In the assessment of Minister Regina Helena Costa, of the Superior Court of Justice, the complexity of a tax system that overlaps three levels of government, the multiplicity of rules and the excess of ancillary obligations represent the three main causes of the high tax litigation verified in the Country.

Lecturer in Tax Law at the Pontifical Catholic University of São Paulo, she also points out the existence of a culture in Brazil to think that conflicts involving the State can only be resolved in the Judiciary. In his opinion, the country needs to encourage the use of extrajudicial means to resolve tax differences. She cites important legal advances in this regard, such as the provision for arbitration, conciliation and mediation in the new Code of Civil Procedure, and argues that they should be used more by law operators.

According to Minister Regina Costa, this will relieve the Judiciary, which will then be able to better handle disputes involving many taxpayers or that cannot be resolved through extrajudicial means. "Everyone will win," she says. The minister's vision follows.

Affects revenue and removes investment

Tax litigation in Brazil is fueled by the high level of litigation between tax authorities and taxpayers. This is very harmful for the country, because, on the one hand, it generates legal uncertainty for the subjects of the tax relationship, with losses to the collection; on the other, it creates an unfavorable economic environment to attract investment. In addition, it congests the Judiciary, which, despite continually improving its structure, is unable, in most of its units, to meet this demand efficiently and quickly.

Three main reasons

The fierce judicial litigation in this context occurs for several reasons, the main ones, in my view, are: 1) the complexity of the Brazilian tax system, which includes a large number of taxes, in a Federal State with a triple legal-political order (União, States / Federal District and Municipalities); 2) the multiplicity of laws and normative administrative acts, which makes tax rules difficult to assimilate and understand; and 3) the excess of accessory tax obligations, that is, of formal duties to be observed by taxpayers.

Encouraging out-of-court conflict resolution

In Brazil, there is an ingrained culture according to which disputes, especially involving the government, can only be resolved in court. It is, in my opinion, an idea that needs to be overcome. It is necessary to encourage the use of means of out-of-court conflict resolution, including for tax disputes. For example, improving the regulation of the tax administrative process, which is the oldest and best known of these expedients in our legal system. Recent legislative changes have confirmed this trend.

Along these lines, the 2015 Civil Procedure Code, with an innovative spirit, declares that “arbitration is permitted, in the form of the law”, as well as that “the State will promote, whenever possible, the consensual solution of conflicts”, urging the operators the Right to encourage the adoption of conciliation, mediation and other methods to achieve this objective (art. 3, §§ 1, 2 and 3), representing the starting point of a new culture in the search for social pacification. Likewise, Law No. 13.140, ​​also from 2015, provides for mediation between private individuals as a means of resolving disputes and the self-composition of conflicts within the scope of the Public Administration, whose rules are applicable to tax conflicts (arts. 32 to 38).

Legal certainty, efficiency and speed

In summary, I think it is imperative to encourage the use of instruments for out-of-court settlement of tax disputes, reserving only those that cannot be resolved by these means for examination by the Judiciary, as is the case with disputes involving a high number of taxpayers in the same situation. , which therefore demand a uniform solution. Thus, everyone - Tax Authorities, taxpayers and society in general - will gain in legal certainty, efficiency and speed, enabling the Judiciary, when judging a smaller number of demands, to deliver a higher quality judicial provision.

Nelson Machado was once Minister of Social Security, Executive Secretary of the Ministry of Finance and Executive Secretary of the Ministry of Planning, Budget and Management. The experience in public administration leads him to the conviction that one of the keys to alleviate the serious problem of litigation in Brazil is to expand the possibilities of negotiation even in the initial phase of the divergences.

Promoting dialogue around tax issues is the banner of the Center for Tax Citizenship (CCiF), created five years ago, of which the former minister is one of the directors. “Our work proposal is to debate intensively with the most diverse sectors of society to build proposals collectively”, describes Machado.

Graduated in Law from the University of Brasília (UnB), with a master's in budgetary and financial administration from the School of Business Administration of São Paulo at Fundação Getulio Vargas (FGV / Eaesp) and a doctorate in accounting and controllership from the Faculty of Education and Administration of the University from São Paulo (USP), he started his career as an income tax agent in the state of São Paulo. Follow some excerpts from the interview below.

A dispute in which everyone loses

The gigantic dimension of litigation in Brazil is a direct consequence of legislation that causes constant differences of interpretation between the tax authorities and taxpayers, the fault of our crooked tax system, full of patches.

Litigation is a huge burden both for the tax administration, which needs to mobilize a large part of its structure, and for companies, which are required to have robust legal departments to face this challenge.

I would very much like to use the word “dialogue”, but, unfortunately, what really happens is a confrontation. Creating instances that make dialogue possible is a fundamental part of dealing with litigation and the tax issue in Brazil as a whole.

