023 tax offsets reach record; lower federal revenue by R$242bn

Volume represents an increase of more than 130% compared to 2019, according to data from Brazil’s Revenue Service

02/23/2024

Breno Vasconcelos — Foto: Rogerio Vieira/Valor

Breno Vasconcelos — Foto: Rogerio Vieira/Valor

Tax offsets significantly increased in the first year of the Lula administration, reducing the federal government’s revenue last year by R$242 billion, equivalent to 2.2% of the Gross Domestic Product (GDP). This figure is a record and represents an increase of more than 130% compared to 2019, marking the start of an escalation verified by Brazil’s Federal Revenue Service, according to data obtained through the Access to Information Act by Valor.

Since May 2003, the start of the historical series, the federal government has failed to collect R$1.6 trillion from offsets, a target of the Finance Ministry for achieving fiscal goals.

More than a third of the volume in 2023 refers to credits from court decisions. There were R$82.7 billion offsets, the third highest amount since the recording began. In 2018, they accounted for just over 5% of total settlements. Since 2019, they have made up more than 20% of this volume—the peak was in 2021 when judicial credits accounted for almost half of the total offset with the Federal Revenue Service. However, in the last two years, they have slightly fallen, between 5% and 10%. Valor PRO, Valor’s real-time information service, reported this information on Thursday (22).

The high volume of tax offsets from lawsuits was the leading cause for the government to issue Provisional Presidential Decree 1202/2023, which limited the right to offset tax credits from court decisions to R$10 million. Another Federal Revenue Service spreadsheet indicates that, in the last five years alone, credits above R$10 million have frustrated tax collection by R$320.5 billion.

According to the Finance Ministry, the offsets for the “thesis of the century” alone—the exclusion of ICMS (similar to the Value-Added Tax) from the PIS (tax to fund a cash transfer program) and Cofins (social security tax) calculation base, cost the federal government more than R$60 billion last year. This was one of the main reasons, according to the government’s economic team, for the R$230 billion deficit recorded in 2023.

In 2024, Finance Minister Fernando Haddad has the task of increasing revenues to achieve the goal of zero primary results in public accounts. The limit on offsets, according to the Federal Revenue Service, could generate an extra R$20 billion inflow in 2024 and help the government reach this goal.

However, the limit has not yet produced results. Figures released on Thursday (22) show that in January 2024, even with the effects of Provisional Presidential Decree 1202/2023, they amounted to R$27 billion. Nonetheless, the Federal Revenue Service estimates that this impact will positively affect tax collection throughout the year.

Although it didn’t take effect in January, the Independent Fiscal Institution (IFI) projects that the limit on offsets could generate a revenue gain for the government of R$26.2 billion in 2024, R$40.1 billion in 2025, R$55.6 billion in 2026, and R$72.6 billion in 2027, in nominal values.

Offsets allow taxpayers to use their credits with the Federal Revenue Service to offset their debts. They use overpaid taxes or amounts obtained through court decisions to offset other federal taxes they owe.

The tax office’s data also shows that in 2023, the total number of offsets was 11% higher than in 2022, when this type of revenue loss reached R$215 billion. The “other credits” category set a record in 2023, totaling R$73.5 billion.

Lawyers suggest that this category likely includes credits from the exclusion of ICMS from the PIS and Cofins base. The Finance Ministry states that it is impossible to know which tax the credit refers to or the legal thesis behind them, as this information is not stored “in a structured way in the information systems.”

Compared to the last decade, there has been an annual surge in offsets: since 2013, the volume has more than quadrupled, given that 10 years ago, offsets amounted to R$54 billion.

The significant growth began in 2019 due to the so-called “thesis of the century” (a landmark legal decision in which the Federal Supreme Court ruled that the ICMS tax should not be included in the PIS and Cofins tax bases, significantly impacting businesses with potential substantial tax refunds), and peaked in 2021, when the Federal Supreme Court ruled on the motions for clarification in the case and established that the ICMS should be highlighted on the invoice. Secondary legal arguments and interpretations, known in Brazil as “teses filhotes,” also contributed to the increase in offsets, albeit to a lesser extent.

Until this second Supreme Court ruling, many cases were on hold, awaiting the position of the justices, which explains the “late” peak since the merits of the case were judged in 2017, said tax lawyer Leandro Augusto, a partner at AleixoMaia law firm.

Mr. Augusto notes, however, that after the peak, the volume of judicial credits, the subject of the restriction in Provisional Presidential Decree 1,202/2023, has decreased over the past two years. “There is a downward trend, especially when compared to tax collection,” he said. For him, that demonstrates the fragility of the argument supporting the Provisional Presidential Decree. “There has been an increase in offsets due to administrative and not judicial measures, both in absolute and relative terms,” he added.

Breno Vasconcelos and Maria Raphaela, partners at Mannrich e Vasconcelos Advogados, note that when all PIS/Cofins issues are considered, credits arising from payments of these contributions represent, across the entire historical series, 19.38% of total general offsets and 29% of judicial offsets.

“This data, coupled with previous analyses, confirms the diagnosis of those proposing the reform of taxation on consumption, that these contributions are very complex, subjecting taxpayers to dozens of special regimes and with disputes involving even the use of credits in the non-cumulative system [a topic that represented the largest PIS/Cofins litigation for publicly traded companies in 2021],” they stated.

Lawyer Fabio Calcini, from the law firm Brasil, Salomão e Matthes Advogados, notes that the majority of offsets in 2023 are for taxes overpaid by taxpayers. Following the “other credits” category, the largest amounts are for Cofins and IPI (tax on industrialized products) refunds, negative Corporate Income Tax (IRPJ) balances, and other undue payments.

