Publications

Category: Tax

Section 1, paragraph 1, of Law 9,873/99, establishes a limitation "in the administrative proceeding, paralyzed for more than three years, pending judgment or order”, determining its ex officio cancelation. In the scope of tax law, reaching the statute of limitations is one of the hypotheses of extinction of the tax charges, according to Section 156, item V, of the National Tax Code (“CTN”).

The applicability of this provision to tax credits, however, is a highly controversial matter. According to the current jurisprudence of the Superior Court of Justice (“STJ”), there is no statute of limitations in the course of a tax administrative proceeding. The Federal Revenue Service of Brazil (“RFB”), in turn, tries to extend this reasoning to credits arising from penalties provided for in customs legislation, that is, customs charges.

For the RFB, it is not appropriate to talk about statute of limitations in the administrative proceedings discussing customs charges - even if the proceeding has been paralyzed for over three years. The main argument of the RFB’s rationale is that customs charges seek to assist the collection of Import Tax (“II”) and Export Tax (“IE”). Due to this ancillary nature, administrative proceedings aiming at the collection of such penalties should follow the same treatment given to the collection of tax credits.

The understanding held by the RFB has prevailed in the Federal Administrative Council of Tax Appeals (“CARF”), that has even issued a binding Ruling^[1] establishing that the statute of limitations foreseen in Law 9,873/99 is not applicable in the tax administrative proceeding:

CARF’s Ruling No. 11

Approved by the Plenary in 2006

The statute of limitations to administrative proceedings is not applicable in tax administrative proceedings. (Council Session of 06/07/2018, Published on 06/08/2018).

Precedents:

• Judgment 103-21113, of 05/12/2002;
• Judgment 104-19410, of 12/06/2003;
• Judgment 104-19980, of 13/05/2004;
• Judgment 105-15025, of 13/04/2005;
• Judgment 107-07733, of 11/08/2004;
• Judgment 202-07929 of 22/08/1995;
• Judgment 203-02815 of 23/10/1996;
• Judgment 203-04404 of 11/05/1998;
• Judgment 201-73615, of 24/02/2000; and
• Judgment 201-76985, of 11/06/2003.

Although the precedents supporting this Ruling dealt exclusively with tax matters, CARF has routinely and repeatedly applied its understanding in cases dealing with customs matters, which may suggest a supposed equivalence between the tax and the customs charges within the federal public administration.

See, for example, the recent understanding held in the judgment 3402-010.219, held on March 21^st, 2023:

"SUBJECT: ANCILLARY OBLIGATIONS Calendar-year: 2008

(...)

STATUTE OF LIMITATIONS IN ADMINISTRATIVE PROCEEDINGS. It is inappropriate to argue for the statute of limitations in the tax administrative proceeding, and the matter has already been faced by CARF’s Ruling 11.

(...)

6. STATUTE OF LIMITATIONS IN ADMINISTRATIVE PROCEEDINGS

CARF’s Ruling 11 sets the inapplicability of the statute of limitations in the tax administrative proceeding.

'CARF’s Ruling No. 11 Approved by the Full in 2006 The intercurrent limitation period does not apply in the tax administrative process. (Binding, according to ME Ordinance 277/18). Precedents: Judgment No. 103-21113, of 05/12/2002 Judgment No. 104-19410, of 12/06/2003 Judgment No. 104- 19980, of 13/05/2004 Judgment No. 105-15025, of 13/04/2005 Judgment No. 107-07733, of 11/08/2000 4 Judgment No. 202-07929, of 22/08/1995 Judgment No. 203-02815, of 23/10/1996 Judgment No. 203-04404, of 11/05/1998 Judgment No. 201-73615, of 24/02/2000 Judgment No. 201-76985, of 11/06/2003'.

No reason to the Appellant."

