspension to be effective, it is necessary to notify the employees’ union. In addition, the suspension of the employment contract can only occur once within a sixteen-month period and must comply with other specific requirements as provided for by law.

E) Flexible working hours

Granting flexible working hours to employees can reduce inherent risks to the pandemic crisis such as possible contamination by using public transportation during peak hours.

F) Workload reduction and salary cut

One of the measures to be implemented by the Brazilian government, on a provisional basis, is the possibility of reducing the workday by up to 50%, with a proportional reduction in wages. The current labor legislation foresees this possibility in situations of proven crisis, but the current limitation is up to 25%.

It is important to mention that all above mentioned measures can be customized according to each specific case, yet thorough legal analysis is essential in order to avoid possible excesses or distortions of the applicable Brazilian legislation.


Due to its unpredictable nature, a pandemic crisis is a typical event of force majeure (or fortuitous event), which is expressly included in the Brazil Civil Code. The legislation has like fundamental objective to share the risk of the enterprise among the contracting parties:

Art. 393. The debtor is not liable for damages resulting from a fortuitous event or force majeure, if not expressly responsible for them.

Sole paragraph. a fortuitous event or force majeure is an inevitable event, the effects of which were not possible to avoid or prevent.

It is common in Brazil to include in contracts clauses regulating cases of force majeure (as well as regulating situations that will not be considered as force majeure), thus dividing the burden of losses that occur as a result of unpredictable events.

Events of force majeure are those beyond the control of one or all parties, even considering that the affected party is or was unable, within reasonable criteria, to make a provision to face the problem or even after the problem arises, there is no possibility of avoiding or overcoming it.

In the current scenario, it seems that the coronavirus pandemic is effectively a case of force majeure.

Thus, in the event of impossibility to fulfill a commercial agreement due to the pandemic, the first measure would be to carefully review the contract, especially the force majeure clause and potential clauses providing for the possibility of terminating or rebalancing the contract due to excessive costs, which is also allowed by law.

In case the agreement does not includes such clauses, all is not lost as the affected party may still use the aforementioned legal provisions of the Civil Code, yet it might require a wide and long debate between the parties about the limits of the application of the exemption from civil liability for breach of contract.

In any event, it is important that the affected party document the occurrence, through specific documentation about the issue (e.g. cancellation of shipments of parts, demobilization of personnel on the construction site, government interventions, etc.) in order to provide greater clarity within the limits of the exemption from civil liability for breach of contract.

A clear example of the importance of this documentation will occur in cases where there are penalties for delaying works or supplying equipment on a timely basis. The calculation of the time limit can be discussed through negotiation or even judicially.

For the time being, the recommendation is to mitigate the risks of contagion as the best form of prevention against losses and to start documenting all occurring facts that characterize and substantiate the event of force majeure.


A) Current tax debts: Federal Government measures and installments of tax debts

To date, the Federal Government has adopted some tax measures to mitigate the economic crisis generated by the coronavirus, such as a three-month deferral for the contributions to the FGTS, the federal portion of the SIMPLES tax regime, the contributions to the S System and exempting taxes for medical and health products. However, such measures may not be enough to cope with the economic impacts that are outlined.

As it is well known, pressures on financial liquidity may cause delays in payments of current obligations, including those of a fiscal nature. The short-term effects of default on tax debts are the incidence of interest and a late payment penalty. In general, tax debts are restated using the Selic rate (currently 4.25% per year) and subject to a late payment fine of up to 20% (0.33% per day, limited to 20%).

In this sense, taxpayers have the possibility to enter tax installment program (i.e. pay current tax debts in installments) at the Federal, State and Municipal levels. The Federal tax authorities have issued yesterday (18/03/20) a decree allowing taxpayers to enter in an installment program up to March 25th, 2020 to pay current tax debt in up to 97 monthly installment payments, where 1% of the existing debt will be paid in 3 installments staring on June 30th, 2020 and the balance during the agreed term of the arrangement.

In relation to overdue debts already included in installment programs, taxpayers need to be aware of the conditions of the plan in case of default of making the installment payments. Programs normally set forth that a default for a period of more than 90 days will terminate the arrangement. For this reason, in cases of difficulty in settling the amount due, it is possible to settle arrears without necessarily canceling the arrangement, provided that the interest correction is applied, and that the maximum payment term is not exceeded.

B) Use of tax credits as a means of maintaining liquidity

A relevant measure to maintain liquidity in times of crisis is to analyze the possibility to use tax credits already recognized in the company’s accounts, respecting the applicable legislation and regulations and review whether the company is claiming all the available tax credits generated from its operations.

One example is the possibility to claim credits for the Federal contributions PIS and COFINS related to essential inputs purchased and applied to the company’s economic activities. With a careful assessment of uncontroversial credits and the risk of taking credit under discussion at the Administrative Council for Tax Appeals – CARF, taxpayers may be able to recover credits and maintain liquidity during this moment of economic downturn.

In addition, some judicial measures (interim measures and injunctive relief) are being published in favor of taxpayers who received favorable decisions and based on general repercussions or repetitive appeals, with the objective of enabling the advance compensation of credits recognized in court. This is the case of companies with pending unappealable court decisions related to the thesis of the exclusion of the State VAT (ICMS) from the PIS and COFINS calculation basis and allowing to use of the credits prior to filing based on the incidental court decision.

On the other hand, those taxpayers who have not yet filed legal measures related to favorable theses in higher courts may still present the measure to avail themselves of the effects of a preliminary injunction or injunction request, in order to partially suspend their outstanding tax debts.

To conclude, in addition the potential remedy through administrative and judicial measures, it is in times of adversity that companies also needs to review their current business model, corporate structure and implement legitimate tax planning to increase tax efficiency. Many alternatives are available and should be sought as rapidly as possible.

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