Brazil’s growth still a strength, but reforms needed, Goldman says

Foreign investors are returning, but high interest rates are a concern

 

 

 

 

06/23/2025

Brazil’s economic growth, despite a long monetary tightening cycle, remains one of the country’s key advantages. However, this expansion could be far greater if Brazil pushed forward with structural reforms, said Goldman Sachs executives during a visit to the country last week.

In an interview with Valor, Richard Gnodde, vice chairman of Goldman Sachs, and Kunal Shah, co-CEO of Goldman Sachs International and co-head of the firm’s Fixed Income, Currency and Commodities (FICC) division, said Brazil has returned to the radar of foreign investors. This can be seen in the inflow of international funds into the local stock market. Still, the high level of interest rates remains a concern, as it continues to burden Brazilian companies.

“I think Brazil’s remaining advantage is growth. The economy could double or triple over time. The right structural reforms would help unlock that growth. For me, that’s the most important thing—growth would allow the country to overcome its fiscal challenges. Not every economy has this opportunity,” Mr. Gnodde said.

“Growing 2.3% in a still very challenging macro environment shows the strength of the private sector,” added Mr. Shah, who visited Brazil for the seventh time and gave his first interview to a Brazilian media outlet.

Geopolitical distance

The war in the Middle East adds more uncertainty to markets, but Brazil’s distance from the conflict could prove beneficial. “You’re far from the specific areas of conflict, so people here can really focus on the country’s economic issues and opportunities, and maybe spend less time worrying about geopolitics. In a way, that’s an opportunity,” Mr. Gnodde said.

The global environment has also highlighted the importance of portfolio diversification, he said. “People have remembered that the United States isn’t the only economy in the world, nor the only place with opportunities.”

Brazilian economic challenges, its companies and sectors, and the ups and downs of the local economy are well known to international investors, Mr. Shah said. “Right now, they are beginning to allocate funds back to Brazil. Part of that is due to macro fundamentals. Interest rates are very high while inflation is falling. The latest inflation reading came in below market expectations. So, when you look at real interest rates, Brazil has one of the highest among major global economies. And with a relatively stable currency, that’s usually a good signal for the exchange rate and fixed income flows. It also boosts confidence,” he said. He added that equity investors and others willing to take on currency risk are likely to follow—something already being observed.

Fiscal limits

Mr. Shah said Brazil’s fiscal situation may have reached a limit, requiring a shift to avoid recessionary or unstable fiscal scenarios. “That’s where checks and balances kick in, and you start to see the cycle reverse. I think that’s why optimism is growing — because certain limits are being reached,” he said.

Still, he warned there are many questions about when there will be room for interest rate cuts. “While high rates are good for capital inflows, they place a huge burden on companies and the economy. It’s impressive how resilient the economy has been, and how growth remains strong even with such high rates. Our forecast for Brazil is 2.3% growth—above consensus. This cycle is lasting longer than many expected. Part of it is due to still-high fiscal spending, which worries investors,” Mr. Shah noted.

The 2026 presidential election is also on investors’ radar, he said, as they begin to evaluate “what changes might come or whether there will be continuity.”

IOF decree

Mr. Gnodde said that in recent weeks, the number of questions from foreign investors has increased, particularly after the government issued a decree raising the Financial Transactions Tax (IOF) in several cases. The measure is expected to be overturned by Congress. “It was constructive to see how that was revised. I think the feedback was clearly taken into account, and that helped ease investors’ concerns,” he said.

He added that what’s missing is a catalyst to bring in more consistent capital flows. “The premium you’re getting now to invest in Brazil is at a level where people feel comfortable. So that’s positive. The question is: what’s the catalyst that gets someone to make the decision today? Otherwise, they may just wait until tomorrow.”

Mr. Gnodde also highlighted the self-confidence of Brazil’s business leaders, who remain optimistic about the country’s future. “When you’re running a business and taking out a loan that’s going to cost you 15% to 20%, and you’re still able to run a successful company, you’re a good entrepreneur,” he said.

“If I were designing policy, I’d just try to make their lives a little easier and create a more favorable environment. With a tailwind instead of a headwind, this business community can achieve great things. We travel the world, and people say, ‘my God, interest rates are 3%, or 4%, or 5%—it’s so hard, it’s impossible.’”

Global-minded clients

The Goldman executives spent the week meeting with high-net-worth clients, institutional investors, and companies. “The client base here is unique. Brazilian investors are deeply rooted in a large domestic market, but also very connected to the global landscape. You can have in-depth conversations about what’s happening in the U.S., Europe, and other emerging markets, and that’s reflected in their portfolios. They are very sophisticated and well informed both globally and regionally. That makes conversations very productive,” Mr. Shah said.

“We’ve been in Brazil for 30 years. We’ve seen many cycles. Highs and lows across different sectors, with different strengths at different times. That’s why having a diversified business portfolio is extremely important. It’s great when the IPO market is booming, but even when it’s not, there are many other things we can do,” Mr. Gnodde said.

