In the assessment of tax attorney Everardo Maciel, president of the ETCO Advisory Council, the problem of tax litigation tends to worsen if the country's leaders are not aware of its seriousness. In his opinion, the issue is arid and politicians prefer themes that give more visibility, such as the change in the tax model. “The dimension, the magnitude, the persistence, the dysfunctionality, in short, the pathology of the tax process in Brazil, are striking,” he says.

The solutions, however, do not seem so difficult to achieve, as long as they start from the correct diagnosis. With the experience of those who commanded the Federal Revenue during the two terms of President Fernando Henrique Cardoso, between 1995 and 2002, he points out three major sources of litigation that need to be faced: the excessive freedom of the Tax Authorities to interpret tax rules and to assess taxpayers ; the endless legal demands, brought by taxpayers, on the constitutionality of tax rules, within the scope of what he calls “thesis industry”; and the lack of clarity of some legal concepts that provoke major legal disputes.

In this interview, he explains the three problems and presents the solutions he advocates for each of them. Its adoption, according to Everardo, would have the effect of turning off the tap that floods the administrative and judicial trial bodies of new cases all the time. But it would also be necessary to solve the problem of the high stock of litigation already formed - and for this issue he also presents a proposal: to allow the use of precatories, credits and accumulated losses to settle tax debts entered in active debt.
Below are the main excerpts from the interview.

ETCO Magazine: Federal tax litigation grew in five years from the equivalent of 42,7% to 50,4% of GDP, according to a survey conducted by the consultancy EY for ETCO. What to expect for the future?

Everardo Maciel: If nothing is done, it will inevitably get worse. This is what has been happening systematically over time. I think that there is still no clear awareness of the nature and extent of the problem. This issue has no political visibility. It is more charming, more elegant to talk about the creation of a new tax, claiming that it is adopted in developed countries, than to talk about procedural reforms, as it is a very arid and technical topic and, therefore, difficult to assimilate. They do not, therefore, have the necessary political appeal for them to prosper.

Our main tax problem is the process. Whatever the tax system, in the material aspect, if the process is dysfunctional, it will not work. It is clear that the incidence of taxes, therefore, tax jurisdiction, is an important matter. But the most relevant is the process. Especially in the Brazilian case, where the dimension, magnitude, persistence, dysfunctionality, in short, the pathology of the tax process is striking.

What are the reasons for the high level of tax litigation in Brazil?

Everardo Maciel: Litigation has two aspects to highlight. First, the origin of the dispute: why does it arise? Second, the resolution: how to settle the dispute generated? Let's start with the question of origin. Tax litigation basically has three sources: the tax authorities, the taxpayer or the concept. The Tax Authorities are a source of litigation, especially since there are no limits to official releases. If there are no restrictions on the drawing up of notices of infraction, they will occur. Because the Tax Authorities can make any assessment, without any cost if they are insubstantial. This is what I call “launch without charge”.

In relation to the second source of litigation, the taxpayer, the reason is related to our model for controlling the constitutionality of tax matters. More specifically, with diffuse control, which allows any taxpayer to go to court to argue the constitutionality of a rule.

Why does diffuse control fuel litigation so much?

Everardo Maciel: Because our Constitution contains an Amazon extension of tax matters. To give you an idea, the chapter on taxation has more than twice as many words as the entire United States Constitution, which does not even have a word on taxes, that is, the taxpayer has ample space to question tax matters in the constitutional aspect. . Then, a taxpayer goes to court against a certain matter and succeeds in the first instance. Your competitor files an identical lawsuit in another court, but loses. And both go a long way through the appeals court until the Federal Supreme Court closes the issue, which usually takes ten to twenty years. And in that period the loser has to continue collecting taxes and the loser, no, in a clear offense to the constitutional principle of tax isonomy. And this is accompanied by what I call the “thesis industry”, an elegant term that implies trying to discover anything that exists on the taxpayer's side in relation to which one can argue unconstitutionality and, in the end, he does not pay taxes. This in Brazil has become an industry.

And the third source of litigation, the concepts?

