Pandemic affects informal activity in Brazil and brings down indicator

Underground economy in Brazil, moved something close to R $ 1,2 trillion reais, higher than the GDP of countries like Switzerland and Sweden

The underground economy suffered a small drop in participation in the Brazilian economy and reached 17,1% of GDP, which represents about R $ 1,2 trillion reais. The result is part of the Underground Economy Index (IES), a partnership between the Brazilian Institute of Ethics in Competition (ETCO) and IBRE / FGV that has been monitoring, since 2003, the evolution of activities that operate outside the laws and regulations that affect formal activities in the country.

The indicator, slightly lower than that observed in 2019 (17,3%), points to an interruption in the successive increases observed since 2015, caused by the events associated with the covid-19 pandemic that raised the level of uncertainty in an extraordinary way in relation to the performance of the economy.

The negative impacts on economic activity and the labor market affected informal workers more intensely, compared to formal workers, contributing to the fall of the Underground Economy Index (HEI) in 2020.

According to Edson Vismona, president of ETCO, the drop observed in the index, unlike what happened in the past, is not associated with the increase in formal activity.

“It is a reduction that we cannot celebrate. Circulation restrictions during the most critical months of the pandemic have taken people off the streets, significantly disrupting street vendors, application drivers and informal traders. This population had its activity stopped abruptly and this brought a strong economic and social impact ”, completes the executive.

 

The Graph shows the evolution of the Underground Economy Index since 2003 - Source: Prepared by ETCO and FGV / IBRE

Making a historic rescue, the highs observed in the indicator up to 2019 were a consequence of the crisis that started in mid-2014, which reduced the formal sector of the economy, and the slow recovery of economic activity, concentrated in its most flexible part the informal economy , which was pulling jobs in the country. At the same time, the reduction in interest rates and the slow increase in income alleviated the growth situation in the shadow economy, which would be stronger in the absence of these factors.

IBRE / FGV economist Paulo Peruchetti believes that the current crisis, with unique characteristics, the formal worker was more protected, mainly due to the Emergency Job Preservation Benefit (BEm). Regarding informal ones, the emergency benefit guaranteed income, but not employment.

“As it is more flexible, the recovery of employment over the next year is likely to occur due to stronger increases in the informal labor market, which may reverse the decline in the underground economy indicator in the coming years”, concludes Peruchetti .

Vismona and Peruchetti agree that structural factors that led to the reduction of the underground economy between 2014 and 2019 remain present in the Brazilian economy, but that caution is needed when assessing the evolution of the indicator, as its dynamics will depend on the speed of economic recovery, which advancing the reforms necessary to stimulate the economy.

 Evolution of the Index

ETCO and IBRE / FGV developed an index to monitor the underground economy, providing an indicator of the evolution of informal activities. The underground economy is defined as the production of goods and services not reported to the government, deliberately, to: evade taxes; evade social security contributions; circumvent compliance with labor laws and regulations; avoid costs arising from the rules applicable to each activity.

The index starts in 2003, with the highest value in the historical series, about 21% of the Brazilian GDP and since then, it has presented a strong downward trend, reaching in 2014 its lowest value (16,1%). However, as of 2015, however, there was a worsening in the indicator, with an increase of more than 1 percentage point between 2015 and 2019.

The reduction in the index in the country in the 2000s is related to several structural factors that stimulated the formalization of the labor market and made it difficult for companies to operate outside the law. Among the factors that helped to increase the formalization of the economy, we can mention the increase in the credit market and the expansion of the average schooling of Brazilians.

In addition, measures to simplify legal standards help to reduce the cost of formalization, stimulating a reduction in the shadow economy. In this sense, measures with the implementation of electronic invoices (NFes), SIMPLES and MEI tend to formalize the economy more.

Between the second quarter of 2014 and the fourth quarter of 2016, Brazil faced a long period of recession (11 quarters) according to the Economic Cycle Dating Committee (CODACE). One of the consequences of this loss of dynamism in the economy was the increase in the number of people engaged in informal activities.

We can see (Graph) a worsening in the Shadow Economy Index between the years 2015 and 2019. In this period, there was an increase of more than 1 percentage point in the Shadow Economy Index, so that it went from 16,2% in 2015 to 17,3% in 2019.

Between 2016 and 2019, there was a recovery of employment, albeit informal, whose work relations are much more flexible, generating increases in the number of people without a formal contract and in the share of this group's income in the total income.

Therefore, the increase in informality observed in this period made the impact via the labor market greater, thus leading to successive increases in the Underground Economy Index between the years 2015 and 2019.

In the year of 2020, it was possible to notice a decrease of 0,2 percentage points in the indicator, explained by the change in the composition of the labor market, with a greater weight of formalization, combined with the expectation of a strong reduction in the level of economic activity. This value observed in 2020, shows that the underground economy in Brazil, moved something close to R $ 1,2 trillion reais, greater for example than the GDP of countries like Switzerland and Sweden, which correspond to something close to 16% of the Brazilian GDP , according to IMF data.

