Brazilian Internal Revenue Service Issues New Regulation on Tax Settlement

On August 12, 2022, Ordinance IRS No. 208/2022 (Ordinance IRS) was published in the Brazilian Official Gazette, regulating the settlement of tax credits administrated by the Brazilian Internal Revenue Service (IRS).

Taxpayers will be able to settle tax credits in tax administrative litigation using the following methods: (i) settlement by adhering to the IRS’s proposal; (ii) an individual settlement proposed by RFB; (iii) an individual settlement proposed by the taxpayer.

Ordinance IRS considers the tax administrative litigation to be initiated at the filing of petitions and appeals in tax matters as stated in Decrees Nos. 70,235/1972 and 7,574/2011, and Law No. 9.784/1999, and allows settlement when there is a pending defense, appeal, petition or administrative complaint.

Ordinance IRS has similar provisions to Ordinance PGFN No. 6,757/2022, which also regulates Law No. 13,988/2020 as amended by Law No. 14,375/2022.

Although Article 33 of Ordinance IRS is clear that the use of tax losses credits and a negative balance of Social Contribution on Profits is under the exclusive discretion of the IRS, the IRS is not imposing as many limitations to the use of these credits as PGFN did. The IRS is allowing the use of these credits in any method of settlement and without limiting their use to irrecoverable or hard-to-recover debts or any other special situations.

In addition, Ordinance IRS:
(i) Allows the use of taxpayer credits awarded in disfavor of the federal government—recognized in the lawsuit’s final decision or in their own or third parties’ federal writs of payment—for the purpose of amortization or liquidation of the transacted debit balance;
(ii) Has general provisions regarding the individual settlement to taxpayers who have debts that are the subject of tax administrative litigation with an amount greater than BRL 10 million;
(iii) Provides for the possibility of individual simplified settlement for a debt subject to a tax administrative dispute and with an amount between BRL 1 million and BRL 10 million.

The provisions of Ordinance IRS will come into force on September 1, 2022, except for the guidelines related to the individual simplified settlement, which will come into force later, on January 1, 2023.

For more information regarding this Legal Update, please contact our Tax team.