Transaction, reform and division of debtors: solutions to tax litigation

Facing the lack of control of Brazilian tax litigation, which today already reaches a magnitude equivalent to 73% of the country's Gross Domestic Product (GDP), according to Insper data, must necessarily undergo a profound transformation on numerous fronts of the national tax system.

In a webinar held by Casa JOT in partnership with Brazilian Institute of Competitive Ethics (ETCO) this Friday (16/10), experts and authorities listed some of the priorities that can help reduce these disputes.

Among them are the initiative of the Attorney General of the National Treasury to tax transactions, which until August this year negotiated R $ 28 billion in debt. Speakers also stressed the urgent need for comprehensive tax reform, as well as ensuring that stubborn debtor the eventual debtor and the good and bad taxpayer.

João Henrique Grognet participated in the webinar; General Coordinator of PGFN's Credit Recovery Strategy; Breno Vasconcelos, lawyer and researcher at Insper; Zabetta Macarini Gorissen, executive chairman of the Group of Applied Tax Studies (Getap); and Ana Amélia, former senator.

It was a consensus, and it is not new, that the major and main problem lies in the complexity of the tax collection system. “There is no rich country without a legal model that guarantees predictability and security. It's impossible. And tax litigation is generated by unpredictability. How does the taxpayer and entrepreneur do to navigate in an environment so difficult to predict? ”, Said Breno Vasconcelos.

According to the lawyer, there are some factors that increase this insecurity: possibility of retroactivity in new interpretations, absence of acts that register what is the formal and official interpretation of the new tax rule, absence of effective consultation processes, the excessive duration of the processes, which today it takes an average of 19 years to complete, and the uncertainties arising from new technologies. "These are those indicated by the OECD as factors of legal uncertainty and Brazil boasts all of them", pointed out Vasconcelos.

Former senator Ana Amélia cited as an example of the complexity in collecting taxes the reality of a Brazilian businessman, Jorge Gerdau Johannpeter, of the Gerdau Group, which has a steel company in Rio Grande do Sul and another one in Canada. “In RS, he has 250 professionals for the tax area just to meet the almost daily changes. To do the same job in Canada, he needs only 3 people ”.

“This illustrates with crystal clarity the situation we are experiencing. And the foreign investor, when looking at our country, he sees not only the question of competition, but also these archaic structures that we have ”, he added.

For Zabetta Gorissen, in the last four years, Brazil has intensified its critical understanding of tax litigation, with an attempt to bring together taxpayers, the government, the National Congress and the Judiciary. "Unfortunately, litigation has become a multifaceted problem that affects everyone too much," he said.

Read also: Brazilian tax litigation exceeds 50% of GDP

In this sense, the president of Getap mentioned the development of mechanisms for coperative compliance, always focused on bringing taxpayers closer to the taxpayer to more easily solve the problems faced. Zabetta also drew attention to “the great milestone” brought by tax transactions, which are a renegotiation instrument for the extinction of tax credit.

According to data presented by João Henrique Grognet, General Coordinator of Credit Recovery Strategy at PGFN, the renegotiation of R $ 28 billion in debts reached 77,4 thousand contributors and 275 thousand registrations grouped in agreements.

“It seems to me that it was very correct, with wide advantages in the Tax Court. This Justice is good in any case, but we were not finding that clarity in the previous Refis programs. After all, you give discount to those who don't need it, ”said Grognet.

According to Zabetta, a point that needs improvement in the tax transaction involves the fact that Law 13.988 / 20, which instituted the program, established a limit on the payment litigation transaction of 50% of the debt amount. “Setting this limit may slightly restrict society's appetite for this modality. But, as we always said, let's wait ”.

Expectations for tax reform

The challenge of facing tax litigation is great, but in the view of experts and authorities, this scenario will only really change after the tax reform.

“None of this will be resolved if we only work on litigation. We need to work at the source. Litigation is a symptom, not a problem in itself. It is born out of an extremely complex system, full of exceptions. Substantial tax reform is essential for Brazil to emerge from this dysfunctional and counterproductive scenario, ”said lawyer Breno Vasconcelos.

At first, these changes do not automatically mean that a new dispute will not arise, since there will be completely new legislation in force. In the view of Zabetta Gorissen, society should pay “absurd attention” so that the proposals in progress in the National Congress come out with the best possible text and eliminate the largest amount of litigation possible.

“If there is a dispute, we have to immediately go back to Congress and fix it. We are not going to do what we do today. If it doesn't work right away, you have to change the legislation, ”he said.

Stubborn debtor

For ex-senator Ana Amélia, author of the Senate Bill No. 284 / 2017 to characterize the frequent debtor, the more complicated a country's tax system is, the easier it is to evade.

“In this project, we are separating two natures from the taxpayer: one that has as a religion its duty consistently, duty by profession, duty by belief. It is a form of tax evasion. It is a springboard for tax evasion ”, he said, adding that the intention of the PL is to treat taxpayers who have different behavior differently.

The former parliamentarian cited that the characterization of this type of debtor generated a fight within Congress and, because of this legislative vacuum, the Supreme Federal Court (STF) entered the debate. In December of last year, the Court established a thesis in order to criminalize the incumbent debtor, as long as there is evidence of appropriation.

“The STF made a judgment raising the penalty for the stubborn debtor in prison. In our case it was a fine, which had a lot more educational significance than the criminal issue. The Court gave a much heavier treatment than what we intended in the law, ”said Ana Amélia.

Tax transaction law brings together taxpayers and PGFN, but still has low adherence

Until October of last year, when the Provisional Measure of the Legal Taxpayer was issued, the only way for the taxpayer to obtain discounts on fines and interest on federal taxes was through special installment programs, known as Refis. As for the installment plan, there is an ordinary payment model up to 60 times, but without any discount by the Attorney General of the National Treasury.