The drop in the indicator in 2020 is associated with a change in the composition of the labor market. With the advance of the Covid-19 pandemic, there was a greater relative reduction in informal workers compared to the drop observed in formal workers, which generated an increase in formalization.

The positive side is that the structural factors that led to the reduction of the underground economy remain present in the Brazilian economy. The process of simplifying rules and regulations remains active (with prospects for expansion by the current government), the average schooling of Brazilians continues to increase and the credit market should return to its growth trajectory. In addition, the labor reform carried out in the previous government tends to stimulate the formalization of the labor market, reducing the relative cost of formalization, stimulating the return of formal employment.

“Voters forget who they vote for and elected representatives forget why they are chosen”

In the classic “The Owners of Power - The Formation of the Brazilian Patronage”, the great jurist Raimundo Faoro described the so-called estates that historically exercise power in Brazil and that resulted in the reality that consolidates conducts: patrimonialism; the exchange of favors as a factor of stability for those who are elected; the widespread idea that the State works to serve its own interests, moving away from being a service provider; attachment to the means, without a focus on the ends; the strength of corporatism that resists changes that affect its "rights". Finally, demonstrations that the interests of society are not understood by the State it supports, translating into distance, as if there were no relationship between voters and elected officials to govern. It seems that the signal that the electronic ballot box emits at the end of the vote would have a hypnotic effect: the voter forgets who he voted for and the elect forgets why they were chosen.

In practice, the defense of the common good is in the background, restricted to constitutional law books and swearing-in oaths. Despite the electoral campaign speeches affirming the contrary, the formation of coalitions results in the division of positions, regardless of the technical qualification of those who come to exercise them or the search for results. The point is to have access to the resources of the treasury. Thus, increasing public expenditures, without defining goals or control processes, becomes mistakenly acceptable, distancing the State from effectiveness, from the effective delivery of services to citizens, especially those most in need.

Misrepresenting concepts with arguments that are not supported, some say that the balance of public spending would cause the withdrawal of resources for social causes or would affect the power of public administration in the performance of the government.

The structure that supports the governments, pointed out by Faoro, stimulated the inefficiency and the waste of public resources. A simple example: the time it takes to provide a service is not considered, thus, it is common to take months to register a simple change of a company, impacting the generation of new investments and jobs. This is a demonstration, among many, that the definition of goals to be achieved by the public service is not a priority.

On the other hand, it is easy to identify in the budget execution of any federative entity that the most expressive volume of resources supports the administrative machinery to the detriment of the end activity, which is to serve the citizen. There are public agencies with an unnecessary network of offices, and many managers do not even ask why and, without the question, the answer is not found.

If this historic dysfunctional structure of the Brazilian State were not enough, we still suffer from the growth of corruption that has taken root and directly interferes in public administration.

And, to make matters worse, there is an advance in the action of criminal organizations that are leaving the so-called “fringes” of society and seeking not only to influence political decisions but to exercise them directly, dominating territories, financing themselves with the illegal market and trying to take over political power. These municipal elections demonstrated, like no other, the political struggle exercised in a violent manner by militias and criminal organizations to guarantee the election of their co-opts.

Thus, we have other candidates for "owners of power", which intertwine, threatening the Democratic Rule of Law and influencing our destinies without any concern for the values ​​and principles of citizenship. The republican ideal is distant, the defense of the national interest seems a utopia, and the guarantee of privileges is the objective.

To address these threats, some actions can be taken. Urgent initiatives are the resumption of the forgotten political reform and significant administrative reform, in addition to combating impunity and strengthening integrity programs. In fact, civil society and the productive sectors must articulate in the defense of proposals and in the demand for attitudes by the powers of the Republic that realign the State, because it is certain that, with the crooked ruler and compass we are using, we move away increasingly on the path of development.

Article published on 20/11/2020, on the Exame / Compass Portal

Soulful company

The Federal Constitution, in Article 1, defines free initiative as one of the fundamentals of the Republic, thus guaranteeing that companies can operate in the market, acting freely within the legal parameters. In this initial article, in the same item IV, the social values ​​of work are provided, demonstrating that workers' rights must be respected (art. 7).

In these constitutional parameters, labor and capital are complemented by consumer rights, bundling the entrepreneurial tripod: capital, employment and consumption, forming the so-called stakeholders (investors, customers, employees, suppliers, community). For this concept, created by the American philosopher Robert Edward Freeman, the company's success depends on the generation of value for these agents and, in addition, this objective must also contemplate the fulfillment of legal, fiscal and environmental obligations.

The structure that is being increasingly demanded is shaped. A company, in order to achieve profit, must respect its stakeholdersotherwise, your results will be negatively impacted. Between the two ends, shareholder and consumer, there is a set of attitudes that must constitute the formation of principles and values ​​that guide entrepreneurial action. It is true that society is attentive to attitudes that include rules of ethical coexistence.

