Participation in the 2018-2019 Pró-Ética program

The Comptroller General of the Union (CGU) announced in December the companies approved in the 2018-2019 edition of Pró-Ética, a project that assesses the implementation of measures and integrity policies in the relations of Brazilian companies with the public and private sectors. The project is an initiative of CGU and Instituto Ethos and has the participation of ETCO and other entities in its management committee.

In this edition, 26 companies were approved (see the table), out of a total of 373 that started the registration process. The award was presented by the CGU minister, Wagner Rosário, and by the secretary of Transparency and Prevention of Corruption (STPC), Cláudia Taya.

Pró-Ética does not generate privileges for companies in their relations with the public sector. The approved entities have the following benefits: public recognition that they are committed to preventing and combating acts of fraud and corruption, positive publicity and the evaluation of the integrity program by a specialized team.

Support for the Integrated Border Operations Center

An important advance in the fight against the illegal market in the country was the inauguration, in December, of the Integrated Border Operations Center (Ciof), in Foz do Iguaçu (PR). It is a project that integrates the actions of different government agencies with a relevant role in combating transnational crimes, such as the Federal Police, Federal Highway Police, National Intelligence Agency, Ministry of Defense, Financial Intelligence Unit (the former Coaf) , Internal Revenue Service, Department of Asset Recovery and International Legal Cooperation and the National Penitentiary Department.

Ciof was implemented in an area of ​​600 square meters in the Itaipu Technological Park, in Foz do Iguaçu, at the initiative of the Ministry of Justice and Public Security.

In addition to the Center for border security, in 2019 the federal government implemented three Integrated Public Security Intelligence Centers in the Northeast, South and North regions and a National Center in Brasília.

The integration of the forces of repression to border crimes is one of the main flags defended by ETCO in the fight against smuggling and the entry of pirated and counterfeit products in the country. It is the number 1 proposal in document 10 Measures against the Illegal Market, prepared at from a survey conducted by the Center for the Study of Social Economic Law (Cedes), in 2018, at the request of ETCO. In January, the Institute's executive president, Edson Vismona, took the document to the then newly installed minister Sérgio Moro in an audience at the Ministry of Justice and Public Security, emphasizing the importance of integration.

According to the minister, Ciof will function as "a permanent task force, with the objective of preventing and suppressing border crimes". And it can also serve as a basis for greater integration with the repressive forces of other nations. "The tendency, in the future, is also to seek representatives from countries that border to work in the integrated center", said Moro.

In the STF's decision on a regular tax debtor, an ETCO study is cited

According to the understanding that was being adopted by the Brazilian courts, companies that report their sales to the tax authorities, but do not collect taxes, could be sued in the civil sphere, but not in the criminal sphere. Only tax evaders, who evade tax surveillance by not issuing invoices, could be sentenced to prison terms. In December, however, a decision by the Federal Supreme Court (STF) changed this understanding, allowing the criminalization of so-called permanent tax debtors to be criminalized. And the change took into account the campaign that ETCO has been doing for several years to combat this unfair practice.

The STF's decision occurred in the judgment of an appeal filed by a businessman from Santa Catarina accused of misappropriating the state's ICMS. By 7 votes to 3, the majority of ministers understood that persistent default can indeed be considered a crime, especially when the intention to act in bad faith is characterized.

The case reporter was Minister Luís Roberto Barroso. In his vote in favor of criminalizing conduct, he cited an excerpt from a document prepared by ETCO explaining the losses that the frequent debtor causes to the competitive environment. “The Brazilian Institute of Ethics in Competition presented a table that illustrates in a very striking way the harmful impact of tolerance with this type of conduct,” said Barroso, who then went on to describe to the other ministers the example presented in an infographic prepared by ETCO ( reproduced next).