Together, these categories accounted for R$128.5 billion last year, corresponding to 53% of the total offset by taxpayers with the Federal Revenue Service. “The system is flawed in several respects and ends up charging the taxpayer, then authorizing a refund as an offset. It’s not abuse or fraud on the part of the taxpayer; it’s their right to receive what they paid unduly,” stated Mr. Calcini, who is also a professor at the Getúlio Vargas Foundation (FGV).

*Por Guilherme Pimenta, Marcela Villar, Beatriz Olivon — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Mubadala takes control of Burger King operator in Brazil

Arab fund buys 16.8% stake from Fitpart

22/02/2024

Zamp operates Burger King and Popeyes restaurants in Brazil — Foto: Divulgação

Zamp operates Burger King and Popeyes restaurants in Brazil — Foto: Divulgação

Changes in the shareholding position of partners in Zamp, the operator of Burger King and Popeyes restaurants in Brazil, should bring forward a move involving the future of the company.

On Tuesday evening (20), Zamp announced the definitive withdrawal of funds from Fitpart Fund Administration Services. FitPart reduced its 16.8% share to zero.

According to sources familiar with the matter, the asset manager was against the decision to remove Zamp from Novo Mercado, the strictest governance segment of B3. This was something advocated by the Arab fund Mubadala Capital and supported by RBI, a company partly owned by 3G Capital, and in this scenario FitPart decided to step down.

Controlled by billionaires Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira, 3G Capital owns 29% of RBI, which controls the Burger King brand worldwide.

With the votes of RBI and Mubadala, Zamp’s withdrawal from Novo Mercado was approved at an extraordinary shareholders’ meeting in January.

However, Fitpart (a family office of former Banco Garantia shareholders), on the side of the minority shareholders opposed to the measure, decided to sell its position in the company, which according to sources passed into the hands of Mubadala, as Valor reported on Tuesday.

Mubadala announced to the market on Wednesday the purchase of American Depositary Receipts (ADRs) representing 16.8% of Zamp’s capital.

In addition to the ADRs, Mubadala now holds 2.9% of the capital in derivative instruments, which increased its position in the company to 58.3% from 38.5%.

In this way, the Arab fund took control of the Burger King operator—and began to decide on the company’s next strategic steps.

“The acquirers [funds and companies linked to Mubadala] will begin to act actively in their meetings,” it said in a statement on Wednesday.

RBI, through the vehicle Burger King do Brasil, holds 9.4% of the shares, with 34% available for trading on the open market.

It was also announced to the market on Tuesday evening that Hugo Segre Junior, a member of the board of directors of Zamp and linked to Fitpart since 2018, had decided to resign. This was expected by the market, given the asset manager’s disagreements with the position of Mubadala and 3G.

These changes, which took place in the last 48 hours, come on top of another in progress that could give Zamp a new direction.

Mubadala is negotiating directly with the American parent company of Starbucks to acquire the chain’s license in Brazil, as Valor reported on Wednesday.

Zamp confirmed Wednesday morning that it was negotiating an agreement with Starbucks involving the brand and operations. Currently, around 130 stores are operated by SouthRoch Capital, which has filed for court-supervised reorganization in November, but the company has lost its license.

Now that Zamp is outside the Novo Mercado, it can make an acquisition—and be included in a transaction—without much difficulty. Companies on the Novo Mercado cannot be merged with others outside that segment of the exchange.

FitPart declined to comment on the matter.

*Por Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras initiates trials for breakthrough decarbonization technology

A $1.5bn investment fuels launch of Hisep pilot project

22/02/2024

Carlos Travassos — Foto: Gabriel Reis/Valor

Carlos Travassos — Foto: Gabriel Reis/Valor

Petrobras revealed on Tuesday that it has initiated trials for an innovative technology designed to separate oil from CO2-rich gas directly on the seabed. This technology, known as Hisep, is a creation of the Petrobras Research Center (Cenpes) and represents a significant advancement in the field. The development is supported by a substantial investment of $1.7 billion from the consortium responsible for the Libra block in the pre-salt Santos Basin. This consortium includes Petrobras itself, along with industry giants Shell, Total, and the state-owned Pre-Sal Petróleo (PPSA), as well as Chinese entities CNPC and CNOOC.

Out of the total investment, $1.5 billion fuels the launch of the Hisep pilot project. The remaining $200 million is earmarked for the establishment of the Brazilian Pre-Salt Technology Center (CTPB), a collaborative effort with the Federal University of Itajubá (Unifei), located in the state of Minas Gerais.

The Hisep technology is set to undergo pilot testing in the Mero 3 field within the pre-salt Santos Basin. Following this testing phase, Petrobras anticipates that the technology will be operational by 2028. Positioned within the Libra area, the Mero field is recognized as the third-largest in the pre-salt region.

Petrobras’s Engineering Director, Carlos Travassos, highlighted the significant advantages Hisep technology is set to bring to the company’s operations. With its implementation, Petrobras expects not only to streamline efficiency but also to unlock substantial value. The innovative technology is projected to slash the weight of platforms by an impressive 65%, leading to a consequential reduction in the number of personnel required onboard. Furthermore, the potential for commercializing this technology to other entities in the oil sector presents an additional revenue stream.

“By integrating Hisep, we anticipate a transformation in the layout of the Floating Production, Storage, and Offloading (FPSO) units, particularly the ‘topside’ or upper part of the FPSO, which can reduce the cost of the platforms. This technology allows for a significant portion of the processing plant to be relocated from the FPSO to the seabed,” says Mr. Travassos. The FPSO platform produces, processes, stores, and drains oil.

In a strategic move to advance the Hisep project, Petrobras entered into an agreement with FMC Technologies do Brasil, a TechnipFMC subsidiary, in January. This partnership is tasked with developing the necessary infrastructure for Hisep. The initiative will kick off with the FPSO Marechal Duque de Caxias, which is designed to process up to 180,000 barrels of oil and 12 million cubic meters of gas daily.