It is interesting to note that integrity programs, combating misconduct and corruption, promoting the equity of minorities, guaranteeing psychological security in the workplace, preventing harassment and enabling employee participation and interaction, compliance with laws and regulatory obligations , fiscal and environmental, ensuring consumer rights, are intertwining behaviors, forming the pillars that form the basis of modern free enterprise, which does not fit into the concept of classic economic liberalism but, more and more, in ESG indicators.

The maturing of business action cannot be restricted to formalism without content, which points out the mission and values ​​in a framework; it needs to be exercised, built day by day, requiring an effective ethical dimension.

It is worth saying that the organizational culture must evolve, stimulating respect, purposes and also behavioral skills, removing old sayings such as “order who can, obey who has judgment” or “good kid doesn't scream”, which must be replaced by giving an opinion to innovate and not to suffer silent injustices or abuses.

In this context, companies that are very demanding in meeting goals are questioned to create more harmonious and participatory environments.

It is true that, in the implementation of standards of conduct and integrity programs, there may be radicalisms, which is natural, but with experience, the balance is being reached. The truth is that the management of people and procedures has never been so required.

And, with the pandemic, a real revolution is underway, creating challenges, with the acceleration of home office projects, flexible schedules, in short, restructuring institutions and interpersonal relationships.

All of these changes are driving the overcoming of dogmatic attitudes towards cooperative attitudes: from judicialization to conflict mediation and composition; from conservatism to the constant encouragement of innovation; the strict hierarchy for valuing responsible participation.

This is the direction of evolution: profit at any price is no longer acceptable and only physical means do not guarantee economic and financial results. More is needed.

Companies with a design, with a soul that, in addition to the products they sell or the services they offer, is expressed in the experience of each employee, in operating not only within the law, but within the ethics to achieve the desired goals.

Individuals being motivated to integrate themselves in the construction of identity and achievement of corporate objectives. Profit, but with the appreciation of people, who want to work where they feel proud. The reality indicates that these concepts are renewing capitalism.

*Edson Vismona is a lawyer, president of the Brazilian Institute of Competition Ethics (ETCO) and of the National Forum Against Piracy and Illegality (FNCP). He is also the founder and current president of the deliberative council of the Brazilian Association of Ombudsmen / Ombudsman - ABO. He was Secretary of Justice and Defense of Citizenship of the State of São Paulo (2000/2002).

Transaction, reform and division of debtors: solutions to tax litigation

Facing the lack of control of Brazilian tax litigation, which today already reaches a magnitude equivalent to 73% of the country's Gross Domestic Product (GDP), according to Insper data, must necessarily undergo a profound transformation on numerous fronts of the national tax system.

In a webinar held by Casa JOT in partnership with Brazilian Institute of Competitive Ethics (ETCO) this Friday (16/10), experts and authorities listed some of the priorities that can help reduce these disputes.

Among them are the initiative of the Attorney General of the National Treasury to tax transactions, which until August this year negotiated R $ 28 billion in debt. Speakers also stressed the urgent need for comprehensive tax reform, as well as ensuring that stubborn debtor the eventual debtor and the good and bad taxpayer.

João Henrique Grognet participated in the webinar; General Coordinator of PGFN's Credit Recovery Strategy; Breno Vasconcelos, lawyer and researcher at Insper; Zabetta Macarini Gorissen, executive chairman of the Group of Applied Tax Studies (Getap); and Ana Amélia, former senator.

It was a consensus, and it is not new, that the major and main problem lies in the complexity of the tax collection system. “There is no rich country without a legal model that guarantees predictability and security. It's impossible. And tax litigation is generated by unpredictability. How does the taxpayer and entrepreneur do to navigate in an environment so difficult to predict? ”, Said Breno Vasconcelos.

According to the lawyer, there are some factors that increase this insecurity: possibility of retroactivity in new interpretations, absence of acts that register what is the formal and official interpretation of the new tax rule, absence of effective consultation processes, the excessive duration of the processes, which today it takes an average of 19 years to complete, and the uncertainties arising from new technologies. "These are those indicated by the OECD as factors of legal uncertainty and Brazil boasts all of them", pointed out Vasconcelos.

Former senator Ana Amélia cited as an example of the complexity in collecting taxes the reality of a Brazilian businessman, Jorge Gerdau Johannpeter, of the Gerdau Group, which has a steel company in Rio Grande do Sul and another one in Canada. “In RS, he has 250 professionals for the tax area just to meet the almost daily changes. To do the same job in Canada, he needs only 3 people ”.

“This illustrates with crystal clarity the situation we are experiencing. And the foreign investor, when looking at our country, he sees not only the question of competition, but also these archaic structures that we have ”, he added.