Everardo Maciel: These are very indeterminate or ambiguous concepts present in the tax legislation, which allow, especially on the part of the tax authorities, the generation of disputes. These are concepts that, to use an expression of my friend and ETCO companion, professor Hamilton Dias de Souza, “low normative density”. Strictly speaking, not many cases are really important. I understand that there are three quite relevant and that deserve a solution: abusive tax planning, goodwill [amount that can be deducted from Income Tax when a company acquires another for a value higher than its net worth] and the hypothesis of a substitutive fine of forfeiture in the case of fraudulent interposition in foreign trade [severe punishment applied by the tax authorities for framing the use of intermediaries in import and export operations as fraud]. These are extremely relevant matters in the constitution of disputes, but note: none of them has any relation to the nature of the tax.

So far, we have only talked about the origin of the disputes. But you said that the high litigation is also due to our system for resolving disputes
disputes. Does the current model need to be reformed?

Everardo Maciel: Dispute resolution has to do with all the administrative procedures that exist to resolve it - and our model needs extensive reform. But if I were to establish a hierarchy of importance, I would say that solving the causes that give rise to the disputes is more important than fixing the resolution procedures, because, allow me to use an everyday expression, it is useless to mop the floor with the tap open. If the process at its origin remains uncontrolled, however good the model that I may adopt for resolving conflicts, it will be ineffective due to the volume of disputes generated. Often, when trying to address this issue in Brazil, I see some attention to the resolution of the dispute, but almost no attention to the generation of the dispute.

How to solve these problems?

Everardo Maciel: Regarding the litigations originating from the tax administration, I believe in a solution that seeks to adjust to the present day ideas that were presented in the 1960s and 1970s by great tax experts, such as Rubens Gomes de Souza, Gilberto de Ulhôa Canto, Geraldo Ataliba and Gustavo Miguez de Mello. It consists of the integration of the administrative and the judicial tax process, which allows the losing party in the administrative litigation to appeal directly to the second instance of the Judiciary: the Federal Regional Court, in the case of federal taxes, or the Court of Justice, in the case of state and federal taxes. municipal.

Does it mean eliminating the first instance of the Judiciary?

Everardo Maciel: Not necessarily. If the taxpayer does not want to enter through the administrative route, he can enter through the judicial route, as it is today. But both would end up being directed to the same place. Because the appeal, both administrative and judicial at first instance, would flow into the court.

What are the main implications of this integration?

Everardo Maciel: First, it eliminates the constraint that currently prevents the tax administration from going to court when it loses the administrative proceeding. Second, it forces the loser to pay succumbence [the winning party's expenses with the process]. And with succumbence, there is now a limit to the launch, because if the launch is unsubstantiated, there will be a cost to the State. Thus, it combines authority with responsibility and prevents launch abuse.

Third, it eliminates the current requirement for taxpayers to make deposits or provide guarantees to discuss debt in court, something that is very costly for companies.

And, fourth, the integration of the process makes it possible to replace judicial enforcement with strictly administrative collection of tax credits. This would have an extraordinary effect on the functioning of the judiciary. Today, Brazil has about 80 million lawsuits in progress in the courts. Of this total, around 31 million, that is, 38% correspond to tax enforcement actions. Have you ever wondered what it means to take all that weight off the judiciary? It would be an almost revolutionary change from the point of view of the functioning of Brazilian Justice.

Is there a proposal to this effect under discussion in the country?

Everardo Maciel: This has already been tried to advance this in the Federal Senate with the Constitutional Amendment Proposal No. 112, of 2015, which originated in Operation Zelotes and the so-called CPI do Carf. This PEC, however, did not prosper, being filed, apparently, for our tendency to not deal with materials with a little more technical density, despite its relevance. But the general lines of this idea are there.

It would be necessary to change the structure of the body that handles administrative litigation, right?

Everardo Maciel: Yes. For this integration and the possibility of reviewing the administrative decision in court, it is necessary that the administrative litigation body enjoys administrative and financial autonomy. I defend the thesis that the filling of the positions of this body is done by public tender, that is, that we have independent administrative judges, who, contrary to what exists today, represent neither the tax authorities nor the taxpayers. And with vitality.

The integration must be accompanied by a constitutional provision of general rules for administrative and tax proceedings, regulated by a complementary law, and allowing the delegation of competence, in relation to this matter, from small municipalities to the States in which they are located. Today, 88% of Brazilian municipalities have less than 50 thousand inhabitants and, strictly speaking, do not have the necessary conditions to proceed with the collection, inspection and judgment of taxes. They should be allowed to delegate that competence to the state tax administration.

And disputes related to the diffuse control of constitutionality: how to resolve?