Although customs law and tax law are deeply intertwined, they are not to be confused, as they are supported by different normative regimes. The Ministry of Economy itself has already made this division in Ordinance 260, of 2020 (“ME Ordinance 260/20”)– and in the judgments resulting from it. In the ME Ordinance 260/20, it was established that Section 19-E of Law 10,522/02 (which determines the untying vote in favor of the taxpayer and was inserted by Law 13,988/20) would only be applicable to tax charges, and not to customs matters.

Nonetheless, the position recently presented by STJ in Special Appeal 1,999,532/RJ rekindles the debates and gives strength to the understanding held by the taxpayers – which, so far, was rejected by CARF.

On May 9 of this year, when judging the Special Appeal 1,999,532/RJ, the First Panel of the STJ, unanimously, acknowledged the administrative nature of the fine imposed for delay in the registration of information by the carrier in the Integrated Foreign Trade System (Siscomex) (foreseen in Section 107, item IV, subparagraph ‘e’, Decree-Law 37/66). Thus, the three-year statute of limitations, established in Law 9,873/99, became applicable to these cases.

According to the Judges, compliance with customs obligations aims at "ensuring compliance with the rules relating to foreign trade." Any gain in regards to tax obligations shall be considered as an indirect benefit of the customs duty. Therefore, the nature of the fine established in Section 107, item IV, subparagraph ‘e’, Decree-Law 37/66 is of a custom obligation and therefore, is unequivocally of administrative nature, not tax.

Faced with this conclusion, the Judges decided for the applicability of the statute of limitations due to understanding that "the fines in question have a strictly administrative character, since they result from violation of a rule without direct relevance to the supervision and collection of the Export Tax" (emphasis in the original).

Although this is a precedent of only one of the STJ Panels and does not have binding effects to the public administration or to the judiciary, it is undoubtedly an extremely important decision, since  it reopens the way for taxpayers to raise discussions about the distinction in the treatment given by the Public Administration in tax and customs matters.

It is up to taxpayers, rethinking the strategy in this new jurisprudential scenario, to follow the development of this new phase of debates. Special Appeal 1,999,532/RJ  may be the turning point in the discussion on the classification and treatment of tax and customs charges in CARF.

^[1] Under the terms of the Ministry of Economy 277, of 2018 (“ME Ordinance 277/18”), Ruling 11 began to have binding effects on the federal Public Administration.

Category: Environmental

As a result of the conversion process of Provisional Measure 1,151/22, Federal Law 14,590/23 was enacted on May 24, amending provisions of three important rules related to carbon credit projects in forest areas – mainly public forests subject to forest concessions through bidding – and other environmental services in conservation units. The three amended rules are:

• Federal Law 11.284/06, which provides for the management of public forests for sustainable production;
• Federal Law 11.516/07, which provides for the creation of Chico Mendes Institute for Conservation of the Biodiversity (ICMBio); and
• Federal Law 12.114/09, which creates the National Fund on Climate Change (FNMC).

Changes in the Public Forest Management Law (Federal Law 11.284/06)

The first relevant change implemented by Federal Law 14,590/23 in the Public Forest Management Law refers to the definition of forest concession. In addition to the onerous delegation of the right to practice sustainable forest management activities for the purpose of exploiting products and services in a management unit, forest concession now encompasses the delegation of forest restoration and exploitation of products and services in management units that are specified in the object of the concession contract, through bidding (Art. 3, item VII, Law 11.284/06).

As highlighted by § 1 included in article 3 of the aforementioned law, the concession modalities set forth in the Public Forest Management Law should not be confused with concessions of services, areas or facilities of conservation units.

The definition of management unit was also extended. In addition to being understood as the "perimeter defined from technical, sociocultural, economic and environmental criteria, located in public forests, object of a Sustainable Forest Management Plan, and may contain degraded areas", the management unit now encompasses areas "used for forest restoration activities or exploitation of other services and products".

The degraded areas considered for the definition of the perimeter, which previously should be destined for recovery by means of forest plantations, are also no longer conditioned to this objective (Art. 3, item VIII, Federal Law 11.284/06).