For Zabetta Gorissen, in the last four years, Brazil has intensified its critical understanding of tax litigation, with an attempt to bring together taxpayers, the government, the National Congress and the Judiciary. "Unfortunately, litigation has become a multifaceted problem that affects everyone too much," he said.

Read also Brazilian tax litigation exceeds 50% of GDP

In this sense, the president of Getap mentioned the development of mechanisms for cooperative compliance, always focused on bringing taxpayers closer to the taxpayer to more easily solve the problems faced. Zabetta also drew attention to “the great milestone” brought by tax transactions, which are a renegotiation instrument for the extinction of tax credit.

According to data presented by João Henrique Grognet, General Coordinator of Credit Recovery Strategy at PGFN, the renegotiation of R $ 28 billion in debts reached 77,4 thousand contributors and 275 thousand registrations grouped in agreements.

“It seems to me that it was very correct, with wide advantages in the Tax Court. This Justice is good in any case, but we were not finding that clarity in the previous Refis programs. After all, you give discount to those who don't need it, ”said Grognet.

According to Zabetta, a point that needs improvement in the tax transaction involves the fact that Law 13.988 / 20, which instituted the program, established a limit on the payment litigation transaction of 50% of the debt amount. “Setting this limit may slightly restrict society's appetite for this modality. But, as we always said, let's wait ”.

Expectations for tax reform

The challenge of facing tax litigation is great, but in the view of experts and authorities, this scenario will only really change after the tax reform.

“None of this will be resolved if we only work on litigation. We need to work at the source. Litigation is a symptom, not a problem in itself. It is born out of an extremely complex system, full of exceptions. Substantial tax reform is essential for Brazil to emerge from this dysfunctional and counterproductive scenario, ”said lawyer Breno Vasconcelos.

At first, these changes do not automatically mean that a new dispute will not arise, since there will be completely new legislation in force. In the view of Zabetta Gorissen, society should pay “absurd attention” so that the proposals in progress in the National Congress come out with the best possible text and eliminate the largest amount of litigation possible.

“If there is a dispute, we have to immediately go back to Congress and fix it. We are not going to do what we do today. If it doesn't work right away, you have to change the legislation, ”he said.

Stubborn debtor

For ex-senator Ana Amélia, author of the Senate Bill No. 284 / 2017 to characterize the frequent debtor, the more complicated a country's tax system is, the easier it is to evade.

“In this project, we are separating two natures from the taxpayer: one that has as a religion its duty consistently, duty by profession, duty by belief. It is a form of tax evasion. It is a springboard for tax evasion ”, he said, adding that the intention of the PL is to treat taxpayers who have different behavior differently.

The former parliamentarian cited that the characterization of this type of debtor generated a fight within Congress and, because of this legislative vacuum, the Supreme Federal Court (STF) entered the debate. In December of last year, the Court established a thesis in order to criminalize the incumbent debtor, as long as there is evidence of appropriation.

“The STF made a judgment raising the penalty for the stubborn debtor in prison. In our case it was a fine, which had a lot more educational significance than the criminal issue. The Court gave a much heavier treatment than what we intended in the law, ”said Ana Amélia.

Being legal in Brazil cannot be an option

Individuals and legal entities, in Brazil, experience daily difficulties arising from non-compliance with laws. This theme is directly linked to one of the fundamentals of the country's own development, legal security.

Public authorities have a duty to respect and ensure that the Federal Constitution is respected. No one is above your principles. The attraction of investments, with the generation of jobs and income, depends on the certainty that all market agents will respect the same rules, that the rights and contracts will be respected. The State should, on the one hand, facilitate the lives of those who want to act correctly and, on the other hand, combat those who break the law. Obvious concepts, however, the way to guarantee this normal reality in a Republic is not simple.

The necessary compliance with laws, decrees, regulations in any area can be a real pain. The hardships of those who want to start a business are evident, getting a mere living in a house, obtaining operating licenses from a store, following the overflowing tax legislation or the fluctuating interpretations of the courts.

In parallel, we have the advance of illegal practices in the market: smuggling, piracy, counterfeiting, fraud, under-invoicing, non-compliance with technical regulations, evasion, acts that distort competition and pervert the business environment.

This picture is worrying. Companies that fulfill their obligations have to compete with those who seek illicit advantages, which are structured to circumvent all rules and thus conquer the market, raising their profit margins in a totally irregular way, at the expense of the whole society.

The results are impressive. The illegal market (fifteen productive sectors), according to data from the FNCP - National Forum Against Piracy and Illegality -, generated R $ 2019 billion in 291,4. Regular debtors, which are structured with the objective of not paying taxes, accumulate more than R $ 60 billion in debt.

However, these billionaire losses are much greater, reach intangible values, as they erode the belief that crime does not pay, discourage new investments and erode ethical principles.

