"We have reached an unsustainable level of litigation"

Partner in the tax area of ​​Machado Meyer Advogados, Raquel Novais is a specialist in tax consultancy for structuring and resolving highly complex technical tax disputes. Graduated from the Faculty of Law of France, with a master's degree in Tax Law from the Pontifical Catholic University of São Paulo (PUC-SP), her work involves the taxation of regulated sectors, such as natural resources and energy.

The lawyer draws attention to the “culture of mistrust” that predominates in the relationship between the tax authorities and taxpayers, aggravated by the fact that the mechanisms for resolving conflicts are insufficient - hence the need to develop alternatives such as transaction and arbitration.

She also recalls that, in the past, many of the exorbitant charges were canceled already in the administrative instances, which gradually stopped happening. “The impression of loss of impartiality takes away the effectiveness of decisions and directs disputes for review by the Judiciary,” he says.

Read the main parts of the interview.

There is something very wrong with our system

The level of litigation that Brazil has reached is unsustainable. No society can live with so much energy invested in the tax dispute. The effects of this picture on the economy are visible. In an environment where there is no legal certainty about the incidence of taxes, the constant possibility of litigation scares away investments, especially in a global scenario of great competition to attract these investments.

These are disputes involving extremely expressive values. The exorbitant collection records, which require very high defense charges due to the guarantees required in the judicial phase, indicate that there is something very wrong in our system.

Lack of trust between tax authorities and taxpayers

Among the most relevant causes for us to have reached the current level of litigation in the country, the main one is undoubtedly the complexity of our tax system.

There is no other country with such a complicated system. This creates uncertainty and insecurity with regard to the application of tax rules. There is also a lack of trust, on both sides, between the tax authorities and the taxpayer, which strengthens the culture of litigation. Conflict resolution mechanisms are insufficient.

The level of cancellation of notices of infraction in administrative bodies, which in the past ended most of the exorbitant charges and without substrate, has fallen a lot.

Administrative courts retain their importance, but for the vast majority of representative issues (notably those of high legal inquiry), the stamp of notices has not been infrequent, transferring responsibility for the effective control of legality to the Judiciary.

The impression of loss of impartiality removes the effectiveness of the decisions and directs the disputes for review by the Judiciary, notoriously overwhelmed. This movement tends to worsen the numbers of litigation more and more, and, ultimately, the recoverability index of tax credits by the Public Treasury.

Laws must be pillars of pacification

There are probably those who imagine that the situation of high litigation is positive for law firms and for the category of tax lawyers, but it is not.

The country's growth generates a lot of work for advocacy, and this is a positive, challenging type of work: creating solutions, taking purposeful actions in developing sectors, seeing business going on, with tax solutions that are essential for security.

Eliminating the dispute is utopian. Even jurisdictions with an excellent reputation for good relations between tax authorities and taxpayers face litigation. But it must be limited; just what is necessary to compose in limited subjects.
The other mechanisms, starting with the law itself, followed by an agile and impartial communication between the tax authorities and taxpayers, should be the pillars of pacification.

It is necessary to create negotiation mechanisms

In the midst of such a complex scenario, there is certainly no single solution measure. But one that will have a favorable impact to alleviate the problem is the tax transaction, provided for in the National Tax Code of 1966 and never regulated [until the presentation of MP 899/2019, or MP of the Legal Taxpayer, converted into law No. 13.988 / 2020, which it was approved by the National Congress and sanctioned by President Jair Bolsonaro in April].

The transaction mechanism allows the parties to resolve conflicts through reciprocal and regulated concessions. It will be an additional mechanism for resolving conflicts, which may contribute to reducing the amount in dispute.

The establishment of other alternative dispute resolution mechanisms, such as tax arbitration, would also be important. There are great discussions about the application of arbitration in tax law. In my opinion, this alternative would have enormous potential to reduce the volume of cases in the Judiciary, more quickly and maintaining the level of impartiality that guarantees the effectiveness of the final solutions.

