CFEM: new law, new problems? Comments on Law No. 13,540/2017

BY LUIS EDUARDO MANEIRA AND PEDRO HENRIQUE RIBAS

One of the main topics that has been on the discussion agenda of municipalities and mining states across the country has taken on a new look. The publication of Law No. 13,540/2017 last Tuesday, 12/19, the result of the conversion of Provisional Measure No. 789/2017, consolidated numerous changes in the legislation that deals with Financial Compensation for the Exploration of Mineral Resources – CFEM.

Originally regulated by Laws nº 7,889/1989 and nº 8,001/1990, CFEM has always been the subject of countless disputes between the Public Administration and mining companies. Whether due to issues involving responsibility for the payment of possible credits, or the legality of the moments in which their occurrence is verified (sale, consumption, auction of mineral assets, among others), the fact is that with the publication of Law No. 13,540/2017, several of these problems were not resolved and countless others were created.

Just as an example, one point stands out that draws special attention: the way of quantifying the calculation basis to be applied in the occurrence of the event generating the CFEM due to the sale of the mineral asset.

Since the enactment of Law No. 8,001/1990, the calculation of the CFEM due upon the sale of mineral assets has always been based on the revenue from this sale, deducting taxes levied on the operation and transportation and insurance expenses. And that had a logical reason to be.

The Federal Constitution, when granting the Union the power to establish the CFEM, provides that the States, Federal District and Municipalities are guaranteed a share in the results of the exploration of mineral resources. In other words, the so-called CFEM-sale must apply to everything that makes up the cost of extraction (and eventual processing) of the mineral asset plus the miner's profit margin, an amount that exactly reflects the exploration revenue of the asset to be sold.

This understanding was even endorsed in a judgment handed down by the Federal Supreme Court, in which it was established that the materiality of CFEM should reflect the effective economic exploitationof the mineral activity.

It turns out that with the enactment of Law no. 13,540/2017, the express authorization of the deduction of transport and insurance expenses from the CFEM calculation base in the event of sale of the mineral asset was excluded from the legal text, which would, therefore, cause an increase in the amount of compensation to be collected by the miner. In our opinion, this is a misinterpretation.

Firstly, if the aforementioned change is understood in this way, a true usurpation of the competence constitutionally granted to the Union will be established. This is because the expression “result of exploration”, understood as economic exploitation of mineral activity, contained in paragraph 1 of art. 20 of CF/88 does not allow for a broad interpretation to authorize the incidence of CFEM on values other than those relating to sales revenue.

On the other hand, even if this is not understood, the fact is that by prevailing the understanding that Law No. 13,540/2017 excluded the possibility of deducting transport and insurance values, the interpreter ends up creating an internal contradiction in the legal diploma itself.

As explained above, the value of gross sales revenue used by Law No. 113,540/2017 itself reflects the extraction/processing costs of the mineral asset added to the miner's profit margin. In turn, the amounts paid for transport and insurance, historically deductible from the CFEM-sale calculation base, appear not as revenue for the miner, but as an expense of the sales operation and, therefore, cannot be included in the calculation base of the aforementioned financial compensation. Furthermore, and always taking into account the understanding reached by the STF, these expenses would at no time translate into any economic benefit from the mining activity.

In other words, although the new legislation does not expressly address the possibility of excluding transport and insurance values from the CFEM-sale calculation base, we believe that it is defensible that their deductions should be authorized, since this interpretation is the one that best conforms to the constitutional text and the magnitude used by the new law for the purposes of measuring the exaction calculation base (gross sales revenue).

As explained above, the CFEM-venda calculation basis is just one of several points subject to controversy in the new legislation regulating the topic. Other issues will certainly be debated, especially in court.

LUIS EDUARDO MANEIRA AND PEDRO HENRIQUE RIBAS