Enacted on November 13 2014, Law 13,043 has enhanced surety bond sales in Brazil by including so-called 'judicial bonds' in the list of accepted collateral for tax collection proceedings. Surety bonds that guarantee the payment of taxes owed by a taxpayer to tax authorities in the case of tax collection proceedings or administrative payment plans are called 'judicial bonds'.
Law 13,043/2014 comes as a novelty as judicial bonds were not generally accepted as collateral before its enactment. This is because Law 6.830/1980 listed only three types of accepted collateral in relation to tax collection proceedings:
- liens on assets owned by taxpayers or third parties;
- bank bails; and
Law 13,043/2014 altered Articles 7 and 9 of Law 6,830/1980 to add judicial bonds to the list.
In 2006 the Civil Procedure Code was amended by Law 11.382 in an effort to change the mind-set regarding the acceptance of judicial bonds. This amendment established the possibility of replacing a lien with either a judicial bond or bank bail, thereby allowing for the possibility – but not the obligation – to accept judicial bonds as collateral during judicial proceedings or administrative court proceedings. However, this amendment did not lead to a different interpretation of Law 6,830/1980; in general, the Federal Appeals Court and state and municipal tax authorities maintained their understanding that the list of accepted guarantees for tax collection proceedings did not include judicial bonds.
Unlike state tax authorities, federal tax authorities have accepted judicial bonds, as the Attorney General's Office of the National Treasury regulated the usage of judicial bonds as collateral by means of Ordinance 1.153/2009. In 2014 Ordinance 1.153 was replaced by Ordinance 164/2014, which not only reconfirmed judicial bonds as acceptable collateral in tax collection proceedings, but also made changes to the applicable procedures, including:
- the establishment of different risks for tax collection proceedings and tax administrative payment plans; and
- the waiver of the obligation regarding the insurance limit of judicial bonds set out in Law 11.382/2006 (previously, it had to be at least 30% greater than the plaintiff's claimed value).
Therefore, before the enactment of Law 13,043/2014, only federal tax authorities accepted judicial bonds as collateral for tax debts, while state and municipal tax authorities argued that Law 6,830/1980 did not expressly permit the use of judicial bonds as possible collateral for tax collection.
The enactment of Law 13,043/2014 makes the acceptance of judicial bonds mandatory for all levels of public administration and the judiciary. Taxpayers are free to choose the collateral that suits each case best. The Federal Appeals Court recently ruled in favour of a company (Makro Atacadista) that wished the Sao Paulo tax authority to accept a judicial bond as collateral in a tax collection proceeding. The Federal Appeals Court stated that because Law 13,043/2014 is of a procedural nature, its application must be immediate, and thus settled the growing discussion on whether judicial bonds should be accepted in ongoing tax collection proceedings.
After the Federal Appeals Court ruling, the Attorney General's Office of the Sao Paulo State Treasury issued an official statement regarding the application of Law 13,043/2014. The statement makes clear that as long as a debtor undertakes to renew its judicial bond yearly and consecutively – until the discussion related to the owed taxes is resolved or the debt is paid – state tax authorities must accept judicial bonds as collateral in tax collection proceedings.
Regardless of the discussions on the application of Law 13,043/2014, judicial bond sales are expected to grow quickly in 2015, for the following reasons:
- The acceptance of judicial bonds is now mandatory; therefore, judges can no longer can refuse judicial bonds as collateral.
- Judicial bonds do not freeze the debtor's assets as liens do, as assets offered as collateral cannot be freely disposed of.
- Judicial bonds do not reduce the credit limit as bank bails do, pursuant to the Basel III rules.
- On average, judicial bond premium prices are lower than the fees attached to bank bails.
- Deposits require companies to have high liquidity and to surrender possibly substantial sums to the court. The premium for judicial bonds is often lower than these values.
There are still significant challenges to face in order to take full advantage of the increase in sales because courts, lawyers and law firms are generally still unacquainted with judicial bonds, as their use was not customary practice in Brazil until now. In addition, some judges are concerned that insurers will deny payment in cases of loss, although there is no reason for this concern, as judicial bonds have no loss adjustment and indemnification is triggered by any default in deposit that should have been made in the course of a tax enforcement proceeding.
Despite the challenges, insurance premium collection related to judicial bonds is expected to double in the next two years, and a great market opportunity is now open to insurers and taxpayers.
For further information on this topic please contact Marta Viegas, Juliana Mattar or Thiago Ramos at TozziniFreire Advogados by telephone (+55 11 50 86 50 00) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.
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