"A plan is missing to clear up the litigation"

Lawyer Beno Suchodolski, a partner in the firm that bears his name and a member of the Superior Council for Legal and Legislative Affairs of the Federation of Industries of the State of São Paulo (Fiesp), says that tax litigation brings many losses to Brazilian companies. Although he attributes much of the problem to the complexity of our tax system, he believes that a deep reform, like the proposals that are being discussed in the National Congress, would bring even more legal uncertainty initially. He argues that the reform should be preceded by a major national refinancing plan aimed at regularizing tax debts.

For him, specific measures can help reduce litigation. One of the proposals that had their support was approved by Congress and sanctioned by President Jair Bolsonaro in April: the end of the so-called quality vote in Carf (Administrative Council for Tax Appeals), a court whose classes are made up of tax authorities and taxpayers evenly. The defunct mechanism gave the class president, always a representative of the tax authorities, an extra vote in tied judgments. With the change in the law, the tie is now considered in favor of taxpayers.
Suchodolski also advocates changes such as greater production of summaries by the Judiciary and the revision of the bonus system for tax auditors.

Check excerpts from the interview.

Excess and low quality of standards

The exuberance of tax rules is an extreme abuse. First, because a country with an integrated economy from north to south as we have in Brazil, with companies operating in all states of the federation, some operating in thousands of municipalities, maintaining a tax monitoring system in all states and municipalities is impossible.

The difficulty of this national tax model is compounded by the fact that many states and municipalities produce poorly written, confusing, mistaken, vague tax texts, and this makes business activity very difficult.

The legal reasons for the problem

The cause of the litigation comes from the lack of harmonization between the various segments of law that command the taxes. We have problems with the inadequacy of the Civil Procedure Code to regulate tax litigation. We have an extraordinary National Tax Code in its legal quality, but which precedes the Constitution - and there was never a harmonization between the two.

The independence of the powers in Brazil has created some legal myths. One is that the judicial decision applies only to the specific case. As a result, tax jurisprudence ends up being subjected to specific interpretations by judges, each with their own conviction, and the practical result is a huge amount of inconsistent decisions on the same problems. If there was a synchronization between the Judiciary and the Executive, this problem could be greatly mitigated.

The Judiciary should produce more overviews

If the Supreme Court, the STJ and the State Courts of Justice produced summaries establishing situations in which there are mistakes or obvious illegalities on the part of the tax authorities or taxpayers, and they were obligatorily followed by tax authorities, a model would be created to reduce litigation. The Judiciary today produces very few summaries - and those that exist, the tax authorities do not respect. We need Congress to approve a law establishing as a function of the Judiciary the creation of summaries of tax interpretation of mandatory application to all entities - federal government, states and municipalities.

Bonuses to inspectors for assessments paid, not made

Today, in general, the inspection is benefited with a reward system that awards points on top of the volume of assessments made. This should change and the inspector will receive the points only when the assessment produces a payment. And that the inspector whose assessment was subject to administrative or judicial reduction had a reduction in his award. This would reduce the volume of improper or inconsistent assessments.

Tax reform should worsen the situation in the beginning

Any tax reform, over a number of years, brings more complexity than a solution, because one is walking with the existing model and a new model, and this transition of models brings more insecurity, more doubts for the taxpayer, for the Tax Authorities and for the Judiciary. And the practical result is that the migration process is a process in which interpretative difficulties grow.

Before the renovation, a cleaning of the litigation stock

The tax reform theoretically starts a new life, so it would be convenient for the country to clean up this almost insoluble dispute that we have today. One way would be a program that would allow the debt to be repaid over a period of eight to ten years, with the release of penalties and progressive rewards for taxpayers who kept up with the installments. Today, the federal government's nominal tax credit is R $ 3,5 trillion: if a program like this managed to recover 20% of that amount, it would be R $ 700 billion more for public coffers, or R $ 70 billion per year during a decade. We would clean up the litigation and still solve the problem of the federal fiscal deficit. I think this is fundamental before the tax reform.

