Attorney Leonardo de Andrade Rezende Alvim, of the PGFN, believes that the fragmented base is the main cause of the high Brazilian tax litigation and that the definitive solution involves a tax reform that unifies consumption taxes and reduces tax incentives.

But it also defends specific measures, such as more transparency in the elaboration and interpretation of the rules by the Executive, including the mandatory presentation of its preparatory documents and legal bases. It also proposes changes in the tax process, such as sending Carf decisions directly to the second instance of the Judiciary.

Former Deputy Attorney General of Tax Consultancy at the National Treasury, researcher at Insper in São Paulo and professor of tax law at Escola Superior Dom Helder Câmara, in Belo Horizonte, Alvim is part of the working group in charge of regulating the tax transaction of legal theses .

Following are excerpts from the interview.

Unification of bases and end of tax benefits

The problem starts when there is a very fragmented tax base. In other countries, there is no consumption tax divided between PIS, Cofins, IPI, ICMS and ISS, but only a VAT on consumption. Here, you have the possibility that more than 5 municipalities, the States and the Union offer tax benefits.

As careful as those who make the rules are, you will never avoid litigation on such a fragmented basis. This creates a dispute between public entities, an excess of norms. We will not end litigation without a tax reform that solves this problem.

The resolution of the litigation involves a simplification of the basis and an end to tax benefits. Without it, all the others are palliative measures that reduce, but do not end the problem of litigation.

More respect for the intention of those who created the standard

I can extract several rules from the same text, with different interpretations. Outside, the argument “the intention of those who made the standard” has more weight than in Brazil. In Germany, even if the text allows to extract other interpretations, the reasons and the argument of who made the norm prevail more frequently. Here, the text becomes something free to interpret as if it were a poem. And this leads to litigation. Because if there was a greater respect for the intention of the person making the rule, you would generate less litigation.

Diverging and unfounded decisions

Everyone has errors in this matter: the tax authorities, taxpayers and the judiciary. The Tax Authorities cannot have three interpretative bodies in tax matters. At the federal level, the system cannot have the Federal Revenue Service, PGFN and sometimes the Federal Attorney General speaking out on tax matters.

Another important point is that these bodies need to be more consistent with the legal bases used. Today, they don't. If you try to find out the legal basis of any of the bodies today, you will not be able to find it. You will get the interpretive result that he gave, but the fundamentals used to arrive at that result are not exposed. If the taxpayer knew the fundamentals that PGFN, Receita and AGU use and they were uniform, it would have much more predictability. Today, these bodies often use conflicting grounds in different cases.

Profit from litigation

The idea that litigation generates a high cost for companies is not entirely correct in my understanding. Some taxpayers profit from litigation: they manage to reduce taxes much higher than the expenses with accountants, lawyers, guarantees. They end up paying less taxes than competitors who do not follow the same path.

Specialized courts in the Judiciary

Another cause is that the Judiciary has no specialization in tax matters. This is a huge factor of legal uncertainty. When there is a particular tax cause, the taxpayer knows that anything can be decided, because it is as if a layman is deciding.

We don't have specialized sticks. The courts that judge tax lawsuits in the Federal Court can take both themes such as social security benefits and a tax thesis. The judge who judges these cases is like a general practitioner in medicine. It would be important to have specialized classes in the courts to judge tax cases.

From Carf direct to the second instance of the Judiciary

One proposal that I defend, although it was not who created it, is that decisions rendered in Carf do not go back to the first instance of the Judiciary, but go straight to the courts. Carf is an extremely specialized body whose quality of decisions is infinitely superior to those of the Judiciary and does not justify having a decision by the Superior Chamber of Carf returning, for example, to a Judicial Sub-section of Uberlândia and then going up to the STF. Carf's decisions should be appealed to the TRF and not to the lower court.

More transparency with the basics of standards

All normative acts should have a statement of reasons - and this statement should detail more why each article, each device was included. It should be mandatory that all the preparatory documents for that standard should be made public along with the text itself: the opinion that allowed its creation, the technical notes, the explanation of reasons for you to really understand why each device was proposed.