Everardo Maciel: I believe that this can be done through a change in Law No. 9.868 / 1999, which deals with concentrated control of constitutionality - one in which the questioning is made directly to the Supreme Federal Court. This law establishes the hypotheses for filing a Declaratory Constitutionality Action. Article 14, item 3, allows this type of action when there is a relevant judicial controversy. We would only need to add the following complement: “or relevant tax repercussion”.

Thus, it would not be necessary to wait for the processes involving theses to go all the way from the first instance to the Supreme Court in order to have a definitive solution. The Public Treasury, upon understanding that a certain matter has great fiscal relevance, could promptly file a Declaratory Action of Constitutionality in the STF.

What is the solution to the litigation that originates from poorly formulated concepts, such as the three you mentioned: abusive tax planning, goodwill on company acquisitions and illicit use of intermediaries in foreign trade?

Everardo Maciel: Each involves specific aspects that cannot be dealt with here, but the solution for these cases follows a general model. It consists of preparing a proposal for a tax transaction establishing a solution for the future, correcting the points of the current legislation that are generating controversy, and another for the past. And leave the taxpayer the right to choose whether or not to join this transaction.

By the way, what did you think of the tax transaction models approved by Law No. 13.988 / 2020, sanctioned in April?

Everardo Maciel: Regarding conflict resolution by direct negotiation, in the case of an individual solution, I have doubts that this will succeed. It's because? Especially because there will always be a kind of insecurity on the part of the tax authority to implement the transaction. There is always the prospect of making a decision and then being investigated by the Court of Auditors or improper action by the Public Ministry. Because such a solution is nothing trivial. When the authority establishes a discount for the debt, there is always the possibility that someone will say: "he did it wrong, he could have been tougher". And that is impossible to assess.

The so-called “thematic transaction”, I think, does not work. The thematic transaction necessarily involves amnesties. And the Constitution is absolutely clear in establishing that the amnesty, as well as the remission, the exemption, the reduction of the calculation base, can only be done by specific law that deals exclusively with the matter. I am very pessimistic about the success of this new law, but I hope that my pessimism will be disallowed by the facts.

What more important would need to be done to tackle the problem of litigation?

Everardo Maciel: The actions I talked about so far are basically about the flow, the prevention of new litigation, but we also need to face the problem of litigation stock. Cleaning measures are required in this stock. This can be done through a large offset between taxpayers' and the State's credits and debts. A possible solution would be to allow the taxpayer to use precatories, certified losses or accumulated credits, own or from third parties, to settle credits registered in active debt. If a company does not have its own credits, it can buy from third parties, giving liquidity to credits that today are illiquid. Someone may say, "But it will create a market". Yes. But sell whoever you want, buy whoever you want. With this measure, we would clear debts on both sides, reducing the volume of credits registered in active debt and also the debts of the State.

The tax administrative process is constitutionally based, since the Federal Constitution guarantees all citizens the right to due process and to the adversarial process and to ample defense, both in the judicial and administrative proceedings.

Its usefulness ranges from enabling the Tax Administration to review its administrative acts, such as the assessment, to providing the taxable person with a specialized and widely accessible instrument for resolving tax disputes. It also serves as a filter for the Judiciary, since issues resolved in favor of the taxpayer, as a rule, cannot be judicialized.

However, as the only way out of tax disputes and with a legal framework, in essence, for more than half a century, the current model of the administrative tax process does not present the same effectiveness observed in the past to solve the problems that arise in the tax litigation .
In this scenario, the following is a diagnosis of the current situation of administrative tax litigation, its causes and alternatives for improving the system.

Diagnosis of the current model

The procedural rite for resolving tax disputes is regulated by Decree nº 70.235 / 72, being composed of three collegiate judging bodies.

In the first instance, under the jurisdiction of the Brazilian Federal Revenue Service (DRJ), there were, in February this year, about 267 thousand cases awaiting analysis, with an average length of stay in litigation of 948 days. When it comes to priority cases (taxpayers over 60 years of age or with serious illness or disability; over R $ 15 million; with tax representation for criminal purposes, among others), the average duration is around 111 days.

The amounts involved in the lawsuits at litigation at the first administrative level are equivalent to approximately R $ 155 billion, between tax credit processes and requests for refunds, reimbursement or compensation of taxes. As a comparison, in February 2019, the stock of cases in the DRJ was around 261.000 cases, with an average stay of 969 days.

