Brazilian Congress has enacted the full text of the PEC Precatórios
On Wednesday, December 8th, the Brazilian Congress enacted part of the proposal to amend the Brazilian Constitution (“PEC”) No. 23/2021, the so-called “PEC Precatórios”, which introduced relevant modifications to the rules governing the payment of federal Precatórios and release space in the Government Budget for 2022 for investments in Federal Government programs.
Last Thursday (December 16th), after voting in two rounds by the House of the Representatives, the remaining text of the PEC dos Precatórios (now under No. 46/2021) was enacted by the Brazilian Congress.
Below we explain some of the main changes introduced by the PEC Precatórios, in its two parts: (1) the modifications to the calculation of the Federal Government annual cap; (2) the cap for payment of precatórios ; (3) change in the deadline date to submit precatórios for payment in the following year; (4) the deposit of precatórios to a judicial account in the event of outstanding debts by the creditor; and (5) the adjustment for inflation by SELIC; (6) the possibility of settlement to receive amounts arising from precatórios; and (7) the creation of a commission to oversee the precatórios.
Main changes enacted by the PEC Precatórios
- Modifications to the calculation of the Federal Government Annual Cap
The Federal Government’s annual cap, which limits federal spending to the previous year’s inflation, was adjusted for inflation based on the IPCA in 12 months, between July of the previous year and June of the current year. With the approval of the PEC Precatórios, the amount of the Federal Government annual cap shall be recalculated based on the IPCA from January to December of the year before, which results in an increase of the cap.
- Cap for payment of federal precatórios
Until the approval of the PEC Precatórios, the totality of the precatórios registered in the Budget in effect was paid. From now on, there is a cap of Precatórios to be paid per year until 2026. This cap shall be the amount paid by the Federal Government as a result oflegal claims in 2016, adjusted for inflation. The precatórios exceeding this value shall be paid in subsequent years, subject to the order of preference provided for in the Brazilian Constitution. The precatórios due to States and municipalities related to the FUNDEF (i.e. precatórios due to the states and municipalities re: benefits the Federal Government failed to pay to education professionals) shall not be subject to the abovementioned cap and will have specific rules governing payment in 3 years.
The Treasury’s calculations indicate that, out of the BRL 89.1 billion of precatórios originally registered for payment in 2022, only BRL 45.3 billion will be paid. Payment of the remaining BRL 43.8 billion will be postponed to the following years.
- Change in the deadline to submit precatórios for payment in the following year
With the enactment of the PEC Precatórios, the deadline for submitting precatórios for payment in the following year shall be on April 2nd of each year, instead of July 1st, as before. Therefore, precatórios submitted for payment after April 2nd of each year shall be included in the Budget for payment in the following year after such submission.
- Deposit of precatórios into a court account in the event of outstanding debt
If the creditor of a precatório has debts enrolled as overdue tax liabilities, and if the Brazilian Public Treasury so intends, the amount of such debts must be deposited in the account of the court responsible for the collection lawsuit of said debt, which shall then decide on what to do with the deposit (i.e., either compensate with the tax debt or release it in favor of the creditor of a precatório).
- Monetary adjustment based on SELIC
Irrespective of the nature of the precatório, and for purposes of monetary adjustment, remuneration of capital and compensation for late payment, the reference rate index of the Special System for Settlement and Custody (Selic) shall be applied to the value of the precatório, exclusively and until actual payment, accrued monthly.
- Possibility of agreement to pay amounts arising from precatórios
Creditors of precatórios not issued due to the creation of the cap for payment of precatórios, as well as creditors of precatórios already issued and not included in the 2022 budget proposal, may choose to receive their credit by the end of the following year, but with a 40%-discount in the value of the credit.
- Commission to monitor the precatórios
A commission was created in the Brazilian National Congress, composed by Congressmen and women, to monitor the issuance of federal precatórios. The purpose of the commission is to reduce the risk of issuing excessive precatórios and, consequently, of paying high amounts of precatórios in a certain year, as occurred for 2022.
The provisions of the PEC Precatórios presented above come into force on the date of its publication.
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