There should also be indexing by theme and consolidated understanding of PGFN with the Revenue giving the legal basis for each interpretative result. All of this should be made available in a public database.

Complex legislation, a culture that does not favor the dialogue between the Tax Authorities and the taxpayer, a system that facilitates litigation and a difficulty for the higher courts to deal with cases that are processed under the system of repetitive and general repercussions are factors that explain the country's high tax litigation. The opinion is of Adriana Gomes de Paula Rocha, Deputy Attorney General for Consultancy and Strategy of the Judicial Representation.

But she cites advances that are being discussed or are already in effect on all these fronts, such as the PGFN's own strategy of giving up cases with low potential for success in order not to further drown the Judiciary and measures to bring the tax authorities and taxpayers closer together.

Check out the main parts of the interview.

Culture of litigation and ease of access to the Judiciary

Tax litigation has several causes. Our tax system is very complex, we have an immense amount of rules, a profusion of legislation that causes a lot of doubt, a lot of uncertainty. We also have an ingrained culture of litigation in our society. There is a difficulty in the dialogue between the tax authorities and the taxpayer - and the tendency to take any disagreement to the courts.

We always seek the Judiciary to solve problems and there are legitimate tools that favor litigation, such as the writ of mandamus, which has a low cost and allows withdrawal at any time. Another important factor is the excess of conflicting decisions in the first instance. This all ends up feeding the litigation and making the system unable to flow the process flow.

Feeling that important processes are stalled

Since the edition of the Constitutional Amendment that dealt with repetitive appeals and the system of general repercussions (EC nº 45, 2004), there was no significant decrease as expected in the Judiciary's congestion rate, as shown in the Justice in Numbers reports. and the Supreme Court are not managing to deal with issues of general repercussion. While recognizing efforts to streamline the agenda, to achieve what is planned, this does not happen as quickly as necessary, generating the feeling that important processes, which are suspended awaiting the decisions of the STJ and STF, they are at a standstill, which causes great legal uncertainty.The system of repetitive appeals and general repercussions has not yet reached the objective of the rule when it was created.

Abuse in the use of resources and tax education

The National Treasury and the taxpayer are not interested in the delay in delivering the judicial provision, but sometimes, depending on the strategy of the taxpayer, there is an abuse in the use of the resources offered by the judicial system. Because the delay in the Judiciary can have a positive impact on taxpayer planning, which does not help to pacify conflicts.

We also have a problem of lack of fiscal education. Today, the citizen cannot perceive everything that is done with the value of the taxes collected and that there is effectively a return for him. It always seems that we, the tax administration, are antagonists, and that is not the idea. Everyone here is working to have a fairer society, everyone paying, everyone receiving the State's consideration.

Separating the good taxpayer from the regular debtor

I often joke that the IRS should change its symbol, which is the Lion, by something that is not scary. We need to approach, talk, value the good taxpayer, the citizen who pays the taxes and who for some reason understands that he must question the law. At the same time, we need to avoid the practice of that persistent debtor who is taking advantage of this situation to litigate, not pay the tax and harm his competitor.

Litigation reduction strategy

We have been pursuing, throughout the tax administration, a strategy to reduce litigation, not to insist on those resources that would not be viable for success. When you focus on strategic processes, success is much greater. We strive to improve legislation in this regard, to help even a two-way street with the judiciary.

To get an idea, in 2019, in the PGFN of the 1st Region, we dropped more than 722 appeals and presented 1.152 petitions for withdrawal in lawsuits in the STJ and 115 in the STF. This is something that the Attorney General's Office has been doing for some years so as not to increase congestion in the Judiciary.

Consensus on tax simplification

There is an effort by the economic team to simplify the legislation in the studies that are happening in relation to tax reform. It is clear to everyone the need to simplify legislation, simplify federal taxes, so everyone is converging on that.

