In a package of measures aimed at increasing revenue and reducing the fiscal deficit, the Ministry of Finance announced this Thursday (12/1) a new tax transaction, the return of the quality vote in the Administrative Council of Tax Appeals (Carf) and changes to the institute of spontaneous reporting. Furthermore, the removal of ICMS from the calculation of PIS and Cofins credits and appeal changes in the administrative sphere were formalized.
The changes are contained in three MPs, three decrees and one ordinance, which have not yet been published in the Official Gazette. The Treasury Department expects to go from a fiscal deficit of R$231.55 billion to a positive result of R$11.13 billion in 2023.
Zero Litigation
One of the main measures to reduce litigation announced this Thursday is the launch of the Tax Litigation Reduction Program, which will be open from February 1 to March 31. This is a tax transaction aimed at debts under debate in the administrative sphere.
Individuals and micro and small businesses will benefit the most from the program. For these taxpayers, the transaction provides for a discount of 40% to 50% on the total amount of the debt, which includes the tax itself, interest and fines.
Taxpayers will have up to 12 months to pay. According to the text, the possibility of entering the program for this group of people is independent of the debt classification or the ability to pay.
Furthermore, according to Robinson Barreirinhas, Special Secretary of the Federal Revenue, these taxpayers will be allowed to include debts registered in active debt, that is, which have already left the administrative sphere.
Other legal entities and taxpayers with debts exceeding 60 minimum wages may have a reduction of up to 100% on the amount of interest and fines and pay debts in up to 12 installments. The reductions in interest and fines, however, are restricted to irrecoverable and difficult to recover debts.
Furthermore, these taxpayers may use tax losses and negative CSLL calculation basis to pay off between 52% and 70% of the debt.
With this measure, the Treasury expects to resolve 30,000 lawsuits at Carf, which would correspond to more than R$720 million. In the DRJs, approximately 170,000 lawsuits would be extinguished, involving almost R$3 billion.
The package also includes benefits for those who make a so-called spontaneous complaint, an institution through which the taxpayer confesses and pays the debt, with interest and fines, before an administrative process or inspection measure is instituted.
The new feature is that taxpayers will be able to settle their debts even after the inspection procedure has already begun, taking advantage of the 100% discount on official fines and late payment fines provided for those who file a spontaneous complaint. The opportunity will be open until April 30.
According to a presentation made this Thursday by the Ministry, with the measures to encourage the reduction of litigation in Carf and encourage spontaneous reporting, the ministry expects to raise R$$ 50 billion.
For Vivian Casanova, from BM&A Advogados, the spontaneous reporting in particular can draw the attention of taxpayers. “[In the tax transaction] there doesn’t seem to be much new, considering that it is a transaction hypothesis that seems to be aligned with the Law that already exists. We need to wait to see how the regulation comes out”, she stated.
Return of the casting vote
The Ministry of Finance confirmed the return of the casting vote at Carf, once again changing the tie-breaking method for trials. In 2020, the methodology had been replaced by the pro-taxpayer tie-breaking method through Law 13,988.
Before this law, the casting vote most often favored the Union because it provided for a double vote for the president of the group, who, by definition, is a representative of the tax authorities, in cases of a tie. At the time, the change displeased the IRS and was seen as a source of loss of revenue.
With the tiebreaker in favor of the taxpayer, relevant theses in the Carf were reversed in favor of the companies. The taxpayer began to win in the Superior Chamber, the highest instance of the Carf, cases involving legal theses in which he previously lost.
Minister Fernando Haddad stated that during his term in office, the pro-taxpayer tiebreaker led to a loss of R$1.5 billion in revenue per year. “We have had two years of tragic results. R$1.5 billion per year were lost due to parity and the vote in favor of the taxpayer, two years of judgments that did not consider the interests of society,” he stated.
Lawyer Caio César Morato, from Rayes e Fagundes Advogados Associados, criticized the association of Carf with the loss of revenue. Morato stated that it is “wrong” to see the administrative court as a tax collection agency.
“The mistaken understanding that Carf is a tax collection agency, indicating amounts that were not collected in the most recent period, is striking. Carf is an administrative board, independent of the Federal Revenue Service, responsible for the impartial review of tax assessments made by inspectors, due to administrative appeals filed by taxpayers,” he said.
During the presentation, Haddad also cited the understanding of the Federal Court of Auditors (TCU) recommending the end of the Carf's parity model. The TCU published Rulings 1076/2016 and 336/2021, which deal with operational audits at the agency — the first as a result of Operation Zelotes and the second for efficiency assessment. The Finance Minister also said that there was a “recommendation from ministers of Higher Courts” to resume the casting vote.