These changes extend the previous definitions and allow more areas to be considered in forestry projects.

Prohibitions on granting rights under the forest concession were also edited by Federal Law 14,590/23. The following items were excluded:

• access to genetic heritage for purposes of research and development, bioprospecting or collection-building;
• exploitation of fishery resources or wildlife; and
• commercialization of credits arising from avoided carbon emissions in natural forests.

With the change, granting of such rights became authorized.

Federal Law 14,590/23 also stated the possibility for the concession agreement to provide for the transfer of ownership of carbon credits from the granting authority to the concessionaire during the concession period.

It also allowed the right to market certificates representing carbon credits and associated environmental services, except for areas occupied or used by local communities (Art. 16, § 2, Law 11.284/06). Under previous provision, the right to trade carbon credits could only be included in the object of the concession in case of reforestation of degraded areas or converted to alternative land use.

Inclusion of the exploitation of non-timber forest products and services in the object of the concession agreement is also authorized, provided that the activity is carried out in the respective forest management units (Art. 16, § 4, Law 11,284/06). The exploitation of non-timber forest products and services should be regulated by specific rules.

The rules related to environmental licensing for sustainable use of management units have also been edited.

With provision given by Federal Law 14,590/23, exploitation of native forests and successor formations in public domain now depends on licensing from the competent environmental authority of the National Environmental System (Sisnama), upon prior approval of the Sustainable Forest Management Plan, according to Federal Law 12,651/12 (Forest Code). Concessions for conservation and restoration are exempt from environmental licensing.

Another innovation of Federal Law 14,590/23 was to allow the concessionaire to promote the operational unification of sustainable forest management activities in forest management units, continuous or not, when granted to the same concessionaire, provided that the areas are located in the same conservation unit or concession lot.

Operational unification must be carried out by means of an amendment to the concession agreement and will allow the draft of a single Sustainable Forest Management Plan for all management units, besides unifying forestry operations (Art. 27, §§ 5 and 6, Federal Law 11.284/06).

Changes in the law that provides for the creation of ICMBio (Federal Law 11.516/07)

In accordance with the changes implemented in the Public Forest Management Law, Federal Law 14,590/23 also amended Federal Law 11,516/07, which provides for the creation of ICMBio.

The changes implemented by Federal Law 14,590/23 made it possible for the management authority of the conservation unit to grant, alone or jointly, the:

• transfer of ownership of carbon credits from the granting authority to the concessionaire during the concession period, as well as the right to market certificates representing carbon credits and associated environmental services; and
• exploitation of non-timber forest products and services, provided that it is carried out in the respective forest management units, in compliance with provisions of Federal Law 8,987/95, according to regulations (Art. 14-C, § 5, Law 11,516/07).

The new law also allows concessions in conservation units to contemplate in their object the right to develop and market carbon credits and environmental services according to regulations to be established by specific regulations.

Changes in the law that created FNMC (Federal Law 12.114/09)

Federal Law 14,590/23 also updated Federal Law 12,114/09, which creates FNMC. The application of FNMC resources in repayable financial support, which previously occurred by means of granting of loans, through the operating agent, now occurs through the financial instruments used by the financial agent.

Federal Law 14,590/23 expanded opportunities for investors in the sector due to the new developments for carbon credit projects in forest areas.

The definitions that already existed were expanded to encompass a greater variety of assets in forest concessions and allow the exploitation of other non-timber activities. It also made it possible to transfer ownership of carbon credits from the granting authority to the concessionaire during the concession period. This may further increase interest in the exploitation and market of forest carbon credits.

Category: Succession planning

The structuring of investments abroad through trusts - whether for succession, financial purposes or for definitive exit from Brazil - requires a careful assessment by Brazilian tax residents. This is because there is no express recognition of trusts in Brazilian legislation and the potential tax impacts from the perspective of Brazilian tax residents.

