CVM Resolution No. 123 of June 3, 2022 — CVM — BR

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CVM RESOLUTION NO. 123, OF JUNE 3, 2022
Approves the Consolidation of Technical Interpretation ICPC 07 of the Accounting Pronouncements Committee - CPC, which deals with in-kind profit distribution.

The PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes it public that the Collegiate Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10,139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. It makes mandatory for publicly-held companies the Technical Interpretation ICPC 07, which deals with in-kind profit distribution, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 617, of December 22, 2009, is hereby revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Signed electronically by
Marcelo Barbosa
President

CVM RESOLUTION NO. 123, OF JUNE 3, 2022
ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 07
DISTRIBUTION OF IN-KIND PROFITS
Correlation to International Financial Reporting Interpretations Committee – IFRIC 17

Index Item
REFERENCES
BACKGROUND 1 – 2
SCOPE 3 – 8
ISSUES 9
CONSENSUS 10 - 17
When to recognize the dividend to be paid 10
Measurement of the dividend to be paid 11 – 13 Accounting for the difference between the carrying amount of distributed assets and the value of the dividend to be paid when the entity settles the related obligation Presentation and disclosure 15 – 17 EFFECTIVE DATE 18 ILLUSTRATIVE EXAMPLES

References

Technical Pronouncement CPC 15 – Business Combinations
Technical Pronouncement CPC 31 – Non-Current Assets Held for Sale and Discontinued Operations
Technical Pronouncement CPC 40 – Financial Instruments: Disclosure
Technical Pronouncement CPC 26 – Presentation of Financial Statements
Technical Pronouncement CPC 24 – Events After the Reporting Period
Technical Pronouncement CPC 35 – Separate Financial Statements
Technical Pronouncement CPC 36 – Consolidated Financial Statements
Technical Pronouncement CPC 46 – Fair Value Measurement

CVM RESOLUTION NO. 123, OF JUNE 3, 2022

Background

Sometimes an entity distributes to its shareholders or partners, or to holders of instruments specified as equity (shares, quotas, etc.), profits in the form of assets that are not cash, generically qualified as “in-kind dividends”. In these situations, the entity may also grant those entitled to its dividends or other forms of profit distribution the option to choose between receiving payment through these assets or alternatively in cash. Any demands for guidance from the CPC regarding how the entity should account for such distributions can be addressed here.
The Accounting Pronouncements Committee (CPC) does not offer guidance on how the entity should measure distributions of its profits to those entitled to them (commonly, and hereinafter, referred to as dividends). Technical Pronouncement CPC 26 – Presentation of Financial Statements requires the entity to present the details of dividends (understood, for the purposes of this Pronouncement, as representing profit distributions for companies that are not joint-stock companies) recognized as distributions to its shareholders and other beneficiaries in the statement of changes in equity or in the notes accompanying the financial statements.

Scope
3. This Interpretation covers the following types of non-reciprocal distribution of assets by the entity to its shareholders and other beneficiaries, acting in their interests:
(a) distribution of “non-cash” assets (e.g., items of property, plant and equipment, businesses as defined in Technical Pronouncement CPC 15 – Business Combinations, interest in another entity or in assets held for sale and discontinued operations, as defined in Technical Pronouncement CPC 31 – Non-Current Assets Held for Sale and Discontinued Operations); and (b) distribution that grants the entity’s partners and other beneficiaries the option to have it settled in “non-cash” assets or alternatively in cash.
4. This Interpretation must be applied solely to distributions through which holders of the same class of equity instruments are benefited and whose treatment is equitable.
5. This Interpretation does not apply to the distribution of a “non-cash” asset that is currently controlled by the same entity or entities involved before and after the distribution. This exclusion applies to the separate, individual, and consolidated financial statements of the entity making the distribution.
6. According to item 5, this Interpretation is not applicable when a “non-cash” asset is currently controlled by the same entities involved before and after the distribution. Item B2 of Technical Pronouncement CPC 15 establishes that “a group of individuals must be considered as controlling an entity when, as a result of a contractual agreement, they collectively have the power to govern its financial and operating policies so as to obtain benefits from its activities”. Therefore, for the distribution to fall outside the scope of this Interpretation in the sense that both parties control the asset both before and after the distribution, a group of individual shareholders benefited by the distribution must have, as a result of contractual agreements, such current collective power over the entity making the distribution.
7. According to item 5, this Technical Interpretation is not applicable when the entity distributes part of its interest in a subsidiary but retains control over it. The entity making the distribution, which results in the recognition of non-controlling interests in its subsidiary, must account for this non-controlling interest in accordance with the provisions of Technical Pronouncement CPC 36 – Consolidated Financial Statements.
8. This Interpretation guides solely the accounting treatment to be provided by the entity making the distribution of “non-cash” assets. It does not cover the accounting treatment to be observed by the beneficiaries of this distribution.

