Under discussion in the Brazilian Congress since 2016, the long-awaited regulations on the securitization of tax (and non-tax) credits were approved. Complementary Law No. 208/24, published on July 3, 2024 (“LC 208”), added article 39-A to Law no. 4,320/1964, authorizing the onerous assignment, by government entities (Union, States, Federal District and/or Municipalities), of credit rights deriving from tax and non-tax credits to private legal entities or investment funds regulated by the Securities and Exchange Commission (“CVM”).
The purpose of the assignment of credit rights, also known as securitization of public credits, is to allow government entities to anticipate revenues, most of which have already been enrolled as overdue tax liabilities, and to avoid the risk of future defaults. Under the securitization structure, the risk is transferred to the investor, who, in return, can acquire the credit rights at a discount.
The new regulations have been long awaited, as they standardize a practice that had already been adopted by some states, without, however, following a uniform procedure – such as the securitizations carried out by São Paulo, Rio Grande do Sul and Minas Gerais States, which will remain governed by their respective originating laws.
The main aspects of the public credits securitization are summarized below.
| Rights to be assigned | Rights arising from tax and non-tax credits, including those enrolled as overdue tax liabilities.
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| Assignors | Union, States, Federal District and Municipalities.
Note: Publics credits may be assigned though a Special Purpose Entity (Sociedade de Propósito Específico – “SPE”) incorporated by the assignor, in which case the public bidding process will be waived.
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| Assignees | Private legal entities or investment funds regulated by the CVM.
Note: Financial institutions controlled by the assignor government entity may not participate in the primary acquisition of credit rights, nor may they acquire or trade such rights on the secondary market or engage in transactions secured or guaranteed by such securities. These institutions may, however, be involved in the financial structuring of the operation, acting as service providers.
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| Legal nature of the transaction | Definitive sale of public assets, considered for all purposes as a tax administration activity. It is worth noting that the LC 208 expressly provides that the transfer does not qualify as a credit operation (or equivalent) nor as a guarantee – as provided for in articles 29, III and IV and 37 of Complementary Law 101/2000 (Lei de Responsabilidade Fiscal – “LRF”).
Note: As a rule, the operation must be compliant with the requirements of Law 14.133/21 (“Public Bidding Law”). However, due to the particularities of the operation, it is possible that the federal entity justifies its classification in one of the cases of waiver of pubic bidding provided for in article 76, item II, items “d” or “e” (which provide for a waiver in cases of sale of securities or goods produced or sold by Public Administration entities).
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| Requirements
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↘ Preservation of the nature, guarantees and privileges of the original credit.
↘ Maintenance of the amounts (principal, interest and fine), the criteria for reinstatement, payment conditions, due dates, deadlines and other terms originally agreed;
↘ Preservation of the prerogative of the Public Treasury or of the Public Administration to recover judicially and extrajudicially the credits that gave rise to the assigned rights;
↘ The assignor government entity will be relieved of any liability, obligation or debt to the assignee, and the obligation to pay the credit will remain exclusively with the debtor or taxpayer;
↘ Only the autonomous right to receive the credits is covered;
↘ Authorization by a specific law from the assignor government entity and its Chief Executive or from the administrative authority delegating competence.
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| Limitations | ↘ Only rights relating to the product of credits already registered and recognized by the debtor or taxpayer, including those under installment plans, may be assigned (i.e. debts in dispute or debts that may be contested may not be assigned);
↘ The assignment of credit rights arising from administrative installment plans that are not registered as overdue tax liabilities is limited to the existing inventory of credits up to the date of publication of the respective law authorizing the operation.
↘ The assignment of credit rights may not include the portion of credits belonging to other public entities, as in cases involving ICMS and IPI taxes.
↘ The assignment of credit rights may not take place within 90 days prior to the end of the mandate of the Chief Executive, unless the full payment for the credit assignment takes place after that date.
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| Allocation of revenue | At least 50% of the proceeds from the sale of public assets must be allocated to social security expenses and the rest to investment expenses. |
