Companies and the defense of the legal market

Initially the focus was on the product, the industry should improve the means of production, reduce costs to meet the demand with attractive prices. For this, the development of the assembly line was fundamental, with mass production significantly increasing the offer. The consumer would buy what was offered to him. Henry Ford said, "A customer can have any car he wants, as long as it's black." This phrase translates this conception, the lowest cost in less time, maintaining the standard in manufacturing.

However, after conquering the good, the consumer began to demand more and whoever offered products with better quality and lower cost would have an advantage. Competition became fiercer. In this direction, to conquer the market, sales, marketing and advertising strategies were developed. The sales process has become more and more sophisticated.

Constant improvement of quality, technology, the permanent search for innovation are commandments, but in addition to the product, supply and purchase, the after-sales service has been increasingly strengthened. Companies must understand and serve the consumer, especially if the product has a problem. Respect for the customer is an obligation of companies. President John Kennedy's March 15, 1962 speech stating “Consumers, that's all of us” ushered in a new era introducing the fundamental rights of consumers: safety; information; free choice and to be heard.

However, in addition to meeting these fundamentals, new challenges are presented. It is not enough to face the natural competition in the conquest of the market, more and more companies have to face the insidious action of competitors who illegally seek profit without complying with the current rules, distorting the sense of fair competition. Thus, counterfeiting, counterfeiting, piracy, smuggling, fraud, cargo theft, tax evasion and import under-invoicing represent concerns that entrepreneurs must have today, dedicating financial and human resources in this effort to ward off these constant threats.

There is no productive sector that is immune to the actions of the illegal market, which in 2021 alone, according to data collected by the National Forum Against Piracy and Illegality from fifteen productive sectors, moved BRL 300,5 billion in Brazil (sum of the losses of companies plus estimated tax evasion).

Thus, business leaders also have to define strategies to defend the legal market, either with actions with the public authorities to combat the supply of illegal and discourage demand, where price is a determining factor, directly impacted by taxes that only the legal pays. .

In this complex context, it is important to emphasize that the consumer is fundamental, his power of choice defines the course of the market and in the same sense, public agents can curb illegal offers. As soon as they know about the origin of the product, if the technical standards that guarantee its health and safety are respected, if the product has not been stolen, if the taxes due have been paid and have a direct channel with the company that manufactured it, the illicit market space will be contained.

These conditions are already met by current digital technologies of systemic traceability, which, through the use of nanotechnology and blockchain, mark products and refer to a process of direct communication between the product and the consumer, via smartphones that can be applied to the most diverse materials (plastic, metal, liquids, paper, fabrics, gold, diamonds and explosives). In this immediate contact, accessible by intelligent QR Code, all information can be generated by the companies in order to identify the originality, compliance, if it was stolen or if it is indexed to the invoice. In a very simple way, in the pandemic, access to menus by smartphones, via QR Code, popularized this technology, albeit at a basic level.

This innovation is being stimulated by public administration measures. The Brazilian Army defined, through Ordinance No. 122 of COLOG of 15/09/2021, the marking of explosives that enables traceability even after detonated and the Federal Revenue, through Ordinance 165 of 12/04/2022, instituted the Brazilian Program of Fiscal Traceability (Rota Brasil) with the objective of “creating a national standard applicable to the systemic controls of production and traceability of products, identifying the origin of the product and its follow-up in the production chain, in addition to the repression of illegal imports and production and the commercialization of counterfeits”.

In fact, companies have in traceability a powerful instrument that will allow the effective fight against illegality, incorporating the consumer and the public authority in this action and, importantly, with a viable cost and without interfering in the production line, protecting consumers, the reputation of the brands , meeting compliance rules and the 17 UN sustainable development goals.

Ruler and compass are available for these new directions in the challenge of this century to defend ethics in the market and preserve companies that stimulate the economy by generating investments, jobs and income.

Brazil: Losses and gains

When identifying losses caused by an action, we seek to demonstrate the losses in values ​​to facilitate the understanding and extent of the damages.

Thus, when estimating the impact of the illegal market; the size of informality and tax litigation, we extract figures that reflect the losses and, consequently, the gains if this space were occupied by legality, formality and rationality in the application of our tax system.

We have institutions that develop metrics trying to gauge the dimension of these deviations.