*By Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/

/by

Top executives see long-term prospects but flag rates, inflation

Business leaders honored at “Executivo de Valor” award highlight interest rates, political risk, and legal uncertainty as key challenges

 

 

06/17/2025

For the 25 executives honored with this year’s Executivo de Valor award, high interest rates stand out as the top challenge to business performance in Brazil. Inflation, exchange rate, political instability, and legal uncertainty also rank among the main concerns.

Despite caution over the macroeconomic outlook, many companies are focused on the long term and plan to maintain their investment strategies. For some, however, growth plans still hinge on ongoing deleveraging efforts.

Opening the event at the Rosewood Hotel in São Paulo, Frederic Kachar, CEO of Editora Globo and Sistema Globo de Rádio, stressed the need for greater diversity in corporate leadership. “Of the 25 awardees, 13 are first-time winners, which shows how dynamic the market is,” he said. “We’ve seen good progress in female representation in recent years, but since 2023, that progress has stalled. We need to advance the diversity agenda through a structured approach to leadership development.”

To lead a winning company, Mr. Kachar added, discipline is essential to deal with disruptions amid fierce competition and evolving consumer behavior. “Only those who preserve an organization’s essence—with awareness, discipline, resilience, coherence, and vision—can truly carry its culture forward.”

Maria Fernanda Delmas, editor-in-chief of Valor, said companies today bear an enormous social and environmental responsibility. “A company will only be long-lasting and contribute to society if the people who pass through it are aware of that responsibility and use their power to drive the necessary changes,” she said.

Milton Maluhy Filho, CEO of Itaú Unibanco, Brazil’s largest private-sector bank, said reducing the country’s benchmark interest rate to a less restrictive level depends on fiscal policy. “If Brazil manages to ensure debt sustainability, the country will be better positioned to attract investment—both foreign and domestic,” he said. “There are many opportunities in Brazil, and we need to make the most of this window.”

Daniel Slaviero, CEO of energy company Copel, echoed that view. “The high cost of capital is always a concern, but I believe interest rates may be near their peak,” he said. “With improvements in fiscal conditions, we may see rates start to fall in the medium term.”

The impact of high rates will be felt soon, warned Belmiro Gomes, CEO of cash-and-carry retail chain Assaí. He sees this as one of the biggest risks to business investment, as rising corporate debt burdens eventually affect consumers—especially low-income groups, who are already hard-hit by inflation and now face tighter credit conditions. Assaí has reviewed some of its investments and adopted a more disciplined capital allocation strategy since early 2024.

Ricardo Ribeiro Valadares Gontijo, CEO of real estate developer Direcional, also pointed to the cost of capital as a serious issue. “It’s extremely high, and that makes many vital projects unfeasible,” he said. He acknowledged the need for rate hikes to curb inflation but argued they should last “only as long as strictly necessary,” given the long-lasting consequences. Home financing has been particularly affected, with available credit still largely reliant on savings accounts—which are seeing reduced inflows—and the Workers’ Severance Fund (FGTS). “Credit is the main engine of our business,” he said.

In the mobility sector, Bruno Lasansky, CEO of Localiza & Co., said higher interest rates are the top challenge. “We expect rates to keep rising through the end of the year, which impacts credit availability and cost.” His solution: focus on disciplined resource allocation and stronger returns. “If money becomes more expensive, you have to improve returns through more efficient revenue generation and cost control.”

Even so, Mr. Lasansky sees opportunities in fleet rentals, as corporate funding costs rise. Localiza plans to continue investing heavily this year, he said, especially in technology platforms for renting, subscribing to, or buying vehicles.

Fabio Faccio, CEO of Renner, which just marked its 60th anniversary, noted that while fashion retail has been performing well, “high interest rates and inflation are bad news for everyone.” He emphasized that Renner’s debt-free balance sheet is an advantage in the current environment. “High rates are a serious problem for anyone carrying debt.”

Jeane Tsutsui, CEO of medical diagnostics and healthcare services group Fleury, also pointed out that now is not a good time for companies to be overleveraged. “Given high interest rates, we’re lightly leveraged. We managed our debt well last year and are well-positioned for the current environment,” she said.

Rafael Vasto, CEO of Daki, a four-year-old online supermarket unicorn, flagged off-target inflation as another key concern. “Whether it’s high inflation or a Selic [policy] rate at 14.75%, both affect how we operate as a retailer buying and selling goods. That’s the biggest issue,” he said.

Roberto Valério, CEO of Cogna—the country’s largest education group—shares similar concerns. “Part of the challenge is macroeconomic expectations, not just interest rates but household income. Will rising rates and inflation reduce families’ purchasing power and lead to lower education spending?” he asked.

Legal uncertainty

Eduardo del Giglio, CEO of HR tech startup Caju, and Ana Sanches, head of mining giant Anglo American in Brazil, also raised concerns about legal uncertainty. “Regulatory changes are constantly under discussion,” said Mr. Del Giglio. Ms. Sanches added that resolving legal instability could even become “a competitive advantage for Brazil’s mining sector versus other markets.”

Carlos Hentschke, CEO of agribusiness and seed technology company Syngenta Seeds, agreed. “There’s legal uncertainty. This politically polarized, unstable environment isn’t good for any sector,” he said.