“The example of the Brazilian Institute of Ethics in Competition says: suppose a [taxpayer with] cost of merchandise of R $ 4; expenses with salaries and rents of R $ 1; tax, R $ 3; and profit of R $ 2. Therefore, this product should be sold for R $ 10 so that the merchant could obtain his profit and collect his tax properly. The [debtor] who does not pay [the tax of] R $ 3 can either sell for R $ 7, and compete predatoryly with what is fulfilling its obligations, or sell for R $ 10 and profit more than twice than your competitor. Either practice is devastating to an economy in which economic actors must compete with consumers on equal terms. ”

The STF's decision should inhibit the action of regular debtors, but it also brings the concern that criminalization is used in an abusive manner by the tax authorities against eventual tax debtors. For this reason, ETCO has been defending the approval of a bill in the Senate, PLS nº 284/17, which establishes criteria for differentiating between defaulting taxpayers, protecting debtors in good faith and authorizing tougher measures against taxpayers. stubborn debtors. “We believe that this may be a more definitive solution to the problem”, says ETCO's executive president, Edson Vismona.

New edition of the survey that follows the evolution of the informal economy in the country

A partnership between ETCO and the Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre / FGV) has followed the evolution of the informal market in the country since 2003 through the Underground Economy Index (IES). Data for 2019 were presented in December. For the fifth consecutive year, there was growth in the informal economy, which moved R $ 1,2 trillion, which represents 17,3% of the Brazilian GDP and is equivalent to the GDP of countries like Sweden and Switzerland.

The IES is calculated based on IBGE research on informality in the labor market and data on the amount of paper money in circulation in the country. The underground economy uses more money in its financial transactions.

The informal market maintained a consistent downward trend from 2003 until 2014, the country's growth period, but the curve was reversed from the beginning of the economic crisis. Unemployment and falling sales put pressure on workers and companies towards informality. "The better the economic scenario, the lower the Index", explains ETCO's executive president, Edson Vismona.

Ibre / FGV economist responsible for the research, Paulo Henrique Ribeiro Peruchetti, drew attention to the reduction in the pace of informal growth, which rose 0,1 percentage point in relation to 2018. In that year, it had increased by 0,4 pp. The trend, according to him, is that the HEI will start to fall with the resumption of economic activity. "Our medium and long-term vision remains positive, as long as the economy continues to grow," said Peruchetti. "But for that, we need to do our homework and move forward with all the reforms necessary to stimulate the economy."

Presence in international events on the illegal market

ETCO expanded its international operations in 2019 through contacts with authorities from different countries and through meetings on topics related to the Institute's activities, especially the fight against the illegal market.

Three events were particularly noteworthy: in Paraguay, the main source of products that enter Brazil illegally, we participated in the 13th Parliamentary Forum on Intelligence and Security; in Costa Rica, the Fifth Meeting of the Latin American Anti-Smuggling Alliance (ALAC); and in France, the meeting of the Task Force to Combat the Illicit Market of the Organization for Economic Cooperation and Development (OECD).

Learn more about these meetings:

Paraguay Security Forum

ETCO's executive chairman, Edson Vismona, participated in January in the 13th Parliamentary Forum on Intelligence and Security, in Paraguay. The meeting brought together experts and authorities from different countries to discuss issues related to transnational crimes.

This was the first time that the Paraguayan government hosted the meeting. "Paraguay has shown enormous interest in discussing ways to combat the various forms of illegality that currently prevail in the triple border region," said Vismona.

The Parliamentary Forum on Intelligence and Security was created in 2014, at the initiative of the then US deputy Robert Pittenger, with the purpose of joining efforts of different countries in the fight against terrorism and international gangs. Speaking at the opening of the event, Pittenger warned that the triple border between Brazil, Argentina and Paraguay "is one of the most critical areas in the world" and that the region's security depends on the joint action of these countries.

Anti-Smuggling Alliance Meeting in Costa Rica

The Latin American Anti-Counterfeiting Alliance (ALAC), which brings together representatives of the public and private sectors from 15 countries in the region in the fight against the illegal market, held its fifth meeting in May. The event took place in Costa Rica and once again counted on the participation of ETCO, which had been responsible for organizing the previous meeting, in Brasília.