"It is a disease that is not being treated correctly"

Lawyer Roberto Quiroga Mosquera, a partner specializing in tax law at Mattos Filho, Veiga Filho, Marrey Jr and Quiroga Advogados, in São Paulo, believes that there is an imbalance in the balance between excesses committed by the State and misinterpretation or misconduct. taxpayers' faith. "I would say that 70% of the problem originates from the exaggerations of the State and the responsibility for 30% lies with the taxpayers", evaluates Quiroga, who is also a professor of Tax Law at the Faculty of Law of the University of São Paulo (USP) and the Master's Professional at Fundação Getulio Vargas Law School (FGV). For him, solving the problem depends, above all, on a political decision by the government - both to deal with the accumulated liabilities and to prevent this amount from continuing to grow year after year.

Following are excerpts from the interview.

Most are sunk values

It is certainly scary the amount of tax litigation in Brazil, R $ 3,3 trillion, equivalent to half of an annual GDP, but it must be borne in mind that this is not a real figure. Something between 60% and 80% of this amount is irrecoverable, since it is linked to broken, bankrupt companies, without assets that can generate any expectation of credit recovery. It is misleading, then, to think that there is R $ 3,3 trillion to be received. In reality, there may be R $ 1 trillion, or even less. It would be important for the government to make a major overhaul and admit that it will never receive a good part of these values, leaving from there to invest time and money in lost cases to prioritize those in which there is a real prospect of receiving. This review could go a long way in reducing the duration of tax litigation, which has been, on average, ten years.

Many dubious norms

Brazil collects about R $ 1,4 trillion in federal taxes per year and has been generating R $ 150 billion per year in tax litigation. That is, more than 10% of the collection. It is a very high proportion. These numbers are like a fever, an indication of a disease that is not being treated correctly. And what are the causes that need to be tackled urgently? The main one is that we have dubious legislation, in which the taxpayer is subject to different interpretations, without the government being able to offer an adequate structure to clarify these interpretations. In addition to the inaccuracy, there are also a huge amount of rules. To follow all this without being subject to mistakes, or to different interpretations by the inspection, is practically impossible.

Lack of dialogue

There is a very large gap, in Brazil, between taxpayers and the government. The government takes an extremely fiscal position. In other countries, companies have the opportunity to previously submit to the IRS what they intend to do in tax terms and check if the plans are correct. There is also the possibility for a taxpayer to talk to the inspection, to argue, to present another point of view, without the different interpretations necessarily turning into disputes in the courts. Here there is a very large imbalance of forces and almost no effort to do preventive work. In short, dialogue is lacking. This distancing has even caused an increase in notices that involve criminal matters and end up being brought to the criminal sphere.

Abuse of authority

There is no punishment in Brazil for an inspector who is mistaken or exaggerates in the application of the tax rule. In the absence of a clearer general orientation, inspectors end up having different views, interpretations specific to the rules. The problem is that any infraction causes a great deal of inconvenience to the company, since it is necessary to activate a defense structure and present guarantees to carry out the contestation. When it is proven that it was an inspection error, nothing happens to the tax authorities. The burden is all concentrated on one side. The government has the prerogative of self-protection in tax matters - that is, it can charge the taxpayer directly when it thinks it should - but it should not abuse this right, something that unfortunately we often see in the country. In fact, since we are in the midst of a discussion of abuse of authority, a good topic to include in the debate is the misguided way in which inspectors often act, protected by the certainty that there will be no punishment whatsoever.

Political decision

A positive evolution in the context of tax litigation in Brazil depends on a political decision that needs to come from the government - more precisely, from the Ministry of Finance. It is necessary to thoroughly evaluate the framework and plan actions to deal with the accumulated amount and, at the same time, reduce the generation of new liabilities. It is a delicate discussion, especially at a time of public deficit, with the government spending more than it collects, but it is a necessary discussion. It must be borne in mind that making life easier for companies will be good for the country's economy. Many of them are feeling cornered. Today, 80% of tax assessments are concentrated in a group of approximately 8 thousand companies. It is certainly a matter of practicality to inspect the biggest collectors, it is easier to go there and get the golden eggs, but more care must be taken not to kill the chickens that produce these eggs.

