The Brazilian Securities and Exchange Commission ("CVM") released on March 25, 2019 CVM Instruction No. 606 ("ICVM 606"), which amends CVM Instruction No. 555/2014, to regulate incentivized infrastructure investment funds ("FI-Infra") and investment funds in FI-Infra shares.
The investment funds destined to infrastructure projects are provided for in Law no. 12,431/2011, which allows the constitution of funds that invest at least 85% of their net worth in assets provided for in the referred law. Such funds and their shareholders, provided all regulatory conditions are met, are entitled to tax benefits.
It was up to ICVM 606 to regulate such funds. We highlight some points of the standard:
- Classification and constitution: Infrastructure Funds are considered "Fixed Income" and can be constituted as closed or open-end condominiums.
- Tax Benefits: the tax benefits applicable to Infrastructure Funds and their quota holders, as well as the conditions for maintaining such benefits, should be included in their regulations and in disclosure materials or prospectuses, if any.
- Concentration limits per issuer: funds aimed at the general public must comply with a concentration limit per issuer of 20%. This limit is doubled for funds aimed at qualified investors and is non-existent for funds aimed at professional investors.
For purposes of such concentration limit, in case of debentures issued by a special purpose company ("SPE") incorporated as an S.A., the limit shall consider the SPE as an independent issuer, provided that certain conditions are observed.
Finally, funds in activity on 03.25.2019, which have the objective of fitting into the tax system of Law no. 12,431/11, may migrate to the new system provided that previously approved at a quotaholders' meeting. Such funds will have 2 years as of such meeting to comply with the new requirements.
To access the full text of CVM Instruction 606, click here.
Barcellos Tucunduva Advogados remains at your disposal to clarify any doubts and to provide advice related to the matter.
