Ivandro Sanchez    It is now law. After much debate, Law No. 13,155 was enacted, which creates the Modernization Program for the Management and Tax Responsibility of Brazilian Soccer ("Profut").   Among many other aspects that could be addressed, three new rules created by Profut will promote profound changes, for the better, in the financial management of Brazilian clubs. Here they are.

Ivandro Sanchez 

 

It is now law. After much debate, Law No. 13,155 was enacted, which creates the Modernization Program for the Management and Tax Responsibility of Brazilian Soccer ("Profut").

 

Among many other aspects that could be addressed, three new rules created by Profut will promote profound changes, for the better, in the financial management of Brazilian clubs. Here they are.

 

The Supporter Statute was amended to require, as from the 2016 championships, that the clubs′ participation be conditional upon proving that they are in good standing in relation to the payment of taxes, wages and image rights of all their athletes. Any club not meeting these requirements will be downgraded. Just as an informative reference, if applied to the A Series of the 2015 Brazilian Championship, said rule would have certainly caused more than half of the participating clubs to be downgraded. To ensure their participation in the 2016 A Series, besides striving on the field in the disputed 2015 edition, the clubs will have to start forthwith a financial equalization plan.

 

A natural solution for the clubs to face the urgent financial commitments in 2016 could be the anticipation of revenues of future fiscal years, such as those from broadcasting rights. But this is no longer possible. The Profut Act defines as an act of reckless management, susceptible of personal liability of officers, the anticipation of revenues for the fiscal years following the end of their term of office (except for 30% of revenues in the first year of the next term).

 

Despite seeming harsh and restrictive at first, such a rule will be invaluable to the clubs themselves, in the medium term. The new officers will assume clubs with almost full future revenues, something that currently does not occur. In addition, the anticipation of revenues, today extremely common, greatly reduces the bargaining power of clubs, for example, in relation to those acquiring such rights in advance. With no anticipation, the medium-term trend is to increase the value of rights, such as those of broadcasting nature.

 

The clubs cannot establish either an annual loss greater than 20% of the previous year′s revenues under penalty of characterizing reckless management and liability of their officers. Such a rule will serve as a shield of good officers against "occasional madness" such as impact hiring aimed at immediate sporting results, but that usually turn out to be disastrous in the medium and long term.

 

It is essential to note that the three rules commented here apply to all clubs, including those having no tax debts and/or choosing not to join the debt installment payment program.

 

And what about the installment payment of debts?

 

The Profut Act allows clubs to pay tax debts in up to 240 monthly installments, and FGTS debts in up to 180 months. It ensures to clubs adhering to the tax installment payment program a reduction of 70% of fines, 40% of interests and 100% of legal changes, but it imposes to the beneficiaries a series of additional obligations (all positive and healthy, in our view), such as the mandatory reduction of annual losses of a maximum of 5% of the revenues of the preceding year (from 2019) and a limitation on expenses with professional soccer to 80% of annual revenues. For comparison purposes, the recent "World Cup Refis" (Law No. 12,996/2014), whose adhesion did not impose any obligation on the taxpayer other than the very payment of the tax divided into installments, established a payment in up to 180 months, with a reduction of 60% of fines, 25% of interests and 100% of charges.

In short, the tax installment payment program granted to clubs is slightly more favorable than those that have been systematically granted by the Federal Government to taxpayers in general, over recent years. But nothing is exceptional or shocking. There has been no amnesty and the debts will have to be fully paid, added by SELIC interests.

Unfortunately, the Executive Branch has made a bad decision in vetoing article 48 of the Profut Act, which had been approved by the National Congress and was essential to eliminate uncertainties about the tax treatment granted to clubs such as non-profit civil associations, for the past and for the future. By vetoing this article, clubs shall enter the "financial fair play era", facing great uncertainties about their own tax system, which is exactly the opposite of what was intended by the change in legislation.

The new Law is a milestone for national soccer (despite the unexplained veto to article 48 of the original text). It has the potential to lead to fundamental changes in the management of clubs and sports management entities, such as CBF and state federations, redirecting Brazilian soccer to sustainable growth.