Tax Controversy 2021

Last Updated May 20, 2021


Law and Practice


TozziniFreire Advogados is a full-service firm providing legal services to domestic and international companies in several sectors. With 83 partners in São Paulo, Rio de Janeiro, Brasília, Porto Alegre, Campinas and New York, it has played a major role in many of the most significant transactions in Brazil. The firm's tax practice offers its clients solutions to their businesses in Brazil or abroad and the team deals with industry-specific tax issues across sectors such as telecommunications, information technology, energy, oil and gas, retail, pharmaceutical, and logistics. In recent years, TozziniFreire has assisted several clients, including Saab, Citéluz Groupe, Red Eléctrica Internacional and Advent do Brasil.

In Brazil, tax controversies may arise as a result of a tax assessment issued by the tax authorities.

The tax assessment may result from a tax audit or, at the federal level, from tax offsetting proceedings started by the taxpayer.

If the taxpayer decides to challenge the assessment at administrative level, no bond/guarantee is necessary. If the administrative court rules in favour of the taxpayer, the case ends. Otherwise, the taxpayer may take the case to the judicial courts (in most cases it is necessary to present a bond/guarantee).

Furthermore, taxpayers are also able to initiate the tax litigation by filing a judicial lawsuit requesting the judicial court to declare that certain tax charges are illegal or unconstitutional. In those lawsuits the taxpayer is able to request (i) the reimbursement of taxes unduly paid in the five-year period prior to the filing, and (ii) not to pay the undue tax after the filing.

Alternatively, Public Prosecutors may initiate tax foreclosure actions against taxpayers. Taxpayers often challenge tax legislation in courts, especially on constitutional grounds, arguing a more favourable interpretation of the law. The fact is that the profound complexity of the Brazilian tax system gives rise to countless disputes.

Taxes in Brazil may be charged at the federal, state and municipal governmental levels.

The taxes that generate most litigation in Brazil are PIS/COFINS (federal taxes on revenues of entities), ICMS (state value-added tax on sales of goods and some services) and ISS (municipal tax charged on services that are not taxed by ICMS).

In addition to those disputes, at the federal level there are also a smaller number of disputes involving high amounts of Federal Income Tax (IRPJ and CSL) in connection to the tax amortisation of goodwill paid in M&A transactions.

A high portion of Brazilian tax controversies can be mitigated by efficient compliance controls on the part of taxpayers.

One of the factors that make taxation in Brazil complex is the tax compliance that the union, states and municipalities require from taxpayers. The time spent filing returns, issuing invoices and complying with ancillary obligations is higher than in any other country in the world.

Failing to comply with those obligations generates assessments of fines that are sometimes higher than the taxes connected to those returns/invoices. Therefore, companies that have good controls of ancillary obligations experience less litigation.

Another way is to pay the taxes following the interpretation of the tax authorities, mainly expressed in rulings issued by those authorities, and relying on the tax advice of qualified lawyers.

However, it is not uncommon for those rulings issued by the tax authorities to be illegal (ie, charging more tax than the local or federal law allows) and/or unconstitutional (ie, violating constitutional limitations on the right of the tax authorities to charge taxes). It also happens that laws passed by the union, states and municipalities are unconstitutional. If the taxpayer decides to pay and not litigate, it may lose competitive advantage against competitors that challenge those undue taxes.

In Brazil, the administrative and judicial courts do not usually use the OECD's BEPS recommendations or the EU’s measures to combat tax evasion as a decision-making basis.

In general, decisions are based on domestic law. However, in recent years, Brazil has signed double tax conventions following some of the BEPS recommendations and Brazilian courts will have to apply those rules, as treaties are treated as local federal laws. Under the influence of BEPS Action 6, for example, the principal purpose test (PPT) was included in the convention with Uruguay, in the protocol with Sweden (to adjust the current convention), in the convention with Switzerland and in the convention with the United Arab Emirates. Limitation on benefits (LOB) clauses were also introduced in recent tax treaties.

Brazil has a sort of general anti-abuse rule (GAAR) provided for in Article 116, sole paragraph, of the Brazilian Tax Code, included in domestic legislation in 2001, which provides for the possibility of the administrative authority disregarding legal acts or business carried out with the purpose of concealing the occurrence of (i) a tax-triggering event or (ii) the nature of the constituent elements of a tax obligation. This Article, however, depends on regulation by an ordinary law that has yet to be passed. As a result, Article 116 of the Tax Code is not in force.

In accordance with Brazilian tax law, the tax assessment notice is issued whenever the taxpayer fails to pay due taxes (in whole or in part) or to comply with ancillary obligations (issuing invoices, filling out declarations, among others). In addition to the taxes due, the tax authorities charge fines (that at the federal level are normally 75%, but may reach up to 225% in cases of tax fraud or sham) and interest (currently the federal interest SELIC rate is 2.75%, but may become much higher if inflation increases – for instance, it reached 14% in 2016).

In most cases like this, the taxpayer has the right to defend themselves at administrative level without presenting a bond/guarantee and, in the case of an unfavourable outcome, they can also challenge the assessment at the judicial level (in most cases it needs to present a bond/guarantee to litigate at the judicial level).

If the taxpayer declares as due a certain amount of tax in a tax return, but fails to pay said tax, the tax authorities do not need to make a formal tax assessment as described above. They may charge that tax directly before the judicial courts. In this case, the taxpayer is not entitled to bring a case before administrative courts, it must present a defence before the judicial courts (in most cases presenting a bond/guarantee).

It is also possible to challenge the tax assessment directly before the courts, but this results in waiving the right to discuss the assessment at administrative level. At administrative level the tax debt is automatically suspended once the taxpayer files their defence.

At judicial level, however, a guaranty for the amount of the tax debt may be required to suspend it and prevent the taxpayer’s assets from being seized and also to enable the taxpayer to obtain a tax clearance certificate.

Finally, in cases where there is an alleged practice of tax crime (ie, fraud or sham), the tax authorities usually issue a "criminal representation", which is attached to the main administrative proceeding where the tax assessment is challenged. If the taxpayer loses the tax dispute at administrative level, the tax authorities forward this representation to Public Prosecutors, who will decide whether to initiate a criminal lawsuit or not to investigate potential tax crimes.

In general, the tax audits have a special focus on large taxpayers and consider the following indicators: (i) the amount of the tax liabilities, (ii) equity value, (iii) revenue amount, (iv) amount of tax credits to be refunded or offset, and (v) number of employees.

According to the Federal Revenue Ordinance No 5018/2020, the federal tax authorities will indicate the differentiated monitoring of a legal entity that:

  • has annual gross revenue greater than or equal to BRL250 million in its tax accounting bookkeeping (ECF);
  • declares debts whose sum is greater than or equal to BRL30 million in the Declaration of Federal Tax Debts and Credits (DCTF);
  • declares debts whose sum is greater than or equal to BRL30 million in the Declaration of Federal Social Security and Other Entities and Funds Tax Debts and Credits (DCTFWeb) or in the FGTS Collection Guide and Social Security Information (GFIP);
  • has a wage bill whose sum is greater than or equal to BRL70 million; or
  • imports or exports more than or equal to BRL150 million.