"The most worrying thing is that the numbers just grow"

The Federation of Industries of the State of São Paulo (Fiesp) invests in conciliation and mediation as strategies to relieve tax litigation and resolve possible conflicts before they become litigations. "It is necessary to filter the drafting of infraction notices, so that only the cases in which the differences of understanding between the Tax Authorities and the taxpayer are irreconcilable become litigious", evaluates the director of Fiesp's legal department, Helcio Honda, who is also a partner - founder of Honda, Teixeira, Araujo, Rocha Advogados, specialized in Corporate Law.

He also draws attention to the wide structure that companies need to have in order to comply with tax obligations, while incumbent debtors take advantage of the complexity and slowness of the system.

The following are the opinions of Fiesp's legal director.

Real prospects for solution are lacking

Tax litigation compromises the business environment and undermines the development of economic activities in the country. There is no other situation like that in Brazil, in which the sum of administrative and judicial discussions of the three spheres of government exceeds half of the annual GDP. In addition, a tax claim borders twenty years in the pipeline when it passes through all administrative and judicial levels.

This results in harmful, economic effects, mainly for both the tax authorities and the taxpayer. And what worries me the most is that the numbers in tax litigation keep growing, without having real prospects for solutions to this situation.

Refers investment and creates unfair competition

The high cost of tax compliance negatively impacts the efficiency of companies and brings unpredictability to the business environment. This is also reflected in the low level of investments, as the provisionality resulting from the lack of simplicity and stability in the rules of the tax system leads to investment restraint. There is, therefore, a great “Custo Brasil” resulting from all this litigation.

Companies are required to maintain an expressive contingent of employees exclusively dedicated to fulfilling tax obligations, in addition to specialized advisory services and law firms. This same scenario opens space for would-be companies to take advantage of the complexity of taxation and their respective collection procedures to exercise activities in unfair competition, systematically breaching tax obligations.

Communication channels are missing

The most important cause of tax litigation is the complexity of the national tax system. This leads to sluggish processes and dissonant decisions in the administrative and judicial spheres, which increases legal uncertainty and the climate of litigation.

The legislation, in addition to being extensive and complex, assigns the taxpayer the duty to interpret and apply it, with the Tax Authorities having a period of five years to review the procedures of the so-called self-launch. This becomes an important source of tax litigation, if not the main one, since the legislation changes constantly and the taxpayer has to apply it without knowing the understanding of the Tax Authorities, which only comes later and already through tax assessment notices.
Communication channels are lacking, either for the prior disclosure of the fiscal position on the various aspects of the legislation, or for the adjustment of taxpayer procedures or for the settlement of tax credit.

Excessive accessory obligations

Often the demands of tax litigation are caused by mistakes in the assessment by the taxpayer or the tax authorities, situations that could be resolved without plastered procedural steps. The amount of tax obligations to be fulfilled is also a relevant cause of conflicts, including due to the excessive fines provided for in the legislation for non-compliance with accessory obligations.

These obligations, often, do not even impact the calculation and payment of taxes - that is, they are formal issues, whose infractions often do not harm the Tax Authorities. It is also important to create forms of personal accountability for the tax agent in the event of intent and gross error.

Proposals defended by Fiesp

There is much to do, from simplifying and standardizing tax legislation and tax obligations to be fulfilled to improving the institutional tax-taxpayer relationship to resolve possible conflicts before they become litigation. It is necessary to filter the drafting of infraction notices, so that only cases in which differences of understanding are irreconcilable become contentious.

Another Fiesp banner is the linking of benefits to the taxpayer risk rating. That is, create mechanisms to value companies that have good compliance. There are several mechanisms to punish the bad taxpayer, but none to recognize and benefit those who do things right. The idea is that a rating system be created, similar to what happens in car insurance, for example, in such a way that the taxpayer who reaches a certain level of score receives a certain level of discount. We are working on a preliminary project so that this concept can be implemented in a linear manner at the federal level.