New tools to promote dialogue

We had few tools to promote dialogue between the tax authorities and taxpayers, but that is changing. Procedural legal affairs are already a reality and gained strength in the past year. We have felt a positive return even from the private lawyers, who are even going to get the Finance to try to [celebrate] the legal business. And now we have a lot of expectations regarding the regulation of the tax transaction [law nº 13.988 / 2020, approved in April as of MP 899/2019 - or MP of the Legal Taxpayer]. It represents a great advance for Brazil. Within the scope of the regulation of the tax transaction for cases involving legal theses, it is quite innovative. I see great potential for changing the level of litigation.

The Deputy Attorney General for Administrative and Tax Litigation, Phelippe Toledo Pires de Oliveira, believes that the complex legislation and the culture of distrust between the tax authorities and taxpayers contribute to the high level of tax litigation in Brazil. "It is much larger than in other countries," he says. He also cites the high number of resources in the procedural system and the potential financial advantages of discussing tax debts in the courts as important factors.

To reduce the problem, it bets on mechanisms that bring tax authorities closer to taxpayers, such as the adoption of so-called procedural legal transactions and tax transactions, which allow direct negotiations between the tax authority and the debtor. It also defends the creation of programs that honor good taxpayers.

The following is a summary of the interview we did with him.

Too many processes and too many resources

The number of lawsuits and the large number of appeals existing in the Brazilian legal system slow down the judgments. I give the example of the administrative tax process at the federal level: in the first instance, the taxpayer challenges the assessment to the DRJ. Then, the system allows an ordinary resource, which goes to Carf. Then, you have the possibility of embargoes. Then, special feature for CSRF. If the appeal is not admitted, there is a possibility of an appeal. This is only in the administrative sphere, not counting the judicial sphere. Anyway, there are countless appeals that end up prolonging the litigation.

Complexity of the law and diversity of interpretations

One of the main causes of litigation is the complexity of the legislation - and the diversity of interpretation resulting from this complexity. Another cause is the taxpayer's ease of access to the administrative body and the judicial body and potential benefits arising from this. In the administrative process, he has the suspension of the demand for the tax credit - the Treasury cannot collect the debt and the taxpayer is entitled to the Certificate [Negative Tax Debts].

In addition, he has the possibility of a decision by a technical body, Carf, which is very good. And if the decision is favorable to the taxpayer, the tax administration cannot appeal to the Judiciary - it is final. Now, if he loses, he can go to the Judiciary. There is an overlap of instances: first, an administrative one, and getting lost in it can again raise the issue before the Judiciary. And then it enters that history of delay, because if in the administrative sphere it sometimes takes six to eight years, in the Judiciary it can take even longer.

Financial incentives for litigation

Litigation can bring a financial advantage to the taxpayer in two ways. The first concerns interest: in legal proceedings, when the taxpayer loses, interest is adjusted by the Selic rate - simple interest. If he invests the money, he earns compound interest. Today, interest rates are relatively low, but recently the rate was 14%. Of course, there are fines and the cost of hiring lawyers.

In addition, there are installment programs, which are actually installments stimulated with amnesty and remission, with forgiveness of the fine and sometimes even partial forgiveness of interest. Then, the taxpayer discusses administratively pending the possibility of payment in installments under advantageous conditions. Only at the federal level, there have been several installment programs in the last fifteen years.

Fear of the tax authorities to correct standards

When there is a divergence of interpretation, there is a certain fear of the Treasury in correcting the rule to make it clearer, due to the fact that this may end up generating an argument for the taxpayer in dispute, who can say: “You see how my interpretation was correct? It was so true that the tax authorities changed the legislation in another sense ”. The changes promoted by MP 905/2019 in relation to the PLR ​​(Profit and Results Sharing Program) are a good example. As soon as the measure was published, this argument was raised by taxpayers in cases pending judgment by Carf.

Ways to bring tax authorities and taxpayers together

There is a distrust between the taxpayer and the tax administration in Brazil. We need to change this culture of mutual distrust, bringing the two sides together. This is an OECD recommendation and we are starting to follow that path. I give three examples: the first is the procedural legal affairs, which were introduced by the new Code of Civil Procedure and enable the tax administration to make some concessions, mainly in relation to credit guarantee.