The federal tax authorities will also indicate for special monitoring legal entities that:

  • have an annual gross revenue greater than or equal to BRL1 billion in their ECF;
  • declare debts whose sum is greater than or equal to BRL70 million in their DCTF;
  • declare debts whose sum is greater than or equal to BRL70 million in their GFIP; or
  • have a payroll whose sum is greater than or equal to BRL100 million.

The Federal Revenue Service may establish indicators, targets, selection criteria, jurisdiction and specific forms of control and evaluation for work processes or activities related to these legal entities.

The tax audit can start at any time and there is no specific deadline for them to end. At the federal level, Federal Revenue Ordinance No 6478/2017 established that the tax assessment procedure must be carried out within 120 days, but it also stipulates that it may be extended until the effective conclusion of the tax procedure.

However, according to Brazilian law, the tax authorities have a statute of limitations of five years to issue the tax assessment.

As a rule, tax audits take place at the tax authorities' headquarters based on electronic data.

Only on exceptional occasions (eg, inconsistencies in electronic documentation, conferences, or anonymous reports) do tax authorities go to the taxpayer's premises.

It should be emphasised that, in Brazil, tax administrations generally rely on hi-tech systems and the taxpayer must supply countless tax and accounting information (eg, activity, billing information, inventory, liabilities, suppliers, employees and credit card information) monthly.

Currently the main tool used by the tax authorities at all three government levels (federal, state and municipal) is the Public Digital Accounting and Fiscal Books System (Sped), which is basically divided into two modules: Digital Accounting Books (ECD) and Digital Fiscal Books (EFD), completed electronically by the taxpayers themselves.

Based on the SPED, the tax authorities usually cross-check the taxpayer information and, in case of any inconsistencies, ask them to provide more information.

Among the most common points challenged by the tax authorities are:

  • withholding income tax on international transactions, use of tax losses, deduction of royalties and technical services and technical assistance expenses, and goodwill amortisation;
  • federal excise tax (IPI) credits on the acquisition of inputs and outputs exempted from the tax;
  • PIS/COFINS tax credits;
  • ICMS on interstate transfers, tax substitution regimes, tax benefits unilaterally granted by other states, and ICMS on transactions with electricity, fuel and telecommunications; and
  • the nature of the service provided and the location of its provision for ISS purposes.

Please note that tax authorities place a high value on evidence regarding the substance of companies and operations (eg, number of employees, frequency and volume of activities, number of customers, time of existence of the company, legal entity, address, website, and registration with local public bodies).

Brazil has decided to adopt various international initiatives, having already signed, in 2007, a tax information exchange agreement (TIEA) with the United States of America, enacted by Presidential Decree 8,003/2013, and in 2014 an intergovernmental agreement (IGA) was signed to regulate the automatic exchange of information between the two countries for Foreign Account Tax Compliance Act (FATCA) purposes, enacted by Presidential Decree 8,506/2015.

In 2011, Brazil became a signatory to the OECD Convention on Mutual Administrative Assistance in Tax Matters, enacted by Decree 8,842/2016 and in force since 29 August 2016. Furthermore, in 2016 Brazil also adhered to the Multilateral Competent Authority Agreement (MCAA) and the Common Reporting Standard CRS. Despite this, Brazil has reserved the right not to provide assistance in the recovery of tax credits and administrative fines for any taxes, nor to provide assistance with notification or allow post notifications.

In March 2017, Brazil confirmed to the OECD that it was able to carry out the first automatic exchange of information as of September 2018, with data from FY 2017. Nevertheless, Brazil signed an agreement with Switzerland postponing the start of the exchange of information between the two countries for 2019.

Brazil has also implemented, through Normative Instruction 1,681/2016, the obligation to provide information under the OECD's Country-by-Country Reporting standard.

With the implementation of all these measures, Brazil is today considered a country that fulfils the commitments connected to the Global Forum on Tax Transparency.

Implementing Information Exchange

To implement the automatic exchange of information, two important normative acts were enacted in Brazil.

The first one is Normative Instruction (IN) 1,571/2015, which “disciplines the obligation to provide information regarding financial operations in the interest of the Federal Revenue Service of Brazil (RFB)”. This IN provides that financial institutions and the like, insurance companies, which sell pension plans and individual programmed retirement funds must provide electronic information via the e-Finance programme, containing information on financial transactions.

To allow the identification of the final or effective beneficiaries of structures or assets located in the country, which is necessary to carry out the automatic exchange of information, the Federal Revenue Service of Brazil issued Normative Instruction 1,863/2018, which mandates the registration of legal entities with the National Register of Legal Entities (CNPJ), and obliges the registration of permanent establishments abroad of Brazilian legal entities, in addition to the registration of foreign entities that carry out certain kinds of economic activity in Brazil.

In addition to the above, Article 8 of the aforesaid IN 1.863/2018 determines that the information registered related to the entities mentioned above “must also cover the persons authorised to represent them, as well as the chain of corporate shareholdings, up to the last link of the chain, which should correspond to the natural persons characterised as ultimate beneficiaries or any of the entities mentioned in Section 3” and for the purposes of this rule the final beneficiary should be considered: “the natural person who, ultimately, directly or indirectly, owns, controls or significantly influences the entity; or the natural person on whose behalf a transaction is conducted” (Section 1). Significant influence being characterised by a person, directly or indirectly, owning more than 25% of the entity's capital or holds or exercising influence in corporate decisions and the power to elect the majority of the directors of the entity, without controlling it (Section 2).

Section 3 of Article 8 contains a long list of exceptions to the aforementioned rule, from which should be highlighted, in general terms:

  • legal entities constituted as public companies in Brazil or those whose shares are regularly traded on a market regulated by a regulatory entity recognised by the Brazilian Securities Commission (CVM), in jurisdictions that require disclosure of public shareholders, provided that they are not resident in jurisdictions with favoured taxation or in privileged tax regimes (Articles 24 and 24-A of Law No 9,430/1996);
  • non-profit entities that do not act as trustee managers;
  • social security entities, pension funds and similar institutions regulated and supervised by governmental authorities;
  • funds regulated by the CVM, whose quota-holders are informed in e-Finance;
  • pension funds or insurance plans regulated by governmental authorities; or
  • investment vehicles with 100 or more investors.

Exchange of Information and the Right to Privacy

Exchange of information has taken place in Brazil since 2019 and there is an increasing concern that it endangers some taxpayers’ rights. However, recently the Brazilian Supreme Court held constitutional the provisions of a Brazilian amnesty law that provided for the secrecy of data declared in that amnesty. This decision was considered an important achievement, since the Supreme Court supported legal certainty and good faith.

