To the surprise of the Brazilian trade finance market, Supply Chain Finance (SCF) transactions structured under the “buyer risk” modality will become subject to taxation (tax over credit transactions – IOF) at a flat rate of 0.95%, plus 0.0082% per day, starting on June 1, 2025.
In SCF buyer-risk transactions, a third party — typically a Financial Institution — purchases trade receivables from Suppliers at a discount and collects payment from the Buyers upon maturity. While these are commercial transactions by nature, Brazilian Federal Decree No. 12,466, issued on May 22, reclassified them as credit transactions for tax purposes, thereby triggering IOF taxation.
As a result, SCF buyer-risk transactions now require Financial Institutions to withhold and remit the applicable IOF tax on behalf of the Buyer, who is deemed the taxpayer under the new framework.
Given this new tax environment, Financial Institutions must review and adapt their existing SCF contracts executed (i) with Suppliers for the purchase of receivables and (ii) with Buyers defining the terms of the SCF program.
Below are the key clauses that Financial Institutions should review and amend in SCF agreements due to IOF impacts:
1. Review/Amendment of Supply Chain Finance (SCF) Agreements Between Financial Institutions and Suppliers: Tax Clause: The tax clause must be revised to stipulate that, on the date of acquisition of a receivable, in addition to the discount applied on the face value of the receivable, the Bank will also withhold and remit the IOF tax owed by the Buyer as the statutory taxpayer.
2. Review/Amendment of Supply Chain Finance (SCF) Agreements Between Financial Institutions and Debtors (Buyers):
(a) Tax Clause: The tax clause must be amended to provide that, on the date of acquisition of a Supplier’s receivable relating to the respective Buyer, the Bank will withhold and remit the IOF tax owed by the Buyer, in addition to the discount applied on the face value of the receivable.
(b) Default Interest Clause: In the event the Buyer fails to settle the receivable on its original maturity date, Federal Decree No. 12,466 establishes that IOF will accrue daily until the actual payment date. The SCF agreement must expressly provide that, in such case, the Buyer shall pay not only the outstanding receivable and any applicable default charges (interest and penalties), but also the residual IOF accrued up to the actual payment date.
(c) Indemnity Clause for Non-Payment of Residual IOF: Should the Buyer default and subsequently pay the Bank only the outstanding receivable and associated default charges, excluding the residual IOF, the Financial Institution will remain obligated under Federal Decree No. 12,466 to collect and remit the unpaid tax. Consequently, the SCF agreement must contain an indemnity clause expressly requiring the Buyer to indemnify the Financial Institution for any residual IOF tax paid on its behalf.
As detailed above, the IOF tax treatment of Supply Chain Finance (SCF) transactions under the buyer-risk structure has direct implications for agreements with both Suppliers and Buyers. It is essential for Financial Institutions to promptly review and amend their contractual frameworks in response to this new tax regime.