“There can be no absolute freedom to approve a standard without a consequentialist reflection”

The legal superintendent of the National Confederation of Industry (CNI), Cássio Borges, says that Brazilian taxpayers are often surprised by notices of unexplained amounts. And it points to legal uncertainty as one of the main reasons for the high litigation. He cites examples from the Superior Court of Justice (STJ), the Superior Federal Court (STF) and the Ministry of Economy to illustrate the types of uncertainty that affect taxpayers.

To reduce legal uncertainty, he argues that the National Congress should adopt mechanisms to measure the effects of the rules that are approved there, in order to inhibit the subjectivism that, in his opinion, often ends up prevailing in legislative production.

Check excerpts from the interview.

Unexplained values ​​and legal uncertainty

One aspect of tax litigation that draws a lot of attention is the amounts involved. It is not uncommon for values ​​to be launched without a theoretical or methodological basis. The IRS has a number and there is enormous difficulty in figuring out how it was calculated - that's when you can figure it out.

Another aspect is legal uncertainty. The right must bring confidence to those who use it. The taxpayer practices his acts according to the norm that is set. The right must also be predictable. The taxpayer will not be surprised each year of exercise with the change of law. The lack of these elements drives away investments. There are several examples of the insecurity of our system.

Change of minister and review of jurisprudence

In the STJ, a recent decision on the inclusion of the cost of foreman in the customs value was impactful. We had the expectation that the jurisprudence would be confirmed in favor of the taxpayer, but a change in the composition of the 1st Panel, with the return of a minister, meant that all the jurisprudence and precedents that were being confirmed were revised. It is an element of legal uncertainty that affects the entire strategy of industries dealing with the import of products for end use or inputs.

Supreme Court decision on ICMS based on PIS and Cofins

In the STF, the example is the thesis of not including ICMS in the PIS and Cofins calculation base. The point that matters in this case, regarding legal certainty, is in the request of the Attorney General's Office for the modulation - and the effects of the decision will take effect from a certain time frame forward.

I do not criticize the prospective effects of decisions here, which are sometimes necessary. But, in this case, the STF already decided the issue in 2004 and has been looking at it since 1998. In the 2000s, there was already a judgment pending in court, with seven votes in favor of taxpayers, who were surprised by the ADC 18 Union, which interrupted the trial. There are a number of procedural instruments used by the government to prevent this discussion from ending. It does not seem appropriate for the PGFN to make this type of request and for the Supreme Court to accept such a request. It was an established right, known and practiced by the taxpayer according to the rules laid down and the precedents of the Supreme Court.

Ordinance on overviews of Carf without taxpayer representatives

In the Executive, there is the example of Ordinance No. 531/2019 of the Ministry of Economy, creating a committee to prepare summaries of the federal tax administration. We actively participated in the issue, since the purpose of the ordinance was precisely to establish precedents and summarize Carf's decisions. But, to our surprise, there were no taxpayer advisers on that committee. Worse, it indicated people in positions of trust, which did not generate security or stability, as they could be removed at any time by the government.

Those who would establish the jurisprudence lacked legitimacy. How to participate in a trial, but when it comes to setting precedents with repeated theses, give space to other people who were not part of that trial and are not part of that fiscal council? The Ministry of Economy revoked the rule at the request of the CNI, but this situation exemplifies the legal uncertainty.

For a more consequentialist legislature

A proposal presented by CNI is to start, within the scope of the National Congress, to measure the effects of the rules, to act in a consequentialist line. It would be interesting if the standards, when they were built, passed through this sieve.

Within this logic, we had Law No. 13.655 / 2018, dubbed the “Legal Security Law”, written by teachers from São Paulo, which started to establish the need to motivate certain decisions. I do not believe that this law will reach the legislative construction, since it is directed to the execution, to the application of the law, but it gives a direction, a path of which there cannot be an absolute subjectivism, an absolute freedom of the congressman to propose and approve all kind of norm without a consequentialist reflection. It is a work to be developed in the National Congress to improve our law and our rules.

