SpeechesLegal Security and Interpretation of Tax Rules
Speaker: Robert Quiroga
Curriculum (on 25/6/19): Master and PhD from PUC / SP, he is a professor of Tax Law at the University of São Paulo (USP) and FGV Direito SP.

Lecture transcript

Good afternoon everyone.

Good afternoon everyone. Thank you, Everardo. I also thank ETCO for the invitation to be with you to discuss legal security and interpretation.

Obviously, at last, a little has already been said by the President in the preamble this afternoon and Professor Heleno also addressed the issue of legal certainty and the process there.

In fact, I would go ahead of Professor Humberto Ávila, who fortunately is already in the audience, and would talk about legal security as the beginning of the whole discussion we are going to talk about here.

So I will, in fact, give my lecture precisely dealing with interpretation and its correlation with legal certainty, obviously leaving it to Humberto, with all his precision, to treat legal certainty as a topic prior to everything we are going to talk about. I believe that this is fundamental to our issue here.

And I will also try to expose, I don't know how many minutes I have, Everardo, about 30 to 40 minutes? Anyway, in 30 minutes, divide the lecture there into maybe 4 parts.

The first, just briefly talk about the complexity of the topic. We are not talking about a simple topic and when you talk about legal security and interpretation of the tax rule, I would say that the complexity increases even more.

The second part that I would like to talk about, before going specifically to the theme of interpretation, is to try to identify a symptom, and we are going to talk a little bit of litigation, maybe, well, the whole question of interpretation, it shows a very symptom, in the Brazil today, very serious too, which is the issue of this litigation that we have.

In a third part and a fourth part, I separated some cases of interpretation. Administrative interpretation, judicial interpretation of tax rules, to show precisely this field of insecurity and security.

I separated some practical cases, because, despite being a professor at GV for 30 years and at São Francisco for 15 years, I always call myself a lawyer who teaches. I am not a teacher who advocates.

So, I consider myself more of a lawyer who teaches and, of course, it is within this perspective that I would like to expose to you my greatest expertise, which is my day-to-day work with law.

But, just to talk about the symptom, when you talk about interpretation, where do we clearly see that something is wrong? It is the size of our tax litigation in Brazil.

Everardo and I have talked about this a lot. Today, we have a tax litigation of 3 trillion and a few billion others. He said it has already reached 3 trillion and 300 billion reais.

In other words, we have around R $ 1,8 trillion in debt enrollment, we have a number of around 700 to 600 billion running at CARF every year, this is the magnitude of issues within CARF, and we have it there another 500 or 600 billion [reais] of topics that are neither in debt registration nor are suspended by the administrative process, but are suspended in court, due to discussions such as ICMS in the PIS / COFINS calculation base and other topics.

We are talking about tax litigation, people, half of a Brazilian GDP. So, two ways: either the taxpayer is misinterpreting the legal norm or the State is exaggerating the application of the legal norm.

It is clearly a disease. It is precisely this point that shows us the following: something is wrong.

And [ETCO President Edson Vismona] also said an interesting thing, a fact. These are static numbers. The dynamics are much worse. Federal tax assessments per year are approaching 200 billion reais. So, if we speak in five years, we will have another 1 trillion in five years. Since, of all federal taxes, something around 30% are notices of infraction with a qualified fine. This in nominal terms of the tax assessment notice in the last tax inspection report. Something around 40% of the total amount of this litigation. This disease shows that we are talking about litigation in Brazil.

Of these 3 trillion and 300 billion, only 25% is a tax. It is main. The rest are cumulative fines, punitive fines with isolated fines, which can reach 200% (150 plus 50 of isolated fines) and SELIC interest, which are the highest in the world.

Any company with five years of tax default is paying 60% SELIC. In other words, we owe more charges than taxes. And, of course, it is impossible, a litigation of 3 trillion and 300 billion reais is unsolvable. It will never be paid for.

This is the symptom, this is the disease. So, when it comes to interpretation, that's where we go, we don't find a parallel in saying or that someone is really misinterpreting or someone is applying the standard in an exaggerated or inappropriate way.

