Legal Insights From Brazil to Start Your Week

What you will be reading in this issue:

1. Agribusiness; Credit?| Legal Structures of Brazilian CRA Offerings: What Foreign Investors Should Pay Attention To

2. Compliance?| Legal Risk Management in Brazil: Prevention of Economic Losses and Reputational Damage

3. Tax?| Brazilian Tax Reform and Its Impact on E-commerce: What Your Company Needs to Know

4. Labor?| Portfolio Companies' Labor Liability for Brazilian Equity Funds (FIPs): Superior Labor Court Rejects Economic Group Recognition and Limits Labor Risks

Agribusiness; Credit | Legal Structures of Brazilian CRA Offerings: What Foreign Investors Should Pay Attention To

Brazilian Agribusiness Receivables Certificate (know as CRA) offerings are one of the main ways for agribusiness companies and cooperatives to raise funds in Brazil.

In 2024 there were 177 offerings of CRA, which raised approx. US$7 billion in medium to long tenors.

See below 5 essential points about CRA offerings and what foreign investors should bear in mind from a legal standpoint:

1. What is an Agribusiness Receivables Certificate (CRA)? CRAs are fixed income securities from the capital market, backed by receivables originated from agribusiness activities. They can be issued in BRL or foreign currency;

2. What Type of Companies Can Raise Funds Via CRAs? Companies whose “main sector of activity” is agribusiness, which includes producers of agricultural commodities, trading companies, cooperatives, industries, among others related to agricultural products, inputs and machinery;

3. How Are CRAs Issued and Who Are the Investors Who Buy CRAs? There are 2 most commonly used methods for issuing CRAs: (i) “corporate” offerings, where the ag company issues a debt security (such as a debenture, Financial CPR) in favor of a securitization company, which will issue CRAs backed by the debt security, or (ii) “dispersed” offerings, where the agricultural company transfers receivables generated in its activity (such as barter, credit) to the securitization company, which will issue CRAs backed by such receivables.

In both cases, CRAs will be acquired by capital market investors, including individuals (who benefit from income tax exemption) and institutional investors;

4. Is there a Minimum Size and Term for CRAs? CRAs are tailored to the size of the borrowing company, the risk of the receivables portfolio, the business cycle, investor interest, and other market conditions. In recent years, there have been transactions ranging from as low as BRL10 million to BRL2 billion, with tenors ranging from 3 to 10 years;

5. What Legal and Credit Points Should Structuring Companies and Investors Pay Attention to in CRAs? In both (i) “corporate” CRA offerings (backed by the debtor’s debt instrument) and (ii) “dispersed” CRA offerings (backed by the debtor’s receivables generated from its activity), it is essential that structurers and investors assess whether the transaction will be “clean” or “secured”.

In clean transactions, the legal and credit structure is based on the liquidity of the issuer of the credit instrument (corporate CRA) and the payers of the receivables assigned (dispersed CRA). If there is default in these flows, investors will not be able to enforce collateral, except for the personal guarantees (aval or fian?a) that may have been granted in favor of the CRA. In short, clean transactions are based mainly on the financial soundness of the debtor and payers of receivables.

In secured transactions, the legal and credit structure is based on the liquidity of the payers, and also on the collateral package (e.g. rural land, warehouses, among others), which will contribute to the satisfaction of payment for investors. If there is a default in the payment flow, investors can use the secured assets to pay off the outstanding balance.

In short, CRA offerings remain one of the main ways of raising funds in Brazilian agribusiness, but structurers and investors must pay attention to the legal and credit structure of the offerings when making their decision to invest or not.

Compliance | Legal Risk Management in Brazil: Prevention of Economic Losses and Reputational Damage

Legal compliance has become a fundamental piece for the integrity and success of organizations.

It ensures not only compliance with laws, regulations and ethical standards, but also protects the company from legal risks, especially those that can impact financial resources, strengthening its trust and the market's trust.

For a compliance structure to be able to act effectively in Brazil, providing practical and effective risk management, it is essential to develop a personalized risk matrix for the business, so that the company can, periodically and systematically, carry out this internal compliance check.

Here we highlight 5 fundamental points for building this risk matrix considering the structure of a Brazilian company:

1. List Topics of Attention: Depending on the business sector, it is important to highlight which topics will be addressed in the risk matrix and how to catalog them, allowing an internal management and control process to take place based on these topics. Basic topics that must be included are, for example: corporate, regulatory, data protection, environmental, contracts, labor, among many others.

2. Establish Assessment Criteria: Once the topics have been established, the next step is to identify which documents and internal procedures of the company need to be updated in order to allow checking whether the company is in compliance or not.

3. Determine Those Responsible for Monitoring: Many compliance projects end up not being properly used because the internal phases and procedures do not have a designated person responsible, that is, the task ends up not having an owner. And here we are talking not only about someone responsible for supervision, but also someone responsible for executing obligations, who obviously must be different people.

4. Categorize Risks: It is essential that the company has the clarity to establish the risk of each non-compliance, as this makes the execution of an action plan for regularization more objective, including allowing priorities to be listed when the company presents more than one irregularity.

