Change in reference value can raise default interest to more than 1% per month

Article 406 of the Brazilian Civil Code establishes that default interest will be set at the rate in force for default in the payment of taxes due to the National Treasury when:

• not previously established;
• established without a stipulated fee;
• determined by law. 

The reference value for default interest is currently 1% per month, according to article 161, paragraph 1, of the Brazilian Tax Code (“CTN”).

However, the reference value may be subject to change. Depending on the decision by the Superior Court of Justice (“STJ”), which was further postponed in early November 2023, the Special System for Settlement and Custody (“Selic”) rate could be applied as a reference, which corresponds to the economy’s basic interest rate used by the Central Bank of Brazil (“BCB”) as an instrument of monetary policy.

The decision of the STJ is still pending, but if authorized, default interest could exceed 1% per month, potentially impacting private laws, as well as contractual and non-contractual relations.