The second is the transaction in tax matters, provided for in the National Tax Code since 1966 [and transformed into law No. 13.988 / 2020, approved by the National Congress and sanctioned in April as of MP 899/2019, or MP of the Legal Taxpayer].

Warn the taxpayer before imposing fines

The third, which I think may be a next step, would be what is called “cooperative compliance programs”, which is something in the line of honoring the good taxpayer. In other words: do not simply go there and place a penalty, which sometimes reaches 150%, for that taxpayer who did not know that he should have declared a certain income, for example. But, rather, allowing the taxpayer to have a greater dialogue with the administration, present his tax situation to the tax administration, and the tax administration to take a stand beforehand. Thus, legal certainty is given prestige.

Another possibility would be not to apply the fines immediately: the taxpayer would be warned of any non-conformity of the declaration so that he could correct it, without having to impose the fine.

Rita Eliza Reis da Costa Bacchieri is one of the counselors who represent taxpayers in the judgments of Carf (Administrative Council for Tax Appeals), as indicated by the National Confederation of Industry (CNI). Since February 2020, he has accumulated the position of vice president of Carf. In his view, the high level of litigation in Brazil reflects problems such as the complexity of the tax system, the low quality of the rules, the slow pace of judgment on controversial issues and the high values ​​of the launches. According to her, assessments referring to periods of five years, which add taxes, interest and fines, often reach figures that make it impossible to maintain the economic activity of companies.

To reduce complexity, she believes in the path of tax reform. And it defends specific measures to avoid unpayable debts, such as allowing the debt to be settled before launching and reducing the periods for carrying out inspections, in view of the modern tools that the tax authorities have today to quickly identify possible irregularities on the part of taxpayers.

More details in the interview below.

Debts that arise already unpayable

It is undeniable that the complexity of the tax system is the main cause of litigation. We also have poor quality standards, with poor writing, and often the interpretation of its concepts and effects only appears after many years.

Considering the decadent term of five years, when there is an incorrect conduct on the part of the taxpayer, in general, it automatically raises a high liability and, considering the average size of Brazilian companies, priceless. This scenario creates legal insecurity, driving investment away and, often, encouraging the migration of less structured companies to informality.

The increase in litigation is also related to the improvement of inspection instruments, which facilitated the discovery of deviations or practices that could be discussed, increasing the number of assessments.

Low effectiveness in collecting amounts in litigation

Within the inspection, litigation and collection tripod, what always surprises me are the numbers on the receipt of the amounts and the comparison between the main tax credit and the other amounts linked to the collection. I mention the situation in the state of Minas Gerais as an example. According to a survey carried out by the National Treasury, between 2009 and 2017, approximately R $ 5,1 billion in active debt revenues were collected. However, in March 2019, according to the Minas Gerais tax administration, there were still R $ 65,4 billion recorded in active debt in the State, of which R $ 14,3 billion were related to the tax itself and the rest to fines and interest. .

For me, these data, as well as the observed effects of the repeated debt installment programs created by the Union, states and municipalities, show that the current model of tax litigation may not be effective from the point of view of tax collection. The situation ignites a warning about the need to rethink the way in which tax credit is collected.

Tax reform and specific measures

To reduce the problem of litigation, it is necessary to simplify the legislation, which involves carrying out a tax reform in this regard. In more practical terms, some points seem important to me. Installment programs have undeniable effects, leading many taxpayers to give up administrative and judicial discussions in exchange for the possibility of paying debts with significant interest and fine discounts.

Observing this behavior, I have the impression that if, before the launch, the taxpayer was given the opportunity to explain or even spontaneously report, perhaps not all launches were necessary. This was noticed in relation to the Individual Income Tax and the creation of the fiscal network.

Another point concerns the inspection period. Given the technological evolution and the sophistication of its processes, does it still make sense for the Tax Authorities to carry out launches covering periods of five years?
I know that there is in fact a discussion of the theses, and these are essential, but my opinion is that many taxpayers opt for litigation simply because they do not have the financial resources to perform a launch whose value - high due to the extension of the calculation period , interest and fine - impacts the maintenance of productive activity.