On several occasions, Haddad and the Secretary of the Federal Revenue, Robinson Barreirinhas, also defended the end of Carf parity, claiming that few countries have administrative courts formed by business representatives.
The criticism, however, is questioned by experts in the field. Carla Novo, a lawyer at Mannrich e Vasconcelos Advogados and a researcher at Insper, states that the institute compared Brazil's model with that of seven other countries in 2021. “Our conclusion is that it is not enough to compare only the existence or lack thereof of parity in the courts, or even their structure, as this disregards the whole. Many other countries have pre-litigation instruments, tools for amicable dispute resolution that have already been structured and implemented for a long time,” she states.
During the press conference this Thursday, Minister Fernando Haddad and the Secretary of Revenue blamed the pro-taxpayer tiebreaker for the increase in Carf's stock, which reached R$1.5 trillion in 2022. Barreirinhas highlighted that the suspension of the council's trials due to the pandemic helped in the increase, but there was an option not to judge cases that could have case law changed due to the tiebreaker methodology.
“There are, in fact, a series of factors [for the increase in stock]. There was indeed the issue of the pandemic, but there was a strong internal political issue after 2020, with the [end] of the casting vote, to promote the judgment of other issues that did not carry as much risk of reversal, and even so there was a lot of reversal [of theses]”.
Along with the end of the pro-taxpayer tiebreaker, Haddad announced that the National Treasury may appeal to the courts if it is defeated in the Carf. Currently, although the taxpayer may appeal to the courts after defeat in the administrative court, if the Treasury loses, the litigation is closed.
Barreirinhas pointed out that recourse to the courts would be possible in exceptional situations and argued that Carf decisions that contradict court decisions fall within this exception.
“Here we have an exceptional situation. We have arguments in favor of the tax authorities, consolidated, for example, in the Superior Court of Justice (STJ) and an administrative decision to the contrary. We understand that in this situation it is indeed possible for the Attorney General's Office to take the matter to the Judiciary,” he said.
However, a government source told JOTA that, in principle, the package of measures announced this Thursday does not include any specific changes on this topic.
The Treasury listed 19 issues that taxpayers were winning at Carf and losing in court. Among them are theses such as the 30% block on the termination of the legal entity, taxation on stock option plans and the PLR paid to directors.
Judicialization
For lawyers and Carf advisors, the change via provisional measure could be challenged in court for not meeting at least one of the requirements for issuing a provisional measure: the urgency of the matter. Another complicating factor would be that the STF is still discussing the constitutionality of the article that provides for the tiebreaker in favor of the taxpayer.
In March of last year, the Court began to judge Direct Actions of Unconstitutionality (ADIs) 6403, 6399 and 6415, which question the rule, but the trial was interrupted by a request for review by Minister Nunes Marques when the score was 5-1 to consider the legislative change in the Carf tiebreaker criterion valid.
Other changes in Carf
Also as a way to reduce the backlog of lawsuits, the government announced the end of the ex officio appeal (automatic appeal to the Carf when the Tax Authority loses the dispute at the Revenue Office) for amounts below R$15 million. Today, the limit is R$2.5 million.
With the change, when a taxpayer wins a lawsuit worth up to R$15 million, the dispute will be closed. According to the Treasury, this will automatically close more than a thousand lawsuits at Carf, worth almost R$6 billion.
In addition, the Ministry of Finance announced an increase in the jurisdiction limit for cases to be brought before the Carf. Currently, cases involving amounts up to 60 minimum wages are definitively judged at the Federal Revenue offices, without recourse to the administrative court. This limit will now be one thousand minimum wages.
According to the Treasury, the change will enable a reduction of around 70% in the volume of processes that reach Carf, but which represent less than 2% of the total value of the stock.
For Carlos Augusto Daniel, partner at Daniel e Diniz Advocacia Tributária, the measure is “excessive” and may be challenged in court. “The cut of one thousand minimum wages for exclusive judgment in the DRJs seems excessive to us and will generate questions, especially in light of the jurisprudence of the STF, which recognizes the right to appeal as inherent to the administrative process,” he assessed.
Lawyer Maria Danielle Rezende de Toledo, partner at Lira Advogados, states that the change has a major impact on taxpayers, who prefer to discuss the debt in the administrative sphere due to the suspension of collectibility while the litigation lasts.
“The fee for accessing Carf has increased considerably and will impact taxpayers in general. In most cases, administrative litigation automatically suspends the collection of taxes, without the presentation of a guarantee. This is why it is preferred by taxpayers. In order to dispute the matter in court, in addition to the legal costs, the taxpayer needs a guarantee, which is very costly,” he said.
