Agribusiness Newsletter | January 2024

The Agribusiness Newsletter brings information and news about the main discussions and legislation related to the agribusiness sector in Brazil. The newsletter covers the agribusiness industry in transactional, litigation, tax and regulatory aspects, and we invite all of those working in this market to access the most important news and related commentary on key topics from the sector.

Enjoy reading!

Demarest’s Agribusiness Team

This material is for informative purposes only, and should not be used for decision-making. Specific legal advice can be provided by our legal team.

NEWS

Court decision recognizes that CPR is a priority claim within the context of court-supervised reorganization

A recent decision by the Court of Justice of the State of Goiás (“TJ-GO”) recognized that a Rural Product Bond (“CPR”) used in a Barter Transaction is a priority claim within the context of a court-supervised reorganization proceeding involving the rural producer who issued the bond in question.

The CPR is a credit bond that represents the promise of future delivery of rural products, and may alternatively provide for financial settlement through payment in cash. The Barter Transaction commonly uses the physically-settled CPR to formalize transactions with rural products, and is generally considered to be a transaction consisting of the exchange of inputs for production.

In a traditional Barter Transaction structure, the rural producer issues a CPR in favor of a certain trading company and assigns the credit owed by the trading company to the distributor. In turn, the distributor delivers inputs to the rural producer to finance his agricultural activity, upon payment by the trading company of the amount corresponding to the inputs. The trading company then receives the rural producer’s production established via CPR for trading with third parties. These producer-trading-distributor transactions result, as a whole, in a structured financing transaction which positively impacts the performance of the various participants in the agro-industrial chain involved in the Barter Transaction.

In the TJ-GO court case mentioned above, a certain soybean producer issued a CPR with a real guarantee constituted by a pledge, in the amount of BRL 7 million, referring to 47,520 60kg bags of soybeans, in favor of a trading company, within the context of a Barter Transaction. However, the producer filed for court-supervised reorganization and tried to include the CPR in the list of credits to be renegotiated, claiming that it was a common debt.

The trading company, in turn, appealed against the court decision, which ruled that the CPR should be included within the scope of the court-supervised reorganization. However, the TJ-GO held that the CPR was a special bond that was not subject to the effects of a court-supervised reorganization, as provided for in Law No. 8,929/94 (“Law 8,929”), which established the CPR, and Law No. 14,112/2020 (“Law 14,112”), which amended the legislation on court-supervised reorganization, extrajudicial reorganization and bankruptcy of business owners and companies. These laws establish that the credits and bond guarantees linked to the CPR representing a Barter Transaction are excluded from the scope of court-supervised reorganization, in order to protect the interests of the creditors involved in the transaction.

By recognizing that the CPR is a priority claim, the TJ-GO decision strengthens the legal certainty of structured financing transactions in the agribusiness sector. In addition, the decision also mirrors the application in a practical case of Law No. 14,112, considered a legal milestone in the agribusiness sector.

For more information, see the Money Times article.

STJ decides that failure to register a fiduciary sale does not invalidate the contract between the contracting parties

The Supreme Court of Justice (“STJ”) has decided that failure to register a contract for the purchase and sale of real estate, with secured fiduciary sale, has no impact on its effectiveness between contracting parties, only against third parties.

When ruling on an appeal against a divergent decision, the Second Section of the STJ decided that, although under the terms of article 23 of Law No. 9514, of November 20, 1997 (“Law 9514”), registering the contract with the competent real estate registry office is a condition for establishing a fiduciary sale of property, the lack of registration does not invalidate or remove the effectiveness of the terms agreed by the contracting parties, including the clause for extrajudicial sale of the property in the event of default.

The court case under discussion involved the termination, requested by the buyers, of a property purchase contract, due to default, and the reimbursement of the amount paid was requested. The São Paulo State Court of Justice and the Third Panel of the STJ upheld the request, with partial reimbursement of the installments paid. Seeking to modify the decision, the creditor filed an appeal against the divergent decision, arguing that the Fourth Panel of the STJ had ruled that registration was unnecessary in similar cases, given that the purpose of registration was merely to inform third parties.

Justice Ricardo Villas Bôas Cueva, who cast the winning vote, held that the lack of registration does not remove the validity and effectiveness of the contract. However, registration of the contract is essential in order to proceed with the extrajudicial sale of the property, under the terms of article 26 of Law No. 9,514. Nevertheless, such case does not grant the debtor the right to terminate the obligation using any means other than those contractually established, such that the fiduciary creditor can always request registration with the competent registry office before the extrajudicial sale is initiated.

