Recent legislation has introduced substantial modifications to Brazil’s tax system with an emphasis on infrastructure investment and corporate taxation. Key among these is the enactment of Law 14,801/2024, which institutes a new category of infrastructure debentures, providing tax advantages to issuers on the basis of additional interest deductions. This law paves the way for two distinct funding approaches for infrastructure projects: the new legislation which benefits the issuers and a pre-existing law that provides tax exemptions to the debenture holders. Additionally, these debentures offer flexibility through provisions such as exchange rate variation clauses.
Furthermore, refinement in the tax treatment of infrastructure-related investment funds, through the same law, aims to facilitate investments by extending operational timelines and allowing expansions without the need for new Special Purpose Entities. Adjustments have also been made to previous investment structures, enhancing the terms under which costs can be recovered. Concurrent legislative developments include shifts in the subsidies for investments and the calculation of Interest on Net Equity, with the potential for an accelerated depreciation bill to encourage new machinery purchases within the fiscal year. These changes come in anticipation of a broader tax reform that will impact both personal and corporate taxation, potentially adjusting the tax burden on dividends among other changes.
Changes to the Legislation on Infrastructure Investment Funds (FIP-IE):
Law N. 14,801/2024 also amends Law No. 11,478/08, which regulates Infrastructure Equity Investment Funds (FIP-IE). Changes include:
- Including other areas considered to be a priority by the Federal Executive Branch that can be the object of investment;
- Extending the maximum period for FIP-IEs to start their activities and meet the minimum level of investment in infrastructure; and
- Providing that existing projects can be “expanded” without segregating them into a new Special Purpose Entity.
Changes to the “Old Infrastructure Debentures” (Governed by Law 12,431/11)
Currently, Law N. 12,431/11 allows for the reimbursement of expenses, costs or debts that have occurred within 24 months of the closing of the public offering. The new legislation extends this period to up to 60 months, provided certain conditions are met.
2) Law N. 14,789/2023: New Rules for Investment Subsidies and Interest on Equity (JCP)
Subsidies for Investments
Law 14.789/2023 significantly changed the effects of ICMS tax incentives on corporate income taxes (IRPJ and CSLL). In the new model, the effect on IRPJ/CSLL is replaced by a “tax credit,” to be calculated using a specific methodology, which can be used to offset federal taxes (or reimbursement in cash).
Interest on Net Equity (JCP)
There are a number of changes that affect the calculation of the maximum amount of JCP that can be distributed and considered deductible.
3) Bill of Law: Accelerated Depreciation for New Machinery, Equipment, Apparatus and Instruments Acquired Between January 1, 2024, and December 31, 2024
The federal government has presented a bill providing for the possibility of “accelerated depreciation” for tax purposes of up to two years for machinery.
The effect of accelerated depreciation occurs directly in the calculation of taxes, without affecting depreciation for accounting purposes, which continues to follow the useful life of the asset.
4) Impacts on Public Service Concessions and Public-Private Partnerships (PPP) of the Tax Reform of Taxes on Consumption (Constitutional Amendment 132)
Change in Tax Burden and Economic and Financial Balancing of Contracts
The Consumption Tax Reform approved last year significantly changed the relative composition of prices. Although the transition begins in 2026, the main issues will be regulated (by means of complementary law) in 2024 and will thus make possible to identify and measure the main impacts for current and future projects.
For concession and PPP projects currently being structured, it is recommendable that contracts include the procedure for reviewing the tax assumptions of the project, including a period to identify the main impacts, the scenarios in which “injunctive” measures of rebalancing may be implemented, and the formalization by means of a contractual amendment, so as to minimize impacts and ensure the stability of the projects until the new tax regime is duly established.
In the same sense, for ongoing concession and PPP projects, the impacts of the tax reform will have to be assessed once the regulations are enacted, in light of both art. 9, paragraph 3, of Law No. 8,987/1995, pursuant to which the creation, change or extinction of any taxes or legal charges after the bid proposal (except for income taxes) trigger a contractual revision whenever there is proven impact, and the risk allocation section of the contract.