The role of administrative courts like Carf

Carf is today an extremely technical body, although criticisms are still common, especially regarding the capacity of the taxpayers' representatives. But it is common sense among those who work there that the quality and commitment of the judges are unquestionable.

Having a strong and highly capable administrative court is important. First, because, if the dispute is referred to the Judiciary, it will arrive more mature, facilitating a more cohesive decision for society. Second, because the court's repeated decisions can become a source of law, avoiding the multiplication of notices.

The president of the Administrative Council for Tax Appeals (Carf), Adriana Gomes Rêgo, has commanded the country's main administrative court for two years. The body, which has more than one hundred directors, brings together a collection of 116,7 thousand cases, totaling R $ 624 billion in tax credits. Last year, it published 26.090 judgments, analyzing almost R $ 371 billion in disputed amounts between the Federal Revenue Service and taxpayers.

Adriana understands that Carf has fulfilled the role of reducing his stock of lawsuits, but that the solution goes through other ways outside the court. In his opinion, self-regulation and compliance would contribute to reducing tax litigation in the country.

Complexity of legislation and coercive fragility

Today, the time of judgment, both in administrative and judicial litigation, is something that affects even the spontaneous compliance of the collection, and is a service rendered to society that is being postponed.

One of the causes of the excess of litigation is the complexity of the legislation, which generates divergent interpretations. Another point is the weakness in the enforcement of tax legislation. There are countries where, when a person owes a tax on his car, he takes the car. And here, today, there are no such easy-to-enforce mechanisms, which ends up in non-compliance with tax collection.

More judgments than new causes

The litigation structure itself is not compatible with the current volume of lawsuits. Carf, since 2019, judges for the first time more lawsuits than it receives. We judge 1,33 cases for each case that went to court. In the Superior Chamber, this rate was 1,72. We have been giving flow to the flow. The problem is the high collection.

Between 2011 and 2014, the Federal Revenue Service practically doubled the number of lower court judges, without this duplication in Carf. The entrance was larger than the exit to the point that it was considered between 59% and 62% of what entered. The lack of collegiate in 2015 [after the Zelotes operation] also helped to increase the collection.

Low value causes that require probative analysis

Another feature of the collection that hinders its flow is the fact that these are processes where the probative analysis prevails. More than 50% of our collection are low value processes, which cannot be solved by summaries. We have already created extraordinary classes in 2016 and 2017 to analyze such cases, but these are processes that cannot be solved via repetition.

Simplifying the law and giving special treatment to the good taxpayer
A fundamental step would be to simplify legislation. If the most controversial points were worked on in order to prevent them, we would have less litigation.

The path that I consider the most important, however, would be the expansion of compliance and spontaneous compliance mechanisms. A special treatment for the good taxpayer, of self-regulation, to try to make him fulfill his tax obligations before the entry is made. Differentiate those who deliberately withhold taxes from those who do not want to withhold taxes, but make mistakes, and give the good taxpayer different treatment. Differentiation has an educating aspect. It is beneficial when treating the good taxpayer in an environment of easier self-regulation.

Increase the structure, but addressing the causes of the dispute

The best alternative would be for the administrative process to not even begin. It would be investing in compliance, mapping who are the good contributors and offering different treatment to them.
Does the structure work? It resolves, but it does not make sense for the State to increase the number of Carf classes if it does not work there at the origin. It is necessary to work on the origin, the root cause, which is the emergence of the dispute.

If I had to work with a single solution, I would work for self-regulation, for the approximation and convergence between the tax administration and the taxpayer.

In addition to the increase in the speed of trials

The way we are looking for is to provide services to society faster. We have adopted several efficiency mechanisms, we have already classified about 70% of our processes with artificial intelligence and we are judging more processes than we received. But we can contribute even more to the reduction of litigation, for example, in the establishment of binding jurisprudence and in the promotion of an alignment between the Federal Revenue, Carf and the Attorney General of the National Treasury from the moment the tax is launched.