In summary, a trust is a contractual arrangement whereby the settlor transfers the ownership of certain assets and rights to a third party – namely as "trustee" -, who will be responsible for managing the assets and rights (transferred by the settlor) and assigning the trust´s assets to the beneficiary (or beneficiaries).

Although there is no specific legislation and consolidated case law analyzing the tax treatment of trusts from the perspective of Brazilian tax residents, the Brazilian Revenue Service (“RFB”) has already formally expressed its opinion in COSIT Consultation Procedure N. 41/2020. The RFB understood that the income received by a Brazilian tax resident (widow) as the beneficiary of a trust constituted abroad (by his deceased husband) would be subject to Individual Income Tax in Brazil (“IIT”), as ordinary income.

More recently, São Paulo´s Tax Authorities (“SEFAZ-SP”) expressed for the first time their understanding regarding the levy of Estate and Gift Tax (“ITCMD”) on the transfer of rights and assets from a settlor, a Brazilian resident, to an irrevocable trust.

On April 4, 2023, SEFAZ-SP published the Response to Tax Private Ruling N. 25,343/2022 understanding that the transfer of assets and rights by a settlor to trustee is, in essence, a donation and, therefore subject to ITCMD levy under the terms of Section 4 of State Law N. 10,705/2000 (which provides for ITCMD levy on donations by a donor resident or domiciled abroad).

SEFAZ-SP supported their understanding on the argument that the intention of the settlor when transferring the assets and/or rights to the trust is not to protect such assets or make a financial invest, but to transmit these assets to the beneficiary (or beneficiaries) by an “act of liberality”.

In addition, SEFAZ-SP upheld that the rule of Section 4 of State Law N. 10,705/2000 would be applicable in the concrete case even though the Federal Supreme Court (STF) had adopted a different position on the Extraordinary Appeal N. 851,108 and, more recently, on the Direct Unconstitutionality Action by Omission N. 67 (judged in June 2022 - “ADO 67”). On ADO 67,  STF stipulated a deadline of 12 months for the Congress to publish a complementary law with general rules defining the incidence of ITCMD on donations and inheritances instituted abroad in light of the provisions of Section 155, item III, paragraphs "a" and "b" of the Brazilian Federal Constitution (CF/88).

From a practical point of view, the adoption of the understanding of SEFAZ-SP would result in the anticipation of taxation for the moment of constitution of a trust with the transfer of assets and/or rights from a settlor to trustee and their attribution to the beneficiary. However, there are cases where the attribution of assets and rights of the trust to the beneficiary may be subject to conditions or counterparts, or the amount that will be attributed to the beneficiary is not yet defined.

Therefore, in doing so, SEFAZ-SP has not considered in their analysis the characteristics, purpose and essential elements of a trust. In the case of revocable trusts, for example, in which the settlor may retain the right to dispose the trust and recover all the assets and rights transferred to it, it would not make sense to tax the transfer of assets that, from a legal standpoint, were not definitively assigned to the trust.

This reasoning applies to contractual arrangements in which a condition is imposed for the release of assets and rights to beneficiaries, such as the death of the settlor, which may postpone the moment of collection of ITCMD.

Currently, there are two bills pending in the National Congress. Bill N. 4,758/20, which aims to introduce and regulate the fiduciary contract, and Complementary Law Project N. 145/22 (Bill N. 145/22), which aims to regulate the tax treatment of trusts from the perspective of income tax, ITCMD and ITBI in Brazil.

If Bill N. 145/22 is converted into law with the current wording, taxpayers may have legal grounds for not adopting the understanding of SEFAZ-SP, since the Bill expressly establishes that the simple transfer of assets and rights from a settlor to trustee for the formation of the trust´s assets will not be a triggering event for ITCMD.

In addition, according to the Bill, only when the beneficiary acquires the unconditional and immediate right over the trust's assets – not subject to term or condition to access any portion of assets under the trust – will a donation be configured.