5. Action Plan: The main objective of developing this risk matrix is to allow the company to have an agile action and correction plan, thus removing potencial contingencies – whether financial or reputational. The action plan is the last step of a compliance plan, and needs to be done according to the reality of each company.

Adopting a proactive approach to identifying, mitigating and complying with standards not only protects against possible contingencies, but also strengthens organizational culture and the confidence of partners and investors. The implementation of robust compliance and risk management practices in Brazil is a strategic investment that guarantees the company's longevity and credibility in the market.

Tax |?Brazilian Tax Reform and Its Impact on E-commerce: What Your Company Needs to Know

Starting in 2026, the implementation of the Tax Reform will bring significant modernization to the Brazilian tax system with the introduction of the Dual VAT, represented by the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS).

These changes will directly impact businesses across all sectors, including those operating in e-commerce. We have highlighted the key points of attention to help these companies minimize risks and ensure efficient compliance with the new tax framework:?

1. Tax Unification and Impact on Pricing:?The reform will consolidate five taxes (IPI, PIS, COFINS, ICMS, and ISSQN) into just two: CBS (federal) and IBS (state and municipal), while also introducing a Selective Tax on products harmful to health or the environment.

Despite the proposed simplification, transitioning to the new system will require careful planning, particularly concerning pricing strategies. The tax crediting model will be modified, directly affecting how tax credits are appropriated. This shift will significantly impact product pricing, the selection of distribution center locations, and even e-commerce service operations.

2. Gradual Transition and Impact on Cash Flow:?The new system will be gradually implemented, coexisting with current taxes during the transition period. This requires continuous monitoring and strategic planning to avoid inconsistencies. In this context, the restructuring of the tax crediting model may directly affect companies’ cash flow, as an inadequate transition could result in undue tax payments or the loss of tax credits, compromising business profitability.

Additionally, the adoption of the "exclusive pricing" calculation method—where the tax amount is applied separately from the product or service price—will make taxation more transparent and easier to understand. However, this change will require companies to pay extra attention when setting prices and managing cash flow to avoid surprises and mitigate potential financial impacts.?

3. Supply Chain Reassessment and Tax Planning:?E-commerce companies will need to review their supply chains to assess the impacts of the new tax structure and identify opportunities for optimizing their tax burden.

This becomes even more relevant considering that one of the primary objectives of the tax reform is to end the fiscal competition between states, leading to the elimination of special tax regimes for e-commerce companies. In this scenario, states like Santa Catarina and Espírito Santo, which currently offer differentiated ICMS rates to attract companies with distribution centers in their territories, may undergo significant changes.

More than just compliance with the new regulations, the Tax Reform represents an opportunity for e-commerce companies to reassess their operational and strategic models. Proactively adapting to these changes, investing in technology, and seeking specialized advisory services will be essential for securing a strong position in the new tax landscape.

Labor |?Portfolio Companies' Labor Liability for Brazilian Equity Funds (FIPs): Superior Labor Court Rejects Economic Group Recognition and Limits Labor Risks

A recent ruling by the Brazilian Superior Labor Court (TST) marks a significant step forward for investors and managers of Private Equity Funds (FIPs). The court ruled against the joint liability of an investment fund manager for the labor debts of its portfolio companies, setting a favorable precedent for the sector.

In the case under review, a worker sought to hold not only their employer liable in a labor lawsuit but also the investment fund manager, claiming it was jointly responsible for unpaid labor obligations. The Regional Labor Court upheld the initial ruling that recognized the existence of an economic group, arguing that the fund exerted influence over the company’s management, including appointing board members and actively participating in general meetings.

However, the TST overturned the decision, emphasizing that a fund manager’s role in directing financial investments does not establish a hierarchical relationship that would justify the recognition of an economic group. The court clarified that proving economic group status requires more than mere influence—it demands demonstrated control over the invested company. Since investment funds are unincorporated entities that merely manage invested assets, they cannot be held liable for the labor obligations of their portfolio companies.

To provide legal context, under Article 2, Paragraph 3 of the Brazilian Labor Code (CLT), the mere fact that entities share common shareholders does not establish an economic group. Instead, it must be proven that the companies operate in an integrated manner, share common interests, and act jointly.

This ruling strengthens the legal separation between investors and their portfolio companies, offering greater predictability and legal protection for fund managers. While this decision does not yet represent a fully consolidated position in Brazilian labor courts, it signals a positive trend that could influence future rulings and improve legal certainty for fund managers.

To minimize labor risks, fund managers should consider:

1. Ensuring the operational autonomy of portfolio companies; 2. Maintaining solid documentation that proves the separation between entities; 3. Guaranteeing independence in the management of invested companies; 4. Keeping investor and portfolio company assets clearly distinct; 5. Conducting thorough labor due diligence before acquiring stakes.

In addition to these preventive measures, it is crucial to closely monitor potential changes in case law and regulations that may affect fund structures and their exposure to labor liabilities.

The TST’s decision represents a significant advancement for the business environment, but it does not eliminate the need for well-structured legal and compliance strategies. Investors and fund managers must remain vigilant in ensuring labor compliance, reinforcing fund structures to safeguard their financial security and minimize exposure to legal risks.