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Brazil

Last Verified on Friday 28th August 2020

    • Brazil

      The Brazilian Constitution establishes different categories of taxes that may be levied on entities and individuals: (i) taxes, due and collected regardless of any specific destination of the funds or of any service rendered by the government in exchange; (ii) fees, levied based on police power or in consideration of a specific and divisible public service actually rendered or made available to the taxpayer by the government; (iii) betterment fees, collected from owners of real estate property that benefit from public works; (iv) social contributions charged to fund social security; and (v) other contributions levied as a means of intervention in the economic domain and in the interest of professional or economic categories.

      Each of the federal, state and municipal governments is responsible for creating and collecting specific taxes in their jurisdiction according to the Constitution.

      The competent authorities are the Municipal Treasury (City Hall of each municipality), for municipal taxes; the State Office of Finance of each state for state taxes; and the Brazilian Revenue Service, for federal taxes.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      In Brazil, tax disputes may take place in the administrative or judicial level.

      Disputes in the administrative level start with the issuance of a tax deficiency notice by the competent tax authority or against an administrative decision denying a request made by a taxpayer for a refund or to offset a debt against tax credits relating to undue paid taxes.

      At this point, taxpayers may opt to challenge the notice and start litigating in the administrative level or not (it is optional and not binding on taxpayers). Taxpayers are also allowed to decide to litigate directly at the judicial level (foregoing administrative litigation) or to start the discussion on the judicial level upon an unfavourable decision at the administrative level.

      It is important to notice that while the discussion is pending in the administrative level, the enforceability of the tax credit is suspended, meaning that the competent authority cannot demand any payment from the taxpayer. Further, there is no need to present a guarantee during the proceeding.

      Disputes at the judicial level may start in several ways.

      For instance, a taxpayer may begin a judicial dispute against a tax deficiency notice issued by the competent authority, an unfavourable decision granted by an administrative court. There are several different suits to be filed, such as an action for annulment of tax debt, or request for a writ of mandamus.

      Starting a judicial dispute itself does not suspend the debt’s enforceability; thus, unless the taxpayer is granted a judicial order in that sense or make a deposit in the amount under discussion, the debt will be enforceable and the public attorney can request seizures or other procedures of property expropriation.

      In any event, if the amount of the debt is guaranteed or suspended, the taxpayer will be eligible to receive a certificate of good standing on tax debts, which is necessary to perform several daily transactions, such as providing proof of commercial health, receiving payments from public entities, transferring real estate property and being eligible to tax benefits.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      There is no conciliation and arbitration for tax matters.

      There is, however, the possibility of ordinary/extraordinary payment plans, in many cases at reduced interest rates and fines. Payment plans depend on specific laws.

      It is worth mentioning recent legislation (Law 13,988/2020) has allowed tax settlement. Once the legal requirements are met, discounts of up to 5 per cent and authorisation to pay the debt in up to 84 monthly instalments may be granted; and, for debts of individuals and very or small company, the discount may reach 70 per cent and authorisation to pay the debt in up to 100 monthly instalments. The reductions apply only to the amount of interest, fines and charges; no discount is granted to the tax itself.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Administrative courts

      Each state and municipality is free to establish its own administrative courts.

      At the federal level, the administrative court is called Federal Administrative Council of Tax Appeals (CARF), located in Brasília, the federal capital. CARF is responsible for analysing all federal tax proceedings at the second and third levels. Each of CARF’s chambers are composed by members indicated by tax authorities and by taxpayers’ associations’ representatives (half each).

      Judicial courts

      In decisions issued by lower-court judges, an appeal may be filed at the Court of Appeals. Special appeals may be filed at the Superior Court of Justice (STJ) and extraordinary appeal at the Brazilian Supreme Court (STF) may be filed against decisions issued by the Courts of Appeal (Courts of Justice or Federal Regional Courts). STJ analyses special appeals presented from all the other courts (state or federal) whenever a treaty or federal law is applied incorrectly or there is a different interpretation of the federal law between local courts; in turn, STF focuses on constitutional cases.