For more information, see the STJ’s article in full.

Agricultural tokenization can include up to 77% of Brazilian producers

Brazilian family-run agriculture is far from being represented on the capital markets, which affects retail investors in these commodities.

This gap could be changed through tokenization, which is the use of blockchain technology in various trading segments.

Tokenization offers an alternative to rural producers, aimed at financing their activities through fractional contributions by investors, given that the token costs BRL 25 and receipt of the amount includes the settlement of the crypto assets, plus receipt of a percentage of income and exemption from income tax.

Bank credit bills (“CCBs”) are one of the possibilities for agricultural tokenization, which includes small investors. In addition, there are production-backed tokens, that is, Rural Product Bonds (“CPRs”) tokens and Certificates of Agribusiness Receivables (“CRAs”) tokens.

See more in the Exame article on this topic.

Fiagro raises BRL 408 million in November

In November 2023, public offerings of Investment Funds in Agroindustrial Productive Chains (“Fiagro”) reached BRL 408.2 million, exceeding the BRL 206.8 million raised in October.

By November 2023, issuances had totaled almost BRL 7.9 billion, exceeding the BRL 7.3 billion issued in 2022. Four real estate Fiagros (“Fiagro-FIIs”) accounted for 84.7% of the offerings, and there was a distribution between intermediaries (52.1%), individuals (40%), investment funds (6.4%) and institutional investors (1.5%).

As for net funding, November recorded BRL 116.1 million, less than the BRL 269.4 million recorded in October 2023. Fiagros in credit rights (“Fiagro-FIDCs”) accounted for 57.8% of this balance, totaling BRL 67.1 million, while Fiagro-FIIs raised BRL 49 million (42.2%). Net assets of Fiagros increased from BRL 17.2 billion in October to BRL 18.2 billion in November 2023.

For more information, see the Globo Rural article.

REGULATION

TAX REGULATION

New regulations for FII, Fiagro, FIP and assets held by individuals abroad

In December 2023, Law No. 14754/23 was published, establishing a new set of tax regulations for investment funds.

Among the main measures for the sector, we highlight the new conditions for maintaining the income tax (“IR”) exemption on the proceeds distributed by Real Estate Investment Funds (“FIIs”) or Fiagro, as shown in the tables below:

In addition, there is a provision for periodic taxation (“come-cotas“) on income produced by Private Equity Investment Funds (“FIPs”), Share Investment Funds (“FIAs”), Variable Income Exchange Traded Funds (“ETF-RVs”) and Credit Rights Investment Fund (“FIDCs”) that do not qualify as investment entities (funds with a professional structure, represented by agents or service providers, with powers to make investment and divestment decisions on a discretionary basis). FIPs that are essentially equity funds are therefore subject to the quota increase, but these provisions do not apply to FIIs and Fiagros.

Another topic addressed by Law No. 14,754/23 concerns foreign assets held by resident individuals. The legislation introduces a new system for calculating and taxing the Income Tax (“IRPF”) on profits of qualified controlled entities, income and capital gains from financial investments, as well as introducing trust concepts. Taxation will be annual and at a single rate of 15%, including all amounts earned in the corresponding calendar year, including foreign exchange gains.

The profits of a qualified controlled entity abroad will be taxed, regardless of the actual distribution of the amounts, and deductions will be allowed, such as losses of the controlled entity itself and income tax paid abroad. The legislation defines controlled entities as those in which the individual:

• holds rights (direct/indirect/isolated or jointly with other parties, including by voting agreements) that ensure a prevailing position in company resolutions or the power to elect or dismiss the majority of its administrators; or
• has more than a 50% stake (direct/indirect/isolated or jointly with related parties) in the capital stock or in the rights to receive its profits or assets.

Qualified controlled entities are considered to be:

• entities in countries with favored taxation or that have a privileged tax regime; or
• those with passive income of more than 60% of total income, subject to the exceptions provided for in the legislation.

Individuals holding assets abroad, including in “qualified” subsidiaries or via trusts, who will be able to update the declared cost value of the assets held on December 31, 2023 to their market value, taxing the difference. The IRPF will be 8% on the gain equivalent to the positive difference between the market value and the cost reported on December 31, 2023. The option can be exercised separately by asset and the tax must be paid by May 31, 2024, after the Income Tax Return (“DIRPF”) has been submitted.

For more information, see Law No. 14,754 in full.

Law repeals the exclusion of subsidized revenue from the calculation basis of federal taxes and creates a tax credit

Law No. 14,789/23 was published, substantially changing the tax treatment of subsidized revenue.