According to ALAC data, smuggling moves U $ S 210 billion a year in Latin America, equivalent to 2% of the region's GDP, affecting sectors such as steel, tobacco, beverages, medicines, cosmetics, plastics, electronics, shoes, textiles and clothing. "This value is equivalent to the GDP of 25 of the 32 countries on the continent," said ETCO Executive President Edson Vismona.

He recalled that, in Brazil, the tobacco sector is the most affected. “Cigarettes are responsible for 67% of all seizures of smuggled products in Brazil. We are giving the Brazilian tray market to smugglers, ”he said.

OECD meeting against illicit trade

In March, ETCO participated in the meeting of the Organization for Economic Cooperation and Development (OECD) Task Force to Combat Illicit Markets, held in Paris. The event dealt with the situation and strategies to face the illegal market in the world. ETCO's executive president, Edson Vismona, made a statement in which he highlighted the progress of smuggling in Brazil, especially in the tobacco sector, and how this practice fuels organized crime in the country.

At the meeting, a new version of the study Trends in Trade in Counterfeiting and Piracy was released, which showed that the participation of these products in the world market grew from 2,5% to 3,3% in three years.

Project to raise awareness and fight against the illegal market

The illegal market represented by practices such as smuggling, piracy and counterfeiting of products harms Brazil in several ways. It compromises the businesses of companies that operate within the law, reducing their investments in the country and formal jobs. It reduces the collection of taxes necessary for the provision of quality public services. It exposes the population to products that do not pass due safety inspections, putting their health at risk. And it finances organized crime, which is increasingly dominating this market.

Many Brazilians, however, do not know or do not give due importance to these losses. To raise awareness of the problem, in 2019 ETCO joined the newspaper Gazeta do Povo, from Paraná, in carrying out the #Dentro da Lei project. The partnership made it possible to carry out forums, interviews, in-depth reports and other content on the theme from May to December.

The project involved important names in journalism, such as Alexandre Garcia, Augusto Nunes, Guilherme Fiuza and Rodrigo Constantino, and had the contribution of public agents, security consultants, researchers, representatives of the productive sector and professionals from different areas related to the problem.

Foz do Iguaçu, in Paraná, constitutes the main entry route for smuggled products from Paraguay, and the Gazeta do Povo has an important history of coverage of the topic.

The #Dentro da Lei project was conceived based on the recommendations summarized in the document 10 Measures against the Illegal Market, the result of work by the Center for the Study of Social Economic Law (Cedes) sponsored by ETCO.

The events and reports brought data and opinions on the damage that illicit practices produce in different segments, as well as suggestions to face this problem. A small sample of this information is presented below.

What would pairto do with impcosts

Brazil lost R $ 60,8 billion in revenue in 2018 due to smuggling, enough to build:

Opinions of project participants

“The crime of smuggling deteriorates the formal labor market, inhibits investments, finances organized crime, generates currency evasion, loss of revenue and risks to the health and integrity of the consumer.”
Efraim Morais Filho, federal deputy (DEM-PB) and president of the Mixed Parliamentary Front to Combat Smuggling and Counterfeiting

“The role of criminal organizations in the country has reached a dimension that no one else can ignore. We are living in an increasingly evident moment of threat to the democratic rule of law, because organized crime is unaware of the existence of authority. ”
Edson Vismona, executive chairman of ETCO

“It is necessary to conceive a type of taxation that allows to face the price of Paraguayan cigarettes in Brazil on equal terms. Without reducing the aggregate tax burden, but making a redistribution to have a cigarette with a price compatible with what arrives from Paraguay. ”
Everardo Maciel, former Federal Revenue Secretary and chairman of the ETCO Advisory Board

"If the United States, with all its apparatus, is unable to control the 3 kilometers of border with Mexico, imagine our challenge with 17 kilometers."
Arthur Cazella, general coordinator of Combat against Contraband and Embezzlement of the Federal Revenue

“Outside the law, we are not a serious country. If you don't have a culture of doing things within the law, outside the law the country has no salvation. ”
Alexandre Garciajournalist

“The #Dentro da Lei project disseminates, raises awareness, awakens, strengthens people's will to always act within the law, not to give up this line of action and this behavior.”
Luiz Bernardi, Federal Revenue Superintendent in Paraná and Santa Catarina

10 measures against the illegal market

The #Dentro da Lei project was based on the recommendations of a study carried out in 2018 by the Center for the Study of Social Economic Law (Cedes), with support from ETCO, which recommended a set of measures to face the illegal market in a broad and effective way. The work is available on the website www.dezmedidascontroilegal.com.br.