“We are creating an unprecedented relationship between the tax authorities and the taxpayer”

Law No. 13.988 / 2020, approved from Provisional Measure 899/2019, or MP of the Legal Taxpayer, brought hope of reducing tax litigation by instituting the instrument of the tax transaction, which authorizes the conclusion of negotiations and agreements between the Tax Authorities and taxpayers to end litigation. In the challenge of transforming it into law, the federal deputy Marco Bertaiolli (PSD-SP) played a prominent role, who in his first year in the Chamber of Deputies assumed the rapporteur of the mixed commission that analyzed the project in the National Congress.

The deputy believes that the new instrument has great potential to improve the relationship between the Tax Authorities and taxpayers, reduce litigation, preserve companies and jobs and, at the same time, raise the State's revenue. He also advocates a simplification of the tax system that includes the reform of the ICMS.

Check it out below.

Environment favors litigation

We have highly complex tax legislation, in addition to a high tax burden. So we have a favorable environment for misunderstanding and error - not the deliberate error, but the error derived from the impossibility of complying with legislation as complex as ours.

The litigation is high because the companies have different understandings from the understanding of the Tax Authorities and need clarification to avoid incurring illegalities. But we have an environment that favors litigation and not clarification of tax rules.

Decrease tax structures on both sides

We need to simplify the way to collect taxes in Brazil. First, to relieve the gigantic public machine to collect taxes. And also to diminish the private machine that exists to pay taxes.

The way to reduce this tax dispute is to have a simple legislation, which is above the understanding of the inspector of the Federal Revenue that prevails today. It is necessary to have transparency, tranquility and fiscal legal security so that our companies can work.

A new relationship between tax authorities and taxpayers

The conversion of Provisional Measure 899/2019, or MP of the Legal Taxpayer, into Law No. 13.988 / 2020 sought to create a new relationship between the Tax Authorities and the Brazilian taxpayer. Today, companies are able to talk to the IRS only through their lawyers and through judicial petitions.

The new law should help to build a relationship of understanding, in which the Treasury can interpret the ability to pay taxes in a company that is in financial difficulties so that it continues to work, operate, generate employment and pay taxes as is most appropriate to the your assets. The law brings guarantees to the tax authorities and transparency to companies.

Project was a collective construction

During the process of discussion of the MP of the Legal Taxpayer, we were in several associations talking about the theme, such as the Commercial Association of São Paulo and Fiesp (Federation of Industries of the State of São Pauo), and the reception was the best possible.

With the new law, we are creating an unprecedented relationship between the tax authorities and the Brazilian taxpayer. After this relationship is created, we can go through an adaptation period and some adjustments can be made.

The project was a collective construction. The Federal Revenue Service, the Ministry of Economy, the Attorney General's Office of the National Treasury and several deputies contributed to the improvement of the project.

Tax reform and simplification of ICMS

There is a need to simplify this tax collection, which today is highly complex in Brazil. That is why the Tax Reform is very important.

It is not just a matter of whether we will pay more or less taxes, but the simplification of the Brazilian tax system. We cannot have a federation with 27 states and each with a different ICMS standard. Nor is the difference in rate the real problem, but the tax regime that makes the operation unfeasible to Brazilian companies.

Expectation to raise R $ 12 billion in the first year

It is not just tax litigation that scares. The Brazilian tax liability, of R $ 3,4 trillion, is something that bothers and is lacking in the government's cash. We have more than half a Brazilian GDP of liabilities - and a good part of that amount could positively impact public coffers. Not in its entirety, as there are many bad credits on that list.

Our expectation is that the Legal Taxpayer Law should generate at least R $ 12 billion in the first year.