The new legislation repeals the regulations that exclude revenue from tax incentives from IRPJ/CSLL/PIS/Cofins calculation bases. In place of this, it provides an IRPJ tax credit as a result of a subsidy that can be recovered with other taxes governed by the Brazilian Federal Revenue Office (“RFB”) and is not subject to taxation.

The legal entity must first submit a request to the RFB to use the tax credit, by proving that it is the beneficiary of a grant intended for the implementation or expansion of an economic enterprise, with conditions and compensation measures to be met by the beneficiary.

The tax credit is limited to the rate of 25% of the Corporate Income Tax (“IRPJ”) main and additional rates. It must be calculated on revenue already taxed by the IRPJ and the Social Contribution on Net Income (“CSLL”) and which are related to fixed assets acquired for the implementation or expansion of the economic enterprise (for example, relating to depreciation, amortization or depletion of assets).  Leasing can also be part of the calculation. The law also establishes other quantitative criteria.

The amount of credit calculated in the Tax Accounting Bookkeeping (“ECF”), relating to the period in which the subsidized revenue was recognized, can be used to offset other taxes or be reimbursed in cash. In practice, the taxpayer will only take advantage of the credit in the year following the recognition of the subsidized revenue, since the adjustment will be on an annual basis and the amount of the credit will be calculated on the ECF.

Law No. 14,789/23 established a transitional regime in which the amount already recorded in a tax incentive reserve, in accordance with Art. 30 of Law No. 12,973/14, will remain reserved and can only be used to absorb losses (provided that other reserves are exhausted) or increase share capital.

The reserved amounts will be taxed if they are used for other purposes, including:

• capitalization and subsequent capital reduction;
• capital reduction during the five years prior to the date of the grant with subsequent capitalization; and
• inclusion in the basis for calculating mandatory dividends.

In addition, the Law provides regularization measures for taxpayers who were not in compliance with the requirements of Article 30 of Law No. 12,973/14, providing for transactions to settle debts that have already been recorded, as well as self-regularization for debts that have not been recorded. Payment can be made in installments and with reductions of up to 80%.

The new regulations do not affect the enjoyment of IRPJ, CSLL, Social Security (“PIS/Cofins”) taxes incentives granted by specific law, including benefits granted to the Manaus Free Trade Zone or Sudam/Sudene.

The Law does not make any distinction regarding the treatment of different tax incentives, such that subsidized revenue from presumed ICMS credits will also be taxed. However, it is worth noting that the consolidated case law at the moment rules out the taxation of revenue from presumed credit for IRPJ and CSLL purposes (EREsp No. 1.517.492/PR and Subject 1.182/STJ), and is pending definition for PIS and Cofins purposes (Subject 843/STF). Favorable precedents point out that such taxation would violate the federal pact and reciprocal immunity between entities, and these arguments are still applicable to the new legislation. Interested taxpayers will be able to analyze the feasibility of discussing the matter in court.

The Law also introduced new restrictions on the calculation of Interest on Equity (“JCP”), with the exclusion of the tax incentive reserve from the basis for calculating interest, as well as positive variations in equity, resulting from corporate acts between dependent parties, which do not involve the inclusion of assets with a definitive increase in equity.

For more information, see Law No. 14,789 in full.

New transfer pricing rules enter into force

Taxpayers are advised to pay attention to the new transfer pricing (“TP”) rules introduced by Law No. 14,596/23, which entered into force on a mandatory basis in January 2024.

The new legislation adopts the arm’s length principle through comparability tests with similar transactions carried out by independent parties. Predetermined methods with fixed margins are repealed, and taxpayers must use the method most in line with the arm’s length principle, and no longer the method that favors them the most. When there is reliable information on independent prices, the Compared Independent Prices (“PIC”) method will be considered the most appropriate.

The new TP rules apply to transactions with related parties resident or domiciled in a country that does not tax income (or taxes it at a maximum rate of less than 17%), or that benefits from a privileged tax regime. However, the definition of “related party” has been broadened to include all parties whose relationship of influence may have an impact on the prices charged in transactions. The legislation also establishes a list of people who are presumed to be related, as in the case of controlled and controlling entities.

The controlled transaction will be outlined based on an analysis of the facts and circumstances of the transaction, as well as on evidence of the effective conduct of the parties. The new rules also allow the controlled transaction to be disregarded or replaced when it is concluded that unrelated parties have not carried out the controlled transaction as outlined.