Check out the suggested measurement types:

1. Create an integrated system of intelligence agencies and entities to map possible routes for the disposal of products from the illegal market.

2. Define the duties of each Public Administration body to combat the illegal market.

3. Allocate specific resources to combat the illegal market.

4. Institute cooperation between supervisory bodies in different countries.

5. Stimulate socioeconomic development in border regions.

6. Strengthen punitive measures that are ancillary to the fight against smuggling.

7. Include smuggling and embezzlement crimes in the priority goals of the Executive and Judiciary branches.

8. Make criminal treatment for acts committed by criminal organizations more severe.

9. Rebalance the tax regimes that stimulate the illegal market.

11. Adopt special tax measures for regular debtors.

Contracting of EY study on tax litigation

ETCO initiated in 2019 a project to contribute in the search for solutions to conflicts between the tax authorities and taxpayers. In this sense, the Institute hired the consultancy EY (Ernst & Young), one of the most important in the world, to carry out a study on the situation of Brazilian tax litigation and on the way in which other countries deal with this type of divergence.

The study was presented at an event in São Paulo, in November. On the occasion, ETCO's executive chairman, Edson Vismona, spoke about the impacts of the current system on good and bad contributors. "Today, the good taxpayer encounters all difficulties and is mistreated by the State, as if his interpretation of tax rules was always malicious", he said. “As for the average debtor, who benefits from the system's complexity and slowness, the worse the better. The more confusing the rules, the longer the tax process, the more time he has to use the advantage of not paying taxes to reduce his prices and gain market share. ”

Érica Perin, partner of EY, in the presentation of the study

The presentation of the work was the responsibility of EY partner responsible for the tax area, Érica Perin, who subsequently participated in a debate with tax law professors Roberto Quiroga and Breno Vasconcelos, from FGV Direito SP.

Based on the study, ETCO started an action agenda to highlight the theme in the national debate and encourage the search for solutions to the problem.

Check out a summary of the study and the views of the two tax experts.

Six study highlights

EY carried out the study Challenges in Brazilian Tax Litigation based on data from the government, the courts, Brazilian research and information gathered by its offices in six countries chosen as reference: Germany, Australia, United States, India, Mexico and Portugal.

The focus of the work was the federal tax litigation. Check out some highlights:

MORE THAN HALF GDP: The litigation stock has been rising and reached R $ 3,4 trillion in 2018, exceeding the equivalent to half of the country's GDP in 2018 (50,4%).

ALMOST 19 YEARS: The completion of a tax litigation process in Brazil takes an average of 18 years and 11 months, in the sum of the administrative and judicial stages.

MULTIFACTORIAL PROBLEM: The litigation is high, according to EY, for reasons that include the complexity of the legislation, the number of accessory obligations, the high tax burden, the impact of penalties and tax regularization programs.

A LOT OF CHANGE: Another factor pointed out by the study is the changes in the rules. Between 1988 and 2018, 16 constitutional amendments were approved and 390.726 tax rules were issued in the country.

CRIMINALIZATION: The study showed an increase in tax assessments with tax representation for criminal purposes against taxpayers. The participation went from 25,42% in 2017 to 29,48% of the assessments in 2018.

FOCUS ON LARGE COMPANIES: The Federal Revenue Service has increasingly focused on overseeing large taxpayers - from 68,62% in 2016, they now accounted for 82,05% of the assessments in 2018. In some cases, litigation is greater than the company's market value .