The analysis of DRJ stock reveals that the vast majority of processes involve low values. There are almost 70% of the lawsuits with values ​​below R $ 60 thousand, corresponding to less than 2% of the total amount in dispute. The graph below reflects the February situation
of 2020:

The situation within the scope of the Administrative Council for Tax Appeals (Carf), responsible for second instance and special instance judgments, does not differ. In approximate numbers, there are R $ 628 billion distributed in 116.400 cases in February 2020, against R $ 567 billion in 121.100 cases in February 2019¹.

Small value processes also represent the biggest challenge for Carf. About 61% of the current inventory is from lawsuits below R $ 120 thousand.
In February 2019, Carf estimated the time for judging the stock of Extraordinary Classes, which judge processes worth up to 60 minimum wages, in about 6 years, against about 1 year in the Superior Chamber of Tax Appeals and 3 years in the Ordinary Classes².

In short, considering only the administrative judging bodies, the amount in dispute amounts to R $ 783 billion. That means 11% of 2019 GDP, equivalent to R $ 7,257 trillion³.

The current model of tax administrative litigation is exhausted and requires reformulation. The use of technological tools to automate the judgment of cases, the centralization of the management of the collection of cases awaiting judgment at the national level, the end of the territorial jurisdiction of the DRJs (currently, all judge cases throughout the country, respecting the jurisdiction for matters) and other management measures implemented were not sufficient to give concrete effect to the constitutional principle of reasonable duration of the process⁴.

The data cited demonstrate the high degree of litigation in the tax area, which is not exclusive to administrative litigation. Tax foreclosures have been identified as the main factor in the delay of the Judiciary. Tax enforcement proceedings represent approximately 39% of the total pending cases and 73% of executions pending in the Judiciary, with a congestion rate of 90% in 2018. That is, of every hundred tax enforcement proceedings that have been processed in the year 2018, only 10 were solved⁵.

Causes of a high degree of administrative litigation

The intense tax litigation is a complex, multifaceted phenomenon, even associated with cultural issues. The complexity of tax legislation is the most prominent cause, especially because it is linked to a series of ancillary obligations arising from it and the lack of predictability of administrative and judicial decisions.

Alongside this, the tax administrative process can also be used as a means of financing the tax debt, which ends up encouraging litigation. Its long duration makes it possible for the taxpayer to enter into numerous tax regularization programs, the so-called “Refis”, to split debts in a benefited way.

In fact, the repeated practice of instituting special installment payment programs has been a factor in encouraging spontaneous non-compliance with tax obligations, the growth of litigation and certainly an important cause of the dizzying increase in administrative and judicial tax litigation.

Despite assuming exceptionalities for its institutions, over the past 20 years, 76 special installment programs have been created, all of them with significant reductions in the values ​​of fines, interest and legal charges, excessively long terms for payment and, without exception, with low effective results in reducing tax liabilities.

The tax administrative process is still a free process, whose debts, adjusted by simple interest, remain with suspended liability throughout their course, allowing the issuance of a certificate with negative effect. In the event of possible repercussions in the criminal sphere, criminal prosecution is awaiting the final decision in the tax administrative proceeding, according to the Binding Precedent No. 24 of the Supreme Federal Court.

The final administrative decision in favor of the taxpayer is, as a rule, irreversible in the judicial sphere. On the other hand, if the decision is favorable to the Treasury, the dispute can be taken to the Judiciary, without any integration or harmonization between the administrative and judicial processes, causing enormous waste of time, labor and costs.

If all these aspects were not enough to stimulate litigation, the absence of alternative methods of resolving disputes overloads tax processes.
Finally, it is a model without precedent in the world when compared to other countries with greater global competitiveness, which brings losses both to the State and to the immense majority of taxpayers.

Prospects for improving tax litigation

Improving tax litigation involves two main areas of action: preventing the formation of new disputes and implementing measures aimed at speeding up the resolution of disputes that arise.

Litigation prevention

Undoubtedly, a tax reform that implements a simpler, fair and uniform tax system plays a major role in preventing litigation. However, for extrapolating the procedural area and its complexity, for the time being this subject will not be explored further.

