The Brazilian CRI Has Now The Same Tax Treatment Granted To Debentures

The Brazilian Certificates of Real Estate Receivables (Certificados de Recebíveis Imobiliários – CRI) are securities backed by real estate receivables, which are very similar to mortgage pass-through securities issued in the United States. Only Brazilian real estate securitization companies are permitted to issue CRI, which were created in order to allow these companies to raise funds from investors on terms compatible with underlying real estate transactions. They are negotiable, fixed income securities originated through receivables securitization contracts, which identify the real estate receivables backing them.

Debentures are debt instruments issued by a corporation (sociedade por ações) that will confer upon its holders (debenture holders) credit rights against the issuer, under the conditions specified in the respective indenture (deed of issue) and certificates, if any.

Law No. 12431, of June 24, 2011 (Law 12431/2011) provides several tax benefits to the debentures intended to attract infrastructure investments to the country and to foster the development of the secondary market of bonds securities in Brazil. Law 12431/2011 has been recently amended by Law No. 12715, of September 17, 2012 (Law 12715/2012), which extended such tax benefits to the CRI. The rules applied for both types of securities (debentures and CDI) are basically the same.

By force of Law 12431/2011, the applicable rate of the Brazilian withholding income tax (Imposto de Renda na Fonte (IRF)) due on income generated by bonds and securities of public distribution, issued by legal entities that are not classified as financial institutions and that are regulated by the Brazilian Securities Exchange Commission (Comissão de Valores Mobiliários – CVM) or the Brazilian Monetary Council (Conselho Monetário Nacional – CMN), has been reduced to zero. To obtain this tax benefit, these bonds and securities will have to be acquired between January 1, 2011 and December 31, 2015 and the income must be paid to a beneficiary resident or domiciled abroad. This benefit is not applicable, however, if the foreign investor is domiciled in a favored tax country or dependency.1

Law 12715/2012 consolidates the rules that are applied to the debentures and the CRI. In order to benefit from the IRF zero rate the CRI must pay a fixed interest rate based on an index-linked price or reference rate (Taxa Referencial – TR) and the total or partial post fixed interest rate is expressly prohibited...