Good practices from other countries

1 Mexico: It allows negotiation between the taxpayer and the tax authorities during the inspection phase, authorizing the conclusion of a conclusive agreement.

2 U.S: It allows an agreement before or after the issuance of the infraction notice, with quick mediation and arbitration processes independent of conflicts.

3. Portugal: It provides the taxpayer with an arbitration system immediately after the issuance of the tax assessment notice.

4. Germany: It favors the dialogue between the tax authorities and the taxpayer during the inspection, enabling informal agreements that prevent the generation of litigation.

5. India: It undertook a tax reform in 2017 that did not place legal security as a central theme. Judicialization remains high, with tax lawsuits that can last 31 years.

6. Australia: It offers ample space for defense and negotiation between the taxpayer and the tax authorities in the administrative appeal phase, including mediation, case assessment, conciliation, conference and neutral assessment.

Opinions about the study

In a debate after the presentation of the work, tax law professors Roberto Quiroga (USP and FGV Direito SP) and Breno Vasconcelos (FGV Direito SP) praised the initiative of the study. Some comments they made:

Roberto Quiroga

"We had some surveys on litigation, but we did not have an official compilation, made by one of the four main auditing companies in the world, which was backed up and will be released by an institution with the relevance of ETCO."
“EY brought a very important number: close to 8 thousand companies represent 60% of the tax collection and practically 80% of the tax assessments. So, actually, who are we filing? We are assessing the goose that lays the golden eggs. ”

Breno Vasconcelos

“The presentation of a study like this is a public good. We are talking about a service that ETCO, EY and ETCO associates are providing to society. ”
“We tend to hear a lot from representatives of the tax administration that the Brazilian taxpayer is bad. But when I ask companies that work here and abroad about litigation in other countries, the difference is clear. They say: "In Spain, I have a case, while in Brazil there are 3 tax cases". The data is really impressive. ”

Seminar on tax reform in partnership with Valor Econômico newspaper

ETCO has joined the newspaper Economic Value holding an event on tax reform. The Taxation seminar in Brazil took place in July and brought together important names from the political, economic and legal scene. They debated the positive and negative points of the two main tax reform proposals under discussion in the country at that time: PEC No. 45/2019, presented in the Chamber of Deputies, and PEC No. 110/2019, in the Federal Senate.

The seminar featured lectures by tax expert Everardo Maciel, former secretary of the Federal Revenue (1995 to 2002) and president of the ETCO Advisory Council, the executive president of the Institute, Edson Vismona, federal deputy Efraim Filho (DEM-PB), the economist Marcos Lisboa, president of Insper and former secretary of Economic Policy of the Ministry of Finance (2003 to 2005), of the assistant attorney general of the National Treasury, Phelippe Toledo Pires de Oliveira, and of the tax attorney Roberto Quiroga, professor of Tax Law at the University of São Paulo (USP) and FGV Direito SP.

The following is a summary of the points highlighted by each speaker.

Everardo Maciel

The targets should be other

Tax attorney Everardo Maciel criticized the reform proposals under discussion in the National Congress. In their assessment, they do not solve the most serious problems in the current system: high litigation, legal uncertainty and bureaucracy. And they do not address the main tax issues currently under discussion in the world: the erosion of tax bases, the taxation of the digital economy and the designation of new sources of Social Security financing.

Regarding PEC No. 45, it predicted consequences that could represent problems or generate resistance from society, such as: transferring taxation from large companies to 850 thousand contributors to the presumed profit regime and to civil construction; increase in the price of services such as health insurance and private school; emergence of new forms of tax evasion; increased litigation, including questions about its impact on the federal pact; and increased complexity during the transition period.

Edson Vismona

Valuing the good taxpayer and punishing the bad

ETCO's executive chairman, Edson Vismona, said he feared that attempts to radically change the tax system would not progress because it involved so many interests and legal discussions. He defended a reform that has as principle to value and to simplify the life of the good taxpayers and to increase the rigor against the bad ones. In the case of the former, he cited proposals such as the creation of a single tax register, the simplification of the processes of opening and closing companies, the elimination of the requirement for a negative certificate, the universal compensation of taxes, the annual consolidation of legislation and the setting of deadline for responding to tax consultations.

