Stablecoins, IOF and the return of legal uncertainty in Brazil

Source: Exame
Original Title: Stablecoins, IOF, and the Return of Legal Uncertainty in Brazil
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Stablecoins moved more than US$27 trillion globally in 2024, surpassing the combined volumes of Visa and Mastercard. In Brazil, more than 70% of cryptoasset transactions already occur through these instruments, especially those pegged to the dollar. This growth, which could represent one of the greatest financial modernization opportunities in the country’s recent history, is now once again being treated through the old revenue-raising lens, with the Ministry of Finance signaling its intention to institute the IOF tax on cryptoasset operations, just months after MP 1303 was proposed and, even without taking effect, frightened the market by indicating a possible abrupt increase in the tax burden on cryptoasset operations.

The most concerning point is not just economic, but institutional. This move comes precisely as the Central Bank, after four broad and transparent public consultations, has concluded a robust regulatory framework for the sector. This new regulation establishes clear criteria, requires the presence of duly authorized companies, and creates conditions for operations currently conducted by offshore platforms to start occurring within the country. As a direct result of this process, Brazil tends to attract more economic activity, technological development, and investments—natural outcomes of a regulated and predictable market.

That is exactly why the Executive’s signal is so problematic. At the very moment the regulator seeks to provide stability and create a trustworthy environment for global companies to establish themselves in Brazil, the federal government introduces uncertainties that undermine the credibility of the newly constructed framework.

Legal uncertainty arises not only from the possibility of new costs, but from the attempt to classify, through a sub-legal act, transactions with virtual assets under tax situations without clear backing in legislation. By suggesting that the inclusion of certain stablecoin operations in the so-called “foreign exchange market” would automatically subject them to the IOF-Exchange tax, the Executive adopts an interpretation that lacks technical support in the current legal framework and rekindles a cycle of doubt precisely when the country most needs predictability.

The taxable event of IOF-Exchange remains, under Decree 6,306, the act of settlement of the exchange operation, which presupposes the delivery of national and foreign currency or securities representing them. However, stablecoins, even when pegged to fiat currencies, are not foreign currency, nor documents representing currency, as expressly defined by Law 14,478/2022.

Brazilian legislation is clear in excluding virtual assets from this concept, reinforcing that we are dealing with a distinct legal category that cannot be artificially equated with traditional foreign exchange merely for revenue-raising convenience.

Even though the Central Bank has advanced by recognizing and classifying certain operations with virtual assets within a clearer regulatory framework, this alone does not authorize the automatic expansion of the tax scope. The operations described in the new regulation—such as international transfers with virtual assets, use linked to payment methods, or transactions involving self-custodied wallets—do not constitute settlement of exchange operations in legal terms. They are, in practice, flows of digital assets that may have an international economic nature, but are not to be confused with the bilateral delivery of currencies, an essential condition for IOF incidence.

By insisting on this expansive interpretation, the government creates a dangerous precedent: transforming financial innovation into a field for fiscal experimentation, where legal concepts are shaped according to short-term revenue needs. This stance ignores not only the newly established legal framework for cryptoassets but also the practical and systemic effects of this signal.

By signaling the collection of IOF in a segment that the Central Bank itself is seeking to organize and bring within regulatory boundaries, the government discourages companies that were already considering setting up structures in Brazil and deters new investments. And it is essential to recognize: the potential revenue gain from IOF—limited and uncertain—does not come close to compensating for the loss of direct investment, qualified jobs, corporate taxes, PIS/Cofins, ISS, IRPJ, not to mention the flight of innovation and talent. It is a profoundly unfavorable trade-off for the country.

The result is predictable. Instead of fostering the creation of real-backed stablecoins, which could attract foreign capital, strengthen the national currency, and expand the funding base of public debt, the country signals regulatory hostility. Projects that could develop locally begin to seek more predictable jurisdictions, pushing innovation, jobs, and investment abroad.

Brazil, which could lead the integration between digital finance and the capital markets, once again assumes the role of a skeptical and tax-focused spectator.

Ironically, this shift occurs at a time when the world is moving in the opposite direction. Major economies are discussing how to use stablecoins as tools for efficiency, inclusion, and even international monetary projection. Here, they are treated as just another revenue source, disregarding their structural potential for transformation.

Even more serious is the reputational impact of this move. Even though MP 1303 has expired, its mere submission was enough to spook the entire market and reignite concerns about the predictable fragility of Brazil’s regulatory environment. The proposal highlighted the degree of unpredictability with which the government is willing to handle sensitive issues of financial taxation.

Now, by signaling the possibility of IOF on cryptoassets, it reinforces the perception that the rules can change at any time, without thorough technical debate and with questionable legal interpretation. For any investor, domestic or foreign, the message is clear: rules can change at any time for fiscal convenience, even if that contradicts the very legislation in force.

Stablecoins do not represent a threat to sovereignty. On the contrary, they could become a strategic tool to project the real into the global digital environment, increase the efficiency of financial flows, and reduce the structural cost of public debt. What truly threatens the country is the repetition of cycles of legal uncertainty, tax creativity, and the disconnect between innovation and the state.

The choice facing Brazil is not between control and chaos, but between long-term vision and short-term revenue focus. Treating stablecoins as foreign exchange by forced analogy and subjecting them to IOF through expansive interpretation does not strengthen sovereignty, but rather weakens credibility. And in a world where capital is mobile and innovation seeks predictable environments, this is a price the country invariably ends up paying, with high interest and limited growth.