The Tax Law professor Vanessa Canado is one of the main names responsible for the elaboration of the federal government's tax reform project, acting as special advisor to the Minister of Economy, Paulo Guedes. She understands that the seriousness of Brazilian tax litigation is unparalleled in the world. It attributes the problem to the complexity of our tax system. And he argues that the country seeks deep and long-term solutions, not settling for palliative measures. But he suspects that the conditions for the necessary tax reform are not mature enough.

Following are excerpts from the interview.

Severity observed in surveys and conversations with investors

The proportion of litigation on GDP, both in the study of ETCO and in research by Insper, FGV and CCiF, is astronomically higher than the median of other countries. This has also been a constant complaint from investors and companies operating in Brazil. In the past, the debate on tax reform was centered on the size of the burden. In recent years, it has become the improvement in the tax-taxpayer relationship. When you look at the balance sheet of publicly-held companies, tax litigation draws a lot of attention, which is even higher than labor litigation. I participate in many international seminars, I was in the G-20 this year and I notice that this is not a relevant problem abroad, but a very domestic one.

The problem is the complexity of our system

Although we have a dual system of judging litigation - administrative and judicial - which is not very common in the world; although the process takes time; although there are often also biased judgments; this does not seem to me to be a diagnosis of the cause of the problem.

I have no doubt that the cause of the litigation is the mistaken design of the tax system, from the constitutional tax system, which, for example, separated taxation from consumption, giving rise to this billionaire cause of the STF, excluding ICMS from the tax base. calculation of PIS-Cofins, until reaching the rules for tax substitution and added value margin in the ICMS, which changes from product to product, from state to state.

With these numerous rules, it is obvious that there will always be more than one possible interpretation, which is where conflicts between the Tax Authorities and taxpayers arise. This is a snowball that can even decrease from time to time, with debt refinancing programs, with Carf's task forces to reduce the stock of litigation, but this is a bit like wiping ice - don't stop the problem.

Diagnostic errors and palliative solutions

I see many people saying that one of the causes of tax litigation is the fact that paying taxes in Brazil is a lot of work. But why is paying taxes a lot of work? Because we have a lot of taxes, a lot of different regimes, a lot of calculation bases, a lot of tax rates. I am concerned to make a hasty and superficial diagnosis and adopt measures that will not solve the problem. While it is possible to provide more palliative solutions and improve the business environment now, it is important that these palliative solutions come with long-term solutions.

Reduce differentiated treatments

What usually ends with litigation is to eliminate differences, that is, a more homogeneous tax system, in which there is a more moderate tax burden for everyone and less differentiated treatments. An example is PLR (Profit Sharing or Results), which does not pay tax on payroll and is today one of the biggest disputes in taxing payroll. What do people discuss? Whether or not it is PLR. So, from the moment that this differentiation in the tax system is created, litigation is created. Generally, bringing more detailed rules does not end litigation, but creates more points to be interpreted.

The question still needs to mature

Although the discussion on tax reform is old, it has only been debated more deeply with society recently, five, ten years ago. This discussion still needs to mature a lot. There is this natural thing about the human being, about the fears of profound changes, people tend to insist on more specific measures. I think this is normal, it is a thing for all countries, that is why the discussion takes so long. It takes to deepen, it takes to mature. We try a small measure and see that it doesn’t work, then people will soon realize that they need to undergo a more profound change in addition to specific issues.

While we do not have the ideal reform

If such a wide-ranging reform cannot be achieved, at least the main problems of the current system are removed. I'll give you an example. In the case of PIS-Cofins, the main causes are basically related to two issues: the issue of excluding ICMS and ISS from the calculation base; and the question of credits: what gives credit, what does not give credit. If a consumption tax reform that somehow unifies taxes cannot be achieved, at least it is possible to address these two problems.

What I propose is: of course, there is a wide-ranging reform that will have a much greater impact, but it is possible to make some specific changes starting from a hierarchy. Then, a diagnosis can be made looking from the largest dispute to the smallest, looking at what gave rise to that problem and attacking little by little. It doesn't have to be a reform of the system as a whole, all at once.