The comparability analysis will be carried out with the aim of comparing the terms and conditions of the controlled transaction, as they would be established between unrelated parties. A number of factors must be considered, including the economically relevant characteristics of the transactions, as well as the selection of the most appropriate method and the financial indicator to be examined.

Intangible assets are now subject to transfer pricing control, as are intra-group services, cost-sharing agreements, business restructuring and financial transactions. The limit on the deductibility of royalty payments of up to 5% is repealed, as are other requirements, such as the registration of contracts with the Brazilian National Institute of Industrial Property (“INPI”) or the Central Bank of Brazil (“BACEN”).

New simplification measures have already been implemented by the Federal Revenue Service (RFB Normative Instruction No. 2,161/23), such as the 5% safe harbor for so-called Low Added Value Services (supporting activities with benefits to the paying entity). The normative instruction also establishes a new set of ancillary obligations, in line with the Organisation for Economic Co-operation and Development (OECD) standard:

• Country-by-Country Report (DPP): information on the global allocation of revenues and assets and the income tax paid by the multinational group to which it belongs, along with indicators related to the group’s global economic activity. Applicable when the Brazilian entity is the final controlling company of a multinational group. It will be transmitted annually through an ECF file.
• Global File: information on the structure and activities of the multinational group to which it belongs and the other entities that integrate the multinational group. Applicable to taxpayers subject to TP rules, except when the total value of controlled transactions, before adjustments, is less than BRL 15 million. It will be delivered via the e-CAC portal within three months of the transmission of the ECF (the deadline will be the last working day of 2025 for information relating to 2024).
• Local File: information on controlled transactions and related parties involved in controlled transactions. Applicable to taxpayers subject to TP rules, except when the total value of controlled transactions, before adjustments, is less than BRL 15 million. It will be delivered via the e-CAC portal within three months of the transmission of the ECF (the deadline will be the last working day of 2025 for information relating to 2024).

Transactions involving commodities must be reported in the Local File, including the sources of price information, proof of the dates agreed by the parties to the transaction, pricing criteria (formula and detailed explanation of each of the variables) and other conditions affecting the price (concepts of values for the formation of premiums or discounts).

For more information, see Law No. 14,596 in full.

Consumption tax reform approved

The Proposed Amendment to the Constitution (“PEC”) 45/2019, which discussed the reform of consumption tax, was approved by the National Congress and converted into Constitutional Amendment No. 132/23, enacted on December 20, 2023.

Upon publication of the amendment on December 21, 2023, the changes were introduced into the Brazilian legal system, bringing significant changes to the current tax regime, with the unification of current taxes into a dual VAT, divided into the Contribution on Goods and Services (“CBS”) and the Tax on Goods and Services (“IBS”).

In the new model, the current taxes will be replaced by the federal CBS, the state and municipal IBS and the selective tax (“IS”), which will be levied on the production, extraction, sale and import of goods and services harmful to health or the environment, under the terms of a supplementary law.

States and the Federal District can also create a contribution on primary and semi-finished products produced in their respective territories.

This contribution will replace the contribution tax to state funds established as a condition for the application of a deferral, special method or other differentiated treatment of the ICMS tax provided for in state law on April 30, 2023.

The IBS and CBS will be levied from 2026, while the PIS and Cofins will only be eliminated the following year, in 2027. Taxes on services (ICMS and ISS), on the other hand, will be gradually phased out from 2026 to 2032, effectively ending in 2033. As a result, presumed credits, suspensions, exemptions, deferrals and reductions in the calculation base will be affected.

For ICMS benefits, Complementary Law No. 160/2017 guarantees their continuity until 2032, but their extension is prohibited. The incentives will be reduced according to the 10% annual reduction in ICMS between 2029 and 2032. Agricultural products are an exception to this rule, which will be subject to a reduction of 20% per year as of 2029.

As for the agricultural sector, a 60% reduction in the CBS and IBS rates was approved for:

• agriculture and aquaculture inputs;
• foods intended for human consumption; and
• agricultural, fishing, forestry and fresh plant extract products.

In addition, a 100% reduction in the respective rates for vegetables, fruit and eggs, and a zero rate for the national staple food basket will be introduced.

It is also important for the sector to be aware of the triggering events for selective tax, which could be levied on agricultural products and inputs not subject to the reduced rates, as well as the state contribution, which will replace various current contributions of dubious constitutionality, such as Fundeinfra in the state of Goiás.

The reform also includes changes to other taxes, such as the Motor Vehicle Property Tax (“IPVA”), where taxation will be extended to watercraft and aircraft, with the exception of agricultural aircraft, aircraft owned by operators certified to provide air services to third parties, tractors and agricultural machinery, among others.

