As of June 13, 2013 the Brazilian government reduced from 1% to zero1 the applicable rate of the Brazilian Tax on Financial Transactions (Imposto sobre Operações de Crédito, Câmbio e Seguro, ou relativas a Títulos ou Valores Mobiliários – IOF) on derivatives contracts. The 1% IOF tax on derivatives contracts was imposed on July 27, 2011 by means of Federal Decree No. 7536, of July 26, 2011, and was due on the purchase, sale or maturity of financial derivatives contracts, whenever the settlement amount was effected by the exchange rate variation and resulted in increase in the net short exposure in relation to the amount calculated at the end of the previous business day within the same entity authorized to register derivatives contracts.

The entities authorized to register derivatives contracts are the clearing houses or service providers which have been accredited by the Central Bank of Brazil (Banco Central do Brasil – Bacen) or by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) to operate with clearing, settlement and registry.

The amount of the securities transaction, for IOF purposes, is the adjusted notional value of the derivatives contract. The adjusted notional value is the reference value of the contract (notional value) revised to reflect the difference resulting from the derivatives´ price variation with respect to the underlying assets´ price variation. The taxpayer was the holder of the derivatives contract but the entities authorized to register derivatives contracts were responsible for collecting the IOF tax, which was calculated on the notional value.

This reduction has been approved by means of Federal Decree No. 8027, of June 12, 2013, which amends article 32-C of Federal Decree No. 6306, of December 14, 2007 (the IOF Regulation), as follows:

"Art. 32- C. The IOF will be charged at the rate of one percent, about the notional value adjusted in the acquisition, sale or maturity of financial derivative contract concluded in the country that individually, results in increase of the sold currency exposure or in the reduction of the purchased currency exposure.

(.)

§ 15.As from June 13, 2013, the rate provided for in the caput is reduced to zero."

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