Jean-Paul Prates, CEO of Petrobras, emphasized the environmental and operational benefits of their latest technological advancement, Hisep. He said that the primary advantage of this innovation lies in its capacity to mitigate the environmental impact of polluting gases at the source. “Decarbonization is crucial for the sustainability of oil extraction activities, enabling us to continue utilizing hydrocarbons,” Mr. Prates said. After separation, Hisep allows for the immediate reinjection of these gases back into the subsea wells.

“In the near future, Hisep will significantly reduce the need for personnel in high-risk areas of the platform, mirroring our successful efforts to eliminate diving operations by reallocating staff to safer roles. This strategic move bolsters our production efficiency,” he said.

*Por Kariny Leal — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Government, Parliament agree to maintain payroll relief

The issue will be dealt with by a bill of constitutional urgency

22/02/2024

Senate President Rodrigo Pacheco — Foto: Roque de Sá/Agência Senado

Senate President Rodrigo Pacheco — Foto: Roque de Sá/Agência Senado

Government and congressional leaders have confirmed an agreement to maintain the payroll tax exemption for 17 labor-intensive sectors. Following a meeting on Wednesday (21), Senate President Rodrigo Pacheco and Finance Minister Fernando Haddad stated that the proposed reintroduction of taxes on these sectors, which was suggested by the Executive branch at the end of last year, will be removed from the provisional presidential decree addressing the issue. Any changes will be suggested through a bill.

“The political negotiation is done, and any changes to the program will not be made through the presidential decree. The government has already agreed to this premise,” said the senator. “The tax relief on the 17 sectors has been maintained. That’s how it will be, and any changes will be matured through a bill,” he added.

The statement was made hours after a lunch attended by Mr. Pacheco, Senate leaders, Mr. Haddad, and the minister of Institutional Relations, Alexandre Padilha.

Mr. Haddad confirmed that the issue will be addressed through a bill of constitutional urgency. “That’s what we’re going to do,” the minister said when asked about the plan.

According to Mr. Pacheco, the government has promised to issue a new provisional presidential decree that removes the reintroduction of taxes from the text published in December.

The payroll relief system allows companies in some labor-intensive sectors to replace the 20% tax on wages with a rate of between 1% and 4.5% on gross revenues. According to businesspeople and trade unionists, this model contributes to job creation by reducing hiring costs.

Last year, Congress extended the measure until 2027. President Lula vetoed the bill, and then legislators overrode the president’s decision. At the end of December, the government issued another provisional decree to phase in the reintroduction of taxes.

The text set a 90-day deadline for the new rules to take effect. According to Mr. Pacheco, this made negotiations easier.

“Since there was a provision for this ninety-day period for discussion, there was the time needed for political negotiation, without rupture, so that there could be an understanding between the government and the legislators,” he said.

According to the agreement, the cap on tax compensation also included in the December presidential decree, will remain in the text. The government is still considering whether the end of the Emergency Recovery Program for the Events Sector (Perse), another point dealt with in the proposal, will continue in the text or will also be dealt with through a bill.

The agreement was signed on the same day that lawmakers and representatives of the productive sector called a press conference to defend the payroll relief.

The president of the National Federation of Call Centers, Installation and Maintenance of Telecommunications and IT Network Infrastructure (Feninfra), Vivien Mello Suruagy, also said that “it is past time to discuss” the issue. “This situation is causing us to hold back on all investments,” she said.

Lawmakers and businesspeople also presented figures from Desonera Brasil—a movement that brings together representatives from the 17 sectors. According to Desonera Brasil, companies in these sectors formally employed 9.14 million people last year—an increase of 17.7%, compared to the 13.5% growth in other sectors during the same period. According to the study, more than 728,000 jobs would not have been created since the beginning of 2012 without the payroll-tax cut. In addition, the average salary in the 17 sectors was 41.8% higher than in those without the relief. The calculations were based on figures from the Ministry of Labor.

The author of the bill passed in 2023 that extended the payroll relief until 2027, Senator Efraim Filho, argued that “the government had 10 months” last year to propose an alternative to ending the tax cuts.

*Por Caetano Tonet, Julia Lindner, Estevão Taiar — Brasília

Source: Valor International

https://valorinternational.globo.com/
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G20 Rio opens with war criticism; member countries target Russia

The meeting addressed major global tensions; Russian Foreign minister faced criticism over the war in Ukraine and the death of a dissident in prison

22/02/2024

Brazil’s Foreign Minister Mauro Vieira speaks during the G20 foreign ministers meeting in Rio de Janeiro, Brazil, Wednesday, Feb. 21, 2024 — Foto: Silvia Izquierdo/AP

Brazil’s Foreign Minister Mauro Vieira speaks during the G20 foreign ministers meeting in Rio de Janeiro, Brazil, Wednesday, Feb. 21, 2024 — Foto: Silvia Izquierdo/AP

The G20 foreign ministers’ meeting in Rio opened with Brazilian Minister Mauro Vieira emphasizing the need for reforms in global governance. In his Wednesday (21) speech, he criticized high military spending worldwide and the stagnation of multilateral organizations, aligning with President Lula’s past administrations’ traditional foreign policy.

The main agenda for the 41 delegations present—21 G20 members and guests—was current international conflicts, particularly the wars in Ukraine and Gaza. As anticipated by diplomats, Russia faced significant scrutiny, with its Foreign Minister Sergei Lavrov present at the meeting.

Valor sources privy to the closed-door discussions reported that the G7 countries (Germany, Canada, the U.S., France, Italy, Japan, and the UK) were particularly vocal in their criticism. They focused on the Ukrainian war and the death of Alexei Navalny, an opponent of Vladimir Putin, in an Arctic prison.

Other foreign ministers also expressed their concerns about the conflicts in Ukraine and Gaza. Regarding the Israel-Palestine conflict, most supported a two-state solution. Argentina, which has prioritized Israel in its foreign policy, also backed the creation of a Palestinian state. However, Foreign Minister Diana Mondino emphasized Israel’s right to self-defense.

