One month old, SAF Law brings legal uncertainty without attracting investors – 13/09/2021

By Gabriel Coccitrone

Last Thursday (9), the law that authorizes clubs to convert to Sociedade Anônima do Futebol (SAF), also called the club-company law (Law 5.516/19), completed one month in half. the lack of interest of the teams due to the vetoes made by president Jair Bolsonaro (no party) in relation to taxation.

After the legislation was published in the Federal Official Gazette (DOU) on the 9th, parliamentarians are coming together to resume the original text, which was sent for presidential approval. According to ‘Folha de S. Paulo’, the issue should be analyzed by Congress in the coming days, requiring at least 257 votes from deputies and 41 from senators to overturn the vetoes.

According to the newspaper’s investigation, the author of the project and president of the Senate, Rodrigo Pacheco (DEM-MG), sews an agreement with the government’s leader in Congress, senator Eduardo Gomes (MDP-TO).

In an interview with the newspaper, the SAF rapporteur, senator Carlos Portinho (PL-RJ) said that the restrictions placed by Bolsonaro, with guidance from the Ministry of Economy, “reach the heart of the project”.

“Considering that the law has a series of defects and few virtues, we can say that the presidential vetoes eliminated the virtues, which makes the law innocuous in relation to its objective, which is to encourage the transformation of associations into a company. There are 3 relevant vetoes , with the most sensitive loss being the tax rule, which generated precisely the fiscal equity necessary so that competitiveness was not achieved, maintaining associations and SAFs collecting taxes at similar percentages. In fact, it is a mistake to think that there is a tax loss, to to the extent that associations pay less than they would pay the SAF”, assesses economist Cesar Grafietti.

Currently, most football teams are formed as a non-profit entity. Therefore, they have total or partial exemptions from some taxes, such as Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL).

Portinho proposed the Specific Taxation of Football (TEF), which consists of collecting 5% of all gross revenue in the first five years, which includes contributions from sponsors, sales of television rights, box office, fan partner program, among others.

As of the sixth year, this rate for the team that joins the SAF will be 4%, but it will include revenue from the sale of economic rights for athletes.

Bolsonaro rejected the EFT. With this, the team that becomes SAF will start to pay the same taxes as a common company, causing disinterest in the clubs that intend to transfer to the model.

“Currently there is no revenue on which there would be a waiver. On the contrary, there will be a collection when the activity starts to be taxed. More than that, I understand that the biggest argument for the overthrow of the veto is that the law strengthens the Brazilian football market as a whole. If this is true, the revenue that will exist will be based on potentially greater revenue and, therefore, there will be an increase in revenue over time,” says Tiago Gomes, a lawyer specializing in law commercial.

Upon instructing Bolsonaro, the Ministry of Economy stated that the taxation model of the original text of the bill would entail the waiver of revenue. The agency also said that the proposal should have been accompanied by a study with an estimate of the financial and budgetary impact on the government.

“The presidential veto on the Specific Taxation of Football (TEF) is, in my opinion, the great motivator for the fact that so far there has not been the constitution of any Anonymous Football Association (SAF). First, because there is an expectation in the market that this veto will be overturned by Congress. Therefore, it is natural that those interested – and there are several – await the outcome of this issue and then take a decision considering the real financial effects of the change in structure”, evaluates the lawyer.

“But does that mean that SAF is only viable with TEF? Maybe not. SAF offers alternatives that are essential for the development, or even survival, of clubs in the medium and long term. The point is, in the short term. – and who makes the decision whether the clubs will create the SAF or not are the current managers, who are concerned with tomorrow and not with what will happen in 5 or 10 years -, the fiscal impact of the change is relevant. The club can barely pay the bills in the membership model, where it doesn’t pay taxes, will it become a SAF, have a series of compliance obligations that are important but expensive, and will it still pay tax? For this manager, this is a decision that doesn’t make much sense,” he adds.

Bolsonaro also vetoed two items that would increase transparency in relation to club owners: investment funds with a share greater than 10% in the club-company should reveal the names of their shareholders and the club-company should inform its shareholding composition (names , number of shares and percentage of each shareholder).

Cesar Grafietti points out that “another relevant veto was in relation to the article that demanded a series of governance obligations for the SAFs”.

“The argument that this burdened the SAFs is simple. Governance is one of the most important issues when we think about the management evolution that football needs”, says the economist.

Finally, Bolsonaro vetoed the excerpt from the original text that allowed the club-company to seek resources in the securities market (stocks, debentures, investment fund quotas, futures contracts and derivatives).

In addition, the company could issue a type of debenture specific for football, in which the government would not be charged Income Tax (IR), encouraging its use to finance the activity.

For Cesar Grafietti, this veto is not a big problem.

“An incentive investment instrument is not enough if the borrower – in this case, the SAFs – does not have an economic-financial condition that attracts the investor. There are numerous incentive investment options in the market and with much lower risk. The debenture-fut is It would be unnecessary and would require a strong change in the mindset of management in football, which is something that the simple change to a SAF does not guarantee. It is necessary to create rules for external financial control, such as Financial Fair Play, to limit or even prohibit access from clubs and SAFs to eternal fiscal refinancing, and after that we can think of specific debt instruments,” he adds.

When analyzing these vetoes, we can say that the opinion of experts is that the club-company law needs changes, as it currently does not encourage teams to think about adopting the SAF model.

“If the intention of the SAF law is to break the vicious cycle and kick-start a virtuous cycle in Brazilian football, there needs to be an incentive for immediate decision. And the TEF, in this sense, comes in very handy”, says Tiago Gomes.

“The law is so fragile that without the vetoes it became just an argument for associations to try to take advantage of the numerous gray areas of interpretation of the text. But it is essential that the vetoes are overturned if we want to have the possibility of creating a different model of shareholder control in the Brazilian football,” concludes Grafietti.

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