“Tax authorities and taxpayers are not opposed figures”

Doctor in Tax Law by the Pontifical Catholic University of São Paulo (PUC-SP) and professor of the Professional Master's Degree at the School of Law of the Getulio Vargas Foundation (FGV), where he is one of the coordinators of the Center for Tax Studies (NEF), the federal judge Paulo Cesar Conrado criticizes the uncompromising stance that the parties involved in tax litigation - Tax Authorities, taxpayers and the Judiciary - often adopt to try to solve their own problems.

He defends the creation of Tax Courts to process and judge the demands related to the theme, which would provide advantages such as reduction of steps and specialization of the judge. "Today, extremely relevant tax causes from an economic point of view live with causes of insignificant value and that should be processed and judged in another environment", he evaluates.

The following is his view on litigation.

Significant advances

Judicial litigation has evolved a lot compared to what we experienced three decades ago. The numerous reforms that the previous Civil Procedure Code (CPC) passed in the 1990s, the Constitutional Amendment 45, of the Judiciary Reform, and, more recently, the advent of the 2015 CPC, were events that served, on the one hand , to expose the weaknesses of the procedural system and, on the other hand, to intensify the search for solutions. We are still a long way from ideal, but there is already enough critical mass about the need for stability, security, which demands the urgent improvement of instruments aimed at this result. At this point, figures such as repetitive appeals processed in the higher courts stand out.

Administrative filter

The most critical point seems today to be in administrative litigation, which has been the target of an intense institutional crisis in recent years, which ended up weakening its performance. This is very worrying, as, in my opinion, administrative litigation plays a fundamental role in the tax procedural system - that of filtering issues that can (or could) be resolved independently of the Judiciary. If the judging administrative bodies are not imbued with this spirit, their performance risks becoming purely protocol.

Cooperative spirit

Tax authorities and taxpayers cannot see themselves as opposing figures, but complementing each other. Tax litigation arises mainly from a lack of cooperative stance. It is the result of the intransigence of its actors, very interested in solving their own problems. Tax authorities, taxpayers and the judiciary have spent the last few decades trying to make their wishes prevail - that of collecting, in the case of the tax authorities; to remain free from tax activity, from taxpayers; and to reduce its collection, from the Judiciary. All legitimate claims, but they must coexist and not be canceled.

It is evident that in such a complex tax system, especially with regard to instrumental duties, there is room for intense litigation. Even so, I think that this environment of historical belligerence remains the main cause of the gigantism of our litigation. So much so that, based on praiseworthy initiatives taken at the federal level, especially with regard to the Attorney General's Office of the National Treasury (PGFN) - such as when it started to use instruments such as the transaction and the procedural legal business -, the number of cases assumed a clear downward trend.

Anyway, simplifying the system would help a lot in the construction of a more resolute and less belligerent litigation.

Redefined skills

We have come a long way in normative terms. We need to make real, in judicial practice, ideas established by law, especially in the CPC 2015. It is worth highlighting, in this sense, the pragmatic improvement of the system for judging affected issues in the higher courts, something that depends very little on legal adjustments, much more management. The only properly normative aspect that, I believe, could solve many problems in tax litigation is related to the competence plan.

The Judiciary, notably the Federal, today experiences a real paradox in this regard. Extremely relevant tax causes from an economic point of view coexist with causes of insignificant value and which should be processed and judged in another environment, such as that of the Courts. This is the case, for example, with a large part of tax foreclosures related to the debts of professionals with their respective class councils.

The creation of tax courts, where all claims related to the matter would be processed and judged, no matter whether related to collection or defense, would be a great step, as it would reduce complexities and allow the judge's specialization. Uncomplicating the network of instruments used today - declaratory, followed by annulatory, followed by execution, followed by embargoes, etc. - the number of cases would certainly be reduced.

“Our judges lack a waypoint to follow”

Judge Paulo Sérgio Domingues, of the Federal Regional Court of the 3rd Region, believes that one of the main reasons for the high level of litigation between the tax authorities and taxpayers is the lack of stabilization of the interpretation of the legislation by the higher courts.