The key points to be considered from a strategic point of view during a tax audit are:

  • maintaining a co-operative relationship with the tax authority;
  • complying strictly with what has been requested by the tax authority;
  • complying with the deadlines determined by the tax authority, justifying in advance any difficulty in providing certain information in the requested term; and
  • putting in writing all communications maintained with the tax authorities.

Under Brazilian law, a tax assessment can always be discussed both at the administrative and judicial level. In summary, the administrative level is organised as follows.

If notified of a tax assessment, the taxpayer has 30 days to present a defence.

The analysis of that defence will take place at the first administrative level, by a panel composed of tax auditors. If the administrative decision is favourable to the taxpayer, the panel itself appeals to the second administrative level (ex officio appeal). If the administrative decision is unfavourable, the taxpayer can also appeal to the second administrative level, which is the Tax Court (Conselho Administrativo de Recursos Fiscais, or CARF), within 30 days (voluntary appeal). In the second level, the appeal will be analysed by a panel of judges, formed half by tax auditors and half by members appointed as taxpayers' representatives.

A special appeal to a third administrative level may be available in case of contradictory decisions on the same subject matter from the CARF. The third level is also composed of a panel of judges formed by tax auditors and members that are representatives of taxpayers. The decision issued by the third level is final.

If an unfavourable decision is rendered, the taxpayer may challenge it before the courts.

States and municipalities tend to follow a very similar model in their jurisdictions.

Any tax claim is subject to the five-year statute of limitations; however, if a case has been initiated by the taxpayer or by the tax authorities, the term will be suspended until the end of the case.

There is no specific deadline for the administrative proceeding to be decided. However, according to Article 24 of Law 11.457/07, "it is mandatory that an administrative decision be issued within a maximum period of 360 days from the protocol of petitions, defences or administrative resources of the taxpayer". In practice, the bodies of the federal administration do not follow this deadline, since they consider it to be merely a guideline. As a matter of fact, the taxpayer can file a writ of mandamus in court, requesting that the judge determines that the administrative authorities comply with the aforementioned term. There are several court rulings in favour of taxpayers in this regard.

Judicial tax litigation may be initiated by the Public Treasury or the taxpayer.

The Public Treasury may file a tax foreclosure to collect the tax debt and seize the taxpayer's assets.

In this case, in order to present a defence and suspend the tax foreclosure action, the taxpayer is required to provide a guarantee for the full amount of the debt, plus attorney's fees.

The taxpayer may challenge the whole case before the courts again, including producing any evidence authorised by law.

The taxpayer may initiate different legal proceedings against the government: a writ of mandamus or an ordinary lawsuit.

The writ of mandamus is applicable against an arbitrary act of the public authorities, where a preliminary injunction may be granted by the judge to protect the taxpayer against such arbitrary acts. In this lawsuit, it is not possible to produce evidence during the procedure. If the taxpayer is defeated, there is no payment of attorneys' fees due to the Public Treasury.

The ordinary lawsuit can be filed to request a refund of taxes unduly paid, to declare an administrative decision null or to cancel tax debts. In the ordinary action it is possible to produce evidence during the litigation. If the taxpayer loses, attorneys' fees will be due to the Public Treasury.

The judicial proceedings begin with the filing of a petition by the taxpayer or by the Public Treasury itself. It is worth mentioning that, in the lawsuits filed by taxpayers, it is possible to request a preliminary injunction to suspend administrative acts, such as the collection of taxes and fines.

In the course of the lawsuit, the judge grants the defendant the right to object to the plaintiff's allegations. After the litigants' manifestations, the judge allows the presentation or production of new evidence. At this stage, the litigant has the right to comment on the evidence presented or produced by the other litigant. At the end of the first instance, the judge decides on the merits of the case.

In view of this decision, the litigants may submit an appeal to the second instance. With the submission of an appeal by one litigant, the other litigant may present counterarguments. The analysis and judgment of the merits will take place before a panel of judges. After the second instance trial, it is possible to file a special appeal to the Superior Court of Justice, the last stage for sub-constitutional matters, and/or an extraordinary appeal to the Supreme Federal Court, the last instance for constitutional matters. In the higher courts, depending on the matter discussed in the case, the special/extraordinary appeal can be judged by a minister (as the judges of the higher courts are referred to) or by a chamber of ministers. Regarding the definitive pronouncement of the superior courts, no further appeal is possible, the case must be closed and returned to the original court for compliance with the final decision or for archiving. It is important to highlight that litigants can submit a motion against any judicial decision to clarify any omission, obscurity or contradiction.

As a rule, the burden of proof lies with the plaintiff. However, in tax cases, the burden of proof is on the taxpayer even in judicial lawsuits filed by the tax authorities (tax foreclosure lawsuit).

The only situation where the courts still transfer the burden of proof to the tax authorities is when the tax authorities attempt to make individuals or entities liable for the tax debt of a third party, when those individuals or entities are not mentioned the Overdue Tax Liability Certificate, the document that initiates the tax foreclosure lawsuit.

As a rule, the burden of proof lies with the plaintiff. However, in view of the peculiarities of the case (eg, impossibility or excessive difficulty in producing the evidence), the judge may assign the burden of proof to the defendant, provided that they do so by reasoned decision.

On the other hand, in the case of a foreclosure action, the debt has been previously confirmed at administrative level and is, therefore, considered liquid and correct; in these cases, the burden of proof lies on the taxpayer. 

The taxpayer must present the most robust set of evidence possible at the time of filing the lawsuit or of its defence against the foreclosure action filed by the Public Treasury.

The ideal is that the evidence should always be highlighted in the taxpayer's manifestations and presented in a schematic way for a quick and easy understanding by the judge. During the first judicial level, there is a specific phase for producing new evidence and, whenever possible, the taxpayer must request the opinion of an expert. An expert report favourable to the taxpayer will have great relevance for the judge.

In Brazil, jurisprudence and doctrine are relevant to support tax cases, especially case law from the Superior and the Supreme Courts.

International guidelines, although used as a reference, do not have the same influence, except on certain international tax matters.

The tax judicial procedure has the following levels:

  • first level (state or federal judges), where a single judge is responsible for deciding the case;
  • second level (state or federal courts), which is the Court of Appeals composed of a group of judges, among which one is selected as reporter of the case;
  • the Superior Court of Justice (STJ), which should give final interpretation of the law; and
  • the Supreme Court (STF), which deals only with constitutional matters, and which is composed of a group of 11 ministers (judges of the higher courts).

It is important to note that the parties may appeal simultaneously to the STF and the STJ.

In addition, in the case of repeated disputes, with multiple similar actions filed by taxpayers, if relevant case law has been established, the reporter of the case at the Court of Appeals, or at the STJ or STF, may decide the case by a sole decision, but an appeal to the collegiate body within the Court may still be filed after such a decision, except in case of binding decisions (recurso repetitivo and repercussão geral), which must be applied by judges and courts to all similar cases.