For more information, see the EC 132 in full.

Confaz publishes agreement on transfers between establishments under the same ownership

In light of the outcome of the decision on the Action for Declaration of Constitutionality (“ADC”) No. 49, on December 1, 2023, the National Finance Policy Council (“Confaz”) published ICMS Agreement No. 178/2023, which provides for the interstate shipment of goods and merchandise between establishments under the same ownership.

In short, this agreement obliges taxpayers to transfer ICMS credits from previous operations from the establishment of origin to the establishment of destination in the event of interstate transfers between their establishments. The agreement also provided guidelines on the procedures for carrying out transfers, including the amount to be transferred.

Subsequently, ICMS Agreement No. 225/2023 was published to clarify issues involving the ICMS-ST on transfers between establishments under the same ownership.

It is likely that this regulation will be subject to changes, given that on December 29, 2023, Supplementary Law No. 204/2023 was published, which amended Supplementary Law No. 87/1996 in order to prohibit the levying of ICMS in cases of transfer of goods between establishments owned by the same taxpayer, in line with the decision rendered in ADC No. 49.

The supplementary law established the procedures for transferring ICMS credits from previous transactions. In addition, a presidential veto in the final text removed the provision enabling taxpayers to choose whether or not to debit ICMS on transfers.

It is worth noting that several states have already internalized the provisions on the transfer of credits.

An important highlight is the recent Decree No. 48.768/2024, published by the state of Minas Gerais, which links the application of an exemption in an internal transaction (such as that granted to agricultural inputs by ICMS Agreement No. 100/97) to the transfer of goods with the respective transfer of the credit, under the terms of ICMS Agreement No. 178/2023 (article 6 of the Decree that amended the wording of article 152 of the RICMS/MG).

For more information, see Order No. 75; Supplementary Law No. 204; and Decree No. 48,768.

STJ validates use of ICMS credits for intermediate products

The Superior Court of Justice (“STJ”) has confirmed that, after the enactment of Supplementary Law 87/96, it is possible to enjoy credits corresponding to the acquisition of any intermediate products, provided that the enjoyment of such credits is proven to be necessary for the achievement of the company’s corporate purpose.

Upon judgment of Special Appeal EAREsp No. 1775781, recently finalized, the 1st Section of the STJ unanimously validated the use of ICMS credits on the acquisition of intermediary products, including those consumed or gradually worn out in the production process, as long as the need for their use to support the company’s core business is proven.

In her vote, the Reporting Justice Regina Helena Costa, was fully in favor of recording the credit relating to the acquisition of materials used in the production process, including those that have been consumed or worn out, as long as they are proven to be essential for the company’s core business.

CVM REGULATION

CVM Resolution amends securitization regulation

The Brazilian Securities and Exchange Commission (“CVM”) released CVM Resolution No. 194, of November 17, 2023, amending CVM Resolution No. 60, of December 23, 2021, which regulates securitization transactions in Brazil.

In 2022, Law No. 14,430 of August 03, 2022, CVM Resolution No. 160 of July 13, 2022 and CVM Resolution No. 175 of December 23, 2022 were enacted, which led the CVM to review CVM Resolution No. 60 in accordance with the new legal and regulatory precepts. As a result, the process that resulted in CVM Resolution 194 did not involve debates on the merits of the new securitization regulation, but only a closer alignment with the law and other market regulations.

All amendments were implemented without any regulatory impact analyses, as they were intended to regulate rights and obligations defined in a higher-court ruling, as well as representing low-impact changes, simple adjustments or improvements to the wording. The measure was taken based on articles 2, paragraph 2 and 4, items II and III, of Decree 10,411, of June 30, 2020, in combination with articles 10, item I, and 14, items II and III, of CVM Resolution No. 67, of March 10, 2022.

Antonio Berwanger, the CVM’s market development superintendent, expressed his views on the legislation as follows: “Law 14,430 has provided greater legal certainty to the securitization market and allowed the CVM to modernize its regulation, such as in the case of the revolving mechanism, which is now permitted for credit rights from any economic segment.”

CVM Resolution 194 introduced several changes in the regulation of securitization in Brazil, aiming to adapt it to market standards. These changes bring greater clarity and legal certainty to transactions and include the following:

• the extension of the revolving mechanism to all economic sectors, which allows securitization companies to acquire new credit rights with funds obtained from the payment of previous credit rights; and
• the standardization of the definitions for “credit rights” and “fiduciary regime”, in line with the concepts contained in CVM Resolution 175 and Law No. 14,430.