Raquel Reis, CEO of SulAmérica Seguros’ health and dental division, pointed to a deeper issue: over a decade of intense ideological conflict has hampered the creation of a clear, nonpartisan economic agenda. “Many countries know where they’re headed and what their top priorities are. Whether a right-wing or left-wing party is in power, the direction doesn’t change. Brazil still struggles to define that,” she said.

Christian Gebara, CEO of Telefônica Vivo, joined Mr. Hentschke and Ms. Tsutsui in highlighting currency volatility as a major hurdle. “Exchange rate fluctuations are what hurt us most. A dollar at R$6 directly impacts the price of the products we sell,” he said. Vivo resells smartphones and electronics, and any increase in product prices affects both consumers and the company’s service margins.

Echoing Ms. Sanches of Anglo American, Ricardo Neves, CEO of NTT Data in Brazil, said human capital development must become a national priority—especially amid growing use of artificial intelligence. As a global consulting firm, NTT Data sees a talent shortage in tech due to low digital literacy in Brazil. “This gap holds back business growth and the country’s readiness for the digital economy,” Mr. Neves said.

The 2025 Executivo de Valor awards were supported by master sponsors ArcelorMittal, Care Plus, Cemig, and Zeekr (official car of the event), with additional backing from Gol, Febraban, Rosewood Hotel São Paulo, and Eletromidia.

*By Valor  — São Paulo

Source: Valor International

https://valorinternational.globo.com/

/by

Family farming loan rates expected to keep stable amid budget strain

Agrarian Development Ministry aims to maintain subsidized credit for small-scale food production and agroecology

 

 

06/17/2025 

Facing a tightening federal budget and challenging macroeconomic outlook, Brazil’s Ministry of Agrarian Development (MDA) is working to preserve low interest rates in the upcoming 2025/26 Family Farming Plan. The ministry aims to keep annual rates at 3% for staple food production and 2% for agroecological farming within credit lines to be made available to smallholder farmers in July.

The ministry’s main challenge in negotiations with the Ministry of Finance is to secure the budget required to equalize interest rates over the long term. The Treasury’s spending on credit subsidies has risen significantly with the surge in the Selic benchmark rate, which jumped from 10.5% in July 2024 to 14.75%. That rate could change again following the Central Bank’s Monetary Policy Committee (COPOM) meeting scheduled for tomorrow, potentially increasing rural credit subsidy costs further.

“Our main goal is to maintain all the interest rates we’ve managed to achieve, especially for food production,” MDA Executive Secretary Fernanda Machiaveli told Valor. Current interest rates under the Family Farming Plan range from 0.5% to 6% per year, with lower rates for small machinery purchases (2.5%), agroecological activities (2%), and staple food production, including rice, beans, cassava, and milk (3%).

Increased mandatory allocation of funds raised from cash deposits by banks—from 30% to 31.5%—and a higher share of those funds directed to family farming—from 30% to 35%—will help secure more low-interest resources without increasing government spending on subsidies, said José Henrique da Silva, director of Financing, Protection and Support for Family Productive Inclusion at the ministry.

“We save public funds when requirements are higher. This was our initiative to ensure more money for family farming at a lower cost,” Mr. Silva said.

“The challenge is to ensure that food production continues to grow with support from federal financing. We already have enough resources to provide interest rate equalization, and the government has chosen to ensure that food is financed at special rates,” Ms. Machiaveli added.

While the ministry has not disclosed funding figures for the new plan, it expects to surpass the R$76 billion made available under the current 2024/25 cycle, which ends June 30. As of May, R$60.2 billion had been disbursed to family farmers—an increase of 5.5% over the same period in the 2023/24 cycle and nearly 21% more than the equivalent 11-month stretch in 2022/23. The executive secretary called the outcome a “success.”

In some financial institutions, subsidized Pronaf credit for production costs has already run out, indicating strong demand, Mr. Silva said. Despite this, the full amount initially offered is unlikely to be disbursed due to reallocation and adjustments during the cycle. “We expect the final total to reach R$65 billion by the end of June,” he added.

For the new Family Farming Plan, expected to be launched in the final week of June, the ministry plans to spotlight the sector’s role in addressing climate emergencies, especially as Brazil prepares to host COP30 this year. The initiative will include new credit lines, improved access to climate-related programs through revised rules on limits, interest rates, and eligibility, and incentives for transitioning to agroecological models.

The ministry wants to demonstrate that, although family farming is among the sectors most vulnerable to extreme weather events, it can be part of the solution due to its diversified production, natural resource preservation, and move away from chemical inputs. While farmers in Brazil’s semi-arid northeast have long adapted to drought conditions, other regions are also in need of climate-related support, Ms. Machiaveli noted.

The goal is to create “a Safra Plan that views family farming not only as a solution to hunger and a producer of healthy food, but also as a key to tackling the climate emergency through a more sustainable production model that can now be financed,” Ms. Machiaveli said.

On launch day, the ministry expects to sign several decrees signaling its climate commitments. One will establish the long-discussed National Program for the Reduction of Pesticides (Pronara), which still faces internal resistance within the federal government.