In order to combat bad payers, he defended the approval by the Senate of PLS ​​284/2017, which authorizes a more rigorous treatment for regular tax debtors; the reintroduction of a physical control mechanism for the production of the beverage industries to prevent tax evasion; and a review of taxation on the cigarette sector to reduce the advantage of smuggling, which already controls more than half of the market in the country.

Phelippe de Oliveira

The principles of good reform

The Deputy Attorney General of the National Treasury, Phelippe Toledo Pires de Oliveira, listed some principles that he considers fundamental in tax reform: being economically sustainable; reassess the distribution of taxes between consumption, income and wealth; reduce the complexity and litigation level of the current system; respect the federative pact; review tax benefits; reform the tax collection process; and combat the tax evader and the persistent tax debtor.

"The judicial discussions of tax litigation sometimes take twenty years," he said, recalling that the delay ends up benefiting figures such as the debtor. “Most of the time, they are companies that have nothing in their name. So the problem is the timing in relation to the time of inspection and the time of collection, which the incumbent debtor will discuss administratively and judicially, postponing the payment until after ten years, when there will be no more equity. ” According to him, the approval of PLS ​​284/2017 would bring a quick solution to this problem.

Marcos Lisboa

Distortions that need to be corrected

Economist Marcos Lisboa cited aspects of the current tax system that, in his view, constitute distortions to be corrected by tax reform. He defended a uniform rate for all sectors and substitution of fiscal incentives for public spending. “Do you want to benefit a sector, a company, do you bet on the project? Great. Taxation has to be the same for all sectors, so raise funds and, via the Assembly or Congress, make an allocation to support project A, B or C, which has transparency, has control of society. ”

He also argued that indirect taxes should be levied at the place of consumption, rather than at the origin of the goods, to promote more efficient allocation of resources and reduce the fiscal war. He acknowledged, however, that collection at destination favors tax evasion. He also recommended the reduction of corporate income tax and the taxation of the distribution of profits to shareholders, now exempt. Finally, he spoke about the need for measures to increase legal certainty and reduce tax litigation. "Today, it is dysfunctional."

Roberto Quiroga

The escalation of tax litigation

Tax attorney Roberto Quiroga expressed doubts about the feasibility of a tax reform along the lines of the proposals under discussion in the National Congress in mid-2019. “One must be very careful with this combination of taxes and especially with the federative issue. It will be very difficult, in my view, to host a reform project in which the three spheres come together. ”

For Quiroga, one of the most urgent problems is the escalation of tax litigation. “Today, the size of Brazilian tax litigation is equivalent to half a GDP, close to R $ 3,3 trillion. These are topics of great theoretical discussion that end up being discussed in the administrative area and in the judicial area ”, he said. According to him, in addition to affecting the State's collection capacity, the situation penalizes companies, which need to present financial guarantees to be able to discuss issues in court - which generates costs and, as the volume of litigation increases, may compromise their ability to investment.

Efraim Filho

Changes should enhance the productive sector

Federal deputy Efraim Filho argued that tax reform should have PEC No. 45/2019 as its backbone, pending before the Chamber of Deputies. He acknowledged that the issue is difficult, as it involves many interests and raises complex issues from an economic and legal point of view. But he said he thought it possible and preferable to pass a deeper reform in the current legislature. "You have to conceive something new," he said. "Making a patch will not do any good, because a patch on rotten fabric tears."

Efraim also expressed the opinion that the reform should not only focus on the State's revenue interests, but must also value the private sector. “It is necessary to prioritize those who produce in Brazil. Whoever produces in Brazil can no longer be the villain of history. The productive sector today is seen with a presumption of guilt ”, he lamented. “The rules today are to facilitate collection. They are not to make life easier for the taxpayer, nor for simplification. ”