Master of Law from the University of Frankfurt and ex-president of Ajufe (Association of Federal Judges of Brazil), Domingues says that this lack of guidance explains many divergent decisions for similar cases in the Judiciary. "The amount of work of a judge is so great that there is no time to keep making a legal thesis," he says. "The reality is that a faster decision by the higher courts is needed."

Another cause that he points to is the delay and the gaps with which the tax processes reach the Judiciary from the administrative sphere, which often ends up making the collection unfeasible and deepening the feeling of impunity.

The judge defends changes in the tax enforcement process and the approval of legislation to distinguish the eventual debtor from the regular tax debtor.

The following are some passages from the interview we did with him.

Controversial interpretation leads to more litigation

Many conflicts could be avoided if we had stability when it comes to fixing tax legislation. In a tax system like ours, with confusing legislation and overlapping federal, state and municipal laws, this becomes even more serious.

The pacification of interpretation depends on the stabilization of jurisprudence in the higher courts. Our society wants an interpretation that pacifies it over time. The existence of uncertainty in the interpretation of tax legislation only generates more conflicts. It is clear that each one will try to defend his interests when he is fined for something based on controversial interpretation.

Judge does not have time to make legal thesis

Brazilian judges are well prepared to judge tax cases - I do not believe that the lack of greater specialization can be pointed out as part of the problem. I hear they say that there are many decisions in different directions, but what is missing is a guideline to follow.

When Constitutional Amendment No. 45/2004 of the Judiciary Reform was pending, there was much debate about the urgency of instituting the binding summary. They said that the country's biggest problem was that the judges did not follow the jurisprudence of the Supreme Court. I always thought it was useless, because that was never our problem. The amount of work of a judge is so great that there is no time to keep making a legal thesis. The reality is that a faster decision by the higher courts is needed.

Having a quick definition of these matters where there is general repercussion would be extremely useful to reduce the entire litigation chain - from the tax authorities' notices to the legal actions.

Delays and gaps in the administrative process

Another problem is the way in which the processes come from the administrative sphere to the Judiciary - due to the great difficulty in the structure of the tax administration. It is very common for them to arrive poorly prepared, with several holes. I am not only referring to the legislative part, but to aspects such as the classification of the tax assessment notices, the reason for the appearance of the debt, or the location of the debtor and his assets. The process takes so long at the administrative level to reach a conclusion, a determination of the debt, that, when the tax enforcement is proposed, the debtor or his assets are no longer found.

And it fuels a vicious cycle. The idea that if someone commits an infraction will not be quickly identified and punished ends up stimulating that practice. The prospect of ineffective collection favors the malicious taxpayer.

Remove the role of collector from justice

A change in the tax process has been discussed for a long time. One change that I advocate is the pre-judicialization of the first phase of tax enforcement, of debt collection. Today, the Judiciary acts as a debt collector on behalf of the creditor. I think that this role could be attributed to the Internal Revenue Service, and the Judiciary could only be called upon when there was a controversy raised by the debtor or at times like the attachment or the listing of assets. As this is a controversial issue, it is necessary to be careful with this type of operation, but I think that this could make tax enforcement go faster.

I also believe that there could be some simplification of the administrative-judicial process. Perhaps it did not need three administrative spheres and three more judicial ones.

The debate on changes to the tax enforcement law is very mature. I think it is time for the National Congress to make a legislative change that will serve the interests of society.

Tougher law against heavy debtor

Another point that seems to me to be extremely important is to consolidate legislation against the regular tax debtor. We need mechanisms to differentiate that taxpayer who fulfills his tax obligations, but who eventually goes through a difficulty and fails to collect the amounts temporarily, from those who have bad faith, do not pay and have no intention of paying taxes, damaging all society. If someone is using this as a survival mechanism for your company, as a way of gaining an advantage over the competitor, they are not acting in the ideal way.

We need legislation that makes it possible to treat the former in a less draconian way - and to adopt more stringent instruments against the persistent debtor.