I think this is a conscience and even a seminar about litigation can be done. And maybe pulling a little bit from Heleno's lecture, which in fact also dealt with the issue of the process. That it was relevant to know how we have this issue of legal certainty in the process.

The second part that maybe I would like to say is just about this complexity of the topic. Interpretation is not only a theoretical theme, obviously, within a propaedeutic that we all study, but also within a practical theme, a day-to-day theme.

And what is the reason? Simple.

First, who plays? Who will play? We interpret. We, shall we say, lawyers. Does the judge interpret? Does the judge apply the rule? There is an interpretation process in this sense that I speak. Does the executive state interpret the application of the standard? He plays. That is, there are several agents that actually end up performing the same task, but with totally different consequences.

And we know, when we study a little general theory, that what is interpreted are precisely the texts, to build a norm. So in fact what happens is that many different standards are being built and we don't know which one to apply.

The big question, and this will also arise in the question of legal security, also as a complex issue, who is talking about legal security? Are we talking about legal security for the state? I do not think so. We are talking about legal security for the taxpayer, who is precisely the one who looks at it, identifies how the jurisprudence goes - administrative and judicial jurisprudence. He actually sees how the indoctrinators position themselves, he identifies how the State applies the rule and he says the following: "I will follow this line".

Only he can no longer specify the line. Or at least he takes a line that after a few years he will say the following: “that line is not the right one, I interpreted it wrong”, in a more common language.

It is because each one interpreted the text and built a different norm than the one the other interpreted. That is why we say that interpretation is a process and a result in that sense. This is a great difficulty today for the enforcer of the law, especially for the taxpayer.

So we have to say the following: to what extent does legal security exist and to what extent can it be used with ease for the taxpayer? When he identifies the decisions he reads, that he understands, that he effectively knows how the court has positioned itself or even doctrinal positions in that regard.

And the great difficulty today is how he positions himself against a specific legal norm. Because he doesn't really identify or he is in doubt if he should follow the path that followed X years ago or if now he should eventually follow the path of more current jurisprudence.

Just by way of example, and bringing some of the cases that I will comment on below, is the discussion today of the applicability of fines or even tax planning.

What is discussed is that when many taxpayers did some planning operation, what did they do? They looked at the jurisprudence of the time, they looked at the decisions of the time (administrative and even jurisprudential) and followed the path of that interpretation. And after 10 years they are surprised by a substantial change from that initial interpretation. We are already talking about two cases of insecurity. Where's the security? How can I use the reasoning of a past time, that I followed the orientation of the time, that I relied on that jurisprudence that was eventually dominant, but when I eventually suffer at a later future moment at a later future moment ... it is the discussion that, I'm sure, Humberto will deal with: between present, past and future. How do we achieve this legal security, within this spectrum, for the taxpayer, in the view of the taxpayer.

Another aspect that I also usually say and I think that at this moment is very important, Everardo, we emphasize that in tax law we have something called self-protection by the State. We are not talking about a private relationship between A and B where I have to seek the state Judge to lessen a conflict.

The State launches, the State has the right to self-care, he says: "There is income here, you own a motor vehicle, you earned revenue". And from that beginning of self-protection of the State, I can go against that act of the State where he effectively said the following: “there is a taxable event”.

Unlike other relationships in which I need to seek the status of judge to say the following: who is right and who is wrong, who begins to say what is the right, what is the correct interpretation?

That is why today much is said and is said and reaffirmed that in fact the Constitution guarantees rights for the taxpayer. Of course, we have to look at the state side. It is clear that the State is the financier of public tasks. It is clear that as a State it must exist precisely to achieve its purpose. But the legal security we are talking about is the security that the constitutional text gives to the taxpayer. Against agency, against state authority with its right to self-protection.

And that is how the Constitution was drafted and all of Brazil's previous constitutions. We are not in another country where we are not guaranteed. We have taxpayer guarantee. This is important to stress.

And we are in a moment of making this idea more flexible. That, in fact, the State, the Constitution exists as protection of the State and that the taxpayer is in equal pairs or with equal weapons. He does not have equal weapons, he is totally dissociated from what exists with this principle of self-protection.