More recently, the Federal Government published Provisional Measure 1,171/23 (PM 1,171/23), which deals with the taxation of IIT on income and gains obtained by Brazilian tax residents in financial investments, controlled entities (including investment funds and foundations) and trusts abroad (click here see the analysis of PM 1,171/23).

From the perspective of PM 1,171/23, trusts incorporated abroad will be considered transparent for tax purposes, despite their characteristics, such as revocability or irrevocability.

Under the terms of the provisional measure, the assets and rights transferred to the trust must remain within the patrimonial sphere of the settlor (a Brazilian tax resident) for the purpose of the Individual Income Tax Statement (“DIRPF”). As a consequence, the income earned by the trust's portfolio is attributed to the settlor and must be declared (and the income tax collected) in the respective DIRPF.

It is worth mentioning that Section 7, item I, of PM 1,171/23 establishes that the assets and rights transferred to the trust remain under the settlor´s ownership after the creation of the trust. The beneficiary becomes the owner at the moment the trust distributes to the beneficiary or when the settlor dies, whichever occurs first.

Therefore, it seems to us that the intention of PM 1,171/23 is to establish the taxation of any income from the trust at the level of its settlor, without, however, adequately addressing the nature of the trustee´s and beneficiary´s mandatory right based on the possible characteristics of this type of contractual arrangement – such as revocability or irrevocability.

Despite the controversies on the subject, the introduction of rules applicable to trusts is on the radar of the Federal Government and the Legislative Branch. The processing of bills and PM 1,171/23 may result in major advances in the definition of the tax aspects involved in the institution of said contractual arrangement for structuring investments abroad and succession planning.

Category: Tax

The Supreme Court concluded, on June 12, the trial of motion for clarification filed in the extraordinary appeal 400,479 (RE 400,479), whose objective was to define the scope of the concept of billing for companies in the insurance sector in the period prior to the beginning of the validity of Law 12,973/14 (January 1, 2015).

Companies operating in the insurance sector are subject to the calculation of PIS and Cofins in the cumulative regime, pursuant to article 8, item I, of Law 10,637/02 and article 10, item I, of Law 10,833/03, respectively.

Until the enactment of Law 12,973/14, Article 2 of Law 9,718/98 established that the basis of calculation of PIS and Cofins was the invoicing of the legal entity.

In the trial of extraordinary appeals 346,084, 358,273, 357,950 and 390,840, the Supreme Court decided that the concept of billing, until Constitutional Amendment 20/1998 (which authorized the institution of contribution on gross revenue), included revenues from the sale of goods, rendering services or a combination of both.

Based on the premise established in the trial of these extraordinary appeals, concluded in 2005, there remained doubt about the scope of the concept of billing for companies in the insurance sector, since they do not sale goods nor provide services.

In the trial of RE 400.479,^[1] the STF clarified that companies in the insurance sector, although their activity does not include the sale of goods or rendering services, should submit their typical business revenues to taxation to PIS and  Cofins.

The prevailing position, led by the retired minister Cezar Peluso, emphasizes that the expression billing should be interpreted in the sense of understanding the revenues from "the set of businesses or operations developed by these companies in the performance of their typical economic activities."

He concludes: "the proposal that I submit to the Court is, therefore, to recognize that one should tax, only, and in a precise way, what each company earns by reason of the exercise of the activities that are its own and typical, while giving it purpose and reason for being."

It is inferred, therefore, that, although the premiums received by insurance companies are not characterized as a price for the acquisition of a good or rendering service, such amounts are included in the amount of revenues earned by the companies in this segment (operating revenues) and, consequently, are subject to taxation by PIS and Cofins.

On the other hand, any other revenues earned by insurance companies that are not related to their typical activity will not be taxed by PIS and Cofins.