Appeals are generally filed against decisions on the merits.

After the first decision on the merits, an appeal (apelação) may be filed to the Court of Appeals, which will be responsible for reviewing the case. In general, the appeal has a suspensive effect, except in foreclosure actions.

Other decisions, which do not refer to the merits, are subject to an intermediary appeal (Agravo de Instrumento).

Both sort of decisions may be subject to a motion of clarification, if the decision has omitted any matter or is contradictory, obscure or contains an error.

The Special Appeal can be filed to the Superior Court of Justice on the basis that:

  • the decision of the Court of Appeals violated a federal treaty or law, or denied them validity;
  • an act of local government was against federal law; or
  • the interpretation given to a federal law by the Court of Appeals differs from that upheld by another court.

An Extraordinary Appeal may be filed to the Supreme Court if:

  • the Court of Appeal's decision is contrary to the Constitution's provision;
  • the Court of Appeal's decision declares the federal law or treaty unconstitutional; or
  • a law or governmental act violates the Constitution.

It is important to note that the Superior Courts also have several requirements for the admissibility of these appeals. As an example, it is possible to mention that the STF and STJ do not admit extraordinary or special appeals that require the review of facts or evidence.

At the first judicial level, judicial tax litigation is decided by a single judge who decides the case. Judges are appointed on merit through an open system. The cases are assigned to judge randomly by electronic lottery.

At the second judicial level, tax litigation is decided by the Court of Appeals, which is composed by groups of judges divided into panels. The cases are also distributed randomly to the reporter of the case, who will be held responsible to prepare the report and decide on the case.

The Superior Court of Justice (STJ) is composed of 33 ministers appointed by the President of the Republic, after approval by the Federal Senate, provided that they are Brazilians over 35 and under 65 years of age, of notable legal knowledge and unblemished reputation. One third of the STJ's ministers must be chosen from among judges of the federal regional courts, one third from the judges of the state courts of law and one third, in equal parts, from lawyers and members of the Public Prosecutor’s Office.

The Supreme Federal Court (STF) is composed of eleven Ministers, all born Brazilians, chosen from citizens over 35 and under 65 years of age, of notable legal knowledge and unblemished reputation, and appointed by the President of the Republic, after approval of the choice by an absolute majority of the Federal Senate.

Please note that once a judge or minister has decided a case, they will oversee any other appeal or motion referring to that case, until it moves to the subsequent level.

Federal Law 13.988/2020 provides for a tax agreement procedure (offer in compromise, or OIC) between taxpayers and the federal tax administration with the aim of settling pending administrative and judicial proceedings. The OIC may:

  • grant discount on interest, penalties and legal fees relating to the tax debts that are subject to the tax agreement, which are deemed by the tax authorities to be hard to recover, but such discounts cannot affect the principal amount of the tax due, nor can they exceed 50% of the total tax debt;
  • allow payment to be made on special conditions and terms, including up to 84 monthly instalments; and
  • allow guaranties to be replaced, disposed or offered.

The National Treasury Attorney’s Office (Procuradoria Geral da Fazenda Nacional, or PGFN) regulates the tax agreements relating to judicial procedures in Ruling (Portaria) PGFN 9.917/2020, which provides for discounts on the payment of certain tax debts the tax authorities consider difficult to recover due to the taxpayers’ debtor profile.

In relation to tax administrative proceedings, the possibility of an OIC, although provided for in Law 13.988/2020, has not yet been regulated by the Brazilian Federal Revenue.

In addition, in the context of the COVID-19 pandemic, the National Treasury Attorney’s Office regulated specific OICs applicable to unpaid federal taxes due to the economic impact of the pandemic. In these cases, discounts and instalments for the settlement of tax debts should be established according to the difficulty faced in recovering the amounts and the specific economic effects of the pandemic on the taxpayer.

The State of São Paulo has regulated an OIC procedure for state taxes debts, but not all states or municipalities have similar procedures in force.

A taxpayer may adhere to an OIC proposal made by the PGFN in relation to (i) matters considered relevant and with multiple similar lawsuits, or (ii) low value cases, in which tax debts does not exceed an amount equivalent to 60 minimum wages. Alternatively, they may submit an individual proposal to the PGFN, who will examine the request to verify if all requirements are fulfilled, decide and settle the case.

In relation to the OIC proposed by the PGFN on relevant matters, if the taxpayer opts to adhere to it, the taxpayer must do this in all similar lawsuits on the same subject and commit to uphold the tax authorities' position on such controversial matter in the future. Once the taxpayer adheres to an OIC or has its individual proposal accepted, the taxpayer is obliged to file the agreement in the proceeding, submitting it to the approval of the court to terminate the case.

No tax mediation or arbitration system exists in Brazil.

Binding ruling requests are available in Brazil and may be filed with the aim of clarifying the interpretation of provisions of tax legislation applicable to specific facts or circumstances and on the classification of services, intangibles and other operations that produce changes in equity, according to Ruling (Instrução Normativa) 1.396/2013 and Decree 70.235/72.

The individual Rulings are effective until the law changes, or the facts or circumstances are modified, and have a confidential nature.

The tax authorities may also publish Rulings to demonstrate their interpretation or to serve as guidance to taxpayers on certain tax matters. Such Rulings may change if the authorities alter their interpretation, in which case the new understanding will apply to those taxable events that happen after its publication in the official gazette, except if the Ruling provides for a more favourable interpretation, in which case it can be applied retroactively.

Rulings are binding on the tax authorities but can be challenged by taxpayers before the courts.

An OIC at the federal level is limited to:

  • litigation involving small values, which are considered to be debts of less than an amount equivalent to 60 minimum wages (in this case, discounts may be granted up to 50% of the total amount of tax debts and/or payment up to 60 monthly instalments); and
  • litigation on relevant matters with multiple lawsuits, proposed by the PGFN, to which the taxpayer may adhere, with discounts of up to 50% of the total amount of the tax debts with a maximum of 84 monthly instalments.

In the latter case, the National Treasury Attorney’s Office will publish a notice in the official gazette, which will contain the requirements to be met, the reductions offered, the terms and the payment methods.

In turn, an individual OIC proposal may be presented by taxpayers with debts above BRL15 million, who are bankrupt or under judicial winding-up (Recuperação Judicial), and debts which are suspended by court decision or guaranteed. The taxpayer will be notified of the proposal via the National Treasury Attorney’s Office electronic platform or by post.

The taxpayer must explain the causes of their financial distress, presenting the financial statements for the last three fiscal years and the current year and a list of assets and rights to guarantee the tax agreement. The National Treasury Attorney’s Office will analyse the request and the Attorney General, or anyone to whom they grant powers, will sign the agreement of the approved individual OIC.