Another decree will introduce updates to the Minimum Price Guarantee Program for Sociobiodiversity Products (PGPMBio), managed jointly with the National Supply Company (Conab). The goal, Ms. Machiaveli said, is to improve program rules to better reach traditional and Indigenous communities. The revamped version, to be called SocioBio+, will be tested on products such as pirarucu fish, nuts, and rubber, which already have minimum prices but will now also guarantee fixed incomes for extractive workers.

*By Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/

/by

Lower House passes urgency motion to revoke IOF tax hike by 346–97

Vote paves the way for debate on financial tax increase, but final decision hinges on spending cuts

 

 

06/17/2025

The Brazilian Lower House approved Monday (16) by 346 votes to 97 an urgency motion to advance the vote on a legislative decree (PDL) that would revoke the recent increase in the Financial Transactions Tax (IOF). Despite the wide margin, there is still no set date for discussing the substance of the proposal, which depends on the federal government presenting spending cut measures and on the progress of a provisional presidential decree already sent to Congress. A vote on the merits is expected in two weeks, after the June holidays, allowing time for further negotiations.

Lower House Speaker Hugo Motta of the Republicans Party scheduled the plenary session for 6 p.m., local time, but proceedings did not begin until after 8 p.m. In the same session, lawmakers also approved another urgency motion, this time to fast-track a bill that updates the income tax bracket and exempts individuals earning up to two minimum wages. The proposal mirrors a provisional measure issued in April.

Mr. Motta spent the afternoon in meetings with party leaders and ministers Rui Costa (Chief of Staff Office) and Gleisi Hoffmann (Institutional Relations), who were met with numerous complaints from lawmakers.

At the end of the meeting, Mr. Motta said he reiterated to the two ministers what he had told President Lula the previous Saturday: Congress will no longer accept tax hikes as a way to balance public finances. He said the government had pledged to send a package of spending cuts. “We’re waiting,” he said.

In addition to opposition parties, several groups that control eight ministries—Brazil Union, Social Democratic Party (PSD), Progressive Party (PP), Republicans, and the Democratic Labour Party (PDT)—urged their members to vote in favor of the urgency motion. The PDT distanced itself from the government after the dismissal of former Social Security Minister Carlos Lupi, amid the National Social Security Institute (INSS) scandal. Other left-wing parties and the Brazilian Democratic Movement (MDB) voted against the motion.

Facing likely defeat, the government’s leader in the Lower House, José Guimarães of the Workers’ Party (PT), allowed his caucus to vote freely in an effort to mask the extent of resistance the administration faces. He added, however, that the government would not submit cost-cutting proposals affecting social programs.

Finance Ministry officials had already anticipated that the urgency motion would pass with more than 300 votes but believe congressional leaders remain open to negotiating alternatives that would prevent the decree from being overturned. Lawmakers aligned with the government told Valor they still see room for dialogue.

Many party leaders pushed for an immediate vote on the PDL itself, but a compromise prevailed, giving the government more time to present alternatives. Some of these options are included in the provisional measure sent to Congress last week, though the expectation is that the text will undergo major revisions.

Lindbergh Farias, the Workers’ Party leader in the Lower House, praised Mr. Motta’s handling of the process and said the urgency vote reflected some lawmakers’ desire to negotiate the content of the provisional presidential decree. He nonetheless defended the IOF increase, arguing it would help balance the budget without significantly impacting lower-income Brazilians.

“Where is the working class really affected by this IOF hike?” he asked. “This measure targets those at the top. In this country, we see sectors clamoring for fiscal adjustment, but always on the backs of the poor.”

Mr. Motta countered that lawmakers do not support balancing the budget at the expense of the poorest, but stressed the importance of avoiding harm to “those who produce, create jobs, and generate income,” referring to the business sector.

During the meeting with party leaders before the vote, Ms. Hoffmann was met with complaints that went beyond delayed payment of congressional earmarks or the content of the provisional decree. One lawmaker described the situation to Valor: “There are so many complaints on so many issues that paying the amendments won’t even come close to solving the government’s problems in the House.”

*By Murillo Camarotto  and Beatriz Roscoe  — Brasília

Source: Valor International

https://valorinternational.globo.com/

/by

After “Auto Pix,” installments are next step in Central Bank agenda

Pix Automático launches this week while Pix Parcelado and other new features will arrive soon

 

 

06/16/2025

Most Brazilian retailers already accept Pix — Foto: Getty Images
Most Brazilian retailers already accept Pix — Photo: Getty Images

With the launch of Pix Automático this Monday, Brazil’s Central Bank (BC) has delivered the latest milestone in its innovation roadmap for the country’s instant payment system. Several new functionalities are slated to follow, including Pix Parcelado (installment payments), Pix em Garantia (secured Pix), and MED 2.0 (an enhanced special refund mechanism).

The Central Bank expects Pix Automático to streamline recurring payments for both payers—whether individuals or businesses—and recipients, such as gyms or residential associations. Similar to direct debit, the new feature enables automatic recurring payments through Pix.