It continues to rain at the head of the river

Over time, several public managers, at various levels, looked at the issue of litigation in order to alleviate this problem. The most common strategy in this regard was to try to speed up the machine to make the system more efficient and reduce the processing time of processes.

When I was in the government, the Ministry of Finance made a very big and successful effort to computerize the processes. Before that, the lawsuits still went to the judge in physical pouches.

This effort was important to streamline the flow, but it was far from resolving the dispute, as the problem is at the root. Over the past few decades, we have always had a lot more lawsuits coming in than there was a capacity to resolve them. And it is no use channeling a river if it continues to rain heavily at the head. Somewhere the water will burst.

Only when we are generating fewer cases, in addition to resolving them more quickly, will we be able to gradually reduce the volume of litigation.

There are many points of view to reconcile

The Tax Citizenship Center (CCiF) is completing five years of activity, with the purpose of promoting dialogue to improve the Brazilian tax system and the tax management model in the country.

Our work proposal is to debate a lot with different sectors of society and build proposals collectively. This is a conversation that needs to be broad. It will not be three or four heads who will sit down and find the best formulas. There are countless details involved, different interests, different points of view, and all of this needs to be reconciled.

It is certainly necessary to change the laws, but also the way of thinking. The tax assessment notice is an instrument that the State already uses to define credit, without dialogue, forcing the company to mobilize in defense. There is a very suspicious look about the taxpayers' actions. It is assumed that companies want to deceive the tax authorities, and in most cases it is not that, they are only differences in interpretation.

Companies need predictability

Studies have shown that large companies in Brazil have a greater amount of litigation than the Shareholders' Equity. It is a very difficult situation to explain to foreign investors.

It is understandable that, faced with confusing legislation, companies try to reduce the burden of the tax burden. They do this by presenting new theses. These issues are contested by the tax administration and often end up in the Supreme Court.

I can assure you that most companies would love to live in a scenario of tax security, in which, even if they pay a little more than they pay today, they would be sure of what they should pay, without risk of disputes and worries. This would allow them to plan, to set their prices more precisely and to be able to give up much of the costly legal structure they are required to have today.

For the head professor of the Department of Economic, Financial and Tax Law at the Faculty of Law of the University of São Paulo (USP) Heleno Taveira Torres, the way to reduce litigation in Brazil includes the need for greater proximity between the tax authorities and taxpayers, with effective communication and service channels. It is also essential to adopt strategies that can avoid litigation - such as the administrative review of the entries made by the inspectors - or anticipate the end of the dispute, such as conciliation or the tax transaction. None of this will achieve great results, however, without cutting red tape. “The tax system needs to function in a normal state, ensuring predictability for taxpayers”, summarizes Torres. The following is his view on how to reduce litigation.

Vicious circle

Tax litigation is both a cause and a consequence: it contributes to increasing legal uncertainty and is aggravated by it. It is a vicious circle that needs to lose strength, as legal certainty is the basis of the tax system. And the tax system needs to function in a normal state, ensuring predictability for taxpayers. A system in which it is possible to know with precision the taxes that must be paid and the obligations related to the taxes due. This tranquility is essential for the business environment and the attraction of investments.

Impartial review

Within our inspection model, preventive measures are lacking in the tax assessment phase. One of the most important would be to create internal administrative review mechanisms, before a dispute goes to court. At the federal level, the Regional Judgment Offices should have the function of reviewing the tax assessments - that is, the work of the inspectors -, and not be an instance of first degree of judgment, which in practice only delays in many cases the sending of launches to Carf. With this pro-forma action, in favor of the tax authorities, the police stations become part of the structure of the litigation, and not an instance in which the litigation could still be avoided by identifying errors or exaggerations of the inspection. This review of the launches by a collegiate authority, even at the beginning of the administrative process, would be the best way to ensure legality, without this being seen as any interference with the work of the inspectors. I am not in favor of the idea of ​​creating punishments for inspectors who make mistakes, because no one can be punished for differences in the interpretation of laws. In the state of legality, due administrative legal process matters. I prefer inspectors who are free and prepared to fight tax evasion - a practice that is very damaging to Brazil because it affects free competition - rather than inspectors for fear that they might receive some type of punishment.

Tax reconciliation

When it comes to solutions for litigation, I really like the idea of ​​conciliation as a strategy to prevent litigation or interrupt the controversy at any time. It would be important to have space to reconcile at all stages of the administrative or judicial process. There are countries with very successful experiences with alternative methods. In Italy, conciliation has reduced cases by more than 70% of its inventory. In Portugal, there is the Administrative Arbitration Center, created by the Ministry of Justice. The decision of the processes that proceed in this way has only taken four months, due also to simpler and faster procedural regimes. It is a positive thing for both the state and taxpayers, as long-standing disputes are of no interest to anyone.