There are no ADR mechanisms applicable in transfer pricing or cases of indirect determination of taxes.

Tax assessments, where the taxpayer is accused of fraud or sham have criminal repercussions. However, if the taxpayer challenges the accusations at administrative level and wins the case or loses the case but pays the tax debts, it should not result in criminal charges.

On the other hand, the Brazilian Supreme Court has ruled that in the case of indirect taxes, such as the value added tax (Imposto sobre a Circulação de Mercadorias e Serviços, or ICMS), the wilful misconduct to fail to collect the ICMS, which has been declared on the taxpayer's returns, is considered theft crime or misappropriation of the government revenues.

A criminal procedure may result from the unfavourable conclusion of a tax administrative proceeding, where the taxpayer was accused of sham or fraud. However, during the administrative proceeding the criminal charge must be suspended.

Please see 7.1 Interaction of Tax Assessments with Tax Infringements.

If an administrative tax proceeding is terminated in an unfavourable manner with fraud and sham accusations, the Public Prosecutor's Office must initiate an investigation of a tax criminal offence. If the Public Prosecutor considers it has sufficient evidence of the offence, a criminal proceeding should be filed before the courts.

Another situation that may result in a criminal proceeding is a police inquiry to determine the author of the offence. In this case, when the investigation is complete, the police inquiry will be sent to the Public Prosecutor's Office, which should make a formal accusation if believes it has sufficient evidence regarding the offence and the accused. The Public Prosecutor may also return the procedure to the police for further investigation or withdraw the charge.

Once the criminal proceeding is initiated, the judge should render a first level decision, but an appeal may be filed to the Court of Appeals and, depending on the case, a Special Appeal to the Superior Court of Justice and the Supreme Court may also apply.

Federal tax assessments in Brazil are normally subject to a 75% fine, which can be raised to 150% in the case of tax fraud or sham. If, within 30 days of the tax assessment notice, taxpayers (i) pay the full amount of the taxes due, the fines are reduced in 50%; or (ii) start to pay the full amount in instalments, a discount of 40% will apply instead.

Although an agreement to prevent a criminal case is not possible under Brazilian legislation, according to the case law of the Superior Court of Justice the payment of the tax debt should cause the charges to be dismissed.

Criminal proceeding will be judged at the first level by a single judge. Against this decision, an appeal may be filed to the Court of Appeals.

If the decision rendered by the Court of Appeals is in breach of a federal law or contradicts other decisions rendered in similar cases, it is possible to file aa Special Appeal to the Superior Court of Justice (STJ); if it violates the Federal Constitution, an appeal to the Supreme Court (STF) may be filed. However, under these appeals, the facts and evidence of the case cannot be reviewed by the STJ or the STF.

Transactions and operations that have been challenged in Brazil under a specific anti-avoidance rule (SAAR) or transfer pricing rules are subject to administrative proceedings.

Although there is no general anti-avoidance rule (GAAR) in force in Brazil, tax authorities may disregard transactions on the basis that they were carried out as part of a tax fraud or sham.

A criminal charge may arise every time there is a tax fraud or sham accusation.

If a double taxation situation occurs is it common to use domestic litigation against an administrative decision if the situation is in conflict with the provisions of a given tax treaty.

Note, however, that Brazil has a treaty policy in which it reserves the right to withhold income tax at source on certain payments, such as royalties, technical services or technical assistance.

Brazil’s tax treaties do not provide for the corresponding adjustments in Article 9 of the OCED Model Tax Convention, therefore, a tax adjustment may only be reached under a mutual agreement procedure (MAP), which are not common.

Brazil is not a signatory to the BEPS Multilateral Instrument (MLI).

As mentioned in 7.8 Rules Challenging Transactions and Operations in this Jurisdiction, Brazil has no GAAR in force. However, there are some SAAR that apply to cross border situations, which taxpayers have challenged before the courts on the ground that such rules are not compatible with certain treaty provisions.

That is the case of the Brazilian controlled foreign corporation (CFC) regime, in force from 2001 until 2014, which was considered to be in violation of Article 7 of the tax treaties (based on the OCED Model Tax Convention). This understanding was upheld in a precedent by the Superior Court of Justice.

The non-compatibility of Brazilian transfer pricing rules, which are based on a fixed margin mechanism, has also been challenged before the courts on the grounds that it is not in line with the arm’s-length criteria of Article 9 of the OCED Model Tax Convention, but we have no knowledge of any favourable decision in such a case.

Brazil is not a signatory to either the multilateral transfer pricing convention or the EU Directive. To our knowledge there have only been a few cases before the courts where taxpayers challenged local rules in contrast with double tax treaties, with no known favourable outcome.

Most transfer pricing disputes relate to the interpretation and application of Brazilian rules.

Advance pricing agreements (APAs) do not apply in Brazil.

In Brazil there is much tax litigation relating to the qualification of income for withholding tax purposes.

For instance, for decades the courts debated if services should be qualified as business profits under Article 7 of the OCED Model Tax Convention or as other income. Now the courts debate if technical services and technical assistance, which were put a par with royalty payments in certain treaties, require a technology transfer attached to them in order to fall under Article 12 (royalties) of the OCED Model Tax Convention.

The interest on the company’s equity (JCP) also raises treaty qualification issues (ie, if it should be treated as interest or as dividends).

Brazilian CFC rules, on the other hand, were deemed not compatible with Article 7 of the OCED Model Tax Convention, as it aimed at automatically taxing the profits of the foreign controlled or affiliated entities on December 31st of each year.

Transfer pricing disputes, as previously mentioned, are mainly focused on the interpretation and application of Brazilian rules.

As for the PE issues, please note that there is no permanent establishment concept under Brazilian law. However, there are some cases where the tax authorities have applied the treaty provision to characterise a PE in Brazil with the aim to levy taxes on certain specific situations. Such cases, however, demonstrate that the absence of PE rules lead the tax authorities to apply such provisions in cases that are generally distant from the traditional PE international doctrine and where a PE should not have been characterised.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

This issue does not arise in Brazil.

There are no costs or fees to litigate at the federal administrative level in Brazil and taxes are suspended throughout the proceeding.

Taxpayers must pay court costs to initiate a judicial case. The costs vary according to the competent court.

Before federal courts, the court costs are subject to a fee cap and normally correspond to a non-substantial amount. Some state courts have higher caps, such as the State Court of São Paulo, where the cap is almost BRL90,000 and reflects a percentage of the value discussed in the lawsuit. Smaller costs also apply to certain appeals.

The party who loses the case supports all the costs of a lawsuit and, in general, will have to pay attorneys’ fees to the other party, except in the case of a writ of mandamus.

Furthermore, it is important to note that under tax foreclosure actions the taxpayer must present collateral on the amount of the tax debt to defend themselves.