To change this situation, impunity must be faced; and compliance with laws, valued. Some suggestions:

Laws that discipline conduct with clarity and objectivity. And that they are applied effectively, reducing the space, not for the legitimate exercise of broad defense, but for merely postponing attitudes, which benefit those who wish to save time and, thus, continue to gain advantages and profits;

The initiatives of the productive sectors to denounce illegal practices in the market must be considered by the public agents as an important support for the necessary corrective actions, which must be seen as relevant and not as an interference in the normal work rhythm;

Encourage cooperation and integration between public administration entities, with the participation of civil society, which can assist with information that facilitates and streamlines the work to contain illegality;

Fight corruption without respite, punishing those who dishonor the public service. It is true that this is the only “tax” paid by lawbreakers;

Simplification of administrative procedures and legislation, especially taxation, so that it is easier to comply with the law than to ignore it;

These proposals are known, but there is resistance. Combating illegality is not as natural as it should be.

An example of this hostile behavior was given by the Senate's public consultation on bills. The proposal to punish TV signal piracy was rejected by 95% of the demonstrations.

This brief overview exposes some of the obstacles of the so-called “doing business” presented by the World Bank (from 190 countries Brazil is in 124th position) and which, for a long time, have been debated, however, every year we postpone the necessary measures and this delay hinders our development.

In fact, being legal in Brazil cannot be an option; it is a duty to stop being the “country of the future” that never arrives.

Madness without method

“Madness, although it has its method there” was what Polonius had said to Hamlet, according to Shakespeare's narrative.

In the debates on tax reform and related topics, I can see the madness, but I still haven't been able to identify, if any, the method.

It is worth mentioning in these frequent insanities the proposal to create a unique “contribution on goods and services”, contained in bill No. 3.887, of 2020, for which urgency was required in order to subsequently relinquish that urgency under the pathetic allegation of unblocking the vote for “unavoidable” changes to the traffic code.

The project does not even clarify whether the basis for calculating this contribution would be operations or revenue, preferring to delegate the resolution of this dilemma, should the project prosper, to the Judiciary, in a robust contribution to the increase in litigation in the country.

Much has been said about the inadequacies of that bill, but it is worth mentioning the virtue of exposing, on a small scale, the ailments of PEC No. 45, which proposes the institution of a Tax on Goods and Services (IBS) and a enigmatic Selective Tax. We try to cover up these inadequacies by avoiding measuring the repercussions of the projects on prices, sectors and federative entities, under the justification that this information “would not contribute to the debate” (sic).

The most recent pearls of this universe of madness are the disclosure of a preliminary draft supplementary law of PEC No. 45 and discrimination of the sources of financing of the so-called “citizen income”.

The preliminary draft law complementing a Constitutional Amendment Proposal that was not considered by the National Congress, although unusual, helps to reveal the deficiencies of the proposal.

When admitting the vulnerability of VAT to evasion, as a special mention of what happens with this tax in civilized Europe, it is proposed to condition the use of credits to the effective collection of the tax in the previous stage. It is necessary to recognize the originality of the proposal, as well as its surrealism. How could a taxpayer price the goods or services without knowing whether his supplier will collect the tax in the following month?

To manage the IBS, it is proposed to create a National Tax Agency aiming at “implementing cooperative federalism” (sic), made up of employees of the tax administration of the federal entities and directed by a board of directors, chosen by a general assembly, with powers to elect an executive board. This Council would have the competence to issue non-legal rules and proceed with the administrative tax judgment through a body called “Tax Litigation”. There is also an allusion, not translated in the text of the preliminary draft, to a Business Advisory Council. In the history of tax administration, I do not recall a worse proposal than that.

For citizens' income, among other sources of financing, the postponement of payment of precatory payments by the Federal Government was suggested. It is the peak of the season of bad ideas. What is the moral authority of a State that postpones the payment of its debts and charges taxpayers for the timely payment of taxes?

Today, we have more than 4,7 million people infected by Covid-19 and more than 143 thousand deaths, we support a record unemployment rate (13,8%), “we celebrate” the 9,7% drop in the second quarter of Brazilian GDP, agribusiness is impacted by an enthusiastic disregard for environmental policy, there are consistent forecasts about the increase of the population share in conditions of poverty and extreme poverty, the fiscal crisis of States and Municipalities will increase. Despite all of this, we continue, contrary to what is done in the rest of the world, to debate a tax reform that severely harasses economic sectors and raises the price of such essential services, such as health and education, and of books, which enjoy a long-standing tax exemption.

Unfortunately, Brazil does not waste the opportunity to make mistakes.

(*) Everardo Maciel was Federal Revenue Secretary (1995-2002) and is chairman of the ETCO Advisory Council

Cancellation of registration of defaulting smoking companies back on the STF's agenda

 

The Supreme Federal Court (STF) again discusses, this Thursday (17/9), the possibility of canceling the registration of smoking companies due to the non-recurring payment of taxes. This is one of the most important issues among those guided by the new President of the Court, Luiz Fux, until the end of the year.