According to BC President Gabriel Galípolo, the tool will give roughly 60 million Brazilians without access to credit cards the ability to pay for recurring services. “It also enhances security for those who already make this kind of payment, such as for subscriptions, by reducing risks like credit card data theft,” he said at an event last week.

For merchants, the new mechanism is expected to cut operational costs. Today, businesses seeking to offer direct debit must negotiate agreements with multiple financial institutions. With Pix Automático, they will only need to partner with one. Lower costs could, in turn, reduce delinquency rates by ensuring more timely, automated payments.

Rodrigo Caldas de Carvalho Borges, partner at CBA Advogados, said adoption of Pix Automático by companies will likely be gradual and sector-specific, depending on operational, technical, and regulatory adaptations. “Uptake should be faster in sectors already familiar with recurring billing models—such as streaming services, internet providers, utilities, and educational institutions,” he said. “For them, Pix Automático presents a natural, lower-cost, and more efficient alternative to direct debit.”

For consumers, the system will offer simplified control via banking apps, including managing authorizations, tracking payments, and issuing cancellations. Before each charge, the payer’s bank will present transaction details, allowing the user to confirm the amount.

The next feature in the Pix pipeline is Pix Parcelado, scheduled for release in September. While some private financial institutions already offer installment options via Pix, the Central Bank wants to create a standardized user experience. According to Renato Gomes, BC’s director of financial system organization and resolution, this includes uniform presentation of credit information to users.

Also under development is MED 2.0, an upgraded Special Return Mechanism that enables users to dispute Pix transactions in cases of fraud or scams via a self-service tool within their banking app—eliminating the need to contact customer service. MED 2.0 is expected to go live in December and become mandatory in February 2026.

Further down the road, between 2026 and 2027, the Central Bank plans to roll out Pix em Garantia, which will allow businesses to use future Pix receivables as collateral for credit operations. This would help reduce the cost of borrowing for merchants, although it would not change how individuals use Pix.

A cross-border version of Pix, or Pix Internacional, is also being considered, though no launch date has been set. According to Mr. Gomes, the project still faces “significant” challenges, mainly in coordinating between regulatory jurisdictions—a hurdle that has slowed progress on the international front.

*By Gabriel Shinohara, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/

/by

Renewed push for Bamin mining project as players seek port partner

Vale, Cedro, and BNDES focus on mine and railway

06/16/2025

Sources say the federal government is pushing for the project to move forward and would prefer to see Vale take the lead — Foto: Leo Pinheiro/Valor
Sources say the federal government is pushing for the project to move forward and would prefer to see Vale take the lead — Photo: Leo Pinheiro/Valor

After a period of stalled negotiations, discussions around the Bahia Mineração (Bamin) project have regained momentum. According to Valor’s business website Pipeline, Vale, Cedro Participações, and BNDES have resumed talks centered on the mine and railway operation, while actively looking for a third party to take over the port terminal. The companies have approached investors from the Arab world and China, offering the incentive of a “take-or-pay” contract for iron ore transportation.

The Bamin project includes an iron ore mine in Caetité (Bahia) with an annual production capacity of 26 million tonnes, the completion of a section of the West-East Integration Railway (FIOL), and the construction of a port terminal in Ilhéus, also in Bahia. Total investment in the venture could surpass R$30 billion, according to estimates. Bamin is owned by Kazakhstan’s Eurasian Resources Group, which has been seeking a buyer for the entire project.

Talks around the project have seen several starts and stops. Brazil Iron, another interested party, submitted a proposal but failed to secure exclusivity for the deal.

Behind the scenes, sources say the federal government is pushing for the project to move forward and would prefer to see Vale take the lead. Vale CEO Gustavo Pimenta has publicly acknowledged that Bamin is among the projects under review. However, the company has not committed to any timeline for making a decision.

While the matter is under discussion at the technical and executive levels within Vale, it has not yet reached the board of directors, according to Valor’s sources. The due diligence process includes geotechnical assessments to determine the size of the reserves and iron content.

In response to inquiries, Vale referred to its latest public filing on the Bamin matter, which states that “investment opportunities are evaluated as part of the company’s regular business activities.”

A joint effort by Vale, Cedro, and BNDES is seen as a viable path forward. Cedro lacks the capacity to execute the project on its own, while neither Vale nor BNDES appear willing to shoulder the full risk independently. According to sources, BNDES could potentially contribute equity and also help fund the project.

Market participants have expressed concern that political pressure could push Vale into an investment that ultimately erodes shareholder value. A source close to the company emphasized that any potential investment in Bamin would only proceed if it met internal return thresholds. During the commodity boom of the 2000s, Vale made international acquisitions that later led to losses and divestitures—some sold at symbolic values.

Analysts argue that it would make more strategic sense for Vale to focus on expanding and developing new mines in Carajás, in southeastern Pará, where it already has high-grade reserves and supporting infrastructure. The challenge, however, is that both Vale and the broader mining sector are still waiting on a federal decree on cave regulation. The long-anticipated legislation would define mining permissions in areas with protected caves, which are home to sensitive flora and fauna. To date, the decree has not been issued.