That is why I think the reaffirmation of constitutional principles, the reaffirmation of this idea of ​​the Constitution as a protector of taxpayers' rights, as fundamental rights. And legal certainty, being part of these rights, is that it is important for us to emphasize the points that I have just mentioned.

And I brought some specific cases in order to give color to these discussions. On how the interpretations have been made and what points should be analyzed about it.

And I will give the first example that everyone here I think has the knowledge and I will compare it to some more current ones.

First question I would like to say is that when you interpret texts and you build standards, therefore, the standards are different. They are of different statures. I don't want to theorize here because it is not my practice, it is not my métier, it is not what I like most. But perhaps an example is easy.

It is different when I eventually interpret a standard of structure, a standard of competence, for example, and it is different when I analyze or interpret a standard of conduct. Let's take the example of immunities?

We have, for example, immunities that we say the following: I am protecting a value, I am protecting something very important in society. Let's talk about freedom of worship. What experience do we have in the Federal Supreme Court? This immunity, a norm of structure, which says what the other norms can or cannot do, all the jurisprudence now consolidated in the Supreme Court goes to what? For the teleological, finalistic idea. It is an immunity, therefore, it is a prohibition that the Constitution prevents the taxation of cults of any nature, but what is the idea? Finalistic.

But we also have another type of immunity, for example: immunity when exporting products. It is an immunity, it is in the constitutional text. But it may not have the importance of that first immunity. That is why we say, perhaps this immunity is not interpreted so much with finalistic criteria.

In fact, maybe at first I even had an almost beginning. She doesn't, she is more interpreted in a systematic way. The idea is to make the system organic.

That's why I say, it doesn't make sense for us to export taxes. Then we immunized export taxes.

Let's take a third example of immunity: gold must be taxed at 1% when it leaves the mine, article 153 of the Constitution. It is an immunity, it is in the constitutional term. Will I play like the first one? No, it is literal interpretation. It is a case series because, in fact, when the Constitution was made, Uruguay said it produced 50 tons of gold when it does not have a gold mine.

You see, constitutional norms, immunities, which we studied with such importance, and different interpretations. Norms of structure, norms of conduct. And how am I going to get that balance in the interpretation or what interpretation should I give to a given standard?

Perhaps some examples from the Supreme Court will give us some hints or at least some direction.

For example, immunities, I need not speak, the immunity of the book. The idea is clearly teleological. Of course, I will not understand the paper from the point of view simply denotative, that is, specifically it is the paper and not the support of the Kindle, of plastic, of cloth. In fact, this norm must be interpreted more broadly, teleologically.

Of course, the semantics has changed, in the sense of meaning that we learn in a quick initial way, but it has clearly changed.

Now we are going to a Supreme Court decision in which he did not give this connotative extension to any terms. When he decided that Article 195 of the Constitution, when he said “employee and employers and salary” was salary, employer, it was not the remuneration of a self-employed person.

Everyone remembers this decision, that the rapporteur was Minister Marco Aurélio, in which he says the following: “Look, I have to obey the vernacular. Salary is a traditional concept in Brazilian legislation built on abundant and absolutely unanimous doctrine in the sense of what is salary. ” Which employer is the one who has a bond with his employee and the employee vice versa has the bond with his employer.

The Supreme Court's decision in this case was very clear in the sense that the traditional concepts of private law legislation must be obeyed. Anyway, let's go into articles 109 and 110, we don't need to theorize so much, but clearly an interpretation of the vernacular, of the term, as always used.

And what do we start to see in some more recent Supreme Court decisions? One that he did not take explicitly yet, but that started with a decision, an order, a vote by Peluso, in the case of bank profits or the so-called billing of financial institutions.

We had the concept of gross revenue there as a product of the sale of goods and services or of someone else's account or of our own account and when banks discuss the issue of Cofins, saying that this would not be a billing, it would not be the product of the sale of goods and services or goods and services, the Prosecutor's Office says the following: "No, this is the bank's main activity". No doubt. That this "would be service". I would have to understand that as a service.

And the Gatt treaty is glued, because in Europe, financial service is really a financial service, taxed by VAT. Can I apply this concept in Brazil? Can I give this extension, or in fact the right, this intentional connotative definition increasing properties to that class, that word?