On Thursday (22), discussions will shift to potential reforms in organizations like the UN, IMF, and World Bank. These reforms, along with combating hunger and climate change, are key priorities of Brazil’s G20 presidency.

In front of other foreign ministers, Mr. Vieira expressed concern over the annual military expenditure of $2 trillion, contrasting sharply with the meager contributions to humanitarian aid and climate change efforts. He pointed out that funds allocated for social assistance and development are barely $60 billion a year, approximately 3% of what is spent on arms.

“The disbursements for combating climate change under the Paris Agreement are barely $100 billion a year, which is less than 5% of military spending,” stated the Brazilian minister. “I can’t help but feel a lack of concrete action on these issues.”

Mr. Vieira, under the observation of his counterparts, reminded them that the G20 was originally intended to address economic and development issues but has become one of the few forums where countries with differing views can come together. Despite that, he urged for concrete action and critiqued the “unacceptable paralysis” of the UN Security Council regarding global armed conflicts.

Criticizing developed nations, he emphasized that the “Global South” demonstrates greater initiative in peace and cooperation. “The successful cases of peaceful cooperation in Latin America, Africa, Southeast Asia, and Oceania suggest that these regions’ voices should be given special care and attention in relevant forums,” he asserted.

Regarding Brazil’s stance on global tensions, Mr. Vieira declared that the country “rejects the pursuit of hegemonies, whether old or new.” He also encouraged fellow G20 members to reaffirm their commitments to the UN, “publicly rejecting the use of force, intimidation, unilateral sanctions, espionage, and mass manipulation of social networks.”

Debates on Brazil’s other G20 presidency priorities, such as fighting hunger and climate change, are slated for future group meetings. Throughout the year, numerous ministerial-level meetings will occur in Brazil, with most in Rio. Next week, São Paulo will host discussions between finance ministers and Central Bank presidents.

The G20 heads of state summit is scheduled for November in Rio. Typically, the G20 issues a joint statement only after the summit, so it’s unlikely there will be an official group statement at the end of today’s meeting. Mr. Vieira is expected to give a statement after the meeting concludes.

Notably absent from Rio are the main diplomatic representatives of two global powers: China and India. However, Brazil has received indications that Chinese President Xi Jinping will attend the leaders’ summit.

On Wednesday, after more than four hours of meetings at Marina da Glória on Rio’s south side, the ministers went to a dinner at Palácio da Cidade, which is the headquarters of the city hall. The dinner, hosted by Mayor Eduardo Paes, who is championing the slogan “Rio – Capital of the G20,” featured elements of Rio’s local culture. At the Marina da Glória event, a local vendor, known as a “mateiro,” served mate (a traditional South American drink) and Globo cookies—snacks that are iconic to Rio’s beaches—to the attending diplomats and journalists.

*Por Murillo Camarotto, Caio Sartori, Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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At G20, Brazil advocates UN reforms amid conflicts

Foreign ministers begin two-day ministerial meeting under Brazilian presidency of the group on Wednesday

02/21/2024

Maurício Lyrio — Foto: Fernando Frazão/Agência Brasil

Maurício Lyrio — Foto: Fernando Frazão/Agência Brasil

Despite acknowledging divergences among G20 countries regarding the format of reforms at the United Nations, the Brazilian presidency of the group believes there is consensus regarding the need for a stronger UN to address international conflicts.

This analysis was made on Tuesday (20) by the Secretary of Economic and Financial Affairs of the Brazilian Ministry of Foreign Affairs, Maurício Lyrio, during the presentation of the agenda for the G20 foreign ministers’ meeting, which begins this Wednesday (21) in Rio de Janeiro.

The meeting is the first at the ministerial level under Brazil’s presidency of the group and will extend until Thursday (22). According to Mr. Lyrio, discussions will focus on ongoing international conflicts, such as the war in Ukraine and the conflicts in Gaza, as well as reforms in global governance, as previously reported by Valor in January.

Mr. Lyrio serves as Brazil’s sherpa in the G20, a term that designates a country’s representative at the international summit. The coordinator assesses that the current level of international conflicts creates unprecedented pressure on the composition and format of multilateral organizations such as the UN.

“There is consensus on the need for a strong UN capable of facing global challenges. The final form of this update faces divergences, but the urgency we have today, with the level of conflicts returning to Cold War standards, generates pressure and urgency on the topic that did not exist before,” he said.

Mr. Lyrio emphasized that, in Brazil’s view, the UN needs to undergo effective reform to become a structural and effective instrument in conflict prevention.

“The Brazilian government’s defense of peace applies to all conflicts. But one thing is to work for peace, another is to have a structural action. [Today] We are putting out fires,” he said.

The statements were made amid escalating diplomatic tension between Brazil and Israel after President Lula compared the situation in the Gaza Strip to the Holocaust, prompting an immediate reaction from the Israeli government.

Asked whether President Lula’s statements could hinder Brazil’s role as a mediator in international conflicts, the government representative denied: “The peace call that the president has been making from the beginning is absolutely crucial.”

He even mentioned that the resolution for a humanitarian ceasefire in the conflict, presented at the UN Security Council, is a priority for the Brazilian government. When informed by reporters that the proposal had been vetoed, he expressed dissatisfaction. “I imagine there was a veto exercised,” he observed. The United States vetoed the proposition on Tuesday, for the third time since the beginning of the war between Israel and Hamas.

The meetings of the foreign ministers are taking place at Marina da Glória, in the southern zone of Rio. The discussions involve the 19 countries that are part of the group of the world’s major economies, the European Union, and the African Union, as well as countries and international organizations invited by Brazil. The Brazilian presidency of the G20 will hold a second meeting of foreign ministers in September, parallel to the opening of the UN General Assembly in New York.