*By Maria Luíza Filgueiras  and Francisco Góes  — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

/by

Brazil risks new multibillion tax loss as companies gain in court

Firms win right to exclude service tax from social contribution base in 75% of appellate rulings; Supreme Court decision still pending

 

 

06/16/2025 

Eight years after losing what became known as the “case of the century” in Brazil’s tax litigation history, the federal government now faces another potentially costly defeat. This time, companies are seeking to exclude the municipal services tax (ISS) from the calculation base of two federal social contributions—PIS (Social Integration Program) and Cofins (Contribution for the Financing of Social Security)—in a legal argument that stems from the earlier ICMS (state-level value-added tax) exclusion case. Taxpayers have the advantage in federal appellate courts and are well-positioned to win in the Supreme Court (STF).

The current tally in Brazil’s highest court signals a likely loss for the government. Both the STF’s Virtual Plenary and lower court rulings mirror the dominance of favorable rulings for companies. Between January 2024 and January 2025, 75% of 602 decisions from regional federal courts ordered the removal of ISS from the tax base, according to a survey by law firm Velloza Advogados.

The case, listed as Theme 118, resembles the ICMS case and remains pending in the Supreme Court. A defeat could deal a R$35.4 billion blow to public finances, based on figures from the 2025 Budget Guidelines Law, at a time when the federal government is pushing to increase revenue and eliminate the primary deficit.

The STF began reviewing the case in 2020, but the trial was suspended in August 2023. The outcome is critical for defining the constitutional concept of gross revenue. In some earlier rulings on related cases, the Supreme Court classified taxes as part of corporate revenue. However, with Brazil’s new tax reform introducing a dual VAT system, taxes will be levied separately—clarifying that they do not constitute revenue for companies.

Appeal rulings

Velloza Advogados analyzed appeal rulings from Brazil’s six federal appellate courts. All decisions from TRF-1, TRF-2, and TRF-3—which handle most of the lawsuits—favored the taxpayers, applying the same rationale used in the ICMS exclusion case (Theme 69).

TRF-4, based in Southern Brazil, diverged. Of its 119 decisions, all went against the companies. TRF-5 issued mixed rulings but mostly sided with businesses, agreeing that the ISS does not constitute revenue and should therefore not be included in the PIS/Cofins tax base. TRF-6, based in Minas Gerais, opted to suspend proceedings until the Supreme Court rules—even though a formal stay has not been ordered.

So far, the STF’s physical plenary shows a score of four votes against the federal government and two in its favor. Five justices have yet to cast their votes, but tax lawyers expect a victory for taxpayers. Optimism stems from Justice André Mendonça, who had been a wildcard but voted in favor of the companies in 2024. Considering votes from both the Virtual Plenary—previously split 4–4—and those cast in the ICMS case, there would already be a majority in favor of businesses.

Three justices have voted in this case so far: Dias Toffoli and Gilmar Mendes against the companies, and Justice Mendonça in favor. Votes from retired justices Celso de Mello (the rapporteur), Rosa Weber, and Ricardo Lewandowski—also in favor of taxpayers—remain valid. As a result, current justices Nunes Marques, Flávio Dino, and Cristiano Zanin, who succeeded them, will not vote.

Taking all these votes into account, there is currently a 5–5 tie. Only Justice Luiz Fux has yet to vote. Given his prior stance in the ICMS case, the expectation is that he will vote for the companies, securing their win.

Lead case

The lead case involves Viação Alvorada, a bus operator in Porto Alegre, Rio Grande do Sul. Both the trial court and TRF-4 ruled against the company. Heron Charneski, lead attorney at Charneski Advogados, is representing Viação Alvorada at the Supreme Court. He said TRF-4’s stance mirrors its position in the ICMS case.

“After the ICMS ruling, the court began following the STF’s guidance. But since the ISS hasn’t been ruled on, it reverted to its earlier jurisprudence,” Mr. Charneski said. A ruling by the Supreme Court would help standardize decisions across appellate courts, especially important during the transition to Brazil’s tax reform, under which the ISS will no longer be included in the base of the new Contribution on Goods and Services (CBS), which will replace PIS and Cofins.

Mr. Charneski argued that the ISS exclusion case is not a derivative, but rather a “sister” case to the ICMS one—similar to another major issue, Theme 1037, which discusses excluding PIS and Cofins from their own tax bases. “All these cases depend on the definition of revenue, which determines whether PIS and Cofins are due. We’re looking for a consistent interpretation—a single concept of revenue for both taxes,” he said.

Gross revenue definition

At the core of these cases is how to define gross revenue. “It’s a concept that has haunted Brazil for a long time,” said economist and tax lawyer Eduardo Fleury, founding partner of FCR Law. Many major rulings by the Supreme Court, he added, have included taxes to be remitted to the government within the definition of gross revenue. “You won’t find this concept in the rest of the world,” he said.

Mr. Fleury warned that this is a “harmful path,” especially now that Brazil has approved its tax reform and is adopting a split payment system. “The new system makes it clear that taxes are external to revenue and should be charged separately,” he said. He noted that the ISS is similar to the U.S. sales tax, which is itemized separately. “The tax is charged on top of the product and clearly shown because it doesn’t belong to the seller—it’s owed to the municipal government.”