ETCO developed with IBRE/FGV the underground economy index carried out since 2003 and which in 2021 reached the figure of R$ 1.3 trillion, which represents 16,8% of Brazilian GDP and with the consultancy EY sponsored an international study that found that the litigation tax, in the administrative and judicial instances, reaches the astounding amount of R$ 3.4 trillion.

Regarding informality in Brazilian retail, the IDV — Instituto para o Desenvolvimento do Varejo conducted a survey with the consultancy McKinsey & Company that indicates that tax evasion in physical retail is from 25% to 34% and in digital from 33% to 37% of sales (which has been experiencing a continuous growth in the supply of illegal products without invoices), with values ​​between R$ 95 and R$ 125 billion.

The National Forum Against Piracy and Illegality collects data from 15 productive sectors (clothing; fuel; personal hygiene, perfumery and cosmetics; alcoholic beverages; pesticides; pay TV; cigarettes; sporting goods; eyewear; PCs; software; cell phones; audiovisual; imported perfumes and toys) since 2014 and the survey for the year 2021 shows that these sectors had losses of BRL 205.8 billion, which added to BRL 94,7 billion (conservative estimate of an average of 46% of uncollected taxes) reaches the amount of R$ 300.5 billion. Compared to 2014, the illegal market (smuggling, piracy, counterfeiting and fraud) grew three times.

These figures of billions and trillions of reais related to the losses of industry, commerce and the formal economy make us wonder what would be the gain for the generation of jobs, revenue and impulse for our development and innovation. A simple example, adding the evasion of retail and industry indicated only in the IDV and FNCP surveys, it would be possible to finance 18 million family grants for more than 38 months with a monthly amount of R$ 300.

These projections are limited to numbers and what could be generated in gains for society as a whole, however these losses for society cannot be measured only in monetary values, as they have other consequences, whether for public safety, increased corruption and decreased productive investments.

Our police and IRS forces (federal, state and municipal) prove that criminal organizations are financed with these withheld resources, also encouraging drug and arms trafficking.

On the other hand, employment level is affected. Factories were closed and others are under threat, including the growth of persistent debtor companies that are structured to never pay taxes and, thus, erode competition. The fuel and tobacco sectors have suffered from this action, but the textile sector has also been shaken.

The various faces of illegality and the operations of persistent debtors form a criminal economic phenomenon, which has to be attacked by supply and demand. Offer, with repression, through integrated and coordinated actions of police forces and revenue.

The demand, on the other hand, is motivated by the price, which is lower in the illegal one thanks to evasion and must be faced with changes in the tax system. An example of what can be done is the recent simplification of the ICMS charge on fuels, defining the single-phase and single rate for all states, which should reduce the space for evaders.

In fact, we cannot underestimate the effects of the illegal market and the consequent tax evasion. The magnitude of the losses and what could be turned into gains for the whole society demonstrate that illegality must be permanently on the agenda of the productive sectors and the public power, which must act in cooperation in the fight against those who despise the law. . Os damages cannot be ignored, as they harm all Brazilians who bear their obligations and our expectations for the future.

Safe and ethical cities

We learned that, in essence, civilization is based on coexistence. In our evolution, we have developed means to resolve conflicts, defining rules, expressed in laws that must be complied with by all.

This reality is even more visible with the growth of cities, in large agglomerations that house more and more people, challenging humanity to find solutions to generate jobs and income; housing; environment; mobility; leisure; culture and, also, containment of violence, in short, respect for dignity.

In the urban space we have the expression of great achievements and frustrations, where the attraction exerted by consumption unfolds in the growth of commerce and services.

 Economic activities attract investments and also the greed of those who want to act in search of profit without any concern for the current rules, seeking to obtain advantages without caring about the means. Respect for the consumer, for municipal attitudes, for the creation of formal jobs, for paying taxes is solemnly ignored.

It is interesting to note that this attitude is often accepted by society that thinks that the illegal offer of products and services is acceptable, which does not mean a problem that deserves greater attention by the government.

In fact, we found that there is a perversion in this practice related to illegality, which affects everyone. The inversion of values ​​contaminates our coexistence, generating more and more inequalities, stimulating investment and tax evasion, deteriorating social relations, attracting violence.

In a more restricted view, it is certain that the growth of illegal trade — far from any regulation, expands the sense of disturbance and disorder in the urban space and removes the citizen's sense of belonging.

