4/30/2021
On March 10, 2021, the Brazilian House of Representatives, through the Finance and Tax Committee, has begun to analyze Bill nº 4.758/20 (“Bill No 4.758”), which aims to regulate Trusts in Brazil.
Although Trusts are widely used abroad, these structures are still not accepted nor even recognized by Brazilian law.
Conceptually, a Trust is a fiduciary structure – revocable or irrevocable – by means of which one party (“Settlor”) grants another party (“Trustee”) the right to hold a fiduciary title to, and to manage, property or assets for the benefit of a third party (“Beneficiary”) or for the sake of a specific purpose. The Trustee is also empowered to provide for the distribution of the Trust assets to the Beneficiary according to the wishes of the Settlor.
Therefore, the main purpose of the Trust structure is to provide legal protection for the Settlor’s assets and to enable these assets to be distributed according to his/her wishes.
Inspired by the concept of Trusts, Bill No 4.758 intends to regulate the fiduciary relationship between a Trustee and a Settlor in Brazilian law. The Bill stipulates that assets held in Trust are ring-fenced from Trustees own liabilities, because a mechanism of asset-segregation would be put in place to protect the Trust from these liabilities, according to the 3rd paragraph of Article 3 of Bill No 4.758.
However, Bill No 4.758 only deals with civil matters related to Trusts. If Bill No. 4.758 is eventually approved by the House of Representatives and by the Senate and sanctioned by the President, without its tax implications, there will be great legal uncertainty for its effective setup.
It is also worth noting that, in March 2020, the Brazilian Internal Revenue Service (“IRS”), stated, by means of Ruling 41, that income tax is levied on distributions of assets from Trusts to heirs that are resident in Brazil, as, in accordance with the IRS interpretation, such distributions constitute foreign income.
In any case, Bill No 4.758 is, by itself, an important milestone for the beginning of the discussion of Trusts in Brazil.
Coauthors: Maria Paula Meirelles Thomaz de Aquino, Marcelo Trussardi Paolini and João Victor Guedes