In September 2018, the plenary of the Supreme Court addressed the issue. Eight ministers understood the revocation of registration to be constitutional, but, at the time, there were three different lines of reasoning or argument aligned with this view.

In view of the complexity of the discussion in a case that has been pending before the Court for 13 years and has already accumulated eight volumes, Minister Carmen Lúcia, then President, postponed the announcement of the result. Now, the expectation is that Cármen Lúcia's vote will be understood as the medium and give the contours to the proclamation.

The direct action of unconstitutionality (ADI) 3952 came back to the plenary agenda on October 19, 2019 and March 12, 2020, but ended up not being proclaimed. In view of the repeated postponements, the Court began to receive requests for the proclamation to be concluded soon.

The lawsuit, filed by the Christian Labor Party (PTC), challenges the “summary cancellation” by the Federal Revenue of the special registration of tobacco companies when there is a default of federal taxes. The party claimed that the restriction to the exercise of lawful economic or professional activity would constitute a political sanction prohibited by the Constitution, insofar as it does not admit the existence of “oblique instruments” to coerce or induce the taxpayer to pay taxes.

In summary, it claimed that Article 2 of Decree-Law No. 1.593 / 77, as amended by Law 9.822 / 1999, would violate the constitutional principles of due legal process, wide-ranging defense, contradictory, presumption of innocence, freedom initiative and proportionality. According to the party, the sanction imposed on cigarette companies would not achieve the desired end, which is the payment of taxes or contributions.

Edson Vismona, executive president of the Brazilian Institute of Ethics in Competition (ETCO), which is amicus curiae in the lawsuit, argues that, in fact, impeachment is an appropriate measure for those who, according to him, structure an enterprise in order to harm the Tax authorities to profit. To the extent that they do so, there should be no possibility of recovering the tax due.

“It has debtors with debts of millions. The corrosive action of the heavy debtor is very clear. And you can no longer delay. And that is the preferred verb of the debtor. he exists to delay, to have no decision, to forfeit and he remains free and free, to continue to evade. Cassation is important because it prevents the continuation of a criminal offense and affects all competition ”, emphasizes Vismona.

Contumable debtor is the company that claims to have a tax debt, but in a repeated and premeditated way does not act to settle it. As the entrepreneur does not evade, he just does not pay the tax due, in theory, he does not commit a crime. But, it leaves the competition behind, since the non-payment of taxes positively impacts the price of the products, which are artificially cheaper.

The work to recover the amounts due is, according to Vismona, herculean. And over time, it tends to get even more difficult. “It is an ongoing process for the tax authorities. The cassation does not prevent the action from being repeated, because these groups open new CNPJs, they have a structure around that. But we have to surround them, reduce the space they have. ”

The final definition of ADI 3.952 consolidates an important precedent and, in ETCO's view, strengthens the work of Congress to legislate on combating persistent debtors. Two bills in process in Congress contain criteria to detect and punish companies that use this practice: PLS 284/2017 and PL 1646/2019. The first, for example, differentiates the incumbent debtor from the eventual - just one of the concerns of those who follow the debate. But in Parliament, the discussion is stopped.

The constitutionalist lawyer and professor at the State University of Rio de Janeiro (Uerj) Gustavo Binenbojm works in the cause for the Tobacco Industry Union in the State of Rio Grande do Sul (Sindifumo-RS). According to him, "the cassation takes place in the face of the special circumstance that this is an industry that the taxation is so high that it is not enough for the tax authorities to have at their disposal the traditional instruments for collection, attachment of assets".

In these cases, evaluates Binenbojm, what we have is the constitution of companies that live off tax evasion and “through it distort the market because they offer values ​​much lower than those economically viable for fair competition”.

Thus, the commercial damage caused by the action is irreversible. In this context, the fact would not fit into the jurisprudence of the Supreme Court of not allowing what is called a political sanction. As a rule, extra-fiscal effects are not allowed for non-payment of tax. But in this case, the understanding is that the State has no other means to combat the practice.

“Law works based on reality. It is not a philosophical abstraction. The argument that if you close the company, right there is that you will not be able to pay does not arise with companies that open and close and create new CNPJs to practice the same illegal act. The only way to stop bleeding and prevent further damage is to prevent the action from continuing, ”he said.

Binenbojm recalls the case where the Supreme Court authorized arrest for ICMS debt declared but not paid. “Now it does not involve deprivation of freedom. But the person's right to engage in economic activity or not. If the STF validated the arrest, much more serious, for a greater reason it must validate the revocation of the registration of companies with an inherently unlawful intention ”, he points out.