      Before being sent to the STJ and STF, these appeals are subject to a prior decision at the court of origin that issued the appealed decision as to whether they are to be heard. If the appeal is admitted, it will be sent to the STJ and STF. Otherwise, if not admitted, an interlocutory appeal may be filed, which will be directly reviewed by STJ or STF. If the appeals are not granted by a monocratic decision in the STJ or STF, respectively, internal appeals may be filed and the full court will decide on the appeal.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Yes, the discovery process in tax litigation is the same for judicial litigation in general, as it follows the provisions of the Code of Civil Procedure.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      The Brazilian Constitution and legislation ensure the confidentiality of all attorney-client communication (it is privileged information). Therefore, if any document is prepared for a client (a legal opinion, for example), tax authorities may not require it be presented, under penalty of breach of attorney-client confidentiality.

      This protection only relates to attorneys, and does not extend to accountants or other professionals.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      The Federal Constitution provides that “adversarial proceedings and an opportunity to be heard are ensured to parties in a legal matter, in judicial or administrative proceedings, and to defendants in general, with all inherent means and remedies” (article 5, LV), which applies to all administrative and judicial proceedings.

      However, the procedure applicable to administrative proceedings is different from judicial proceedings. The federal administrative proceeding, for example, follows the provisions of Decree No. 70,235/1972 and, as a rule, all evidence should be presented at the beginning of the proceeding. With respect to other jurisdictions (state and municipal) the procedures applicable to administrative proceedings vary.

      Judicial cases, regardless of their tax nature, follow, in principle, the provisions of the Code of Civil Procedure, which provides for time limits, appropriate remedies, evidence and all issues that may involve the judicial case. The Law on Tax Foreclosure (Law No. 6,830/80) applies to tax foreclosures and Law No. 12,016/2009 to the request for a writ of mandamus. That is, the general rule applicable to court proceedings is the Code of Civil Procedure and, in case of special procedures such as tax foreclosures and writ of mandamus, specific laws apply together with the Code of Civil Procedure.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Although not common, hearing witnesses is possible (production of witness evidence) under tax law. 

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      As a general rule, failure to pay taxes is not considered a criminal offense and does not allow criminal sanctions against a taxpayer or its representatives.

      However, if failure to pay taxes is a consequence of another offense (such as tax fraud or evasion), the tax deficiency notice and the related documents should be sent to the Public Prosecutor’s Office for evaluation of a potential crime. As a rule, criminal prosecutions would only start after the administrative proceeding is over if the decision is unfavourable to the taxpayer.

      If taxes are paid before the criminal prosecution starts, Brazilian legislation provides that the taxpayer cannot be prosecuted anymore.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Once the competent authority has established that the tax has been reduced or suppressed, and this relates to one of the conducts classified as a crime against the tax order, the tax authority sends the proceeding to the Prosecutor’s Office which will be responsible for starting the criminal proceedings, if deemed applicable.

      Thus, after a definitive decision in the administrative level confirming the tax liability, the Prosecution Office may file a complaint and prosecute the criminal action and the competent authority may file a tax foreclosure action to collect the tax credit in court.

      In this case, the criminal action will be dealt with in the criminal court, that is, a Court which specialises in criminal matters, while the tax foreclosure will be processed in common or federal courts, depending on the tax required.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Administrative courts are generally specialist tax courts. CARF’s members, for instance, are tax authorities and tax lawyers indicated by taxpayers’ associations.

      This is not the case with regards to judicial courts, which are general courts.

      However, although general, some of the judicial courts have chambers that specialise in public law, including tax law. This is the case for State Appellate Courts (Tribunais de Justiça), Federal Regional Courts (Tribunais Regionais Federais) and the STJ.

      STF does not have a chamber specialising in tax. All of its members specialise in constitutional matters.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Considering tax authorities may only do what is provided by law, not only do they have the burden of proof as it relates to the legal fact or the tax violation that supports their acts, but also the respective legal and constitutional obligation.