Indemnity against the government for a null and void tax assessment is not usual, but there are a few precedents were taxpayers required the government to indemnify all the costs incurred, including with guaranties (insurance or bank guaranty fees).

There is no ADR in Brazil, except for OIC, which have no costs involved, except the payment of the taxes subject to the tax agreement. See 6. Alternative Dispute Resolution (ADR) Mechanisms.

Statistics regarding tax court cases are provided by the National Justice Council (CNJ), which is responsible for overseeing the Brazilian judiciary.

According to CNJ data, 30.2 million tax enforcements were pending in 2019. These numbers can be explained when taking into account the time required for these processes to be completed. For every 100 tax enforcements existing in 2019, only 13 have been resolved.

Most tax enforcement, 85% of the total number of cases, is carried out at state level. Federal tax enforcement accounts for 15%, which represent BRL2,319 trillion in debts, according to the National Treasury Attorney's Office. The state and municipal courts do not provide statistics for the public.

In the administrative sphere, statistics are provided by the Administrative Tax Appeals Council and regard only cases at second instance. Despite having a smaller number of pending cases, proceedings at the administrative level usually involve higher amounts. In 2019, 122,371 administrative proceedings were pending, corresponding to BRL603.77 billion in tax debts.

According to the National Treasury Attorney's Office statistics, the majority of cases refers to:

  • corporate income taxes – corporate income tax (IRPJ) and social contribution on net income (CSLL);
  • federal excise tax (IPI);
  • import tax (II);
  • financial transactions tax (IOF);
  • economic domain intervention contribution (CIDE); and
  • withholding income tax (IRRF).

In numbers, corporate income tax represented the largest portion of active tax debts in 2019, in the amount of BRL457.64 billion, or 27.9% of total active credit.

The state and municipal revenue services do not provide a centralised report, which makes it challenging to establish statistics regarding tax matters at sub-national level.

The last available report from 2018, shows that taxpayers won 28.5% of cases and had partial success in 18.5%, leaving a 53% success rate for the tax authorities.

The Tax Administrative Court is very technical and well equipped to deal with complex cases, especially those involving a lot of evidence.

Tax liabilities are suspended during the tax administrative procedure, which means that, normally, taxpayers are encouraged to challenge tax assessments at administrative level, where a case would normally take up to five years.

However, constitutional matters and the illegality of administrative rules should normally be challenged before the courts. Judges are normally not specialised in tax matters and judicial experts generally limited to accounting issues of smaller complexity, which means that certain cases may be difficult to discuss before courts.

Once an administrative procedure has ended, it is also possible to challenge the final decision before the courts. An annulment action may be filed with the aim of nullifying the administrative court decision. However, should a final unfavourable decision be rendered at administrative level, the tax debt may be subject to tax foreclosure action filed by Public Prosecutors against the taxpayer, in which case guaranties on the total amount of the tax debts, plus interest and penalties, must be presented so that the taxpayer can defend themselves in the foreclosure action.

A writ of mandamus can also be filed to defend the taxpayer, in which case a preliminary injunction can be requested from the judge to protect the taxpayer against a tax assessment or a foreclosure. Preliminary injunctions are normally granted in cases of urgency or peril.

In judicial cases the party that loses the judicial case has to bear the proceeding's costs and pay attorneys’ fees to the winning party, except in the case of a writ of mandamus where such fees are not due.

Judicial cases last an average of ten years.

TozziniFreire Advogados

R. Borges Lagoa, 1328
Vila Mariana
São Paulo – SP

+55 11 5086 5000
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Trends and Developments


In the midst of the adversities caused by the COVID-19 pandemic, the agenda for structural legislative reform remained stalled in the Brazilian Congress in 2020, including the urgent tax reform that would unify taxes and reduce the complexity of the national tax system.

However, this unfortunate reality has contributed to a significant change in litigation in Brazil in 2020, which has continued as a trend in 2021, with particular impacts on the judgment of tax disputes with high economic and social importance.

Thus, in contrast to the breakdown experienced in the legislative branch, the judicial branch, especially the Brazilian higher courts (Superior Court of Justice (STJ) and Federal Supreme Court (STF)), has been the stage of significant jurisprudential tax reform, which is expected to intensify in 2021.

Technological and digital tools that were previously used with caution, or not even imagined in the practice of most Brazilian courts, had to be put into use due to the social isolation required to prevent the spread of the coronavirus. New practices allowed the activities of courts, abruptly interrupted in March last year, to be gradually resumed based on new routines, marked by virtualisation of procedures and remote working by judges, tax auditors, civil servants and lawyers.

In view of this context, the following sections describe both recent trends and the outlook for future developments in tax litigation in Brazil.

Brief Remarks on the Framework of Tax Litigation in Brazil

Briefly summarised, the taxing powers of the levels of the Brazilian Federation (federal, state, municipal and Federal District) are fully established by the Federal Constitution, with no overlaps among them.

Tax controversies usually start in the administrative sphere, in response to auditing and assessment of tax levies, and are judged by councils established within the structure of the executive branch of each governing entity. The decisions rendered by those councils are subject to judicial challenge if unfavourable to taxpayers or are definitive if favourable to them. There is a hybrid model for tax litigation in Brazil, under the constitutional rule of guaranteed access to the judiciary for individuals and legal entities.

If a tax assessment is upheld at the administrative phase, a tax foreclosure action is filed by the government. Taxpayers can choose between waiting for the administrative proceeding to close or taking complaints directly to the judiciary, but they are not allowed to litigate the same controversy in both the judicial and administrative spheres simultaneously. Disputes typically begin in the judicial sphere when the taxpayer challenges the legality and/or constitutionality of a fiscal levy.

Although subject to the same general legal commands – mainly the Federal Constitution, National Tax Code and national laws on levies such as income tax (federal), ICMS (state value-added tax) and ISS (municipal service tax) – each governing entity has organic-administrative autonomy, in light of its particularities, to establish procedural rules for administrative litigation and the functioning of its structures for assessing taxes and auditing compliance. 

In a similar way, judicial bodies (state courts with jurisdiction over disputes involving state and municipal taxes; federal courts, responsible for judging claims regarding federal taxes; and the high courts, STJ and STF), despite being subject to the same rules on civil procedural law, are also able to establish their own internal organisational rules and procedures for handling their respective proceedings.

Due to the complexity of the Brazilian legal system, tax controversies are usually taken to the STJ (the highest court for non-constitutional matters, with responsibility for harmonising interpretation of federal laws by the state and regional federal courts of appeal), and to the STF (responsible for the analysis of constitutional questions deemed to have relevant legal, economic or social repercussions). 

COVID-19 and the Acceleration of Trends: Virtualisation and Automation of Tax Litigation

Because of their organisational independence, each administrative and judicial court established its own plan to face the crisis provoked by COVID-19. The resulting multitude of guidelines, updated at a dizzying pace in accordance with the perceived gravity of the health crisis, caused a great deal of uncertainty among legal practitioners in the beginning of 2020.