*Por Paula Martini, Caio Sartori — Rio de Janeiro

Source: Valor International

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Crisis with Israel escalates, affects Brazil’s domestic politics

Both governments trade accusations on social media after Israeli Foreign minister called on Brazilian president to retract comparison to the Holocaust

02/21/2024

Rodrigo Pacheco — Foto: Marcos Oliveira/Agência Senado

Rodrigo Pacheco — Foto: Marcos Oliveira/Agência Senado

In another day of escalating tensions between Brazil and Israel, government ministers of President Lula and Prime Minister Binyamin Netanyahu exchanged sharp criticisms on social media on Tuesday. The Israelis accused Mr. Lula of “denying the Holocaust” and persisted in demanding a retraction of his remarks, while members of the Brazilian government denounced the dissemination of “fake news” and characterized the statements from Tel Aviv as “unacceptable” and “outrageous.”

Domestically, the Lula administration is also grappling with the political implications of the crisis. Senate President Rodrigo Pacheco suggested that Mr. Lula apologize for the statement that sparked the diplomatic rift, while opposition lawmakers plan to file a motion for Mr. Lula’s impeachment.

Tuesday’s exchange of accusations began after Israeli Foreign Minister Israel Katz mentioned Mr. Lula’s profile in a publication in which he demanded a retraction from the Brazilian government for comparing Israel’s actions in Gaza to the Holocaust. “Millions of Jews around the world are waiting for your apology. How dare you compare Israel to Hitler?” wrote Mr. Katz in Portuguese on X.

On the same day, the official profile of the State of Israel responded sarcastically to a post from another account, unrelated to the diplomatic crisis, which asked: “What comes to mind when you think of Brazil?” The official profile of Israel shared the post with its followers, adding a question: “Before or after @LulaOficial went full on Holocaust denier?”

Brazil’s Minister of the Secretariat of Social Communication (Secom), Paulo Pimenta, responded to the provocation. Also on social media, he accused the Israeli foreign minister of spreading “fake news” against President Lula. Additionally, he stated that the Netanyahu administration thrives on the conflict with the Hamas terrorist group, which controls the Gaza Strip, to maintain power.

“At no time did the president criticize the Jewish people, nor did he deny the Holocaust. Lula condemns the massacre of civilians in Gaza by Netanyahu’s far-right government,” the Brazilian minister said.

At the end of the day, Foreign Minister Mauro Vieira also reacted to Mr. Katz’s comments. He called them “unacceptable,” “untrue,” “unusual”, and “outrageous.” He also accused the Israeli government of creating a “smokescreen” to cover up a massacre of the population of the Gaza Strip.

“In addition to trying to sow divisions, it is trying to increase its visibility in Brazil to create a smokescreen to cover up the real problem of the ongoing massacre in Gaza, where 30,000 Palestinian civilians have already died, mostly women and children, and the population is subjected to forced displacement and collective punishment,” Mr. Vieira said.

Amid another day of tensions, the debate surfaced on the Senate floor. Also serving as the President of the National Congress, Rodrigo Pacheco argued that President Lula made a “misguided” statement by comparing Israel’s actions in Gaza to the Holocaust.

“We are confident that this misguided remark does not represent the true purpose of President Lula, who is a world leader known for building dialogues and bridges between nations,” Mr. Pacheco said, before calling on President Lula to retract. “This is why we believe that a retraction of this statement would be appropriate,” he added.

The mention of the issue agitated the Senate session. Omar Aziz, a member of the governing coalition, asked how the President of the Senate could characterize what was happening in Gaza. He also defended Mr. Lula for “looking at what is happening” in the region.

Mr. Pacheco replied that he was not “creating a controversy” or “reprimanding” the president.

The leader of the government in the Senate, Jaques Wagner, also defended the president’s remarks but surprised by admitting that he had advised Mr. Lula to abandon the comparison with the Holocaust. Mr. Wagner, who is Jewish, said that he told Mr. Lula that he would “remove” the passage from the president’s speech.

“I’ve been a friend of President Lula’s for 45 years, and it was natural for me to pay him a visit yesterday [Monday] and say: I’m not going to take a word of what you said, except at the end, because in my opinion, you can’t bring up the Holocaust episode for any comparison, because it hurts the feelings, including mine, of family members lost in that episode,” he explained. “So, President [Pacheco], I want to tell you that I agree with you because I don’t think the comparison is appropriate,” he added.

Despite Mr. Pacheco’s suggestion, Mr. Lula’s aides are dismissing behind the scenes any possibility that he will apologize for the comparison. Moreover, Valor has learned that the government does not intend to respond to Mr. Pacheco, so as not to turn the dispute with Israel into a fight with Congress.

Opposition legislators are organizing a response to the episode. Congresswoman Carla Zambelli said she would file a motion for Mr. Lula’s impeachment on Wednesday. She argued that Mr. Lula had committed a crime of responsibility by “committing an act of hostility against a foreign nation, exposing the country to the risk of war or endangering its neutrality.” The motion has the support of 121 lawmakers, but privately congresspeople who signed the motion say the proposal has no chance of moving forward.

(Raphel Di Cunto contributed reporting.)

*Por Renan Truffi, Fabio Murakawa, Murillo Camarotto, Julia Lindner, Caetano Tonet — Brasília, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil extends tax clampdown to exclusive pension funds

Measure wasn’t on wealth managers’ radar; government aims to safeguard income and prevent insurer imbalances

02/21/2024

Debora Mendeleh — Foto: Divulgação

Debora Mendeleh — Foto: Divulgação

The restrictions on exclusive and restricted pension funds mark a continuation of government efforts to curtail tax avoidance practices among the ultra-wealthy. This initiative began with the biannual tax—known as the “come-cotas”—which targeted fixed-income, multimarket, and foreign exchange portfolios, as well as closed investment vehicles tailored for wealth management. Along with this came the introduction of a tax on offshore entities, along with restrictions on the issuance of real estate and agribusiness credit bills and certificates: real estate credit bills (LCI), real estate receivables certificates (CRI), guaranteed real estate letter (LIG), agribusiness credit bills (LCA), and agribusiness receivables certificates (CRA), a move aimed at stemming the tide towards tax-exempt securities.