Other changes include:

• clarification on the competence of the special investors’ meeting to decide on payment in kind;
• the possibility of calling a special investors’ meeting via the securitization company’s website, instead of sending a notice to each investor, which reduces costs and bureaucracy;
• transposition of quorum procedures for the organization and resolution of special investors’ meetings systematized in Law No.14,430, which standardizes the rules of governance;
• rules on the control and custody of backing by the securitization company, which establishes the responsibilities and duties of the securitization company regarding the credit rights that make up the portfolio; and
• clarification on the fact that drafting a rating report for assets initially offered to professional investors is not mandatory, which simplifies the process of offering and raising funds.

For more information, see the CVM’s article in full.

Regulation of Fiagro, portability and shareholders’ meetings are part of CVM’s 2024 Regulatory Agenda

On December 07, 2023, the CVM published the 2024 Regulatory Agenda, which highlights the regulatory priorities for 2024.

These include the specific regulation of Fiagro and the regulation for portability of securities. The president of the CVM, João Pedro Nascimento, emphasized the efforts to achieve a more democratic, inclusive and sustainable capital market. Topics such as digital influencers, retail products and qualified investors are among the public consultations planned.

CVM will also remain attentive to legislative demands, including bills in progress. In 2023, the CVM reported significant advances, such as the Regulatory Framework for Investment Funds and Investment Advisors, mainly through CVM Resolution No. 175, of December 23, 2022 and CVM Resolution No. 178, of February 14, 2023, respectively. These matters are priorities among the market’s most recent demands to the CVM for modernizing the regulations that have been in force so far.

For more information, see the CVM’s article in full.

CVM provides instructions on integrating ESG factors into suitability procedures

On December 26, 2023, the CVM published CVM/SIN/SMI Joint Circular Letter 1/2023, announcing the technical areas’ interpretation of the provisions of CVM Resolution 30, of May 11, 2021, which establishes the duty to ensure that products, services and operations are suitable for the client’s profile.

Thus, the Circular Letter advises that, when assessing the profile of investors, regulated agents should consider the variable of environmental, social and governance products (“ESG”), given the rising significance of these products in the market. Intermediaries must also ensure, on a best efforts basis, that recommended securities comply with ESG targets, in order to avoid practices that are harmful to clients, such as greenwashing.

The instructions are part of the CVM’s Sustainable Finance Plan for 2023 and 2024, published on October 06, 2023, with first delivery on October 20, 2023, along with CVM Resolution 193, published on the same date. This Resolution voluntarily establishes the drafting and disclosure of financial information on sustainability based on the international standard (IFRS S1 and S2) published by the International Sustainability Standards Board (ISS), for listed companies, investment funds and securitization companies.

For more information, see CVM article  and    CVM/SIN/SMI Joint Circular Letter 1/2023.

FINANCIAL REGULATION

Bill changes regulations for issuance of Agribusiness Credit Bills

After the end of recess on February 02, 2024, the House of Representatives commenced once again analyzing Bill No. 3992/23, which seeks to expand the possibilities for issuing Agribusiness Credit Bills (“LCA”), proposing to amend provisions of Law No. 11,076/04, which addresses the methods of agricultural financing (“LCA Bill”).

The LCA is a fixed-income security issued on the market by financial institutions to raise funds, considering the respective institution’s role as an agent in financing the agribusiness production chain, including, without limitation, the production, sale or industrialization of products and inputs, as well as equipment for rural production.

The main innovation of the LCA Bill is that it allows the Brazilian National Bank for Economic and Social Development (“BNDES”) to use transactions with producers as LCA backing. Currently, only rural credit cooperatives can carry out these transactions.

If the LCA Bill is approved, rural credit transactions contracted with funds passed on by the BNDES to financial agents can be used as backing for the issuance of LCA. By increasing the backing for the issuance of LCAs, new funding is expected to be raised by financial institutions, which in turn will increase the credit they extend to the agricultural sector.

The LCA Bill is being processed on a conclusive basis, and will only be voted on by the committees appointed to analyze it, with no need for discussion by the Plenary. This status only becomes invalid if there is a divergent decision between the committees or if an appeal signed by 52 representatives is filed seeking consideration of the matter by the Plenary.

For more information, see CVM/PL Circular Letter 3992/2023

ENVIRONMENTAL REGULATION

Federal

BNDES approves new regulation to extend veto on clients with environmental bans

On December 15, 2023, the BNDES approved of a new regulation, which will enter into force on March 10, 2024, and prohibits the granting of rural credit/financing to clients that are banned due to irregular environmental conduct, even on properties not directly associated with the financing.