At the end of 2019, the plenary of the Supreme Court, by seven votes to three, defined the thesis that the taxpayer who fails to collect the ICMS practices crime as long as there is intent and in a persistent manner. On that occasion, the Court judged RHC 163.334 filed by the owners of clothing stores in Santa Catarina denounced for not collecting ICMS between 2008 and 2010. The vote of the rapporteur, Minister Luís Roberto Barroso, which included the criterion of contumacy for the construction of the proposed thesis - changing the initial suggestion, without the expression.

Voting chains

The trial started in 2010 and was suspended after Cármen Lúcia's request for a view. On the occasion, the rapporteur, Minister Joaquim Barbosa, voted for the partial provision of ADI, in order to give the contested normative provisions an interpretation according to the Federal Constitution, establishing the following conditions for the revocation of the registration of companies to take place: analysis of the amount of tax debts not paid off; meeting the due tax administrative process in assessing the enforceability of tax obligations and examining compliance with the due legal process for applying the sanction.

Cármen Lúcia accompanied Barbosa. According to the minister, this interpretation "equalizes the principles of free legal economic initiative, free competition, reconciling with the guarantee of the due tax legal process and the non-avoidability of the jurisdiction, with the taxpayer's duty to fulfill his tax obligations". Minister Rosa Weber and Minister Celso de Mello accompanied this same understanding.

Minister Alexandre de Moraes defended that the company should continue functioning until the secretary of the Federal Revenue Service judges the appeal presented by it. Thus, he voted to exclude the expression “without suspensive effect” in paragraph 5 of article 2 of the rule, maintaining the rest of the law. According to the minister, the rule, with the changes made by the new legislation (Law 12.715 / 2012), provides for the conditions proposed by the action's rapporteur. Ministers Ricardo Lewandowski and Gilmar Mendes followed the current opened by Moraes.

A third line was opened by Fux. He affirmed that the legislator's option must be obeyed and voted for the rejection of the request. "If the legislator understood that the measure has to be severe, he has better expertise than ours to know if a suspensive effect does not postpone an illegal activity". In addition, for Fux, the measure to cancel the registration does not permanently impede the company's economic activity, which can be established as long as the legal requirements are met. “Freedom of initiative when exercised in an abusive manner no longer deserves the protection of the legal system”, he concluded.

The only one to vote for the total validity of the PTC request, and consequently against the constitutionality of the impeachment of company records, Minister Marco Aurélio stressed that the contested rule compels the company liable to pay the tax, regardless of the amount due, to the satisfaction of the tax debt . “The precept does not refer to eventual, repeated or repeated debtor, there is no distinction. The attacked device is content to arrive at this extreme act of forfeiting the registration, with pure and simple default, ”he said.

Ministers Dias Toffoli and Luís Roberto Barroso declared themselves impeded and Minister Luiz Edson Fachin did not vote for having assumed Barbosa's chair.

Stubborn debtor: lack of specific law maintains practice without punishment

Brazilian law does not have a definition on what is a persistent debtor. Therefore, the fight against criminal tax evaders it always comes up against the ability to impose sanctions on those who adopt the practice systematically in order to have competitive advantages. The sectors in which there are more regular debtors - who purposely fail to pay taxes - are fuels, cigarettes and beverages, highly regulated by the State.

Two bills in progress in Congress contain these definitions of the figure of the debtor who is a debtor: the PLS 284/2017 and the bill 1646/2019.

For specialists heard by the JOT, defining clearly what characterizes a persistent debtor is fundamental. “The regular debtor takes advantage of himself to hide behind a lot of legal questions,” says Guilherme Barranco, a partner at Barranco Sociedade de Advogados and a former adviser to Carf. "The less precise the criteria are, the more he can object in court to say that he is not a regular debtor."

PLS 284/2017 defines a persistent debtor as one who acts in the field of illicit acts, "he is a criminal, and not a businessman, who organizes himself in order not to pay taxes and thereby obtain a competitive advantage".

The executive president of the Brazilian Institute of Ethics in Competition (ETCO), Edson Vismona, considers PLS 284/2017 to be the best project to combat the persistent debtor. “It brings the difference between what is a debtor and a possible debtor and gives legal certainty for the use of the term 'debtor',” he explains. “Legal certainty is fundamental and the law is exactly in that sense. The bill is ready, but stopped, that's the problem ”.

The most recent opinion, of 2018, made by the ex-senator Ricardo Ferraço (PSDB-ES), establishes measures to combat the debtor contumazado in the federal, state and municipal spheres. As examples of possible sanctions against offenders, the opinion cites: suspension or cancellation of tax registration; loss of registration for operation; interdiction of the establishment; application of special inspection and collection regimes. Currently, the project rapporteur is Senator Rodrigo Pacheco (DEM-MG).

“The law is a good step, because today the environment is without definitions, cloudy. And everything that is foggy in this high tax environment these regular debtors use for their benefit ”, highlights Luciano Godoy, partner at LUC Advogados, arbitrator and lawyer specialized in litigation.