Areas such as 25 de Março and Brás streets in São Paulo, and similar ones in large Brazilian cities and around the world, attest to the unrestricted proliferation of street vendors on sidewalks and shopping malls with thousands of stalls, without respecting security-related rules, rented for the sale of illicit products, undermine the understanding of respect for the space that belongs to everyone and favor the action of true criminal organizations that operate from smuggling, counterfeiting and distribution of goods, to trafficking of drugs, robberies and reception.

Containing this non-inclusive occupation is an obligation of public authorities and must be organized in a systematic and systematic way. The city of São Paulo has advanced, on the one hand, with repeated actions to combat illegal trade, with the seizure of more than 3.500 tons of illicit products (smuggled, pirated, fake and counterfeit) and, on the other, encouraging entrepreneurship popular, without illegality and developing urban interventions, returning the “urbis” to citizenship. This posture requires a strong commitment from the political leadership, as the criminal practice is supported by strata of society with great influence.

Security attracts coexistence in cities and encompasses multiple initiatives, public policies involving police and social actions, the participation of civil society, support for inclusion and diversity measures and also the rationalization of the occupation of public space. the action of the crime.

At the next Exhibition and World Congress “Smart City”, in Barcelona, ​​various aspects that impact the evolution of cities so that they become more welcoming will be addressed. We must follow up on these themes that are directly related to our daily lives and influence our prospects for the future.

In response to political leaders who reverberate despicable behavior, instead of seeking to serve as an example of rectitude and respect for the law, we should value initiatives aimed at raising people's awareness, encouraging legality, ethics, which are necessary for us to evolve in building a society that values ​​gains for all and not advantages for the few. Rescue public space for people, keeping away from occupation by shady businesses.

Taxpayer defense in the Income Tax Reform

An old popular saying goes that when we are born we have two certainties: we will die and we will pay taxes.

As for the first, we can do nothing, as for the second, we must at least try to contain the lust of the State (in any government) and establish parameters of justice and rationality.

Historically in Brazil, this action to contain the collection spirit has not been easy. Since the discovery of these “terras brasilis” we have come across the growing search for more resources by the State without considering the taxpayer.

The rationalization of expenses and combating the waste of public resources is a chimera and it is up to the citizen to bear the burden of the imbalance between what is spent and what is collected, being increasingly burdened.

Businesses and citizens, who pay taxes and keep their records regularly, are often victims of procedures that can be considered abusive.

The transformation of punishments, which should be exceptions, as a rule, for example, the indiscriminate use of tax representation for criminal purposes and the application of the aggravated fine with a 150% increase, even before any fraud is proven, is evident, the auditor's interpretation tax is enough.

A study sponsored by ETCO with consultancy EY pointed out these deviations that encourage discussions in the administrative and judicial spheres, generating a litigation of more than R$3,4 trillion. Taxpayers who legitimately seek to defend themselves against questionable interpretations or errors are protested, fined excessively and coerced with threats of a criminal nature, leaving to exercise their rights in all instances in processes that take more than twenty years.

On the other hand, the fraudulent actions of persistent debtors causes the impact of billions in tax evasion. Through the constitution of orange companies and endless injunctions, they are delaying the payment of taxes, obtaining undue financing to strengthen their operations, harming loyal competition. In the end, with this repeated default, we taxpayers support this entrepreneurship based on illegality,

Society is between two undignified postures: the persistent debtor who structures himself to not pay taxes assumes the "I owe, I do not deny and I do not pay" and on the other hand, the State, which when charged, supports itself in the "I owe, I do not deny, I will pay when I can ”.

These postures demonstrate that there is something very wrong in Brazil (unfortunately there is a lot wrong), especially in the subversion of values. Instead of facilitating and encouraging the best conduct, we create difficulties and obstacles for those who want to fulfill their obligations and, on the other hand, those who operate in obscurity find ways to continue progressing outside the law.

Recently, we had yet another proof of disrespect for the taxpayer, the tax package - which profoundly changed the taxation of income, increasing even more the tax complexity - was voted by the Chamber as a matter of urgency, reducing the space to deepen the assessment of the impacts that, after approval, are being identified. Once again, those who pay do not even have the right to argue, to question. If there are mistakes, be patient. And the necessary legal certainty was thus, once again, subverted.

Our historical reality demonstrates that, for sure, we are late in the constitution of legislation that consolidates taxpayers' rights. Citizens as consumers and users of public services have already conquered laws that protect them against abuses, but as taxpayers that support the State, they still do not have more effective defense instruments.