The series of measures reached a new milestone on Monday evening during an exceptional meeting of the National Private Insurance Council (CNSP), which introduced a prohibition on the establishment of exclusive family pension plans for individual accounts exceeding R$5 million, effective immediately. This development, which wasn’t anticipated by the investment community, emerged amid broader discussions on open pension plan reforms during a public hearing.

According to a source closely monitoring the situation, this specific regulation was proposed by the Ministry of Finance as a strategic addition to the regulatory framework. The prompt for this action was an announcement by a leading financial institution about a new exclusive pension fund, raising concerns over the use of such structures solely for tax postponement. Additionally, there was apprehension within the insurance sector regarding the potential impact on pension fund balances from a substantial influx of capital.

With a combined total of approximately R$750 billion in exclusive and restricted closed-end funds, plus an additional R$1 trillion in overseas investment structures, the pension fund emerged as a key target for the reallocation of assets following the introduction of new tax legislation at the end of the previous year.

Debora Mendeleh, the head of distribution at Principal Claritas, interprets the government’s strategy as a dual effort to safeguard revenues while simultaneously stemming the tide of investments into funds that do not truly serve the purpose of accumulating long-term savings. She remarked, “It seems there was a realization akin to ‘Houston, we have a problem,’ leading to a proactive approach to address the issue head-on, given the pension fund presented an evident solution for these assets.”

While it appears that existing family-established pension funds, which have already been contributed to, will not be impacted by the new regulation, a definitive guideline from the Superintendency of Private Insurance (SUSEP) is still awaited. Current estimates suggest that approximately R$60 billion is held within these specialized structures.

Resolution 464, as detailed in Brazil’s Official Federal Gazette, sets forth specific criteria concerning the allocation of assets within pension plans and related investment funds. Specifically, it stipulates that when the calculated reserves for future benefits (PMBaC) for an insured individual exceed R$5 million in a single plan or in a specially created investment fund (FIE) linked to that plan, the assets cannot be exclusively or predominantly allocated to that individual and/or their immediate family members. Immediate family is defined to include a spouse, domestic partner, or relatives by blood or marriage up to the second degree of kinship.

A plan or FIE is deemed primarily dedicated to a single policyholder or a select group of policyholders if the reserves designated for an individual or the group—either individually or collectively—surpass “more than 75% of the total PMBaC of the plan or allocated to the FIE, respectively.”

In essence, the regulation prohibits the formation of new exclusive investment vehicles where individual balances exceed R$5 million. According to Ms. Mendeleh, “The core objective here is to prevent unchecked expansion through the shifting of mandates, ensuring that the pension fund remains true to its intended purpose as a means for accumulating long-term savings.”

The recent directive from the National Council of Private Insurance (CNPS) concerning exclusive pension funds caught industry stakeholders off guard, as acknowledged by Carlos André, President of ANBIMA, the body representing capital and investment markets. During a media luncheon, Mr. André remarked, “From a business standpoint, this decision eliminates certain opportunities. However, it’s premature to ascertain its full impact.”

Similarly, the National Federation of Private Pension and Life (FENAPREVI), which advocates for the personal insurance and open private pension sectors, was taken by surprise. Edson Franco, president of FENAPREVI, noted that while the published text is still under review and awaits further regulatory details, he emphasized that “leveraging exclusive closed-end funds for capital raising has never been a tactical focus for the industry.”

Mr. Franco highlighted the sector’s decade-long growth model that has propelled its assets to R$1.4 trillion by 2023, amounting to 13% of Brazil’s GDP. This growth has been driven by the attraction of long-term investments, distinct from general investment strategies. He acknowledged that while some market participants might have considered exploiting this avenue, pursuing fiscal advantages has not aligned with the sector’s growth strategy. Mr. Franco stated, “Our focus remains on identifying alternative pension savings solutions to the public system.” He also compared pension assets’ share of GDP in Brazil to other nations, pointing out that at 25%—including the R$1.3 trillion in closed-end funds—Brazil’s ratio is significantly lower than in countries like the U.S., where it exceeds 100%, and Chile, at around 60%.

For Carlos André of ANBIMA, who also serves as the executive vice president of Santander’s wealth management division, the constraints placed on exclusive pension funds represent another phase in the ongoing transformation of the financial market. This shift is in response to several challenges, including the phasing out of tax deferrals on exclusive and restricted closed-end funds, the implementation of taxes on offshore entities, and restrictions on the issuance of tax-exempt securities.

Exclusive pension funds were anticipated to become an essential avenue for reallocating assets from closed-end funds, in addition to managed portfolios and various other investment vehicles. Mr. André points out, “Open pension funds are equipped to accommodate such transitions, but exclusive closed-end pension funds present an appealing option as well. The industry is actively exploring a range of solutions tailored to these specific client needs.”

Two months into the enactment of policies targeting affluent families, Mr. André observes a nuanced investor response. The decision-making process, he notes, isn’t solely influenced by tax considerations. Despite the opportunity at the end of the previous year for investors to recalibrate their gains in local closed-end funds to benefit from a preferential 8% tax rate, the anticipated shift in asset allocation has been gradual. With tax payments stretched out until March, the market has yet to witness significant movements.

Evandro Bertho, co-founder of Nau Capital, characterizes the recent regulatory actions as a concerted effort to target the affluent investor segment. “There’s definitely a tightening of regulations. All these measures target the affluent investor,” he remarks, suggesting that “the capital flow towards exclusive investment vehicles prompted a similar response from regulators as seen with other recent changes.”

