|Finance | 5 Key Points About FIAGRO – The New Brazilian Agribusiness Fund
FIAGRO – the new Agribusiness Investment Fund is now actively being used by fund managers to finance the Brazilian agribusiness and acquire rural land, with BR$ 2 billion been raised since August.
Created by Federal Law 14.130 and regulated by the Brazilian CVM Resolution 93, there are already 17 FIAGROs-Real Estate launched to invest mostly in CRAs (ag receivables securities), but also in rural land, and 3 FIAGRO-Receivables to finance CPRs (rural product note).
Due to the success of such new fund’s category, we list below 5 key points about FIAGRO tha may be of investors and fund managers interest:
1. What is FIAGRO: it is an investment fund regulated by CVM dedicated to grant credit, acquire rural land, M&A, asset and wealth planning, among others, in agribusiness.
2. What are the 3 categories of FIAGROs and their target assets: CVM has experimentally authorized 3 categories of FIAGROs:
(i) “FIAGRO-Receivables” take the form of “FIDC” and may invest in agribusiness receivables and securities backed by agribusiness receivables, including CRAs and CPRs;
(ii) “FIAGRO-Real Estate” takes the form of “FII” and may invest in rural lands and real estate receivables related to rural land, including CRAs and CRIs;
(iii) “FIAGRO-Participations” take the form of “FIP” and may invest in equity interests in companies that explore activities in the agri-industrial chain, including convertible securities.
3. Who can benefit from FIAGROs: FIAGROs can be used by Brazilians and foreigners, including (i) lenders and fintechs, as a vehicle for credit and advance of receivables, (ii) real estate investors, as an investment vehicle for acquisition of rural lands in Brazil aiming at exploration, rural partnerships, land value appreciation, etc. (observing the legal restrictions for foreigners), (iii) Venture Capital, Private Equity and investors in general, as a vehicle for equity investment in agribusiness companies, and (iv) agribusiness family groups/companies, for asset, wealth and fiscal planning.
4. Favorable Taxation of FIAGROs: in the same way as real estate funds, income distributed by FIAGROs to individual shareholders will be exempt from income tax, provided that (i) the fund has more than 50 shareholders, (ii) the respective shareholder does not holds more than 10% of the fund’s equity or earnings, and (iii) the shares are listed in exchange or over the counter.
As for investments, investments made by FIAGROs in CRAs, CRIs, CPRs, CDA/WAs, CDCAs are not subject to withholding income tax.
5. Favorable Taxation in FIAGROs’ Capital Contribution: FIAGROs shares may be paid-in in cash, assets and rights, including real estate (rural land, among others). The payment of income tax arising from the capital gain on the shares paid-in with rural property by an individual or legal entity may be deferred to the date defined for the moment of sale of these shares or redemption.
The volume of 20 FIAGRO operating evidences the importance of this category of funds for the market. FIAGROs will allow Brazilian and foreign investors, lenders, fintechs, insurance companies and family groups to invest and finance the sector with legal certainty and tax efficiency.
|Tax | 3 Tax Aspects of Cost Sharing Agreements in Brazilian Corporate Groups
Corporate groups can centralize the costs of common services (intermediate activities) among them in a single company of the group and then share the costs – this arrangement can be structured under a cost sharing agreement.
It is essential to consider, when drafting and performing the contract, that the tax burden over the reimbursements by other companies to the centralizing member can vary significantly in Brazil.
The “Brazilian IRS” (Receita Federal do Brasil) has already analyzed and established some aspects to be considered of domestic cost sharing agreements (Brazilian corporate groups) over the years. There are three key points to highlight:
1. Definition: a cost sharing agreement for tax purposes is the contract that conveys an operating structure created to centralized expenses in a centralizing member of the corporate group, without any profit margin or revenue markup on the amounts transferred, and, afterward, share costs within the group for the only purpose of economic efficiency. It is not to be confused with intragroup services nor contribution to costs between companies within the same corporate group.
2. Requirements to constitute reimbursement of expenses by cost sharing agreement (and not revenue, profit, price): (a) goods and services proven to be received and effectively paid; (b) necessary, usual and normal expenses to the activities of the companies (not eventual expenses); (c) the expenses apportionment being made must be according to reasonable and objective criteria, previously adjusted, formalized by an instrument signed between the companies (written contract); (d) the apportionment criteria must correspond to the actual expenses of each company and consider the global price paid for the goods and services, according to proper bookkeeping; (e) the centralizing company can only consider “expenses” the portion that fits the apportionment criteria (as well as other member companies benefiting from the agreement), indicating the amounts to be reimbursed as a recoverable credit in the bookkeeping; (f) the member companies must keep separate bookkeeping of all acts directly related to the apportionment of the expenses; (g) there can be no profit margin or revenue markup on the amounts transferred (reimbursements); (h) the amounts cannot constitute payment for services provided by the centralizing company.
3. Non-taxation of reimbursements: if the above requirements are met, the amounts related to the cost sharing agreements received by the centralizing member from other members of the corporate group are considered just reimbursements. So, there will be no taxation over this transfers by Corporate Tax (IRPJ) and Social Contribution on Profits (CSLL), nor by Social Security Contributions on Gross Revenue (PIS and COFINS).
From a tax efficiency point of view, it is essential to strictly observe the criteria established by the Brazilian IRS when stablishing a cost share agreement structure, performing the contract and doing the bookkeeping.
The tax and, consequently, financial impacts are enormous, depending on whether transfers are characterized as simple reimbursement of costs from a cost sharing agreement or not.
By Feijó Lopes Advogados