      All measures taken by tax authorities, are presumed to be relatively (not absolutely) valid. As a result, this transfer to taxpayer the burden of proving the measures taken by tax authorities are invalid.

      At the judicial level, in turn, the situation is reversed: as a rule, the taxpayer must prove the facts that amends or extinguishes the tax liability assessed.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      Yes, if the taxpayer has wrongly paid any tax and is successful in a claim involving this payment, interest on late payment and adjustment for inflation will be due. Adjustment for inflation is calculated as from the time payment was made improperly (Precedent 162/STJ) and the interest for late payment from the date on which the decision determining the recovery is certified to be unappealable (Precedent 188/STJ and article 167, sole paragraph, of CTN). The applicable fee depends on the tax to be refunded: whether municipal, state or federal. However, the SELIC rate is usually used, which is the rate used by the federal government to adjust undue tax liability.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      It is incumbent upon the President of the Republic, pursuant to article 84, VIII, of the Federal Constitution, "to enter into international treaties, conventions and acts, subject to referendum by the National Congress". 

      After the treaty is executed, approved by Congress and promulgated by the President of the Republic, with its publication in the Federal Register, the treaty becomes a part of national laws. Such treaties enter the legal system as non-constitutional acts, in the same hierarchy as ordinary laws, fully subordinated to constitutional provisions.

      However, there are cases of conflict between national provisions and international treaty. Article 98 of the National Tax Code establishes the hierarchical superiority of the treaty against domestic laws.

      Considering tax treaties generally relates to income taxes, the Brazilian Revenue Service is the authority responsible to for resolving tax treaty claims. In any event, if the taxpayer disagrees with the Brazilian Revenue Service`s decision, they may dispute the matter judicially.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      The Federal Constitution establishes tax non-retroactivity, stating that the federal government, the States, the Federal District and the municipalities are not allowed to charge taxes in relation to taxable events that occurred before the law that created or increased them has come into effect.

      However, the National Tax Code, in its article 106, brings an exception regarding penalties, which can be applied retroactively. For example, if in 2015 the fine was 20 per cent and in 2016 it was 15 per cent, the fine imposed in 2016 may be applied in relation to the taxable event of 2015.

      It should be noted, however, that the rule will only be retroactive in cases of penalty and, furthermore, it is necessary that such penalties be under appeal or not yet been paid.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      In the tax area, there is the peremption, which is the loss of the Tax Authority’s right to assess the tax liability after five years as from the taxable event or from the first day of the fiscal year following the one in which the assessment could have been made.

      The statute of limitations, which is the right of the tax authorities to file a lawsuit for the collection of the tax liability, is five years from the date the tax liability has been definitively assessed. The lawsuit used by the Treasury to collect tax liabilities is tax execution (municipal, state or federal tax).

      Note that the peremption period begins starts from the moment the right is born; while the statute of limitations as from the moment the right is violated, threatened or disrespected.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

    • Brazil

      In Brazil, the vast majority of discussions involving non-income taxes relate to PIS and COFINS, which are levied on taxpayers’ gross revenues. There are currently two systems to calculate PIS and COFINS: the non-cumulative system and the cumulative system. Most discussions relate to the non-cumulative system (such as to what inputs allow the taxpayer to recognise tax credits).

      In addition, the Federal Supreme Court has decided that ICMS (a state tax similar to VAT) is not part of the tax base of PIS and COFINS. This is the most significant tax discussion in Brazil and there are many lawsuits involving the subject.

      Lastly, it is also worth mentioning litigation involving ICMS, which is a tax levied on the circulation of goods and services, and which generates a lot of discussion, considering the issues involving credit, as well as tax benefits granted by some states and not recognised by the state of destination of the goods.

      Answer contributed by Igor Souza from Madrona Advogados

      Last verified on Friday 28th August 2020

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