Rural landowners who have an environmental ban in their name will be prevented from contracting rural credit through the programs and credit lines of BNDES and its partners. If the ban is applied after the contract has been signed, the release of funds to such landowners will be suspended. In addition, according to the new regulation, transactions may fall due early if documents are not presented to prove that measures have been taken to regularize the area with environmental bans.

For more information, see the BNDES statement.

Environmental Licensing

— Federal District

Swine farming – New activities are eligible for Environmental License by Participation and Commitment Agreements

On December 07, 2023, the State Council for the Environment of the Federal District (“CONSEMA”) published CONSEMA Resolution No. 02/2023, which institutes the Environmental License by Participation and Commitment Agreements (“LAC”) for certain projects and activities, in accordance with the provisions of the new regulation, establishing criteria and procedures for its implementation within the scope of the Federal District.

Under the new regulation, swine farming is eligible for an LAC. The criterion for determining the need to obtain a license is the number of animals raised (more than 60 pigs).

For more information, see Resolution No. 02 in full.

— Piauí

CONSEMA extends the deadline for environmental licensing requirement of agroforestry enterprises for granting bank financing

On January 04, 2024, the State Council for the Environment of Piauí (“CONSEMA”) published CONSEMA Resolution 54/2024, which extends, until December 31, 2024, the deadline for requiring environmental licensing for agroforestry projects that are applying for bank financing for costs and investment.

For more information, see DOEPI_3_2024.pdf (diario.pi.gov.br)

Forestry

— Amazonas 

State of Amazonas publishes regulation on environmental compensation regarding vegetation suppression

On December 04, 2023, the Amazonas Environmental Protection Institute (“IPAAM”) published Ordinance No. 126/2023, which establishes criteria for compensation for intervention in or suppression of Permanent Preservation Areas (“APP”), Restricted Use Areas (“AUR”) and Areas where Endangered or Migratory Flora and Fauna Species Exist.

These criteria apply to potentially polluting activities to be implemented, already in operation, or already implemented activities that can be regularized, in cases where there is no alternative location, in cases of public utility and social interest.

For more information, see Ordinance No. 126/2023. 

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— Santa Catarina

Ordinance establishes methods for outlining hilltop APP in Santa Catarina

On December 13, 2023, the Environmental Institute of the State of Santa Catarina (“IMA”) published IMA Ordinance No. 276/2023, which determines the publication of Statement No. 05 regarding the method for outlining hilltop Permanent Preservation Areas (“APP”).

According to the statement, the method to determine the basis for calculating height and slope is that of the nearest saddle point for cases in which the elevation is equal to or greater than 3%.

For more information, see Ordinance No. 276

— Mato Grosso do Sul

Pantanal law is sanctioned to guarantee biome conservation

On December 18, 2023, the State Government of Mato Grosso do Sul published Law No. 6,160/2023, which provides for the conservation, protection, restoration and ecologically sustainable exploitation of the Pantanal Plain Restricted Use Area (AUR-Pantanal), within the scope of the State of Mato Grosso do Sul, and creates the State Fund for the Sustainable Development of the Pantanal Biome.

The law establishes principles and guidelines that must be followed when drafting and implementing public policies on the conservation, protection, restoration and ecologically sustainable exploitation of the AUR-Pantanal. A good example of a public measure adopted in the law is the guarantee of profitable economic exploitation of activities traditionally carried out in the region.

For more information, see Law No. 6,160.

— Espírito Santo

State of Espírito Santo regulates the Environmental Regularization Program

On December 27, 2023, the Espírito Santo State Institute for the Environment and Water Resources published Normative Instruction No. 11/2023, regulating the Environmental Regularization Program (“PRA”).

The regulation aims to establish the procedures for joining and implementing the State’s Environmental Regularization Program (“PRA-ES”), which implements the environmental regularization of rural properties and assets under the terms of the Forest Code. The program is restricted to the regeneration and/or restoration of Permanent Preservation Areas (“APP”), Legal Reserves (“RL”) and Restricted Use Areas (“AUR”) with environmental liabilities identified in the Rural Environmental Registry (“CAR”).