While the tax reform is not taking place, the Federal Revenue Service has sought to consolidate and systematize tax legislation and provide greater flexibility in its interpretation. In this sense, several normative acts were edited consolidating the tax legislation and revoking previous acts, as exemplified by the 2018 Income Tax Regulation and IN RFB in 1.700 / 2017, 1.911 / 2019 and 1.928 / 2020, having been revoked more than a hundred normative instructions that were no longer effective. The average length of stay for consultation solutions, in turn, was reduced from 261 days in 2018 to 210 days in 2019.

Another relevant initiative is the promotion of tax compliance, aiming at increasing the degree of compliance. The Federal Revenue aims to encourage and facilitate the fulfillment of tax obligations, principal or accessory. Two actions are complementary to achieve that objective: self-regulation and simplification of ancillary obligations.

Self-regulation seeks spontaneous compliance with the tax obligation, with the issuance of letters and alerts and the holding of compliance meetings, so that the taxpayer, before the start of the tax procedure, can regularize pending and inconsistencies.

The best known example is that of the Individual Income Tax (IRPF) tax system, which results in thousands of self-regulations, avoiding the establishment of subsequent tax procedures and litigation. The table below shows the high number of self-regulations related to the IRPF and the low number of assessments compared to self-regulation.

The Federal Revenue Service also instituted the Simplification of Accessory Obligations Project, which contemplates the approximation with the States seeking to map and eliminate accessory obligations. There is also the objective of standardizing the layouts of some modules of the Public Digital Bookkeeping System (Sped). As a result, several States have waived accessory tax obligations due to the use of the ICMS and IPI Digital Tax Bookkeeping.

Implementation of measures to speed up the resolution of disputes

In view of the fact that administrative tax litigation has not undergone substantial reform for years, there are countless possibilities for progress in this field, such as: implementation of alternative methods of resolving disputes; tax arbitration as an optional alternative to the judgment made by the administrative body; adoption of differentiated and simplified rites according to the nature of the process; harmonization and / or integration with the judicial process; standardization of the regulatory framework that links administrative bodies; and an increasingly intensive use of information technology, including artificial intelligence, for the formation and judgment of thematic lots and aid in the preparation of decisions. The experience of other countries, adapted to our reality, must be used.

In this context, Provisional Measure (MP) No. 899/2019 was recently approved by the Federal Senate, converted into Law No. 13.988 of April 14, 2020, establishing the requirements and conditions for the Union and debtors or adverse parties to carry out resolving litigation transaction, pursuant to art. 171 of the National Tax Code.

Said Law provides for the tax transaction in the collection of the Union's active debt and in the administrative tax litigation; as for the latter, it contemplates the transaction with respect to litigation involving relevant and widespread legal controversy and low value litigation. The model adopted is parallel to the Offer in Compromise, used by the Internal Revenue Service of the United States of America. It is expected, therefore, greater effectiveness in the collection and the reduction of excessive litigation, relieving the judging bodies.

The sanctioned text also provides for a differentiated rite for small-value administrative tax litigation, thus considered one whose tax entry or controversy does not exceed 60 minimum wages. The judgment will ultimately be carried out by the Judgment Stations, linked to Carf's understandings and subsidiary application of Decree nº 70.235 / 72.

Thus, similarly to what already occurs in the federal special courts, low-value cases will have a simplified and faster rite and Carf will have a reduction in the influx of this type of process, which constitutes the majority of litigations.
There was also a change in the casting vote (§ 9 of article 25 of Decree nº 70.235, of March 6, 1972), with the insertion by amendment to the text of MP 899/2019 of a provision defining that, in the event of a tie in the judgment of the process, the resolution will be favorable to the taxpayer. This measure will certainly have a great impact on administrative litigation and, due to the wide aspects involved, it justifies the subject of another article.

Conclusions

The examination of the nuances of the national tax litigation shows the slowness in resolving disputes and the accumulation of lawsuits and tax credits, with enormous damage to the State and society. Such a situation is common to administrative and judicial disputes, given the excessive degree of litigation in tax matters.

Despite the efforts made to improve management and increase the productivity of the judging bodies, have produced extremely significant results, the current model of the administrative tax process, by itself, has not been able to resolve tax disputes with agility.

Thus, measures must be expanded to speed up the resolution of disputes and, above all, to prevent their formation. In addition to a tax reform that moves towards tax simplification and a reduction in litigation, deeper measures are needed in the procedural field. Among others, the adoption of alternative methods of resolving disputes, tax arbitration as an optional alternative to the judgment made by the administrative body, the implementation of different procedural rites and the harmonization of the administrative process with the judicial one.
In this sense, the recent approval of the possibility of a tax transaction and the institution of a simplified procedural rite for small-value cases, within the scope of Law No. 13.988 / 2020, is encouraging.

