The Brazilian Securities and Exchange Commission ("CVM") issued on August 18, 2017, CVM Ruling No. 589, which amends CVM Ruling No. 578 ("ICVM 578") and allows that investment funds which invest in other investment funds' quotas ("FIC-FIP"), maintain their classification as FIC-FIPs, as previously regulated by the CVM Ruling No. 391 ("ICVM 391").

ICVM 391, revoked by ICVM 578, determined that FIC-FIPs should invest at least 90% of its net equity on FIPs quotas, FMIEEs or Stock Investment Funds – Access Market (FIA-MA) shares. ICVM 578, on the other hand, had extinguished FIC-FIPs and admitted the investment of any FIP in quotas of others FIPs, which would then be considered eligible assets for purposes of complying with the 90% of net worth investment standard provided under ICVM 578. As a result, the existing FIC-FIPs would have to be transformed into FIPs until August 30, 2017.

Should the extinction of FIC-FIP occur, such funds would no longer be entitled to a more favorable tax treatment granted by Law No. 11.312 of June 12, 2006, in case they kept their portfolio in compliance with the previous legislation. That is, in order to preserve the previous tax treatment, the former FIC-FIPs, now under the form of FIPs, would have to comply with the requirements imposed to FIPs, such as sustaining investments in shares of joint stock-companies, convertible bonds and warrants representing at least 67% (sixty-seven percent) of its investment portfolio. Considering the essence and purpose of the FIC-FIPs incorporated pursuant to ICVM 391, such requirement would be considerably unfavorable to quotaholders of FIC-FIPs.

Therefore, in order not to harm the quotaholders who adhered to the existing FIC-FIPs and which might have been stripped from its right to the more beneficial tax treatment, ICVM 578 determined an exception to the already existent FIC-FIPs, allowing for the continuance of the FIC-FIPs incorporated pursuant to ICVM 391.

In order to access CVM Ruling No. 589 (in Portuguese only), please click on the link below:

http://www.cvm.gov.br/legislacao/instrucoes/inst589.html

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