In this case, revenues expressly excluded from the calculation basis must also be considered, in accordance with article 3, paragraph 6, item II, of Law 9,718/98 (indemnities corresponding to claims incurred and actually paid, less amounts received as coinsurance, reinsurance, salvaged and other reimbursements).

These legal provisions that provide for hypotheses of exclusion from the basis of calculation were not the subject of discussion in this case.

In our view, from the premise signed by Minister Cezar Peluso, it is possible to interpret that the revenues from the financial investments of the amounts destined to the constitution of technical reserves would not be subject to taxation by PIS and Cofins, mainly because such income would not be derived from the typical activities of companies in the insurance sector. However, it is important to note that this specific point was not expressly addressed by the winning vote, which is why we cannot rule out interpretation to the contrary.

In the vote-view delivered by Minister Dias Toffoli, the issue of financial revenues from the application of the values of technical reserves was expressly addressed and it was pointed out that its constitution is a legal imposition, as a condition for the exercise of business activity. For this reason, the revenues earned from these financial investments would not fall under the concept of billing, ruling out the incidence of PIS and Cofins.

Minister Luís Roberto Barroso followed Minister Dias Toffoli on this point as well. Minister Edson Fachin, on the other hand, differed in the part of the financial revenues from the application of technical reserves, because he understood that this topic was not raised in the lower courts.

There is the possibility of filing an appeal precisely for clarification on this specific point.

Therefore, for the period prior to the beginning of the validity of Law 12,973/14 (that is, until December 31, 2014), the Supreme Court defined that, for insurance companies, the values of premiums make up the concept of billing and must be included in the calculation basis of PIS and Cofins.

^[1] We point out that our comments are based on the draft votes made available, which should be confirmed after the publication of the judgment, as they may undergo some change.

Category: Labor and employment

In our article on Law 14,611/23, which deals with equal pay and compensation criteria between women and men, we highlighted that the main innovation of the new law is the obligation to publish a biannual transparency report on pay and compensation criteria by legal entities governed by private law (companies, foundations, associations, etc.).

The report is the realization of one of the aspects of the social pillar of ESG practices. Due to the impacts in case of non-compliance, it is essential that companies take great care in preparation and publication of the report.

Not only is it necessary to carry out prior analysis to check for any inconsistencies before drafting the document, but it is also essential to exercise caution in how salary information is disclosed.

The information in the report should allow for an objective comparison between salaries, wages, and the proportions of directorship, management, and senior management positions filled by women and men. This information must also be disclosed in accordance with the General Data Protection Act (LGPD) and the competition law obligations applicable to companies.

In relation to the LGPD, the publication of data must be done after a balanced assessment of the purpose established in the disclosure of the reports^[1] and identification of the data strictly necessary for this purpose.^[2] Publishing unnecessary data may expose the company to the risk of violating the legal protection of personal data and lead to penalties.

Law 14,611/23 itself, in its article 5, defines what information is required by establishing, in its paragraph 1, that the reports will contain "anonymized data" and "information that can provide statistical data".

The purpose of the new standard, therefore, is not to know "who specifically receives how much", but to allow objective comparison and statistical measurement of the criteria adopted, in order to conclude whether or not there is a pay gap between women and men.

From a competition point of view, although Law 14,611/23 does not refer to competition obligations related to the disclosure of employee salaries, the Administrative Council for Economic Defense (Cade) has already expressed the understanding that the exchange of sensitive information between competing companies may constitute an infringement of the Competition Law, due to the possibility of leading to parallelism or coordination of action in the market, with effects similar to those of a cartel.

In general, specific information - current or future - on the performance of companies' activities, which may eliminate uncertainty in the decision-making process of those who receive it and is not available from public sources, is considered sensitive from a competition law perspective.

In this context, employee salaries are expressly treated as competitively sensitive information in the gun jumping guide published by Cade.

How, then, could companies publish pay transparency reports without violating the rules of the LGPD and competition law? One possible legal solution would be to draw up reports using mathematical ratios to compare wages paid to women and men.