Hamilton Dias de Souza, a founding partner of the Dias de Souza Advogados Associados law firm and a member of the ETCO Advisory Council, points out problems in the position of the tax authorities and the functioning of the judiciary as important factors for the situation of legal uncertainty experienced by Brazilian taxpayers.

For both cases, it presents proposals. In order to contain tax authorities' abuses, he defends that the State and tax auditors are held responsible for the losses caused to taxpayers when they assess them in an arbitrary manner, particularly when setting qualified fines. "There is a constitutional provision expressed in the sense that, if the State causes harm to someone, it must repair the damage, and if the public agent has acted with intent or even guilt, he must respond even in person," he says.

In relation to the Judiciary, it proposes a profound change in the Brazilian system of control of constitutionality of tax rules, which, in its calculations, would reduce the delay time for the case to reach the Federal Supreme Court from about eight years to something around one.

Next, the interview we did with him.

Instead of providing help, the error is sought

The issue of litigation is largely due to the fact that the IRS has a partial position. The tax agent, instead of guiding the company and checking for good faith, usually looks for the error, hence assessing the company. Even in normative instructions and responses to queries there is usually a pro-tax attitude.

What would be desirable? First, that the acts were impartial, that they respected the law and had the objective of instructing the taxpayer. Second, that the tax agent, especially when assessing a company, would not go beyond a reasonable interpretation of the law, under penalty of being held responsible for the losses that it might cause to that company. This is possible, there is a constitutional provision expressed in the sense that, if the State causes harm to someone, it must repair the damage, and if the public agent has acted with intent or even guilt, he must respond even in person. This is what Article 37, paragraph 6 of the Federal Constitution provides.

Changes in the jurisprudence of the Courts

I criticize the Judiciary for often making decisions amending jurisprudence on tax matters, creating new concepts different from established doctrine, which contributes negatively to legal certainty. Even tax lawyers like me often have a hard time imagining what the Supreme Court's judgment will be like. Sometimes jurists and the doctrine of the entire country go in a certain direction and the Court makes a decision that no one expected. It is unreasonable for eleven people to be able to decide countless times in a way that differs from the thinking of most Brazilian doctrine. But it is what is often happening. Furthermore, the doctrine of the Supreme Court, that is, the rationale that the court uses in judgments, varies from case to case. Companies are uneasy, there is a general climate of insecurity.

Why does the final decision take so long

Our constitutionality control system is bad. Most of the time, the Supreme Court decides an issue after eight, ten years or more of the event causing the controversy. The cases start at the first instance, in which each judge gives a decision in a certain sense, then go to the courts, which are also erratic, go through the STJ, which can decide contrary to the courts of second instance, and when the matter reaches the Supreme Court it is not uncommon for the STJ's decision to be reformed. And the taxpayer goes for ten years without being sure what will be decided in relation to his question.

Faster constitutionality control

My colleague Daniel Corrêa Szelbracikowski and I prepared a proposal for a change in the control of constitutionality in Brazil to face this problem.

In a well summarized way, it would work like this: when the first-degree judge is faced with a tax issue involving open constitutional concepts or constitutional principles, he must submit it to an “constitutionality incident”. Without judging the case, he refers the matter to the court to which he is subject, which would have a special chamber to assess the relevance of the issue raised by the judge.

If it considers it relevant, the court sends it directly to the Supreme Court, which, recognizing the pertinence of the matter and understanding that it is a national issue, proceeds to deal with it in the general repercussion system, valid for all equal issues throughout the country. During this period the judgment of the case would be suspended. If it is understood that the constitutional issue is not relevant, the trial would continue in the lower court.

Thus, we would not have a multiplicity of judgments in the first instance, in the courts and in the STJ. The question would go straight to the STF. And what often gets there after eight, ten years could get there in about a year.

The legal uncertainty of the Brazilian tax system stems in large part from the way the rules are created in the country. In excess, in an erratic and uncoordinated way, without previous studies on international experience and on the expected behaviors of economic agents and neither evaluation of results after its introduction. And by means of a political culture that creates extremely strict general rules and then flexes the criteria according to the strength of the different pressure groups in society.