Issues
9. When the entity declares the distribution of dividends and has the obligation to distribute assets to the beneficiaries of such act, it must recognize a liability to meet the declared dividend. Consequently, this Interpretation deals with the following issues:
(a) when should the entity recognize the dividend to be paid?
(b) how should the entity measure the dividend to be paid?
(c) when the entity settles the dividend to be paid, how should it account for any difference between the carrying amount of the distributed assets and the value of the dividend payable?

Consensus
When to recognize the dividend to be paid
10. The liability arising from the dividend to be paid must be recognized when the dividend is duly authorized and within the discretion of the entity, which is the date:
(a) when the proposed dividend, for example, by the Board of Directors or the Executive Board, is approved by the competent authority, in this case the shareholders, if this is the condition legally imposed for its validity; or (b) when the dividend is declared, for example, by the Board of Directors or the Executive Board, if there is no legal requirement for its approval by other bodies of the company.

Measurement of the dividend to be paid
11. The entity must measure a liability related to the obligation to distribute “non-cash” assets as dividends to its beneficiaries at the fair value of the assets to be distributed.
12. If the entity grants the beneficiaries of its dividends the right to choose between receiving a “non-cash” asset or a cash alternative, the entity must estimate the dividend to be paid based on the fair value of each alternative and the probabilities associated with the selection of each alternative by the beneficiaries.
13. At the end of each financial reporting period and at the settlement date, the entity must review and adjust the value of the accrued dividend, recognizing any change in the accrued dividend in equity as an adjustment in the amount of the declared distribution.

Accounting for the difference between the carrying amount of distributed assets and the value of the dividend to be paid when the entity settles the related obligation
14. When the entity settles the obligation corresponding to the dividend to be paid, it must recognize, in the statement of profit or loss, any difference between the carrying amount of the distributed assets and the value recognized corresponding to the dividend to be paid.

Presentation and disclosure
15. The entity must present the difference described in item 14 in a separate line in the statement of profit or loss.
16. The entity must disclose the following information, if applicable:
(a) the recognized value of the dividend payable at the beginning and at the end of the period; and (b) the increase or decrease in the recognized value during the period in accordance with item 13, as a result of the change in the fair value of the assets to be distributed.
17. If, after the end of the financial reporting period, but before the financial statements have been approved for issue, the entity declares a dividend to be distributed through “non-cash” assets, it must disclose:
(a) the nature of the assets to be distributed; (b) the carrying amount of the asset to be distributed at the end of the financial reporting period; and (c) the fair value of the asset to be distributed at the end of the financial reporting period, if different from its carrying amount, and information about the method used to measure the fair value required by Technical Pronouncement CPC 46 – Fair Value Measurement, in its items 93(b), (d), (g) and (i) and 99.

Effective date
18. The entity must apply this Interpretation prospectively as determined by regulatory bodies. Retrospective application is not permitted. The date from which this Interpretation will be applied must be disclosed.

CVM RESOLUTION NO. 123, OF JUNE 3, 2022

Illustrative Examples
These Examples accompany, but are not part of this Interpretation.

Scope of the Interpretation (items 3 to 8)
IE1. Assume that Company “A” is publicly-held. Its control is traded in the market, with no shareholder controlling it individually, nor any group of shareholders exercising this power through an agreement to that effect. Company “A” distributes certain assets (e.g., available-for-sale securities) pro rata among its shareholders. This transaction falls within the scope of this Interpretation. IE2. However, if one of its shareholders (or group of shareholders acting together under a contractual agreement to that effect) controls Company “A” before and after the transaction, the transaction as a whole (including the distribution to non-controlling shareholders) does not fall within the scope of this Interpretation. This is because in the pro rata distribution to all shareholders of the same class of equity instruments, the controlling shareholder (or group of controlling shareholders) will continue to control the “non-cash” assets after the distribution. IE3. Assume that Company “A” is publicly-held. Its control is traded in the market, with no shareholder controlling it individually, nor any group of shareholders exercising this power through an agreement to that effect. Company “A” holds all the shares of its subsidiary “B” (wholly-owned subsidiary). Company “A” distributes all the shares of its subsidiary “B” pro rata to its shareholders, resulting in the loss of control of “B”. This transaction is within the scope of this Interpretation. IE4. However, if Company “A” distributes to its shareholders only the shares of its subsidiary “B” that qualify as non-controlling interests, thereby retaining control of “B”, this transaction is outside the scope of this Interpretation. Company “A” must account for the distribution in accordance with Technical Pronouncements CPC 35 - Separate Financial Statements and CPC 36 - Consolidated Financial Statements. Company “A” controls Company “B” both before and after the transaction.

Lineage: No known changes