For more information, see Idaf Normative Instruction No. 11

— São Paulo

New criteria for environmental compensation of vegetation suppression by CETESB

On January 03, 2024, the São Paulo State Secretariat for the Environment, Infrastructure and Logistics (“Semil”) published Semil Resolution No. 02/2024, which establishes the criteria and standards for the environmental compensation required as a result of the authorization issued by the São Paulo State Environmental Company (“CETESB”) for the suppression of native vegetation, cutting down isolated trees, or interventions in Permanent Preservation Areas (“APP”), in rural and urban areas in the state of São Paulo.

The new resolution aims to qualify environmental compensation based on a scale of priority for São Paulo’s municipalities. The regulation establishes the areas of least and greatest environmental importance, taking into account the native vegetation cover index of each municipality.

For more information, see the Semil press release.

Water Resources

Federal

Federal government publishes decree on shared use of the Guarani Aquifer between Brazil, Argentina, Uruguay and Paraguay

On January 24, 2024, the Brazilian Federal Government published Decree No. 11.893/2024, which provides for the shared use of the Guarani Aquifer, a groundwater reserve found in the subsoil of four countries – Brazil, Argentina, Uruguay and Paraguay, in accordance with a historic agreement dating back to 2010.

The decree in question enacts the historic agreement on the Guarani Aquifer, which defines the Guarani Aquifer System as a transboundary water resource that forms part of the territorial domain of Argentina, Brazil, Paraguay and Uruguay.

As such, the decree emphasizes that each country involved in the agreement will exercise, in its respective territory, the sovereign right to manage, monitor and ensure the sustainable use of the water resources of the Guarani Aquifer system. In parallel, when the countries propose to carry out studies, activities or works related to the parts of the system that are located in their respective territories, and which may have effects beyond their respective borders, they must act in accordance with the applicable principles and regulations of international law.

For more information, see Decree No. 11,893.

MAPA – MINISTRY OF AGRICULTURE AND LIVESTOCK REGULATION

Classification and reclassification fees for products of plant origin are updated

On January 09, 2024, Ordinance No. 644/2024 was published, which establishes the updated amounts for the classification and reclassification fees of products of plant origin and the fees for seeds and seedlings.

The amounts will be set as follows:

• Fees applied to seeds and seedlings: the National Consumer Price Index (“INPC”) will be applied, along with other variable amounts.
• Fees applied to products of plant origin: the National Broad Consumer Price Index- Special (“IPCA-E”) will be applied, along with other variables.

Fees must be paid through a Federal Collection Form, which must include the Management Unit (“UG”) responsible for controlling the service provided, or through an automated process in an official system.

For more information, see Ordinance No. 644/2024

Public consultations:

Public consultation receives contributions on proposed isolation regulations

On January 23, 2024, a public consultation was launched to receive contributions on a regulatory proposal that establishes the conditions that animal isolation units must meet for export quarantine, as well as the provisions for their operation.

In addition to the regulatory proposal, a proposed Mercosur resolution was also released to be applied in all other countries.

Among the main provisions are the establishment of the minimum conditions that must be met by isolation units, as well as the standards to be met by the veterinary authority of the exporting country on its way to Brazil. If these provisions are not met by the exporting country, Brazil can adopt the appropriate regulatory measures, which will be defined in a separate regulation.

Contributions can be submitted by March 25, 2023.

For more information, see: the public consultation; the regulatory proposal; and the proposed Mercosur resolution.

REAL ESTATE REGULATION

Congress enacts time frame for indigenous lands

The National Congress enacted the supplement to the time frame law for the demarcation of indigenous lands on December 28, 2023, after overturning the presidential veto.

Law No. 14,701/23 aims to prohibit the demarcation of areas not occupied by indigenous people before October 05, 1988, the date of the enactment of the Federal Constitution, establishing a time frame so that indigenous populations can only claim lands occupied or in dispute up to that date.

Thus, Law No.14,701/23 established the following requirements for the characterization of lands traditionally occupied by indigenous people:

• lands inhabited by indigenous people on a permanent basis;
• lands used for the productive activities of indigenous people;
• lands that are essential for the preservation of environmental resources required for the well-being of indigenous people; and
• lands required for physical and cultural reproduction, according to indigenous uses, customs and traditions.

In addition, the Law establishes that the ceasing of indigenous possession prior to the date of enactment of the Federal Constitution hinders the recognition of the area as traditionally occupied, with the exception of cases in which there is duly proven repeated expropriation, which, in turn, is characterized as an effective possessory conflict that was initiated in the past and persisted up to the date of enactment of the Federal Constitution, materialized by factual circumstances or by a judicial possessory dispute. The matter is still under discussion until a proposed amendment to the Federal Constitution is approved.

For more information, see Law No. 14,701