Overview on Federal Administrative Tax Disputes in Brazil - Part II
Apr 14, 2015 QuickCounsel Download PDF
By Thales Stucky, Vice-president of the Instituto de Estudos Tributários – IET. Senior associate at Trench, Rossi e Watanabe Advogados.
Overview on Federal Administrative Tax Disputes in Brazil – Part II
III – Dispute before the CARF
The CARF is an administrative court located in the capital of Brazil (Brasilia), subordinated to the Ministry of Economy and is the body responsible for the analysis of the appeals filed by both the taxpayers and the RFB against decisions issued by the Panel of the DRJ.
The CARF is divided into three Sections. The cases are distributed to each Section in accordance to the subject involved. Cases involving Corporate Tax (IRPJ and CSSL) are assigned to the First Section. The Second Section is responsible for cases involving Individual Income Tax and WHT. The Third Section is competent to review appeals involving discussions on Social Contribution Taxes (PIS, COFINS, etc.), Excise Tax (IPI), Import Duties (II), Tax over Financial Transactions (IOF), and others.Each section is divided into four Chambers. On its turn, each Chamber is divided into two to four Panels. In addition, the CARF has a special body called “Superior Chamber of Tax Appeals – CSRF”, which is responsible for the review of the decisions issued for each of the Sections that form the CARF.
The members of CARF are counselors appointed by the RFB and by entities representing the taxpayers (national associations, unions, etc.). Six counselors form each panel, three appointed by the RFB and three appointed by the taxpayers. The mandate of each counselor is four years and can be renewed multiple times.
Once a case is distributed to a Section of the CARF considering the issue in dispute, the case is randomly assigned to one of the counselors of the Panels. This counselor works as the rapporteur of the case and will have the obligation to report the case to the other members when the judgment of the appeal is scheduled.
The counselors have the power and discretion to ask for additional clarifications on the case before scheduling its judgment. In case additional information is required, the case is remitted back to the DRJ and the tax agents execute the diligences required by the counselor.
At this stage of the process the procedural rules do not allow the filing of additional evidences not requested in the moment the defense was filed, except if the evidence correspond to a new fact or a fact that was unknown by the parties until that moment. In either way the taxpayer shall present a solid argument to bring additional evidences and/or allegations at this stage of the dispute.
Different from the sessions at DRJ, the sessions in the CARF are public and the taxpayer is entitled to attend in person or be represented by an attorney. The attorney of the taxpayer is allowed to use fifteen (15) minutes to present oral pleading to sustain the reasons of the appeal. The judgment sessions tend to be informal and in many occasions it is common to the attorney of the taxpayer be asked to provide additional clarifications to the members of the Panel even if the oral pleading was already concluded.
In case of a draw (3x3) the president of the Panel will deliver a casting opinion to decide the case. The president of Panel is always a counselor appointed by the Brazilian Tax Authority (hereinafter "RFB"), while the vice-president is a counselor representing the taxpayers. In practice, such rule determines that in the majority of the cases the casting vote is given in favor the tax authority. For instance, according to the last report issued by the RFB, 76,3% of the amounts of tax charged through tax assessments by the RFB were considered correct by the CARF. If the president of the Panel is not present in the session, the casting vote is assigned to the vice-president.
If the decision delivered by the Panel is divergent from decisions delivered by other panels or represent an evident violation to the federal law, both the taxpayer and the RFB have the ability to file an special appeal within fifteen (15) days to be reviewed by the Superior Chambers of Appeal, which is a body formed by the presidents and vice-presidents of each of chambers of each section.
An ordinary case generally takes up to two or three years to be decided by the CARF. Once a final decision is issued in favor of the taxpayer, the RFB cannot challenge the decision anymore, based on the reasoning that a body of the Ministry of the Economy cannot challenge decisions issued by other body also subordinated to such Ministry. On the other hand, if the final decision is ruled against the taxpayer, the taxpayer is entitled to challenge the decision in full before a Judicial Court.
IV – Post-litigation issues in the administrative level
Once the taxpayer is notified about the a final decision from the CARF, the taxpayer has 30-days to proceed with the payment of the debt charged or take a judicial measure in anticipation to the filing of a tax collection claim by the tax authority. Within this grace period the taxpayer will be able to proceed with the payment before the debt is registered as a judicial collectable debt, which implicates in an increase of 20% as legal fees due to the RFB’s attorneys.
The main aspects involved in a decision on whether or not the case shall be take to a Judicial court are: (i) case law on the matter in dispute; (ii) costs involved in a judicial dispute (collateral, legal fees, court fees); (iii) risks of not having the tax clearance certificate duly renewed. This last aspect is relevant because after the expiration of the grace period of 30 days the debt will no longer be considered suspend, hence the taxpayer will not be able to renew its tax clearance certificate which is necessary to duly operate in Brazil, specially to participate in public biddings and obtain banking loans.
The most common kind of collaterals used to initiate a judicial dispute are: (i) cash deposit; (ii) banking bond; (iii) real estate; and (iv) insurance. This last kind of collateral has been recently regulated in Brazil and many taxpayers are electing the insurance as the collateral in judicial disputes in view of the reduced costs of maintenance if compared to the banking bond.
One additional aspect that sometimes is considered is the existence of a tax amnesty program. In the recent years, the Federal Government issued tax amnesty programs on an average of each three years and the existence of such programs or the imminence of releasing one is a factor that shall also be considered by the taxpayer and its advisors in the decision about the measure to be taken after the conclusion of a tax litigation in the administrative level.
V – Final comments
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