It is the decision, for example, that Peluso, who has not yet ended up in the Supreme Court, oddly enough, we still discuss this issue of banks, in the sense that it is any and all business or business activities that are in your social object.

And what happened? [Law] 12.973 [of 2014] came and changed the concept of gross revenue. But maybe we had a previous decision by the Supreme Court deciding that the gross revenue is more than what the standard said. That's what 12.973 says.

Recently, we are discussing internal goodwill at CARF. What is a connected person, a person, in short, connected. 12.973 came to say: look, this is it. I didn't say before. But first I interpret that this type of operation is an illegal operation, etc.

So, I think that the first idea, the first question that arises now is a little bit of this change, and I have used a term, perhaps, not so precise in the connotation of the concepts. Properties are being placed on a concept that does not exist in the concept. That is, when it comes to jurisprudence and says "interest is service" and I have a constitutional text that says what service is and taxes the bank spread with the IOF, what is it? Financial trading operation or is it service? Because everything fits as a service. Will I obey the precision of the words or will I not obey the precision of the words? Am I going to grow properties to a class of words or phrases, simply to interpret in a broader way? Intentional? Or should I give that more restricted concept? Or that traditional concept? Why? Because the Constitution came to protect the taxpayer. Legal certainty belongs to the taxpayer. She is a guarantor of taxpayers' rights. And the principles are there today for that. It did not come to protect the state.

A decision that I made here too, which was not one of interpretation, is one of confusion by the Supreme Court. Profits abroad. He decided nothing. It just confused everyone. Related what it is. Controlled what it is. Ten different votes. I don't know how to tell my client today how taxation of profits abroad is.

See, thinking about legal certainty, Humberto will surely say, if the point of view of what the taxpayer analyzes the norm, its respectability, as is the term he uses, in the sense that those arguments that he really makes is what that he believes true in the interpretation of the text.

Because he built a standard based on these concepts, on these points. See: the decision of profits abroad ... it brought insecurity. On the contrary, instead of giving us security, an insecurity. And here comes the National Treasury Attorney, saying the following: “Look, this litigation today is R $ 60 billion”. Who is to blame? It is the Supreme.

The provisional measure is from 2001. [MP] 2158, which was tried after 18 or 17 years in the Supreme Court. 18 years to judge a profit theme abroad! Whether it is on December 31 in a fictional form, or not.

That is, how the interpretation can give insecurity to the taxpayer. Because he believes that what he has interpreted, the standard he has built is the one he must follow. But after 18 years the Supreme says: "I don't know which standard you should say or you should apply". This is the problem with interpretation.

Consequentialism, which is another issue that we have been facing in jurisprudence and in the way of, finally, interpreting the rules. We had, perhaps, the most modern, most contemporary debate, it is precisely the question of the ICMS in the PIS / COFINS calculation base, where, in fact, the state argument is chaos. Financial chaos. That, if granted this type of interpretation, in the sense that there is exclusion, the State will break. Or the bill is too high.

For that matter alone, I think that it is no longer important in discussing the argument. But the second most serious question is the total lack of transparency in this consequentialism, that is, we were surprised when, together with the Attorney of Finance and the State, we asked: ok, show us the numbers. Show us what those sixty billion billions of reais that the State would lose represent. This calculation that you made and delivered in the memorials to the ministers, show us that it actually exists. Of course, it didn't.

I would call this the consequentialism of terror and not the consequentialism of the word itself, in short, of the doctrine that is implanted today. In the sense that I understand that, for reasons other than those that the norm gives us, the concepts give us and etc., I will understand this as having an eventual economic issue.

When I learned in college, there was no such thing as modulation of effects. And I had to adapt, because it is precisely the institute that I least believe in. Because decisions can be in the smell. Or it may be in the convenience of giving or not giving modulation. We have wonderful books like Misabel, in short, other authors dealing with this theme, but the modulation today, see the insecurity that we have due to a question, I would say, of this idea of ​​modulation or consequentialism in relation to the ICMS at the base calculation.