It is time to evolve, ensuring respect for taxpayers' rights, reformulating the tax process, defining norms against abuses and distinguishing those who seek to fulfill their obligations from those who do their utmost to intentionally distance themselves from legal requirements.

This movement needs to be encouraged in line with the studies carried out by the Commission created by the National Council of Justice, with the participation of the Federal Revenue, which is carrying out a diagnosis of tax litigation, with the objective of containing its growth, including pointing to the elaboration of a new National Tax Code.

The sense of urgency should not be applied only when there is interest from the treasury. The reformulation of the tax-taxpayer relationship, containing abuses of the taxpayer and guaranteeing the rights of the taxpayer, should be included in the legislative agenda

Given the certainties pointed out at the beginning of this article, since we are going to die, at least let us pay what is fair.

*Edson Luiz Vismona is a lawyer, president of the Brazilian Institute of Competition Ethics – ETCO and the National Forum Against Piracy and Illegality – FNCP. He was secretary of justice and defense of citizenship of the State of São Paulo (2000/2002)

Ethics, be whole

Fernando Pessoa's poetry teaches: “To be great, be whole…Be whole in each thing…”, this lesson of the great poet inspires us to understand that the ethical posture must be like that, it is not possible to be ethical in half, to be in the personal and not professional life or vice versa.

The same occurs in the business environment, companies have to base their conduct on values ​​and principles and not accept ethical deviations. It has to be full.

Thus, it is not acceptable to disrespect labor rights and allow harassing practices, claiming that you respect the rights of consumers or that you comply with integrity processes, but sell fake products or, to ensure a sale, corrupt public officials.

It is common for companies, when defining their mission, to affirm that they have a duty to respect the laws, consumers, employees and that they defend the preservation of the environment and sustainability. However, as defined by Aristotle: “Virtue is in transforming values ​​into action”. Thus, we are virtuous if we practice the commitments made. It's not enough to talk, you have to do it.

This transformation of intentions into action is not simple. The pressure for results, in companies and the desire or need to buy at the lowest price, in people, can encourage the acceptance of ethical and legal deviations and even try to justify them. In the Lava Jato lawsuits, many businessmen tried to explain the massive corruption by claiming that, if they didn't act like that, their competitor would. They would have been “forced” to accept indefensible proposals to guarantee the company's continuity and that this was the rule of the game.

This ethical inconsistency cannot be sustained, the development of a country depends on legal security, that is, clear rules and the guarantee that everyone will comply with them is what encourages and maintains investments and the generation of jobs and income. The Brazilian Institute of Competition Ethics – ETCO, created in 2003, was a pioneer in this posture.

In Brazil, in the wake of the wide repercussions of the corruption scandals that have swept the country, integrity policies have assumed great importance, with codes of ethics and a channel for complaints, including as a condition for participating in business.

This need became a posture demanded by more conscientious investors, consumers and employees, validating the ESG metrics, so in vogue, defining the obligations with the environment, with the social (community care; diversity, inclusion, psychological safety) and governance (combating any ethical and legal deviations).

Companies were urged to assume commitments of respect for coexistence and ethics, not accepting deviations, in all their departments and areas of activity, demanding the same from suppliers and customers. The public sphere has also been aligning itself with this policy, with the installation of controllerships, internal affairs and ombudsmen, encouraging a culture of integrity.

Accompanying this movement, the associations representing the productive sectors must also adopt parameters of sectorial conduct. The fight against corruption, the defense of legality and ESG parameters cannot be isolated attitudes, it has to be broad. For a good coexistence in the business environment, the uniform posture of compliance with the law and ethics in the productive segments preserves legal security.

In fact, self-regulation is a path that should be encouraged, defining the sectorial code of ethics, seeking to prevent illegal activities, establishing a channel for complaints, in short, guiding everyone to respect the law, encouraging the preservation of fair competition and development of a market solid in principles and values.

The moment of tragedy that we face with the pandemic demonstrates that the valuation of ethics is fundamental, especially given the criminal opportunism of those who took advantage of the urgency to obtain advantages at the expense of public health.

The behavioral culture of the business environment must evolve, valuing proactivity, with leaders leading the ethical paths of companies, with the support of sector associations, without being at the mercy of external commands that point out deviations. Those who know the market best must act to isolate practices that erode credibility and disfigure the legitimate objectives of the private sector, which, in order to be preserved, must follow best practices.

This ethical, preventive and protagonist wholeness results in benefits for the whole society and has to be strengthened.