As a general trend, the courts have focused on a rush to implement technologies that could assure the continuity and productivity of their activity in virtual environments, with provision of the means for remote interaction of judges, court staff members, lawyers and parties.

Before the pandemic, tax litigation in Brazil was highly dependent on the physical structures of the tax administration offices and courts and the physical presence of judges, court staff members and lawyers, with a huge number of paper – rather than electronic – case files. Meetings with administrative authorities and judges, and trial sessions, mostly occurred in person and in-person visits to the respective offices and courthouses were the standard procedure.

As this situation could not continue in the face of the pandemic, it was forcibly modified in 2020. Nevertheless, the measures taken by the courts that began timidly, aimed at adapting to the exceptional moment, were revealed as an acceleration of the trend toward virtualisation and automation of tax litigation.

According to an annual survey conducted by the National Justice Council (CNJ), tax enforcement suits are responsible for a huge backlog of judicial cases, representing approximately 39% of all the cases pending resolution and causing a congestion rate of 87% in courts (based on statistics from 2019).

Furthermore, a study conducted by Insper, an important Brazilian tax research institute, says that the value of taxes in dispute in tax litigation in the country (judicial and administrative) reached the stupendous sum of BRL5.4 trillion in 2020 (approximately USD980 billion), the equivalent of 75% of GDP.

Based on this longstanding scenario, the tax administrations and judicial branches have been studying projects for automation and virtualisation of litigation procedures for years, with the aim of reducing the time taken to resolve tax cases and increasing the effectiveness of the procedural systems, and thus accelerating the realisation of potential revenue by the respective governments.

The urgency of the moment has spurred these efforts on three main fronts:

  • digitisation of physical case files – for migration of court filings, decisions and procedural movements to fully electronic systems with online availability;
  • creating and improving computer systems for filing petitions, monitoring case progress, issuing electronic summonses and keeping track of deadlines; and
  • alteration of trial procedures, with the implementation of virtual sessions and court hearings by videoconference.

Although these measures have assured the continuity of tax litigation, and even increased the productivity of many courts, they have also led to the judgment of many complex cases without the necessary thorough debate, meetings in chambers with judges, detailed examination of precedents and face-to-face oral arguments, in observance of the constitutional principles of legal certainty, due legal process and the right to a full defence.

Supreme Court Procedure

Considering the background outlined above, 2020 brought developments in the tax litigation area, which will be of great importance in 2021.

The first and most important one is the change to the standard trial procedures of the STF, which has shifted from in-person hearings to virtual ones, and the large number of relevant tax cases that have been decided through this procedure.

The Brazilian Constitution is extremely detailed in tax matters. As a result, the STF is constantly called on to definitively resolve tax cases through decisions with binding effect on courts throughout the country.

Due to the impossibility of holding physical judgment sessions, with face-to-face debate of disputed questions between the justices, and lawyers’ oral arguments, in March 2020, the STF extended the option of holding a virtual trial to all cases under its jurisdiction (at the discretion of the reporting justice), including the merits of suits involving constitutional matters. Before this, virtual trials were restricted to specific classes of cases of lesser relevance, or in which the matter already has leading precedents from the STF.

The virtual sessions correspond to mere publication of the justices’ votes on a system on the STF’s website. After the presentation of the reporting justice’s written vote, the other justices have five business days to express their opinions, with four options: (i) following the reporting justice fully, (ii) following the reporting justice with reservation, (iii) diverging from the reporting justice, or (iv) following that divergence expressed by another justice. If a justice does not express an opinion, their vote is deemed to follow that of the reporting justice.

The virtual arrangement inhibits effective debate among the justices and the active participation of lawyers in the discussion, who can only send written briefs and oral arguments recorded in advance, without any guarantee these will be analysed by the justices.

The controversy is resolved in abbreviated and remote form, without real confrontation of different legal interpretations or in-depth arguments about the questions invoked during the discussion, which, were it possible, could have the potential to change the understanding of one or more justices.

Despite the gain in productivity, the virtual judgment method can weaken the quality of decisions and impair the full exercise of the right of defence of the parties, since their lawyers are unable to personally stress relevant questions to be considered by the court.

In 2020, a total of 6,219 cases were judged by the STF under these virtual conditions (nearly twice the number in 2019), against only 159 decisions taken with the presence of justices and lawyers (sessions held by videoconference during the pandemic). Many constitutional tax questions pending consideration were quickly elected for trial and judged virtually.

Before the pandemic and without the expansion of the virtual sessions’ system, the STF could resolve two or three tax cases per day. Now, with virtual sessions, many more can be judged on a given day.

Between 2016 and 2019 (a four-year period), the STF judged 25 tax questions with general repercussion. In contrast, between March and September 2020, 37 such cases were judged involving only federal tax questions, with 31 victories for the National Treasury, as reported by the National Treasury Attorney General's Office.

It is because of this profusion of judgments from the STF, and their general binding effects, sometimes contrary to the precedents made by other courts, that this movement represents a special and jurisprudential tax reform.

Among the cases involving billions of reais that were judged in 2020 in favour of the National Treasury, and that will impact the business environment in Brazil going forward, were those considering:

  • the constitutionality of assessing the tax on manufactured products (IPI) on the resale of imported products in the internal market;
  • the constitutionality of the re-establishment of the combined rate of PIS and COFINS (two social contributions) at 4.65% on financial revenues obtained by companies by a mere decree;
  • the constitutionality of the contribution to the Brazilian Service to Support Micro and Small Businesses (SEBRAE), the Brazilian Agency to Promote Exports and Investments (APEX), and the Brazilian Industrial Development Agency (ABDI); and
  • the constitutionality of assessing the employer’s portion of social security contributions on the constitutionally mandated one-third vacation pay bonus.

On the side of taxpayers, there was an important victory to be highlighted: recognition that the employer’s portion of social security contributions cannot be assessed on salary during maternity leave.

What Can Be Expected from the Supreme Court in 2021

In line with the trend begun in 2020, the agenda announced by the STF for 2021 promises to be replete with judgment of important tax cases from both legal and economic standpoints.

So far, judgments with relevant impacts have occurred in February and March, with a positive balance of victories for taxpayers. Some decisions worth highlighting are noted below.

  • Exclusive incidence of ISS (municipal service tax) on the licensing and assignment of the right to use computer software, ruling out the possibility of charging ICMS (state value-added tax) on those transactions.
  • Invalidity of charging differential ICMS rates on interstate transactions involving final consumers that are not subject to ICMS, due to the absence of a complementary law disciplining such transactions.
  • Impossibility of states establishing general rules for charging ITCMD (tax on transmission causa mortis and donation) in determined situations, because of the absence of a national law authorising that assessment.
  • Unconstitutionality of fees created by states for use of water resources (state of Pará) and for oversight of energy generation activities (state of Rio de Janeiro).