Tax lawyer Fernanda Secco, a partner at Velloza Advogados, argued that since court rulings overwhelmingly favor taxpayers, there is no reason to restrict the impact of the ruling to future cases—a proposal made by Justice Mendonça. “There’s no surprise here that would justify such limitation,” she said.

Mr. Mendonça suggested that companies which didn’t include ISS in their PIS/Cofins tax base or whose amounts remain in escrow would not owe the tax. But for those who already paid over the years and whose tax credits have expired, there would be no retroactive recovery—citing a “social interest” in protecting the integrity of the budget cycle.

Ms. Secco expressed concern over the proposal, saying it undermines legal certainty and equal treatment among businesses. “Companies that acted conservatively and chose not to benefit from favorable rulings and paid the tax would be barred from recovering what they paid,” she said. “The proposal rewards those who didn’t pay, which could even distort competition.”

The Attorney General of the National Treasury declined to comment.

*By Marcela Villar — São Paulo

Source: Valor International

https://valorinternational.globo.com

/by

Power regulator cuts transmission surcharges by R$5.6bn

ANEEL adopts compromise in years-long dispute over compensation for legacy grid assets, lowering electricity costs until 2028

 

 

 

 

06/11/2025

 

Decision almost halved claims of power generators, which were aiming for R$11bn

Brazil’s National Electric Energy Agency (ANEEL) approved on Tuesday (10) an intermediary proposal in the long-running dispute over compensation to power transmission companies for assets in the so-called Existing Basic Network System (RBSE). The decision, closely watched by power sector stakeholders, reduces transmission costs by R$5.6 billion between July 2025 and July 2028—savings that will benefit both consumers and generators.

The move aims to reconcile opposing interests in a battle that has dragged on for years. On one side, generators, self-producers, and large consumers—represented by groups such as Abrace (Association of Large Industrial Energy Consumers) and Abiape (Brazilian Association of Self-Production Energy Investors)—had pushed for a larger cut of about R$11 billion.

On the other side, transmission companies including Furnas, Chesf, Eletronorte, and Eletrosul (subsidiaries of Eletrobras), as well as Isa Energia, Cemig-GT, CEEE-GT, Copel-GT, and Celg-GT, defended maintaining the full indemnity values. Agnes da Costa, the board member who issued the deciding vote, said the ruling preserves compensation but adjusts future payments in favor of consumers.

“These are assets of transmission companies that, for a period, consumers weren’t paying for, weren’t compensating, and are now returning to the tariffs. There was controversy over part of that amount. Now, with this decision, the consumer will keep paying—but going forward, we can see there’s about a R$5 billion reduction between what was originally expected and what will actually be paid,” Ms. Costa told reporters.

While reading her final opinion on the case, Ms. Costa highlighted that the process demanded a thorough technical review due to the issue’s complexity, strong legal arguments on both sides, and the real risk of billion-real litigation.

“While not abandoning their legal theses, both sides expressed willingness to find a balanced outcome through a technically defensible solution based on prior technical analyses—one that delivers immediate benefits to consumers and minimizes legal risks.”

The central controversy surrounded the methodology for calculating owed amounts, particularly with regard to return on invested capital in those assets. Ms. Costa rejected arguments from dissenting votes that previous calculations contained methodological errors, reaffirming the technical soundness of the analysis conducted thus far.

The measure passed by a 3-2 vote, with support from Director-General Sandoval Feitosa and Acting Director Daniel Danna. The dissenting vote, previously proposed by former director Hélvio Guerra and backed by Fernando Mosna, called for changes to the calculation method and a deeper cut to compensation. Director Ludimila Lima did not participate in the vote, as she currently occupies Mr. Guerra’s former seat.

The case dates back to Provisional Measure No. 579/2012, issued during President Dilma Rousseff’s administration, which sought to reduce electricity costs. The measure altered the concession model for the power sector by requiring early and conditional contract renewals for generation and transmission operators. As a result, transmission firms that opted into the new model stopped receiving returns on assets still in operation and critical to the grid.

This created a financial imbalance in the contracts, which ANEEL acknowledged. In 2016, the agency mandated compensation for RBSE assets—a multibillion-real liability that has since been gradually incorporated into transmission tariffs. Consumers have been covering these indemnities through charges on their electricity bills.

*By Robson Rodrigues, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

/by

Fiscal reform bills stalled in Congress despite calls for spending cuts

Military pensions and cap on supersalaries among proposals left untouched

 

 

 

 

06/11/2025

At a time when Congress is pressing the executive branch to rein in public spending as an alternative to raising the Financial Transactions Tax (IOF), lawmakers themselves have yet to act on fiscal reform proposals already on the table—such as the cap on public sector “supersalaries,” which has seen little progress.

Public finance experts interviewed by Valor argue that Congress could contribute meaningfully to Brazil’s fiscal rebalancing by cutting back on parliamentary earmarks—a move that would represent a concrete step toward spending restraint. This year’s budget earmarks amount to R$50.5 billion, with an additional R$11.2 billion in discretionary executive expenditures added to compensate for unpaid transfers last year, bringing the total to R$61.7 billion.

