Income from real estate funds may change with the decision of the CVM; understand

The FIIs (Real Estate Investment Funds) and their approximately 1.5 million shareholders must prepare for a turbulent period if the CVM (Securities Commission) decides to maintain an understanding that changes the rule for distributing the income from these investments.

Based on a decision by its collegiate at the end of December on the accounting of the real estate fund with the largest number of investors in the country, Maxi Renda, from BTG Pactual, the CVM stated that the FIIs must limit the distribution of income to the accounting profit. .

This is a rule that goes against the most common understanding in this market and, if applied, could result in taxation on gains previously considered, until then, exempt.

This Tuesday (1st), the CVM reported that it had responded to a request from BTG to temporarily suspend the decision. In practice, this only gives momentary peace of mind to real estate fund managers, who continued to distribute income according to the old understanding.

The CVM gave BTG 15 business days to file a request for reconsideration. The deadline is counted from the statement made by the municipality.

In its defense, BTG alleges that the understanding applied is part of a circular distributed by the CVM in 2014, through which the autarchy would have made it clear the possibility of calculating income on cash income.

The market is still debating whether an unfavorable decision to BTG could be applied to all FIIs, although the CVM itself has published a statement reinforcing that it would consider the same understanding for the entire sector.

In addition to taxation, managers who spoke with the leaf on condition of anonymity, they said they were concerned about the bureaucratic knot that the change would entail in the sector. Untying it could take months.

To understand the problem, it is necessary to consider that the central discussion is about two different systems of FII accounting, which are the cash and accrual (or accounting) regimes.

When analyzing Maxi Renda, the CVM verified that the distribution of income was based on the result of the cash basis, which is basically composed of the profit with the income from real estate rentals, in the case of the so-called brick funds. For funds that invest in paper assets (securities backed by real estate credits, for example), the income from these investments also enters the account as cash income.

The commission considered the practice incorrect because, according to its collegiate, the income must be limited to the result of the accrual basis, also called accounting profit. This result considers the depreciation of the fund’s assets. In the case of real estate, the value of the annual revaluation of the properties.

“Imagine that a fund has a single property as an asset and that building was revalued at a 10% lower value. The asset’s depreciation does not affect cash, as it has not stopped receiving cash [dos aluguéis, por exemplo] because the asset lost value, while the accounting profit considers the so-called mark-to-market [contabilização do valor justo de um ativo ou passivo com base no preço de mercado atual]”, explains Marx Gonçalves, an analyst at Nord Research.

In the statement dealing with the matter, the CVM says that “the distribution of amounts to shareholders that exceed the accounting profit should not be classified as income”.

This positioning transforms the amount in excess of the accounting profit paid to the shareholder into amortization. When selling the asset, by the rules of the Federal Revenue, this extra amount would be considered capital gain, which is subject to Income Tax (IR). The discount is 20% on this gain.

The context for limiting income to accounting profit is also unfavorable to investors, as several segments of the real estate industry recorded depreciation in their properties during the pandemic. This makes accounting earnings potentially less than cash earnings.

The primary effect of the change, therefore, would affect the competitiveness of FIIs, whose income tax-exempt is among the main attractions. A fund like Maxi Renda, which distributed income based on cash results, could even maintain this system, but would need to classify the excess amount as amortization.

Managers claim that complying with the new CVM directive would also oblige them to mobilize all the shareholders of the affected FIIs so that, through the documentation that certifies the purchase of the securities, they can verify what the capital gain was since entering the fund.

The bureaucratic effort would be Herculean, described one manager. He explained that the administrator he works for had to carry out a similar operation due to the liquidation of a fund ten times smaller than Maxi Renda. Three months after the start of the work, approximately half of the participants returned.

In a situation like this, investors who do not respond or cannot prove the initial value of the investment have their gains presumed through a rule that considers that they bought their shares when they were zero. That is, they would pay Income Tax on the full amount.

For Gonçalves, Nord Research, the CVM can only extend the decision to all funds if it revokes the 2014 official letter dealing with income distribution.