This is the diagnosis of tax lawyer Breno Vasconcelos, a partner at the firm Mannrich e Vasconcelos Advogados, to explain what he defines as “the largest tax litigation in the world”. Professor and researcher at Insper and the Faculty of Law of Fundação Getulio Vargas, Breno is co-author of a study that compared the values ​​in litigation in the administrative sphere in Brazil with that of two groups of countries in recent years. Here, they represented 16,4% of GDP, against 0,29% in nations of the Organization for Economic Cooperation and Development (OECD) and 0,19% in Latin America.

In this interview, he cites two measures to tackle the problem: one relatively simple to implement, based on the classification and different treatment of good and bad taxpayers, and the other more complex: the approval of a tax reform along the lines of PEC No. 45/2019 . Check out.

Poorly prepared law school

One of the main causes of litigation is that in Brazil there is an excessive, erratic and uncoordinated production of tax rules. It is common to find rules that are in conflict with each other. We have a law school in Brazil, a legal tradition, very poorly prepared to elaborate and evaluate the impacts of the rules. It is improving, but it is still poorly prepared. Standards are created without prior analysis of their possible impacts, what the behavior of economic agents will be, and the results are not measured afterwards.

In law, we have an extraordinary laboratory to analyze hypotheses, which is comparative law. Has another country gone through this? Did it work? But Brazil does not do that. Our legal education is very self-referential - and people who leave college and go to make standards find it difficult to employ the empirical methods necessary for legislative production.

Political use of taxation

The excessive production of norms also has to do with our tradition of creating very strict tax rules and making exceptions for pressure groups - which makes the system increasingly complex and subject to conflicts of interpretation.

We also have the habit of wanting to use the tax as a public policy instrument - to stimulate sectors or regions through exemptions. This is not the function of taxes, except in an extraordinary way. Taxes are used to raise funds. When the policy is based on revenue forfeiture, it is difficult to measure the outcome. The best way to carry out public policy is through budgetary expenditure: it is collected from everyone and spent on projects considered important and thus it is possible to better assess the impact. Since the 1970s, American doctrine has had numerous empirical studies demonstrating that this is the best way.

An organ concentrates three roles

The high litigation also reflects a problem of tax governance, management of the production process, application and judgment of tax rules. Unlike other countries, here we concentrate these three roles practically within the same body, which within the Union is the Federal Revenue Service. Then, the same institution that analyzes the macroeconomic data studies the tax impacts in the different sectors with a view to the elaboration of the tax reform, and after it is approved it will be responsible for saying how the rules should be applied. And more: it will also judge the case if the taxpayer disagrees with its interpretation, directly in the first administrative instance and indirectly in the second, in Carf. This is a serious problem that is replicated in all subnational entities.

Separating the chaff from the wheat

A change that is not so difficult to implement, and would represent a spectacular advance, would be the Treasury to invest in the so-called cooperative compliance. Create a program to understand who are the taxpayers in Brazil, classify them according to the risk they offer to the inspection and create relationship models based on this information. For bad taxpayers, keep the system as it is. For the good, it improves service, facilitates consultations, resolves conflicts. There are already initiatives in this line, such as the Nos Conformes program, instituted by the state of São Paulo. At the federal level, PGFN already has a taxpayer classification system, but it was created with the purpose of increasing collection efficiency. I think it could be extended to improve the relationship with the good taxpayer.

Solution requires tax reform

A more profound change, in my view, involves the approval of a tax reform along the lines of the proposal by PEC No. 45, with some flexibility in PEC No. 110. It does not solve all of our tax problems, but it reduces this enormous complexity produced by a system which has several taxes on consumption: PIS, Cofins, IPI, ISS and ICMS, in addition to the Union, the 27 states, the Federal District and more than 5.500 municipalities with the power to legislate on this taxation. The unification of consumption taxes and taxation at destination, instead of origin, as it is today, would make our system much simpler and safer.