In addition, this year the STF ruled against the interests of taxpayers by deciding for the constitutionality of including ICMS in the base for calculating the social security contribution on gross revenue (so-called CPRB, which differs from PIS and COFINS). This contribution was created by the federal government in 2011, to lower the payroll burden, allowing certain sectors to pay the employers’ social security contribution by applying specific rates on gross revenue, instead of the general rule (20% on payroll).

With regard to upcoming developments, the main expectation is that the Supreme Court will finalise the judgment of the matter of exclusion of ICMS from the calculating basis of PIS and COFINS, which is the most relevant tax issue in Brazil today. This was previously decided by the Court in 2017 in favour of taxpayers, but there is a clarification motion filed by the National Treasury pending trial, that would, if accepted, limit the scope of what was previously decided by the Court, so as to reduce the impact of the defeat on federal revenue.

Besides this, in the second half of the year, the STF intends to judge the exclusion of ISS from the base for calculating PIS and COFINS as well. 

The outlook for 2021 is that the STF may continue judging tax cases with the same intensity, with the intention to speed up the resolution of important controversies. And, due to the increase in the Court’s productivity and the current state of the pandemic, the expansion of the virtual judgment system seems here to stay.

However, in light of the limitations of this type of judgment, there is a movement in civil society seeking the reduction of its use, in order to have more “in-person” trials, using videoconference applications, while there is no expectation of getting back to real face-to-face sessions.

The hope is that the Court will better select the cases to be judged virtually, by setting aside the most controversial and relevant ones for in-person judgment (by videoconference, for now), with a guarantee of effective debate among the judges and the participation of lawyers in real time.

In this respect, it is very important that the STF sets objective parameters for identification of the cases that can be judged virtually, forbidding its use in cases that can result in modification of the past jurisprudence of the STF or the STJ.

Besides this, improvements in the virtual judgment system should be studied by the STF to reduce the uncertainty of the parties. Potential improvements include establishment of a reasonable limit on the number of cases selected for each session and setting a time limit for availability of the last voting opinion, before the end of the session, so as to allow each justice to alter or complement their vote in light of the opinions expressed previously in the session and any questions of order presented by the parties.

Modulation of the Effects of the Decisions of the Supreme Court

Another point that should gain importance in 2021 is the way the STF has been applying the mechanism for modulating the effects of its decisions in tax matters.

With the objective of assuring legal certainty and to protect the social interest, modulation of effects can be adopted to determine that a decision by the STF will have prospective effect, when a decision of the STF modifies the position previously adopted by the Court or when it has declared a determined law unconstitutional.

Some of the cases decided in 2020 and 2021 with results favourable to taxpayers have had their effects modulated by the Court, so as not to compromise government revenue.

Historically, the STF has tended to reject the modulation of effects based on these merely economic arguments – ie, based solely on the impact the retroactivity of the declaration of unconstitutionality of tax laws will have on the public finances. However, due to the huge strains placed by the COVID-19 pandemic on Brazil’s tax revenues, the modulation of the effects on the basis of this argument may become more frequent.   

Tax Litigation before the Superior Court of Justice

Unlike the STF, the STJ has not formally adopted a system of virtual judgment. However, since the start of the pandemic, it has judged some cases by videoconference, where debate among the judges occurs and lawyers can present oral arguments.

The Administrative Council for Tax Appeals (CARF)

The Administrative Tax Appeals Council, responsible for deciding federal tax disputes in the administrative sphere, has adapted to social distancing with the establishment of remote sessions via videoconference, but this is restricted to specific situations:

  • cases originally involving amounts up to BRL1 million (altered to BRL8 million in August 2020 and to BRL12 million in January 2021); or
  • matters covered by a statement of consolidated position or a resolution issued by the CARF, or of binding precedents from the STF or STJ.

The Council also increased its productivity last year, especially in the second half, when the number of virtual judgments from June through October was 55% greater than in the same period of 2019. Despite complaints about the remote judgments, the Council has been endeavouring to assure the quality of the discussions and the participation of the lawyers representing taxpayers in the trial sessions.

The tendency will be for virtual judgments to increase in number and quality in 2021. When the period of social isolation ends, it is expected that CARF will keep the hybrid judgment system it has been using (in person and remote).

However, the question of greatest impact in this area in 2021 will be the definition of the ending of the tie-breaking vote established by Law 13,988/2020. The CARF’s panels always have an even number of members, with half being federal tax auditors (the so-called representatives of the tax administration) and the other half being members of trade association confederations and other class entities (representatives of the taxpayers). Before Law 13,988/2020, in the case of a tie, the chairperson of the panel, always a representative of the tax administration, had the tie-breaking vote (hence a double vote).

During the history of the CARF, this tie-breaking vote has been crucial for the National Revenue Service in obtaining victories in several extremely controversial and relevant cases. This privilege in favour of the tax administration was ended with enactment of Law 13,988/2020, because its Article 28 states that, in the case of a tie, the taxpayer will prevail.

The ending of the tie-breaking vote is still under discussion in the STF. Several direct actions for unconstitutionality have been filed against the rule, and this year the Supreme Court will give its final word about the validity of this legal provision. 

Final Notes

The year 2020 was one of many adaptations and developments in all areas of society.

Tax litigation experienced an acceleration of the trend for inevitable virtual processing of cases, but this shift has allowed an excessive number of important judgments with limitations for parties’ defence, especially before the Supreme Court, which has attracted much protest from the civil society and legal practitioners.

Nonetheless, the expectation is that in 2021 these new tools and technologies will be improved and consolidated, in favour of the speedier administration of justice through automation, but also assuring the exercise of the right to a full defence and legal certainty. It is essential to combine technological innovation with speed and efficiency in dispute resolution mechanisms to ensure full preservation of due legal process. 

In view of this, there are hopeful signs that relevant tax cases with be elected to videoconference judgment sessions with more frequency before the superior courts from now on, instead of virtual ones, which will certainly contribute to a more consistent and progressive development of tax precedents in Brazil.

Machado Meyer

Ed. Seculum II - Rua José Gonçalves de Oliveira
nº 116, 5º andar
Itaim Bibi
São Paulo, SP
Brazil, 01453-050

+55 11 3150 7000
Author Business Card

Law and Practice


TozziniFreire Advogados is a full-service firm providing legal services to domestic and international companies in several sectors. With 83 partners in São Paulo, Rio de Janeiro, Brasília, Porto Alegre, Campinas and New York, it has played a major role in many of the most significant transactions in Brazil. The firm's tax practice offers its clients solutions to their businesses in Brazil or abroad and the team deals with industry-specific tax issues across sectors such as telecommunications, information technology, energy, oil and gas, retail, pharmaceutical, and logistics. In recent years, TozziniFreire has assisted several clients, including Saab, Citéluz Groupe, Red Eléctrica Internacional and Advent do Brasil.

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