This methodology is already used by companies in the United States and Europe to compare salaries paid according to organizational levels. There are also Brazilian companies that already use this methodology in their sustainability reports.

However, adjustments must be made: from a legal point of view, companies cannot apply mathematical ratios considering only the organizational level and the positions held by employees based on an average salary.

In Brazil, all the legal requirements set out in article 461 of the Brazilian Labor Law (CLT) must be considered by companies, which makes the analysis much more detailed. Mathematical ratios should be used to compare wages paid to women and men who are in legally comparable situations. This is because, if companies do not observe the legal criteria for wage differentiation, there will be a distortion in the pay equity ratio between women and men.

Companies should assess which people are in legally comparable positions and then apply mathematical ratios to allow comparison. If there are no people in comparable situations, the company should clarify this fact.

The report should therefore be adapted to the reality of each company.

This legal solution, however, considers the absence of a legal provision and rules regulating the procedures to be used for the preparation of the pay transparency report, in accordance with Law 14,611/23. If the federal government publishes specific regulations, companies must follow these guidelines.

^[1] Principle of finality - Article 6, I, LGPD.

^[2] Principle of necessity or ideal of data minimization - Article 6, III, LGPD.

Category: Banking, insurance and finance

The Superintendence of Securitization Supervision (SSE) of the Brazilian Securities and Exchange Commission (CVM) published, on July 5, Circular Letter 6/2023/CVM/SSE (OC 6), with the objective of complementing the manifestations contained in Circular Letter 4/2023/CVM/SSE (OC 4) on the possible characterization of tokens of receivables and fixed income tokens (together TR) as securities,  either because they can characterize securitization operations (according to Law 14,430/22) or be considered collective investment contracts (according to Law 6,385/76).

OC 6 also brings new explanations about OC 4 and points out how the previous understanding can directly or indirectly affect the tokenization of some sorts of cinancial assets – such as Bank Credit Notes (CCB), Bank Credit Notes Certificates (CCCB) or Real Estate Credit Notes (CCI). It also clarifies aspects of a crowdfundingin Brazil.

Below, we make a brief summary on the main points covered in OC 6 and how these topics can affect tokenization in Brazil.

Differences between securitization operation and collective investment agreement

 SSE clarifies that it is possible that a certain type of TR is considered a collective investment contract, without necessarily being included as a securitization operation

In this case, the offeror of the TR would not exempt  from complying with the applicable rules on the public offering of securities, but would be exempt from the need to make the offer via securitization company.

SSE clarifies that this can happen when, cumulatively:

• there is a public offering of a single credit right, via an instrument of assignment or other modality, without co-obligation or other form of risk retention by the assignor or by a third party;
• the cash flow of the credit right flows directly to investors, with minimal interference from the assignor or third parties to enable the transfer of the flow;
• there are no predetermined mechanisms for the replacement, repurchase or reversal of the credit right assigned, nor any co-obligation for the implementation of the collective investment agreement offered;
• there are no previously contracted service providers, such as those equivalent to custody, bookkeeping, depositary, fiduciary agent, ordinary collection of the credit right offered or monitoring or follow-up service; that is, there is no "packaging" of the credit right with services, but the direct sale; and
• In case of default, it is up to the investor to adopt judicial or extrajudicial measures, case in which the investor may, directly at his expense, hire collection agents.

In this sense, the perfect and finished sale of a single asset (true sale) can mischaracterize the securitization operation. It is necessary, however, to assesswhether the other characteristics of the TR make it a collective investment contract – in which case the rules on the public offering of securities should  apply.

SSE's considerations about the possible characterization of a securitization operation are quite positive for the tokenization market in Brazil, as they bring strongerpredictability and legal certainty to the offerors of tokens backed by credits or credit rights. From now on, the offerors will be able to orient themselves on a more solid basis on the need or not to support their operations through a securitization entity.