Mr. Bertho views the government’s strategy as an attempt to preserve the essence of pension funds as vehicles for long-term savings. He explains, “Historically, exclusive [pension] funds were seldom utilized, as the advantages they offered were marginal compared to those of closed-end funds.”

Furthermore, Mr. Bertho highlights the continuity of succession planning benefits across both traditional and exclusive pension plans. He notes, “Instead of altering the tax regulations of pension funds—which would adversely affect the smaller investor—the decision was made to restrict exclusive plans exceeding R$5 million. This ensures they remain within the broader category of pension savings plans.”

Mr. Bertho acknowledges the potential for the newly introduced rule to apply retrospectively to investment vehicles established prior to the enactment of Resolution 464. In a preliminary reading, the orientation for investors to consider reallocating a portion of their investments to non-exclusive pension funds. “The main drawback is the inability to directly purchase assets and leverage specific [tax] advantages. The shift necessitates moving from direct bond investments to DI funds managed by third parties, and investing in companies like Petrobras and Vale through equity funds. While this adjustment may diminish the tailored experience of exclusive funds, the overarching pension strategy continues to provide valuable benefits,” he explains.

Ms. Mendeleh, of Principal Claritas, concurs, pointing out that transitioning from exclusive to pooled (or condominium) funds does not pose significant challenges for shareholders. In pooled funds, investors can benefit from a 10% tax rate [after a decade, under the regressive tax table], a more favorable rate compared to the 15% tax on multimarket funds after 720 days and the same rate on equity fund redemptions, albeit without the semi-annual “come-cotas” tax. The trade-off, however, is the loss of investment strategies tailored to individual family needs. “Achieving this level of personalization is more complex within a pooled fund context,” she notes.

Natalia Destro, the head of wealth planning at Julius Baer Family Office, emphasizes the impact of the CNPS resolution on family-oriented pension funds. The regulation necessitates a strategic pivot for those who previously aimed to capitalize on such funds. “While families can still invest in open-ended [pension] funds, they must now defer to the fund manager’s judgment, losing the ability to personally adjust their investment allocations or profiles. Should the need arise to modify their investment strategy, they would need to transfer to a different fund,” she states.

Gustavo Biava, co-founder and investment director at ID Gestora, overseeing R$5 billion in assets, concurs with the sentiment that the government is tightening the reins on these investors, “who are unfamiliar with the constraints of come-cotas and are actively seeking out new options.” Mr. Biava points out that, besides managed portfolios of tax-exempt securities such as incentivized debentures, CRIs, and CRAs, which have seen a significant influx of capital in recent months, these investors are increasingly considering structured products. These products offer unique tax benefits and include real estate funds, investment funds in credit rights, Fiagros focused on the agribusiness sector, and infrastructure funds, all of which present distinctive income tax treatment advantages.

*Por Adriana Cotias, Liane Thedim — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil receives Blinken, Lavrov for G20 amid heightened security

Foreign ministers’ meeting marks start of ministerial conferences under Brazilian presidency

19/02/2024

The Brazilian presidency of the G20 begins this week with ministerial meetings, the most important moment before the heads of state’s summit scheduled for November. On Wednesday and Thursday, Rio de Janeiro’s Marina da Glória will host the foreign ministers of the world’s largest economies. Next week, São Paulo will host a meeting of G20 finance ministers and central bank governors.

As Valor reported in January, the main topics on the foreign ministers’ agenda will be international conflicts, such as the wars in Ukraine and Gaza, and the reform of global governance, which is one of the three priorities of Brazil’s G20 presidency. The other two axes throughout the year are the fights against hunger, inequality, and climate change.

President Lula, who was in Africa last week, delivered a message on the two key aspects of this week’s meeting in Rio. “There must be a new geopolitics at the UN. The veto power of countries must be abolished, and the members of the Security Council must be pacifist actors, not war-mongering actors,” he said.

U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov have confirmed their presence in Rio. Relations between the United States and Russia, which have been strained by the war in Ukraine, which turns two years on Saturday, were further inflamed last week by the death of Vladimir Putin’s main opponent, Alexei Navalny, in an Arctic Circle jail. U.S. President Joe Biden said there was “no doubt” about Mr. Putin’s responsibility in the episode.

In Rio, Mr. Lavrov will hold a meeting with Brazilian Foreign Minister Mauro Vieira. Along with the representatives of France, Spain, Indonesia, and Mexico, the Russian is considered one of the “most likely” on the Brazilian minister’s list of bilateral appointments, according to Itamaraty sources.

Mr. Blinken, meanwhile, will visit Mr. Lula in Brasília before landing in Rio, where, according to the U.S. government, he will discuss the partnership “for workers’ rights, cooperation in the transition to clean energy, and the celebration of the bicentennial of diplomatic relations between Brazil and the United States.”

Only four countries will not send their top diplomat. China—second only to the U.S. in terms of GDP—will not send Wang Yi, who was in Brazil a few weeks ago on a schedule with Foreign Minister Mauro Vieira. India’s Foreign minister, in turn, will participate in the Raisina Dialogue—a local conference on geopolitics. Italy and Australia, countries where domestic politics have taken over the ministers’ agenda, are not sending a foreign minister or equivalent.

The logistics of the two-day meeting in Rio is complex. A hotel in Copacabana will be closed to accommodate 11 of the approximately 40 delegations. In addition to the official members of the group, countries, and international organizations have been invited, such as the members of Mercosur and the UN’s Unesco and FAO.

At Marina da Glória, where the ministers will meet, eight bilateral conference rooms have been set up, as well as a chamber for diplomatic delegates to follow the video talks, and a press area for up to 400 media professionals. Part of the material used in the construction will be donated to Rio’s public schools after the event. The bilateral meetings will also take place downtown at the Itamaraty Palace, which was the headquarters of the Foreign Affairs Ministry between 1899 and 1970 until it was transferred to the new capital Brasília.