In response, lawmakers have pledged to move forward with administrative reform, currently under discussion in the Chamber of Deputies and led by Federal Deputy Pedro Paulo (Social Democratic Party, PSD, Rio de Janeiro). However, several legislators caution that the bill is unlikely to emphasize cost-cutting. One influential leader of “Centrão” bloc in Congress told Valor that reform proposals should originate from the executive branch, although contributions from the legislative working group may also emerge.

Experts propose Congress take lead in trimming earmarks

The bill to curb “supersalaries”—by capping indemnity payments that push public servants’ pay above the constitutional ceiling—was passed by the Chamber in 2021 but remains stalled in the Senate. The deadlock stems from attempts to bundle it with the so-called “quinquennial PEC,” a constitutional amendment that restores a bonus for judges and exempts it from the salary cap.

Similarly, lawmakers have kept their distance from another contentious issue: military pension reform, which the government submitted in December 2024. Six months on, the bill remains untouched in the Chamber, awaiting assignment of a rapporteur. The proposal sets a minimum retirement age of 55 for military personnel—currently, there is no age requirement, and service members can retire after 35 years.

In 2023, military pension and retirement benefits posted a R$51.8 billion deficit, compared to R$304.6 billion for Brazil’s general social security system (managed by the National Institute of Social Security, INSS). During the Agenda Brasil – the Brazilian fiscal outlook seminar hosted by Valor, CBN Radio, and O Globo, Chamber President Hugo Motta (Republicans of Paraíba) pledged to review the matter. “We’ll do our part on this issue,” he said.

A government-aligned senator told Valor that many cost-cutting bills are already pending in Congress, but meaningful progress would require reciprocal efforts from the executive. “How can we reduce spending if no one’s willing to put in the effort?” he asked. “Once we show effort here, they need to show it there too. No one wants to give ground because of the power dynamics involved.”

Senate government leader Jaques Wagner (Workers’ Party, PT, of Bahia) noted that lawmakers are also reluctant to budge. “Hugo [Motta] made a good point. Everyone knows adjustment is needed, but no one wants to concede an inch,” he remarked. “Today [Tuesday, 10] I attended the Economic Affairs Committee (CAE) to follow debate on raising the physician salary floor. Everyone talks fiscal responsibility, then backs something that could cost R$40 billion,” he criticized.

Senator Efraim Filho (Paraíba), a leader of Brazil Union and chair of the Joint Budget Committee (CMO), said the government faces an uphill battle in passing its provisional measure offering alternatives to an IOF hike, especially if it only includes tax increases. “The government hasn’t really proposed spending cuts. It’s switching to revenue methods that cause less noise, but that’s not going over well,” he said. “The government has to negotiate with its own base to see what they’re willing to back. You can’t mention Fundeb [Basic education fund] or BPC [continuous cash benefit] without the PT jumping out of their seats.”

On another front, experts argue that cuts to parliamentary earmarks would send a strong message. While they believe the mechanism should be retained, they call for reforms to curb what they see as distortions in the budget process.

Last month, amid the IOF debate, Mr. Motta said congressional leaders were not “concerned” about reducing earmarks. He noted potential support for a cap—if it applies to all parties equally—but warned against “criminalizing” earmarks.

On Monday (9), after attending the Agenda Brasil seminar in São Paulo, Congressman Luciano Zucco (Liberal Party, PL, Rio Grande do Sul), leader of the opposition in the Chamber, also acknowledged the possibility of cutting earmarks, saying “Congress could lead by example.”

Political scientist Beatriz Rey, affiliated with the University of São Paulo (USP) and the Popvox Foundation, said Congress gained political power with the increase in earmarks but is not being held accountable for its share of fiscal responsibility. “The Faria Lima [financial market] crowd needs to start demanding fiscal discipline from Congress,” she said.

“Between 2015 and 2024, earmarks jumped from R$3.9 billion to R$48.3 billion. That’s an absurd increase, disproportionate to Congress’ role in the budget, encroaching on the executive’s prerogatives,” Ms. Rey added. She also called for Judiciary involvement in ending “supersalaries.”

“Congress needs to contribute directly by cutting earmarks,” said Felipe Salto, chief economist at Warren Investimentos. He supports a 50% cut starting in 2026. “Then we could consider a rule that makes earmarks, like other expenditures, subject to available fiscal space,” he suggested.

“We’re on the brink of a fiscal crisis. The situation is dire. Spending is outpacing revenue, partly because earmarks have become a new, virtually untouchable mandatory expense,” said Mr. Salto, former executive director of the Senate’s Independent Fiscal Institution (IFI).

Mr. Salto credited Finance Minister Fernando Haddad with making “a significant effort” to meet the fiscal target, while accusing Congress of “wavering.” He believes the IOF controversy is a chance for Congress and the executive to jointly define a list of measures to clean up public finances.

*By Andrea Jubé, Gabriela Guido, Joelmir Tavares and Beatriz Roscoe — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/

/by