1646 PL / 2019

Another bill, PL 1646/2019, which has a smaller amplitude in relation to the Senate text. “1646 is being called a debtor's project. But there are four articles that talk about the debtor and the rest of the project talks about the modernization of the collection of the active debt of the Union ”, says the tax lawyer Guilherme Barranco.

The bill defines a frequent debtor as “one whose performance goes beyond the limits of default and is located in the field of illegality, with serious damage to the whole society”. The text also establishes that the “substantial and repeated” default of taxes will be configured when it is found that there are debts of an amount equal to or greater than R $ 15 million for one year, on behalf of the debtor himself or of a member of the economic or family group. . “In the tax sphere, especially with larger companies, it is very easy to have debts above R $ 15 million”, points out Barranco.

Supreme

Last year, the plenary of the Federal Supreme Court, by seven votes to three, defined the thesis that the taxpayer who fails to collect the ICMS commits a crime as long as there is fraud. On that occasion, the Court judged the RHC 163.334 filed by clothing store owners in Santa Catarina denounced for not collecting ICMS between 2008 and 2010.

The established thesis was that “the taxpayer who consistently and with the intent of appropriation fails to collect the ICMS charged to the buyer of goods or services is subject to the penal type of Article 2, item II of Law 8137/1990”. This law defines crimes against the tax order. The aforementioned item says that it is a crime "to fail to collect, within the legal term, value of tax or social contribution, discounted or charged, as a taxable person of obligation and that should collect public coffers".

The head of the Legal Department of the Federation of Industries of the State of São Paulo (Fiesp), Hélcio Honda, warns that caution is needed in the definition of a debtor. “The figure of the stubborn debtor is pernicious, but she must have a cautious definition. You need to have another element besides default, ”he says. “And what is the other element? It is the willful figure of not paying the tax, the desire to harm the market. The subjective question of deceit is very important ”.

How a frequent debtor acts

The debtor often uses the slowness to have debts executed and the possibility of questioning tax collections to save time and obtain high rates of return. "The company establishes itself and is already structured to not pay tax, because it will have an illegal competitive advantage, a very high profit margin and will inhibit fair competition", says Edson Vismona, ETCO's CEO. "It is what happens in the most charged sectors, fuel, cigarettes, beverages."

The lawyer Luciano Godoy also explains that these products are more difficult to be inspected: “They [the regular debtors] go for products that are fast to consume. Cigarette and fuel, for example, you used it and there is no trace of the crime. Nobody is going to be a regular debtor, for example, making a refrigerator and a television ”.

With installments of taxes and questioning of collections, a company is able to operate smoothly for up to five years. “An installment discussion can take three, four years. In court, it will depend. There are thesis discussions that can take up to four or five years ”, says Gustavo Amaral, partner responsible for the tax area at Paulo Cesar Pinheiro Carneiro Advogados Associados. "And this is not necessarily linear, because an installment program may appear and break this sequence."

Special content: The fight against the persistent tax debtor

In the fuel sector, the figure of the heavy debtor is concentrated on the sale of ethanol, which has divided taxation on refining and distribution, which facilitates fraud.

"The beginning of all this is front companies, with the discourse of a good Christian, telling the ANP that they are starting with minimal capital ”, explains Carlo Faccio, director of Instituto Combustível Legal. “In parallel, they begin to make sales with interstate transactions and to accumulate debts. Except that until the [State's] Treasury identifies the non-payment, there is a delay of two to three years. ”

After that period, when the debtor is characterized as a regular debtor, the Finance departments are unable to exercise the right to collect from companies, which usually do not have equity and are registered with minimum capital.

This happens a lot with distributors, who depend on little capital to operate. "The debt is not charged, so everything that the company failed to collect over time becomes a profit to the detriment of the tax authorities and competitors," says lawyer Gustavo Amaral.

To continue in the activity, other companies are opened to do the same, only with a new name and registration. “There comes a time when the IRS takes action, suspends activity. But he [contumazante debtor] has, in parallel, created another CNPJ, and simply jumps from a company that he is going to abandon, moves on to another and follows his business ”, explains Edson Vismona, from ETCO.

The negative effects of the frequent debtor are contracted by the State, which earns less, and by the market in the sector in question.

“The effect on competition is a disruption of what would be the natural competition in that market,” says Eduardo Frade, partner at VMCA and former superintendent of Cade. "It generates a disincentive to the entry of new competitors, in addition to a series of exits, with a greater concentration of the market", he says. "There is also an adverse selection effect, an effect in which the agents who act against the rules are rewarded and those who act according to the rules are punished."

In the case of fuels, the final price of gasoline is up to R $ 0,90 per liter at stations that sell products derived from irregular chains. In ethanol, the variation reaches up to R $ 0,51, according to a study by the consulting firm Boston Consulting Group (BCG).

Article published on 31/08/2020 on the Jota Portal, in the Jota Discute session, which has the support of ETCO.