Bocater Advogados represents BTG Pactual iabout the Maxi Renda Real Estate Fund
The law firm Bocater Camargo Costa e Silva Rodrigues Advogados, headed by partners Maria Isabel Bocater (pictured left) and Luciana Aguiar (pictured right) represented the Maxi Renda Real Estate Fund (managed by XP and administered by BTG Pactual) in an important decision obtained at the Securities and Exchange Commission of Brazil (CVM).
The autarchy, by unanimity, revised its position and decided, on May 17, that it is possible to distribute income even if it is higher than the accounting profit. At the end of last year, the CVM had decided differently, making the market apprehensive with the possibility of a change in understanding, which in the end did not occur.
Law 8,668, which created real estate funds (FIIs) in 1993, requires the distribution to shareholders of a minimum of 95% of the results that have a cash counterpart (financial result) earned by the fund. A CVM circular of 2014 was supposed to clarify that accounting profit is only a starting point for the calculation of what became known as “cash profit”.
The discussion in the Maxi Renda case was about whether the fund should continue to pay income despite the accounting recognition of the reduction in fair value of its assets. For the CVM’s technical area, since 2014, Maxi Renda had distributed income to its shareholders “in amounts substantially higher” than the profits of the exercises or accumulated. In this understanding, distributions would not result from income or profits earned by the fund, but rather from the distribution of capital invested by the investors themselves.
Represented by Bocater, BTG appealed the decision, and, at the end of last year, the CVM understood that any amount distributed above the accumulated accounting profit should be presented as amortization of shares or return of capital, and not as distribution of income. If this understanding were to prosper, the fund industry would face very relevant operational challenges, in addition to the possibility of facing tax discussions. This is because for individuals, the largest audience for real estate funds, income distribution is exempt from income tax, while amortization would be taxed. Therefore, the issue could provoke substantial changes in FIIs and affect millions of investors in Brazil.
The new decision, however, reversed the previous understanding and granted BTG’s request. With this, the regularity of the accounting treatment given to the distribution of surplus cash profit in losses or retained earnings, and not as amortization of paid-in shares, is now recognized.
The decision also brought guidelines about the informational aspects of the distribution of proceeds, a theme that is still to be the target of a public hearing.