Some sorts of financial assetsAdvancing in the discussion of OC 4, the SSE clarifies that the understanding expressed therein does not apply to some sorts of financial assets such as CCB, CCCB and CCI, when the requirements of article 45-A of Law 10,931/04 are met.

By express legal provision, the issuance and marketing of such financial assets are outside the regulatory perimeter of the CVM. However, SSE clarifies that, if an investment opportunity is backed by a basket of some of these asssets, it is possible that the operation is characterized as a collective investment contract or securitization operation, both subject to the jurisdiction of the CVM.

SSE clarifies that the basket may correspond to the public offer of a single asset that represents or corresponds to  more than one CCB, a CCCB or a CCI. In these cases,  SSE points out that it is possible to have a mismatch between the cash flow derived from the assets and the value corresponding to the collective investment contract, causing the contract offered not to correspond to the assets themselves, but to the investment that is backed by those assets.

SSE's considerations on the tokenization of financial assets is positive for the market, as they bring predictability and legal certainty to those interested in offering tokens backed by theseassets.

Simplification of the public offering of receivables tokens in the crowdfunding  model

By issuing OC 4, SSE advised that, up to the volume of R$ 15 million, securities issued by securitization companies can be tokenized and publicly offered through crowdfunding platforms, under the terms of CVM Resolution 88/22 – crowdfunding regulation  – thus making use of a simpler regulatory regime for public offerings compared to that provided for in CVM Resolution 160/22.

To enable these securitization operations to comply with the regulatory limits of the issuer's annual gross revenue (applicable, in general, to the small business company in the scope of crowdfunding, under the terms set forth in article 2, item VII and paragraph 2, of CVM Resolution 88/22), the SSE clarified that, in securitization operations involving tokens, these limits could be based on separate equity.

This separate equity would be constituted through the institution of the fiduciary regime by the securitizing company, and not necessarily the securitizing company in the condition of issuer of the  security. That is, the issuer, for the purposes of CVM Resolution 88/22, would be the separate equity of the issuance of the tokens.

However, in the edition of OC 4, SSE had understood that this guidance would not apply to issuances concentrated in only one debtor or debtors that are related parties to each other – including debtors of the assets backing the securitization operation.

This understanding, however, has  been amended by OC 6. SSE now admits that the separate equity can be considered as an issuer for the purposes of CVM Resolution 88/22, including in concentrated issuances.

This means that the separate equity, and not the securitizing company or the debtor(s), is equated with the issuer, when it comes to meeting the requirements of crowdfunding regulation, among which the following stand out:

• annual gross revenue limit of R$ 40 million or, in relation to the economic group, R$ 80 million;
• maximum amount of funding of R$ 15 million;
• sum of total uptake; and
• 120-day interval between public offerings.

In addition, the limitations regarding the maintenance and transit of investor funds in crowdfunding  offerings provided for in article 5, paragraph 1, items (i) to (iii),^[1] of CVM Resolution 88/22, in a direct interpretation, create a prohibition for the crowdfunding platform  and its partners to constitute a securitization company to issue the tokens and offer them on this platform.

SSE brings an alternative to remove this restriction on token securitization operations carried out through a crowdfunding platform. The CVM department makes it clear that securitization companies can be constituted by the platform itself, provided that the issues are carried out with the constitution of separate equity in accordance with the legislation and regulations applicable to securitization operations.

The regulator's interpretive effort translates into simplification of the public offering procedure of  tokens of receivables to enable and stimulate the use of crowdfunding regulation  for this purpose. The norm was not designed for tokens of receivables, but it is currently being put forward as a legal alternative to facilitate the distribution of these tokens in the Brazilian market.

^[1] Art. 5, § 1, of CVM Resolution 88/22: "The amounts transferred by investors may not be transferred through current accounts: I – maintained in the name of the platform; II – maintained in the name of partners, administrators, and persons linked to the platform; III – maintained in the name of companies controlled by the persons mentioned in items I and II of this paragraph; (...)"