The tax battle of funds: the case of Fiagro

The tax battle for funds: the Fiagro case

The future of taxation will define whether Brazil will continue to stimulate productive financing or give in to the tax revenue temptation

Arnaldo Jardim, Eduardo Lourenço

Real Estate Investment Funds (FIIs) and Investment Funds in Agribusiness Production Chains (Fiagro) are examples of how the capital market can become an engine of economic growth and democratization of access to investment. The success of this legal and financial engineering explains why, since their creation, these instruments have multiplied in terms of the number of investors and the volume of resources handled.

Fiagro, in particular, was essential for small investors to participate in the agribusiness chain, previously restricted to large players. This instrument now represents an alternative financing channel for the sector, reducing costs and strengthening the country's position as an agro-export powerhouse.

Recent data show that, in just a few years, the number of funds and shareholders has grown exponentially. According to the Securities and Exchange Commission, in 2021, there were 13 Fiagros listed on B3, with 30.7 thousand investors; currently, there are 145, with 550 thousand shareholders. The funds' Net Equity jumped from R$1.6 billion in 2021 to R$44.7 billion this year, an increase of more than 2,500%.

In just under four years of existence, Fiagros have consolidated themselves as an alternative to the sector's private financing instruments, such as CRA's, which enable the securitization of rural receivables. Together, they constitute a robust and growing ecosystem of financial support for Brazilian agribusiness. If they maintain their original model, Fiagros could become the main source of resources for agricultural activities.

This growth has been possible thanks to the instruments provided for in the legal framework, such as the exemption from Income Tax on the distribution of results to individual shareholders, as long as strict rules are followed to avoid abusive tax planning. This benefit is more than a “tax favor”. This is a development policy, which brings investors closer to the productive sector and creates synergy between the capital market and the real economy.

The PLP 68/2024, which regulated the tax reform, also recognized the virtuosities of the Fiagros, expressly excluding the Agribusiness Funds from taxation on consumption (IBS and CBS). The “non-contributor” status preserves neutrality and avoids distortions that would make the investment more expensive. However, the Executive vetoed the exemption, on the grounds that the tax incentive is not expressly provided for in the text of the Constitution.

An incorrect interpretation, in our understanding, which confused two distinct spheres: tax incentives (such as reduction in rates) and the definition of who is a taxpayer. The Constitution gives the complementary law the power to define taxable persons; Therefore, there is no unconstitutionality in excluding funds from this condition. Therefore, the National Congress, anchored in technical studies, notably from the Agricultural Parliamentary Front (FPA), overturned the veto, restoring legal certainty for investors and the sector.

In June of this year, however, the government issued Provisional Measure 1,303, resuming the attempt to tax resources, now through Income Tax. The movement is part of a broader strategy to increase revenue to meet fiscal targets, even if it puts the attractiveness of Fiagros in the capital market at risk. Once again, there is a strong mobilization of parliamentarians and representative entities to block measures that compromise the predictability and competitiveness of the instruments that finance Brazilian agriculture.

The Fiagros trajectory is proof that legal certainty and well-structured tax incentives can create virtuous investment ecosystems. Exemption from Income Tax for individuals and non-contributor status in consumption taxes are not privileges. They are public policy instruments that promote strategic sectors and democratize access to investment.

The future of taxation on these instruments will define whether Brazil will continue to stimulate productive financing or whether it will give in to short-term revenue temptation.

Arnaldo Jardim
Federal deputy (Cidadania-SP), vice-president of the FPA (Agricultural Parliamentary Front) and author of the law that created Fiagro, in 2021

Eduardo Lourenço
Doctor and master in Constitutional Law and Master of Laws (LLM) in Tax Law. Partner at Maneira Advogados

(Image: Freepik)