Tax Law Highlights | Federal Administrative Litigation - CARF and Brazilian Tax Reform
1. Updates in Evidence:
Law No. 14,689/2023 and Brazilian Ministry of Finance (MF) Ordinance No. 1,634/2023 establish new rules on the procedures to be observed for cases heard by the Brazilian Administrative Tax Appeals Council (CARF), as well as the effects of judgments in favor of the National Treasury, when based on the tie-breaking criteria of the President of the Court. In addition, it is important to note that, given the enactment of Constitutional Amendment 132/2023 (EC 132/2023), federal administrative litigation will undergo other changes in its operation, in addition to those already stipulated throughout 2023 by the infra-constitutional route.
To explain more about the subject and clarify some important aspects, we have prepared a material on the new Federal Administrative Litigation, due to the re-establishment of the casting vote, the change in CARF’s Internal Regulations and the internal changes and regulation of the Tax Reform.
Read below for a summary of the content and download the complete material at the end.
2. Introduction:
In view of the high number of cases at the administrative level, the Ministry of Finance has established certain fiscal adjustment measures to promote a reduction in the value of the stock and the average judgment time.
The aim is, in particular, to speed up administrative proceedings and, at the same time, boost the government’s tax collection power. Among the measures with these aims, it is possible to highlight the re-establishment of the casting vote and its effects, regulated by Law No. 14.689/2023, as well as the internal changes to the organization and functioning of CARF, and the new structuring of administrative litigation, in view of the proposed Tax Reform, now provided for in Constitutional Amendment 132/2023, with the aim of reducing tax disputes and facilitating taxation and its transparency.
3. Tax landscape:
I. Law No.14.689/2023 (CARF Law):
Law No. 14.689/2023 (CARF Law), in addition to determining compliance with the CARF Precedents by the Federal Tax Office, establishes the return of the casting vote, determining the effects in cases resolved in favor of the Treasury by this vote, which is given by the tie-breaking criteria by vote of the President of the Court, who is necessarily a Treasury official.
In order to encourage the taxpayer to waive administrative litigation and settle the tax claim in order to increase revenue collection, some effects of the casting vote were determined, depending on the conduct to be adopted by the taxpayer: intention to pay or continue the litigation. If the taxpayer chooses to pay the debt and does so within 90 days, he is guaranteed the exclusion of fines and interest, without a Criminal Tax Appeal (RFFP), and can pay it off using the tax losses of the economic group of which the company is a part, in up to 12 installments, or by means of a third party’s writ of payment, if there is enough balance. Since the judgment, the taxpayer is guaranteed the issuance of a Debt Clearance Certificate (CND). In these cases, the Brazilian Federal Revenue Service (RFB) will have a period of five years to analyze and subsequently approve the payment.
From the standpoint of proceeding with the dispute, it is important to note that, after 90 days from the judgment, the disputed credit will be registered as an active debt and the taxpayer will be given the opportunity to discuss it in court, or make a specific settlement. If the case proceeds to court, it is imperative to note that if a guarantee or bank guarantee is offered, it cannot be settled in advance, and its execution is subject to the final judgment. Furthermore, guarantees will not be necessary for taxpayers who can prove their ability to pay. As for the eventual payment of the credit, this will comprise the main amount and interest, excluding fines and RFFP.
With regards to the setting of ex-officio fines, it should be noted that, when analyzing the tax infringement, if the fine is qualified, its rate will be 100% and, only in cases of recidivism -- if the same infringement is repeatedly committed over a period of two years -- will it be possible to apply a rate of 150%. Furthermore, if there is a charge of a qualified fine, but from observing the controversy, it is not possible to establish, individualize or prove intentional conduct, or if there is a criminal sentence of acquittal, the fine will remain unqualified and will be reduced to the regular rate of 75%.
II. CARF Ordinance No. 1.634/2023
In particular, CARF's New Internal Regulations, established by MF Ordinance No. 1,634/2023, provide for changes in the functioning of the Administrative Council in order to speed up the processing of its procedures as a way of maximizing the number of cases judged and, consequently, converting the value of the stock into public revenue.
These measures include the creation of asynchronous sessions, similar to the Virtual Plenary of the Federal Supreme Court (STF). Preferably, cases will be judged in this way, which consists of the rapporteur submitting his vote and report for later consideration by the other members, with the exception of requests from the parties denoting widespread and relevant legal controversy; or the existence of a complex factual-probationary scenario, subject to the approval of the President of the Court, by non-appealable decision.
III. Other internal CARF measures:
In the same terms, the new composition of the courts and the establishment of Customs Courts were regulated (MF Ordinance No. 627/2024), in view of the granting of the regulation to create specific courts to deal with specific matters and taxes.
Another relevant aspect is the binding of CARF’s decisions to the decisions of the Higher Courts; their observance will only be mandatory with the final and unappealable decisions handed down under the general repercussion/repetitive appeal rite. With regard to cases that have not yet been definitively dismissed, it should be noted that the stay will be an exceptional measure, applicable only when there has been a ruling on the merits, and that it will not be enough just to affect the issue.
Finally, new rules have been established for withdrawing special appeals: the parties may withdraw by petition or by written notice, upon request in the case file, until the start of the trial meeting.
IV. Brazilian Tax Reform:
Considering the approval of the Tax Reform bill, Constitutional Amendment 132/2023 brings some changes to the system for taxing goods and services.
Dual VAT, a model for unifying taxation in the interests of transparency and simplicity, establishes two taxes: the IBS and CBS, which fall under state and federal jurisdiction respectively.
Although they are identical taxes, governed by the same rule, they will be supervised and assessed by different political entities. Therefore, due to this facilitator of jurisprudential disagreement and distortion in the application of its rules, the Amendment allows the legislative branch to provide for the integration of the litigation of these two taxes, since initially they would be inspected and collected by different judging bodies. However, it is important to note that although the Minister of Finance has sent PLP 68/2024 to Congress, it does not specifically provide for Administrative Litigation, which is pending regulation.
Nevertheless, in the absence of a specific proposal, parallel projects have been created that aim at such integration, organized independently from the technical groups convened by the Ministry of Finance.
4. Repercussions and changes:
Therefore, it is clear that, despite the intention to reduce litigation in the legal-tax relationship established between the tax authorities and the taxpayer, in particular by reducing the average time taken for a trial, facilitating taxation and speeding up the process, it is important to consider the impacts and the relativization of the taxpayer’s procedural guarantees in the face of the attempt to increase the government’s tax collection capacity through the casting vote and the flexibilization of the forms of trial and defense in the administrative sphere.
5. What conclusions can we draw?
In view of the above-mentioned, there is a scenario of significant changes for Federal Administrative Litigation, part of which is pending specific regulation, so the recent scenario is still uncertain in this regard.
The Tax team is available to discuss the topic and the main consequences to be observed in the context of litigation perpetrated by our clients in the administrative sphere.
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