What happens? I arrive at the company and say the following: Do you write off the credits or not? Will there be a declaration embargo in the case of the Supreme Court? Will it be modulated or not? I haven't finished the case. I was unable to show the res judicata of the case.

If modulation is an idea to provide security, it also gives insecurity. It creates a total state of not knowing what the interpretation I am going to give and where it is going to apply. For the future, for the past or for the present.

In other words, the interpretation, within the interpretation criteria given by the courts that the taxpayer will follow as a direction, as I said, as an interpretive bias on their part, creates this whole difficult system. To define what is correct in each case. And today, in fact, we also have a big discussion, and current… I actually, as I told you, I was always a great lawyer. I graduated with 22/23 years and started to advocate. I needed to advocate, I started to advocate. I only went to do my master's at the age of 36, already older. Today when I see my students at USP or FGV, everyone with 27 years of age as a master and some doctors with 29 years of age I am amazed.

But, anyway, today is the world. Just like my kids. My kids do it right today, they'll probably be teachers much earlier than me. But I was 36. And I was a doctor at 46. Today I am 58.

And I ask myself the following question: To what extent is this question today that is concerned with concept and type as well, which is also a current debate on doctrine. My master's degree was precisely the constitutional concept of income. That was in 1996. A modest job, but that's what I did.

I was never able to conceive, despite the respect I have with Professor Schoueri, who is my fraternal friend, in short, that we have in the constitutional text, in the competencies, types or categories that do not necessarily need to adapt to the whole concept or that vernacular, that phrase that the constitutional text exposes.

Which brought, on the part of the Supreme Court, a decision that was from the health plans, which for me is absolutely out of all reason. First, because they understood that service could be an intangible and not that obligation to do that we were creating in the doctrine, in the jurisprudence as a whole.

Here we do not want to deny the possibility of changing terms, the semantics of words. The words change. Book in the 40s, when Jorge Amado works for the immunity of books, it was the paper book. Because Getúlio Vargas did not allow foreign paper to be imported and he wanted to prevent the press against the State from acting. It was the paper.

But immunity as a norm of structure, a norm of competence, what does it allow for interpretation? Teleological. The finalistic interpretation. So the cloth book, the plastic book, the Kindle, the e-books, are books.

I had a case - and I always say, my lawyer example has always been Hamilton. I even say this: Hamilton was a professor at USP. Today he would be the head if he had pursued an academic career, but the law perhaps, and other things, would not have allowed him. But I say that I had a case that I discussed this in 1988. It was a company that made bibles in Brazil and she had hired Cid Moreira to read the entire Old Testament and the New Testament for the blind. The Bible Society of Brazil. And we tried to demonstrate at the time that this was a book, only that it was on cassette. I've lost.

Would I win today? Do not know. But the semantics changes. That is, the words change. But not all concepts change. Perhaps in a kind of standard of competence, of structure, of course. I will change the interpretation that I give to the word, the meaning, because it has this purpose. This is the axiological end. The strong axiological content eventually in a norm.

Now, when I have a standard of conduct, sometimes I will not interpret it that way. It is precisely a rule of conduct that says that health insurance is a service because it would be intangible in the sense that I could use the hospital network, the doctors of certain health insurance plans. And will I charge ISS for what I pay every month and I am not sick?

All of us here are paying X reais per month for one Amil of life, one Unimed. How many did we get sick? How many use the network? Perhaps none of us. Is there service in that? Many say: this would be an atypical security operation. That is, the risk of connotation.

The connotation, it has precisely a definition, it is also said as a synonym for "intensional", with "s". It is precisely the idea that I put properties ... The more properties I put, the less denotation I have. The concept is more accurate.

And that is why Brazilian law uses definitions. It is precisely in this work of 96 [that] I will talk about the definitions. So, article 43 of the Tax Code is a stipulative definition: income is this, income is this. Of course, he didn't close it all down, but the more property, the more connotation, the more denotation, I get to need the object more.

That's the idea that the guy prevents. It actually leaves valves on the concept, it doesn't close the concept, it expands the concept. And this is totally contradictory to the rigid stipulation of competence.

