Suspension of the CNPJ number and its impact on aircraft financing in Brazil – Commentary
Introduction
Suspension and its effects
Quick fix in some cases
Steps to lift the suspension
Comment
Payments to foreign owners or mortgagees by Brazilian aircraft operators are subject to strict exchange controls. The Brazilian operator must register the financial terms of the lease or loan with the Central Bank of Brazil through a computerized system (SISBACEN). The Central Bank’s registration in the SISBACEN system is commonly referred to as the “Record of Financial Transactions” (ROF). Creditors who receive payments from Brazilian payers (e.g. tenants) must obtain a Brazilian Business Identification Number (CNPJ) as a prerequisite for the Brazilian operator to obtain an ROF. The only common exception to this registration applies to leases with a term of less than 12 months.
In 2016, rules promulgated by the Brazilian Tax Authority (SRF) increased the burden on filers required to obtain a CNPJ registration number. The 2016 rules require filers (including foreign companies) to submit to the SRF information relating to the ultimate beneficial owners (UBOs) of the entity, along with a set of corporate documents. From 2016, new CNPJ registrants had to comply with the 2016 requirements. There was some doubt as to whether registrants with CNPJ numbers issued before 2016 would have to comply with these rules. From 2016 to late 2021, it emerged that old CNPJ recordings had been grandfathered and did not need to be compliant.
During the second half of October 2021, the SRF, without notice or announcement, suspended the CNPJ registrations of many foreign companies. The SRF did not immediately announce or disclose the reason for the suspensions; however, over time it became apparent that the SRF was suspending CNPJ numbers due to non-compliance with 2016 requirements. Most of the companies involved in aircraft financing whose registrations were suspended were ad entities. hoc acting as donors. The suspension also affected three major trust companies active in aircraft leasing as owner trusts.
Since the SRF made no announcement of the suspensions, many lessors and banks were unaware that their CNPJ numbers had been suspended. It was difficult to get information from the SRF. When a CNPJ number is issued, the SRF registers a person in Brazil who is considered the registrant’s local agent. However, for the CNPJ numbers that foreign (i.e. non-Brazilian) lessors, banks and other creditors obtained years ago, many registrants were unaware of the names of their local agents. The SRF, however, refused to provide information to anyone other than the agent listed in its records. This extended the period that many registrations remained suspended.
The suspensions created a problem for aircraft deliveries as Brazilian lessees were unable to obtain ROFs and, therefore, unable to pay rent and other amounts due under the leases. In the case of lease novations and assignment assumption agreements, the ROFs must be amended to reflect the new lessor and, therefore, these types of transactions were affected by the suspension. Additionally, lease extensions generally require modifications to ROFs and cannot be processed for lessors with suspended CNPJ registration numbers.
Another issue was related to filings with the Brazilian Aeronautical Registry (RAB). RAB requires submission of ROF with certain lease modifications. Suspension of a CNPJ could affect a lessor’s ability to deregister an aircraft, although this is unlikely given the terms of the Cape Town Convention on International Mobile Equipment Warranties.
Brazilian operators have also reported difficulties obtaining import authorizations for incoming leased aircraft.
More importantly, payments under existing ROFs were not interrupted by the suspension of a CNPJ number. But there is no guarantee that in the future, the disbursement of payments to entities whose CNPJ registrations are suspended will not be interrupted.
One solution that some lessors have taken to enable them to continue deliveries of leased aircraft has been to novate existing lease agreements to an owner trustee with a valid CNPJ number.
To lift the suspension, a Basic Entry Document (DBE) must be submitted to the SRF online with a request to:
- change registered agent; and
- provide UBO information.
In addition, a power of attorney granted to a person residing in Brazil to act as the registrant’s agent with special powers to receive, process and manage the Brazilian registrant’s assets is also required. All documents must be notarized, apostilled (or consularized, if from a jurisdiction that is not a party to the Hague Convention for the Suppression of Unlawful Seizure of Aircraft) and translated into Portuguese by a translator Brazilian public. On average, the SRF takes between four and 21 days to lift the suspension from the day the documents have been properly submitted to the SRF. In a few cases, however, the process took several months. Currently, all major trust companies active in aircraft finance have revalidated their CNPJ numbers.
The SRF did not communicate in advance its intentions concerning registrations with the CNPJ. Therefore, lessors and banks active in financing Brazilian aircraft should verify the validity of their CNPJ numbers and take steps to ensure that the numbers are valid.
For more information on this subject, please contact Kenneth D Basch Where Priscille Uliana at Basch & Rameh by telephone (+55 11 3064 8599) or by e-mail ([email protected] Where [email protected]). The Basch & Rameh website can be accessed at www.baschrameh.com.br.