Another important meeting on Thursday will be the Ibas (India-Brazil-South Africa Dialogue Forum). These countries are part of the BRICS and will take turns chairing the G20: the Indians last year, the Brazilians this year, and the South Africans after Brazil.

As is customary at G20 ministerial meetings, there will be no document issued in Rio with the guidelines resulting from the talks. The tendency is for Mauro Vieira to make a statement at the end. Against the backdrop of global turbulence, especially with Russia, there will also be no official photo of the foreign ministers at the end of the meetings.

The mayor of Rio, Eduardo Paes, and Mauro Vieira will host a dinner for the foreign ministers at the Palácio da Cidade, the city hall, on Wednesday. In terms of security, in addition to the Federal Police, there will be 200 Federal Highway Police escorts and a special Military Police program “that will extend to the neighborhoods of Copacabana, Botafogo, and Glória, as well as the main access routes to the venue,” according to the state government.

*Por Caio Sartori — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Lula compares Gaza operation to Holocaust, sparks crisis with Israel

Netanyahu calls president’s remarks “shameful and serious” and announces recall of Brazilian ambassador

02/19/2024

Peesident Lula — Foto: Marcelo Camargo/Agência Brasil

President Lula — Foto: Marcelo Camargo/Agência Brasil

President Lula sparked a diplomatic crisis with Israel on Sunday by comparing Israel’s actions in Gaza to those of Adolf Hitler against the Jews and calling the attacks on Palestinians genocide. In response, Israeli Prime Minister Binyamin Netanyahu called Mr. Lula’s words “shameful and serious” and said he would recall Brazil’s ambassador to the country for a reprimand scheduled for this Monday.

“I wonder what the size of these people’s political conscience is, and what the size of their hearts of solidarity is, that they can’t see that what is happening in Gaza is not a war, but a genocide,” Mr. Lula said at a press conference in Addis Ababa, Ethiopia, where he was attending the African Union summit. “What is happening in Gaza and to the Palestinian people does not exist at any other time in history. In fact, it existed: when Hitler decided to kill the Jews.”

The president had already raised the tone of his criticism of Israel since he managed to negotiate the rescue of Brazilians prevented from leaving Gaza. Palestinian officials estimate that nearly 29,000 people were killed in Gaza by Israel in response to Hamas attacks on October 7.

Mr. Netanyahu immediately pushed back the remarks, saying that comparing Israel to Nazi Holocaust and to Hitler “cross a red line,” he wrote on his X account “Israel is fighting for its defense and to guarantee its future.”

Mr. Lula’s remarks were also criticized by Israeli President Isaac Herzog and Chancellor Israel Katz. “Accusing Israel of committing a holocaust is outrageous and abhorrent,” said Defense Minister Yoav Gallant.

Mr. Katz said afterwards that “President Lula is persona non grata in Israel until he takes it back.”

Mr. Gallant also accused Brazil’s president of defending Hamas. According to the Al Jazeera network, the terrorist group said it “appreciated” Mr. Lula’s remarks comparing the Gaza conflict to the Holocaust, calling the comments an “accurate description” of what the Palestinians face.

In light of the announcement that Brazil’s ambassador to Israel, Frederico Meyer, has been summoned, the internal orientation in the Foreign Affairs Ministry is to wait and avoid aggravating the crisis. The idea is to listen to the diplomat’s report on the meeting with Mr. Netanyahu, scheduled for this Monday, and to assess the next steps.

For Oliver Stuenkel, professor of international relations at the Getulio Vargas Foundation (FGV), Mr. Lula’s comparison goes beyond criticizing Mr. Netanyahu’s government and should negatively affect his image in the eyes of the West.

Mr. Lula’s comments are attracting attention abroad, Mr. Stuenkel said, because the comparison with the Holocaust “goes far beyond” criticizing Israel, accusing it of violating international law and even accusing it of committing genocide.

“After all, the Holocaust, unprecedented in human history, is very different from other genocides because Germany developed an industrial scale strategy to exterminate 6 million Jews.”

In the West, the comment will be seen by many as “inflammatory and anti-Semitic” and will negatively affect the Brazilian president’s image, Mr. Stuenkel said.

“In the Global South, however, where criticism of Israel is more common in the context of the Gaza war, the comparison may be seen as an exaggeration, but it probably shouldn’t be viewed with the same concern as in the West,” he added.

Regarding the summoning of the Brazilian ambassador to Israel for talks, Mr. Stuenkel said that this is a gesture used in diplomacy to express annoyance, but added that others could be more serious, such as recalling the Israeli ambassador to Brasília for consultations.

On the domestic front, the opposition and the Brazil-Israel parliamentary front also reacted to Mr. Lula’s remarks. The leader of the Progressive Party (PP) in the Senate, Ciro Nogueira, former chief of staff in the Bolsonaro administration, called Mr. Lula’s statements a disgrace.

“President Lula, comparing the Holocaust to Israel’s military response to the terrorist attacks it has suffered is shameful,” Mr. Nogueira posted on social media. “The Holocaust is incomparable and can never be trivialized. On behalf of Brazilians, we apologize to the world and all Jews,” he added.

An official statement from the Brazil-Israel Parliamentary Group condemned the president’s remarks as “biased and dishonest.” “Inconsistent statements like these and others in recent days show historical ignorance and a lack of balance in the presidency of our country,” the group said.

The president of the Workers’ Party, Congresswoman Gleisi Hoffmann, said that Mr. Lula’s statement was “directed at the extreme right-wing government of Israel, and not at the Jews or the Israeli people,” denouncing Mr. Netanyahu’s reaction as “manipulation.”

*Por Vinicius Assis, Andrea Jubé, Daniela Braun, Anaïs Fernandes — Addis Ababa, Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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