I will not dare to talk about [tax] reform, but I will end with just that item ... Play the theme for Hamilton, that is Hamilton's. We have a tax there on goods and services. Very generic: what are goods, what are services. Eventually, in a tripartite competence, of the three legal entities of public law. Someone is going to have to define what goods are and what services are. Either I will follow a concept that the doctrine gave me, that the jurisprudence has already consolidated, or I will look for totally broad concepts. And when I have a very small connotation I risk a greater denotation, therefore, to include things that may not be in the concept.

That is why this great current debate about the rigid competences of our tax system calls into question the interpretation. I think this is the theme, this is actually the big issue that we are dealing with.

And Heleno here ... and Everardo also asked a lot about the administrative process. In other words, when I have an interpretation or decision by a specific administrative body, CARF or the tax and fees court, which in fact do not follow concepts. We have here some colleagues from CARF, if you are going to collect all the CARF jurisprudence of what is simulation, formula abuse, abuse of rights, indirect business ... you don't get anywhere.

So much so that one day at GV they said: let's do research to find out what simulation is. I said: throw it away, you won't get anywhere. Because everyone uses a different concept, because they don't understand and don't know the concept. They place properties in the concept that do not exist, confuse them with each other. So this is the theme that we have to return to in terms of interpretation.

So, judicial activism, consequentialism ... All these issues of economic interpretation in the norm, which is old, but which always comes back. Essence and form now, because accounting says in essence, it doesn't say in form. Is it the same in the legal area? Of course it is not. They are different things.

So interpretation, obviously, as a complex topic, a topic that is difficult to punctualize and define, makes us worry precisely about establishing and returning the idea that the Constitution protects the taxpayer. It is a guarantor constitution, because the state has self-protection. And when someone has self-care I have no parity in this relationship.

I do not mean that the State should be excluded from the discussion, we simply have to see the constitution as it is. And in that sense, perhaps this is the defect that we are having in terms of interpretation.

Thanks Everardo, those were the words I imagined.

Question from Everardo Maciel to Roberto Quiroga:

EVERARDO MACIEL: I must say that after this brilliant presentation you almost cut off any possibility of asking questions, because you answered almost all that you could do when talking about the subject.

I was going to ask you, within the scope of interpretation, if I could say one more word about what the institute of consultation in the tax field and its limitations is today, what is wrong with it and what is right.

ROBERTO QUIROGA: Well, also being practical: I think the consultation institute is perfect, the problem is people. Who did not understand the concepts of the consultation. You see, there is something more reasonable that, in doubt about an interpretation of the norm - not in theory, in concrete -, I consult the State to say the following: is this interpretation that I am having correct or not correct?

The problem is that whoever the consultant is, he doesn't want to know this principle. So, I am very pragmatic in this matter. The institute is good. Of course, it can be improved. Maybe we can do something like in the USA, etc. But it's fundamentally people, Everardo.

If I actually have a consultant who is already predetermined to say no, the Institute is worthless. Maybe I had to have a competition for a consultant or in the judging body a separate question, because then what do I have? At least, the attempt at impartiality.

It is also said that even this candidate is going to be a State because the one who pays his salary is the State, so I could still admit a certain partiality.

But in fact, the consultation with the Institute is wonderful. The problem is that when I give it to the consultant, it is in the body that launches, it is in the body that exactly has the power of taxation, it is no longer impartial and becomes a dead letter. In other words, we have not managed to eliminate this impartiality at the consultation institute.

Things that maybe we achieved at CARF, until a certain moment. And I say CARF, guys: today we have two CARFs. The upper chamber CARF and the lower chamber CARF are two CARFs.

See, whoever wants to decide against already decides against and does not think. Whoever wants to decide by judging, will decide well or will decide bad. But when I have two organs of judgment, both with different biases ...

And I say this in all the seminars: when the CARF reopens, the Minister of Finance arrives on the day, with all the councilors present, and says the following: “I have a public deficit of R $ 150 billion, I need R $ 110 billion to cover the public deficit ... ”He dictated the trial. That day the message was given of how they would have to decide.

Levy arrives at the CARF speech and says: “I need R $ 110 billion from you”. How do you think he will decide? It's the people, Everardo. I think it is not so much the institute. It has to change people and it is difficult.