Sources

1. http://idg.carf.fazenda.gov.br/dados-abertos/relatorios-gerências/2020/dados-abertos.pdf. Accessed on 27/03/2020.
2. http://idg.carf.fazenda.gov.br/noticias/situacao-do-atual-estoque-do-carf. Accessed on 27/03/2020.
3. https://agenciadenoticias.ibge.gov.br/agencia-noticias/2012-agencia-de-noticias/noticias/27007-pib-cresce-1-1-e-fecha-2019-em-r-7-3-trilhoes. Acesso em 27/03/2020.
4. Art. 24 of Law No. 11.457 / 2007 established a maximum term of 360 days for administrative decisions to be rendered.
5. https://www.cnj.jus.br/wp-content/uploads/conteudo/arquivo/2019/08/justica_em_numeros20190919.pdf. Accessed on 27/03/2020.

The attention of Brazil has focused, in the last few months, on the fundamental themes for combating the biggest health crisis faced by the world in more than a century and its profound effects on the economy. When we overcome the worst phase of the pandemic, it will be time to face our old problems again. Improving our tax system, whose dysfunctionality constitutes a rare consensus in Brazilian society, must take priority.

Within the discussions on tax reform, in our view, there is a theme that has not received the deserved attention from the country's political actors: the scourge of tax litigation. Unfortunately, Brazil is bitterly embarrassed as the world champion in litigation between the tax authorities and their taxpayers.

In order to give visibility to the topic and contribute to the search for solutions, last year we hired the consultancy EY (Ernst & Young) to diagnose the problem. The study, launched in November, showed that litigation grows in an uncontrolled manner and already exceeds the equivalent of half of the Brazilian GDP - a proportion that cannot be found anywhere else in the world.

This edition of ETCO Magazine continues this work. In addition to presenting the results of the EY study, it brings the vision of dozens of important names who are involved with this problem and conditions to influence the search for solutions. Names that represent different points of view of the issue - Tax Authorities, taxpayers, tax lawyers, Judiciary and academic segment -, with analyzes on the causes of the phenomenon and the measures they defend to prevent tax litigation.

Three aspects of this discussion deserve special attention. The first concerns the past, the search for a solution to the litigation stock already formed. The country has been registering some advances in this direction - and it is worth complimenting the National Congress, which in April converted the Provisional Measure of the Legal Taxpayer, presented last year by the federal government, into Law No. 13.988 / 20, regulating some types of tax transaction . It is now necessary to encourage the use of this mechanism and to take other actions in order to reduce the gigantic stock generated in the past.

The second aspect is initiatives to resolve the causes of the problem and thus prevent the formation of new litigation, therefore, solutions for the future. Unfortunately, we have noticed few actions focused in this direction. Instruments such as conflict mediation and arbitration, which are used successfully in countries with a high level of tax legal certainty and a low rate of litigation, could play a very important role in resolving differences between the tax authorities and taxpayers before they become formal disputes. .

Here too, it is important to recognize important efforts adopted in this direction, such as the Nos Conformes program, created by the state government of São Paulo in 2018, which values ​​good taxpayers by allowing the self-regulation of tax debts, avoiding litigation. But much remains to be done to improve the relationship between the tax authorities and taxpayers and to reverse the culture of mutual distrust that exists in the country today.

The third point is the fight against the one who is the opposite of the good taxpayer: the stubborn tax debtor. It is a type of fraudster that structures his business to gain market not by offering good products or services, but by not collecting the taxes due and using this illicit advantage to practice predatory prices, benefiting from the complexity of tax system and the slowness of Justice to escape the law.

ETCO's fight against this form of unfair competition is an old one and was even cited in a Supreme Court judgment held last December by the rapporteur of the case, Minister Luís Roberto Barroso, in his winning vote in favor of criminalizing this practice. This judgment strengthens the urgent need for the approval of a law that makes a clear distinction between the incumbent debtor and the eventual defaulter, allowing a tougher fight against the former and respecting the rights of the latter. A bill in this regard, PLS 284/2017, is in the Senate ready to be voted on and has our full support.

