CMN RESOLUTION NO. 5,111/2023 – Definition of investment entity and credit rights for the purposes of the exception to the “come-cotas” taxation regime
The Brazilian Monetary Council (Conselho Monetário Nacional) published Resolution No. 5,111 to regulate the concept of “investment entity” and “credit rights” applicable to the exceptions to the periodic income taxation (“come-cotas”) introduced by Law No. 14,754/23.
Investment funds in the Brazil with a professional management structure, represented by agents or service providers with powers to decide on investment and divestment on a discretionary basis, seeking to obtain a return through appreciation of the invested capital, income or both, that cumulatively meet the following requirements:
- obtain resources from one or more investors in one or more assets;
- are managed by duly qualified agents or professional service providers at their discretion; and
- have one or more of the strategies for investor returns below defined in their bylaws:
- investment and divestment of the assets that make up the fund’s portfolio in compliance with the strategy, market conditions and, when applicable, the term, in order to maximize the return for quotaholders;
- investment and maintenance, in whole or in part, of the assets that make up the fund’s portfolio in accordance with its investment policy until the liquidation of such assets or until the liquidation of the fund, aiming for a return in the form of capital appreciation, income or both;
- investment and maintenance of the assets that make up the fund’s portfolio, with no defined deadline for liquidation or divestment, seeking the appreciation of the invested capital and return through redemption or amortization of shares or mechanisms that ensure the negotiation of shares in the secondary market.
The “professional management structure” can also be established at the level of the direct or indirect quotaholder of the fund, as long as such quotaholder is organized as an investment fund in Brazil or as a fund or investment vehicle abroad, which will result in the fund being classified as an investment entity.
Investment Funds Not Considered Investment Entities
As an example, the Resolution establishes that the following funds are not covered by the above definition:
- funds that have an investment committee or similar body through which the majority individuals quotaholders, or people appointed by them, make decisions and send orders to the manager regarding the composition of the portfolio;
- funds that control legal entities that have been directly or indirectly controlled by their majority individuals quotaholders in the 5 years prior to investment by the fund;
- funds in which the majority individuals quotaholders are managers of companies invested in by the fund; or
- funds in which the majority individuals quotaholders can veto investment or divestment decisions.
Exclusively in relation to FIDCs, such funds will be excluded from the general rule of the periodic taxation (“come-cotas”) when they are classified as “investment entities” and their portfolios are made up of at least 67% of credit rights. For this purpose, credit rights are considered:
- rights and titles representing credit;
- securities representing credit;
- certificate of receivables and other securities representing securitization transactions that are not backed by non-standard credit rights; and
- by comparison, FIDC quotas that comply with the provisions of the Resolution.
The following are not considered credit rights:
- public bonds (títulos públicos);
- securities issued or co-obligated by financial institutions (CDBs, LFs, LCAs, LCIs and LIGs);
- repurchase (repo) transactions backed by the assets referred to in items (i) and (ii);
- quotas of classes of investment funds that invest predominantly in the assets referred to in items (i), (ii) and (iii) above; It is
- non-convertible or non-profit-sharing debentures and commercial notes subject to public distribution except when, at the time of acquisition:
- the issuer is under judicial or extrajudicial recovery; or
- there has been a meeting of debenture holders or holders of commercial notes, requesting the flexibilization of rights related to early maturity clauses, or failure, by the issuer, to fulfill its pecuniary obligations that has been duly notified to the market.
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