End of inclusion of ICMS in PIS/Cofins credits
The measures also include the end of the possibility of including ICMS in the calculation of PIS/Cofins credits. The Ministry of Finance states that the positive impact on public coffers with the reduction in credits will be R$$30 billion.
The doubt about whether or not to include ICMS in the calculation of PIS and Cofins credits arose after the Supreme Federal Court (STF) ruled on RE 574706 (Theme 69) in 2017. In the case that became known as the “thesis of the century”, the STF defined that ICMS is not part of the PIS and Cofins calculation basis, since it is not incorporated into the taxpayer's assets and does not constitute revenue, but merely constitutes an entry into the cash flow and is destined for the public coffers.
Once ICMS was excluded from the PIS and Cofins calculation basis, discussions began as to whether the tax could be included in the calculation of contribution credits by the purchaser of the goods. Published after the STF decision, Normative Instruction (IN) 2,121/2022 defined, in article 171, item II, that ICMS levied on the sale by the supplier may be included in the calculation of PIS and Cofins credits.
However, Finance Minister Fernando Haddad stated this Thursday (12/01) that the way in which the STF decision was implemented in relation to PIS/Cofins credits implied a duplicate deduction of ICMS.
“You take [the ICMS] out to calculate the PIS/Cofins, but the person who receives the invoice credits themselves for the total [of the invoice], and not for what was actually collected. The [PIS/Cofins] credit is the amount collected, not the amount of the tax rate on the invoice including the ICMS. Otherwise, you are crediting yourself twice,” he said. According to him, the government is adopting a “remedial” measure by clarifying how the crediting should be done, since there would have been a loss of around R$15T65 billion in 2022.
According to lawyer Maria Danielle Rezende de Toledo, from Lira Advogados, the government seeks to apply the same system to the seller, who excludes ICMS from the PIS/Cofins calculation base, and the purchaser of the goods, who takes PIS/Cofins credits on the value of the invoice.
“It seems to me that the Minister wants the same system for buyers and sellers. A single system, because he considers it a distortion for the credit system to be different from the debit system. In my opinion, these are different situations, with different controls, because credit is linked to the entry [of the merchandise], my expenditure for acquisition. Debit is linked to my revenue, what I receive when I sell or provide a service,” he stated.
Lawyer Carlos Augusto Daniel, partner at Daniel e Diniz Advocacia Tributária, states that, with the exclusion of ICMS from PIS/Cofins credits, the government is now aligned with the STF decision on Theme 69.
“If the portion of the price comprised of ICMS is not subject to PIS/Cofins, according to the principle of non-cumulativity, it should not generate credit upon entry [for the purchaser]. I understand that a change to exclude ICMS from PIS/Cofins credits will be in line with the principle of non-cumulativity and with the conceptual guidelines established by the STF,” he stated.
Revocation of the PIS/Cofins reduction on financial income
Decree 11,374/2023, which restored the PIS and Cofins tax rates on financial revenues at the beginning of this year, is one of the measures to improve the fiscal result. According to a presentation by the Treasury, the estimated revenue is R$4.4 billion in 2023 and R$6.01 billion in 2024.
The decree was published on January 2, revoking the reduction of PIS and Cofins rates on financial income made by the previous government on December 30, 2022. The regulation, which changed the rates on income earned by legal entities subject to the non-cumulative assessment regime, caused a discussion about compliance with the noventena, as shown by JOTA.
On the penultimate day of his term, former vice president and then acting president Hamilton Mourão signed Decree 11,322/22, which reduced the PIS/PASEP and Cofins rates on financial revenues to 0.33% and 2%, respectively. The change meant a halving of the previous levels of 0.65% and 4%. The measure also affected revenues from hedging operations.
The reduction followed by the revocation of the decree caused a discussion about the observance of the noventena. Article 150, paragraph III, item c of the Federal Constitution, prohibits the Union from collecting taxes before 90 days have passed from the date of publication of the rule that instituted or increased them.
However, the text of the decree merely revokes the previous regulation and determines that it will come into effect on the date of publication. Lawyers interviewed by JOTA emphasize the possibility of questioning the matter in court through writs of mandamus to clarify the situation.
The Secretary of the Federal Revenue Service, Robinson Barreirinhas, said that the issue of the ninety-day payment is being analyzed by the Attorney General's Office of the National Treasury (PGFN) so that there is legal certainty for everyone and stressed that it is a complex discussion. According to him, the issue will be answered "very soon."
According to him, the prior notice is to prevent the taxpayer from being surprised by a change in the rates, which, according to the secretary, did not occur in this case.
“In this case, the taxpayer was not surprised. There was a publication, people were going to New Year's Eve dinner with a certain tax level when they left the next day and it was still the same level because this reduction was canceled on January 1st. The one who was surprised was the new administration,” he said.