I hope that the EY study and the proposals of great experts gathered in this edition will shed more light on the need for effective instruments to solve this problem that has been doing so much harm to Brazil.

Good reading.

Graduated in Law from the Pontifical Catholic University of São Paulo (PUC-SP), Zabetta Macarini Gorissen is executive director of the Group of Applied Tax Studies (Getap), an institution founded ten years ago and which currently brings together seventy associated companies, from different sectors of the economy . Getap is dedicated to contributing to the improvement of Brazilian tax legislation based on four pillars: simplification, rationalization, neutrality and legal security in the taxpayer-taxpayer relationship.

Zabetta considers that litigation is mainly due to the combination of the complexity of the country's tax system and the lack of actions to combat the resulting litigation. “We have a real tangle of tax rules that are difficult to understand, apply and comply with, both by taxpayers and by the tax administration itself,” she says.

Check out some excerpts from the interview below.

Litigation prevention has timid results

Although measures have been adopted in recent years to reduce litigation between tax authorities and taxpayers, such as joint efforts for payment and installment and amnesty programs (“Refis”), at the federal, state and municipal levels, these initiatives have not changed the scenario chaotic.

New initiatives based on the principles of Cooperative Compliance, established by the Organization for Economic Cooperation and Development (OECD), are being developed and implemented, aiming at reducing disputes. These are modern compliance strategies that bring tax authorities and taxpayers closer together to discuss tax issues, such as the Nos Conformes program, in the State of São Paulo, and the Legal Process Business, within the scope of the Attorney General's Office of the National Treasury ( PGFN). In view of the level of existing litigation, however, the results are still timid.

Cost of tax management puts pressure on companies

We have a real tangle of tax rules that are difficult to understand, apply and comply with, both by taxpayers and by the tax administration itself.

Due to the “homologation entry”, it is the taxpayer who, in the most complex taxes, such as Income Tax, PIS, Cofins, ICMS, IPI and ISS, interprets the legislation, applies to the specific case, performs the calculation, the payment of the tax due and also fulfills and delivers the numerous and complicated ancillary obligations.

In recent years, tax administrations in general have taken a more “combative” stance than usual and have started to tax taxpayers more sharply, imposing exorbitant fines, criminalizing conduct, imputing tax liability to administrators and shareholders, which has had a significant impact. even more negative the context of litigation in the country.

There is a great concern of companies with the expressive values ​​involved in these discussions over many years of processing. These amounts are added to the other costs of administration and management of the proceedings, such as attorneys' fees, costs for guarantee with letters of guarantee and guarantee insurance and the making of judicial deposits to suspend the liability of the tax credits under discussion.

Often the splice comes out worse than the sonnet

In Brazil, we get used to living with imperfect standards. Except for very rare exceptions, instead of making corrections or adjustments to avoid unintended consequences, we have adopted litigation as the only way to resolve tax issues.

In addition, the use of “regulatory norms” or procedures is recurrent in the country as a way of adjusting, correcting, interpreting other norms - which, in the vast majority of times, aggravates the situation even more, as often these new norms regulate the matter in a different way, restricting rights and distorting concepts.

There are viable and transparent means that serve to improve the rules before their entry into force - such as, for example, public consultations and the creation of study groups with the participation of tax representatives and taxpayers for prior debate on the content of the standard.

The tax consultation institute itself, provided for in our legislation, could be very useful for this purpose, but, unfortunately, in practice it is little used.

Financial credit would reduce litigation

In a simplified way, we can consider that a large part of the existing dispute today is related to divergences related to the interpretation of the principle of non-cumulative, adopted by our tax legal system for ICMS, IPI, PIS and Cofins, through the physical credit of the acquired goods in general.

There are countless questions, infraction notices, lawsuits related to different interpretations about what gives credit of the tax and what does not, if the acquired good is input or is material for use and consumption, raw material or finished product, among others questions.

In addition, and consequently, we also have several problems related to the refund and offsetting of tax credits, generated by virtue of this taxation model, under the justification that these credits are controversial and require inspections and prior approvals, which also have a significant impact. significant cash and corporate results.

It would be a great contribution if changes were implemented in the current legislation of these taxes, so that the financial credit method is adopted - that is, any and all taxed acquisitions of goods and services generate direct credit corresponding to the highlighted tax amount. on the purchase invoice, automatically. With that, the refund / compensation of accumulated credits would be facilitated and a large part of the existing dispute could be closed.