Companies question measure and say change could affect corporate credit market
Signaled on Monday by Finance Minister Fernando Haddad, the idea of ending the Interest on Equity (JCP) is not yet decided, Valor found. The economic team is still evaluating whether to propose the extinction or improvement of the mechanism.
Companies follow the discussions with concern. "The timing is bad to discuss this," said the chief executive of the Brazilian Association of Publicly Traded Companies (Abrasca), Pablo Cesario.
In a scenario of credit shortage, it would affect one of the main sources for companies, which are the resources of the partners. Abrasca brings together 440 companies that represent 88% of B3's market value.
The government source explained that, depending on a conclusion on political feasibility and financial impact, the proposal could be forwarded to Congress in August.
It is estimated that ending JCP could yield something like R$6 billion to R$7 billion in additional revenue per year. The improvement would generate lower revenue.
The JCP was created as a way to equalize the tax conditions of a loan, bank or via capital markets, with those of the use of the company's own resources. In the government's assessment, however, there has been abusive use of this mechanism to pay less IR.
Cesário argues that the mechanism should not be abolished, but improved, as part of the broader income tax reform to be discussed in 2024.
The suggestion is to adopt the Allowance for Corporate Equity (ACE), a more modern version of JCP, in use in Europe, which would give access to more companies while setting limits on its use.
He said the credit market is "very bad to very bad". And he cited some data.
The number of judicial recoveries increased by 52.1% in the first half of this year compared to the same period in 2022, it said.
Bankruptcy filings advanced by 36.2% in the period. Between May 2022 and May 2023, the default rate of legal entities in the banks' portfolio increased from 1.5% to 2.5%. Data from Fipe's Center for Capital Market Studies (Cemec-Fipe), show that net fundraising by non-financial companies with banks in the first five months of the year fell by BRL 55.0 billion and financing via the debt market reached BRL 35 billion, much lower than the historical average, he added.
In this context, companies have resorted to selling assets to finance themselves in the short term (R$ 28.9 billion from January to April this year) or take money from their partners. The end of the JCP would reach the second option.
"The change of JCP at this time of high stress in the financial market would be extremely worrying," he said. "It would hit one of the main sources of funds that companies have access to."
He added that the increased tax cost could drive some companies out of Brazil. "We are going to export the best jobs that exist here," he said.
"Unfortunately, JCP has been sold as a tax benefit, but it is not," said lawyer Ricardo Lacaz, a partner at the law firm Lacaz Martins, Pereira Neto, Gurevich & Schoueri. He said the mechanism allows companies in different situations to be treated equally.
"If the extinction of JCP is implemented, companies would certainly face impacts such as higher cost of capital, less attraction for investors, in addition to impacting the capital structure, for example", commented Katia Gutierres, partner at Barcellos Tucunduva Advogados.
The measure could lead companies to pass on the additional cost to their customers, warned Mariana Ferreira, a tax lawyer at Murayama Affonso Ferreira e Mota Advogados. It would raise the tax burden mainly of banks, she added.
Source: Valor Econômico