The Federal Regional Court of the 3rd Region (TRF-3), based in São Paulo, issued a tax decision with an impact on foreign investors. Authorized an American fund to collect Income Tax Withheld at Source (IRRF), at a rate of 15%, on symbolic exchange operations carried out to change the method of investment registration with the Central Bank (BC).

According to tax lawyers, this is a relevant precedent for the market, as it is the first known decision on the subject. The understanding was unanimously adopted by the judges of the 4th Panel of the TRF-3.

The Federal Regional Court of the 3rd Region (TRF-3), based in São Paulo, issued a tax decision with an impact on
foreign investors. Authorized an American fund to collect Income Tax Withheld at Source (IRRF), at a rate of 15%, on symbolic exchange operations carried out to change the type of investment registration with the Central Bank (BC).

According to tax lawyers, this is a relevant precedent for the market, as it is the first known decision on the subject. The understanding was unanimously adopted by the judges of the 4th Panel of the TRF-3.

In the case analyzed by the judges, the American fund Global Environmental Emerging Markets Fund II had a stake in a holding company in Brazil, called Daleth Participações S/A. This company, in turn, owned shares in other companies, especially the Paraná Sanitation Company (Sanepar).

In 2014, Daleth approved a reduction in its share capital at a meeting and transferred part of its Sanepar shares to Global Environmental. According to the process, with the value of Sanepar shares falling, there was no capital gain in this operation.

With the receipt of shares traded on the stock exchange, the fund had to change the type of investment in BancoCentral, from a direct foreign investor to an account of external investments in the financial and capital markets – called “investor 4,373”.

In 2014, Daleth approved a reduction in its share capital at a meeting and transferred part of its Sanepar shares to Global Environmental. According to the process, with the value of Sanepar shares falling, there was no capital gain in this operation.

With the receipt of shares traded on the stock exchange, the fund had to change the type of investment in BancoCentral, from a direct foreign investor to an account of external investments in the financial and capital markets – called “investor 4,373”.

In 2014, Daleth approved a reduction in its share capital at a meeting and transferred part of its Sanepar shares to Global Environmental. According to the process, with the value of Sanepar shares falling, there was no capital gain in this operation.

With the receipt of shares traded on the stock exchange, the fund had to change the type of investment in BancoCentral, from a direct foreign investor to an account of external investments in the financial and capital markets – called “investor 4,373”.

Therefore, exchange operations are linked to underlying businesses, such as a purchase and sale or corporate restructuring. Therefore, says the lawyer, they cannot represent a “new reality” to allow taxation.

The National Treasury, in the process, argues that, although fictitious, the simultaneous exchange operation delimits the taxable event, that is, the moment in which the capital gain is considered to have occurred.

It is at this moment, he argues, that the investor acquires full legal and economic availability of the income resulting from the reduction of capital. For the judges, however, the tax could be charged with the filing, at the Board of Trade, of the act of the meeting that approved the reduction of the company’s capital. “At this moment, the delivery of Sanepar shares to the petitioner [fund] was definitively constituted”, states, in the vote, rapporteur, judge Marli Ferreira (appeal no. 5001459-04.2016.4.03.6100).

She highlights, however, that, in this case, there was no capital gain on this transfer. “The appreciation of Sanepar’s shares occurred when the possession of such securities already made up the petitioner’s assets, and taxation would only be the case if the shares had been sold,” she says.

The rapporteur adds that there is no specific provision in the legal system, including in infra-constitutional norms of the BC, for the moment of the occurrence of the triggering event regarding simultaneous exchange transactions carried out by a foreign investor. In this way, she states, the general rule of the article 116 of the CTN [National Tax Code] – “in the case of a legal situation, from the moment it is definitively constituted, in accordance with applicable law”.

In a note to Valor, PGFN states that it can reverse the understanding of the TRF-3 in the higher courts. Reinforces that the generating factor of capital gain occurs in the legal availability

Fonte: Valor

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