Less bureaucracy

Changing the types or names of taxes will not have much effect if the structural problem of the inspection, assessment and collection of the tax credit is not reviewed. Our tax system is extremely bureaucratic and slow, with many redundancies in processes, documents and excess of accessory obligations. The tax authorities' communication with the taxpayer is terrible, in all instances. What we have is a superficial service, which does not cooperate to solve the problems of those who seek information and certainty in the understanding of the Tax Authorities, without any subsequent or sudden changes. We need a broad and effective strategy to reduce tax bureaucracy, as part of the necessary actions to improve our business environment and legal security. This becomes even more important in a business scenario that, under the influence of technological advances, becomes more dynamic and faster every day.

Economist with a doctorate from the University of Pennsylvania, in the United States, Marcos Lisboa has an eclectic professional trajectory, with experiences in academia, the public sector and the private sector. He was a professor at Stanford University, in the United States, and at the Fundação Getulio Vargas (FGV). He is the current president of Insper, a reference institution in higher education and research. He was secretary of Economic Policy at the Ministry of Finance between 2003 and 2005, during President Lula's first term. Subsequently, he became executive director and vice president of Itaú Unibanco, an institution where he remained until 2013.

For Lisbon, the priority given in the country to increasing tax collection, under the influence of the pressures caused by the fiscal crisis, leads to a series of evaluation errors and an excess of “creativity” to generate norms and establish concepts. He believes that it would be much more efficient to look at what other countries do and adopt good international practices. “I wouldn't need to invent, but here in Brazil we love to invent”, says the economist. Check out some excerpts from the interview below.

Tax system creates conflicts and does little to resolve them

The size that litigation has reached in Brazil is the symptom of a very serious disease. It reflects the problems caused by an extremely confused and dysfunctional tax system, a situation that has only worsened in recent decades.
It is normal for an environment of chaos to be more prone to conflict. Litigation is one of the most significant evidences of how much we need to reformulate our tax structure. Actions to deal directly with litigation can help, but they will always be palliative. If the system is crooked at the source, it is at the source that it needs to be corrected.
In addition to generating many conflicts, we do not have good mechanisms for managing them. Disputes between tax authorities and taxpayers become long, exhausting, expensive and uncertain, with no negotiation opportunities to be shortened.

International good practices are ready models

Brazil tries hard to make things go wrong. We have an excess of taxes, an unbelievable number of rules and a lack of clarity in the texts.
All kinds of “creativity” arise when the main objective is to increase revenue. We even invent concepts that have no counterpart in the real world. That mindset needs to change. The priority should not be to raise more, but to comply with the laws. Laws that are clear and fair.
There are also errors of assessment, such as insisting on collecting taxes at the place of production, and not at the place of consumption, contrary to the practice adopted in most countries. That is why good international practice is not to charge on exports, but on imports.
Most countries adopt a value added tax - that is, how much that step added value to the product. It is a simple tax to be calculated and collected. Just compare the notes: you paid so much and you sold so much.
In addition, we have different tax regimes, depending on the size of the company, the good or service produced and the region. Impressive complexity that distorts relative prices, which means that we induce companies to invest in activities that are not the most productive. The result is less economic growth.
So, actually, there is not much secret. What we would need to do is, basically, what other countries do. I wouldn't need to invent, but here in Brazil we love to invent.
I think that our role in this discussion is, to a large extent, to present international data, to bring the experience of other countries, against what is usual here.

Tax insecurity scares investors away

We are experiencing a fiscal crisis. We arrived at this point due to the sum of wrong choices that Brazilian society has made in the last decades.
The government's money was being distributed to several destinations considered to be priorities, without control and at a greater rate than the increase in revenue. We had recurrent fiscal crises, followed by measures to increase revenue. Until the sum of expenditures exceeded 100% of what is collected. And the worst thing is that almost all of these expenses are mandatory. The majority cannot be reduced even with a change in legislation.
The Brazilian tax chaos is aggravated by the attempt to micro-regulate, to take care of everything in the smallest detail so as not to miss any collection opportunity, often reviewing criteria that were widely accepted. But that's shooting yourself in the foot. It's killing the goose that lays the golden eggs.
Tax insecurity is one of the main reasons why foreign investors are leaving the country. And it is understandable, as investing in Brazil becomes something daring for companies that are faced with the need to deal with all of this.

In this story, there is no villain and there will be no hero

All parties have a share of responsibility for the framework we have reached. Government, Tax Authorities, taxpayers, companies, politicians, legislators, Justice.
Therefore, the solution is not to search for the guilty or to demonize differences, but to dialogue. There is no villain, and there will be no hero who solves everything on his own.
What exists is the need to find ways out. In this way, it will be necessary to give up small, specific, even petty interests, which are often evoked to combat alleged sectoral losses or defend the maintenance of some kind of privilege. The looks need to be broader.