MP 899/2019 was approved by Congress at the end of March and in April it was converted into 13.988 Law, known as the tax transaction law. It establishes permanent parameters for taxpayers to obtain discounts and installments to pay taxes that entered the Federal Active Debt category. The current stock of Federal Active Debt and FGTS is R $ 2,4 trillion, according to the most recent survey by the National Treasury Attorney General (PGFN). The value is within expectations, according to PGFN itself.

Discounts are up to 50% of the total amount, as long as it does not change the main amount, that is, the tax itself. The discharge period is up to 84 months. There are different rules for cooperative societies and Santas Casas de Misericórdia: with a reduction of up to 70% of the total amount and a term of up to 145 months. There is the possibility of total discount of fines, interest and legal charges, as long as the sum does not reach the established limits, of 50% and 70%, in relation to the amount.

“Law 13.988 brought an advantage for the taxpayer to negotiate his debts directly with the public entity, but the terms that are granted are short. So you will hardly have a businessman doing this, he will wait for a new Refis ”, says Luis Alexandre Oliveira Castelo, partner at Lopes & Castelo Advogados.

There are also complaints about the proposed discounts. "In my view, as the transaction discounts are not attractive, it is likely that we will have new bills for Refills, precisely to create greater benefits so that more people will join the program for the government to raise more money", evaluates Leonardo Andrade, partner in the tax area of ​​Andrade Maia Advogados.

Andrade also criticizes the fact that the law does not deal with precatories: "Another criticism I make is that the law does not allow the debtor taxpayer to use his precatory as a bargaining chip in the transaction with the government."

On the other hand, there is a consensus on the importance of the new law to establish a greater dialogue between taxpayers and the Attorney General of the National Treasury. “In 20 years of career, I can count on my fingers the times I managed to talk to a prosecutor. We were unable to find a communication channel with the Prosecutor's Office ”, recalls Tatiana Chiaradia, partner at Candido Martins Advogados.

“The Attorney General's Office, more than a decade ago, has set out to avoid unnecessary litigation that costs money. And he has dedicated himself to these tools that put tax authorities and taxpayers side by side in a round table, with no edges ”, says João Grognet, general coordinator of Credit Recovery Strategy of the Attorney General of the National Treasury. "I don't want the image that we are at a table where the discussion has an unsteady balance to remain."

One of the main novelties brought by the tax transaction law is that taxpayers are distinguished when negotiating payment. The debt to be negotiated is divided into four categories: A, B, C and D. “I can only give a discount for irrecoverable credit. The general rule is that recoverability is measured based on the debtor's ability to pay, ”explains João Grognet. "The payment capacity is estimated based on a mathematical equation based on the presumptive signs of economic, financial and patrimonial activity".

These rules regarding the calculation of payment capacity are present in articles 19 and 20 of the 9917 / 2020 concierge of the PGFN. Article 19 says: “the economic situation of debtors registered in the Union's active debt will be measured based on the verification of registration, patrimonial or economic-fiscal information provided by the debtor or by third parties to the Attorney General of the National Treasury or to the other organs of the Public administration".

For Edson Vismona, executive president of the Brazilian Institute of Ethics in Competition (ETCO), there is a need for high transparency in the definition of this classification. "A suggestion that may provide greater legal certainty is the creation of a channel so that possible mistakes in the framework can be reported", he says.

Debts of up to R $ 15 million can only be paid in installments. In this case, the taxpayer must accept all the conditions imposed in the notice that proposes the installment plan. The notices published so far can be viewed here. If the debt amount is greater than R $ 15 million, it is possible to carry out the individual transaction, with direct negotiation with PGFN. To know the debt situation of each taxpayer, it is necessary to access the Federal Revenue website, more specifically the Taxpayer Assistance Center, the e-CAC.

"The limit that they established, of R $ 15 million, is quite high so that taxpayers can make individual recovery requests, which are more interesting, with payment and discount bases being negotiated in a more personalized way", evaluates Fernanda Lains , partner of Bueno e Castro. “When we talk about R $ 15 million, it is a low value for taxpayers in the South, Southeast, who have a higher revenue generation. When we go to the North and Northeast regions, it is difficult to reach that limit ”.

There is one caveat that generates criticism: the fact that the taxpayer who opts for the adhesion transaction has to give up administrative or judicial litigation related to the negotiated tax. “The Law makes it difficult to maintain a judicial measure for discussing a procedural issue in cases where the merit thesis is the subject of a proposed transaction, says ETCO's Edson Vismona.

Once the individual transaction is established, negotiation is made between the taxpayer and the Attorney General's Office of the National Treasury. “An individual transaction requires numerous meetings and discussions around the text of a transaction term. It may involve local inspection at the debtor's establishment. It is not something to happen in wholesale, it is in retail ”, explains João Grognet, from PGFN. “The prosecutors are open, wanting to resolve. Years ago I did not see this availability at the Farm ”, points out Maurício Maioli, head partner in the tax area of ​​Feijó Lopes Advogados.

Until July, 204 thousand debts were transacted, from 55 thousand taxpayers, in the total amount of R $ 18,8 billion, according to the Attorney General of the National Treasury.

In June, the Ministry of Economy and PGFN published the 14.402 Ordinance, which establishes conditions for exceptional transactions because of the economic effects caused by the coronavirus. The membership period ends on December 29 and the transaction can be made on the portal Regularize.

Low adhesion with taxpayers waiting for new Refills

The first special installment program was created in 2000, with the establishment of the Tax Recovery Program (Refis). Since then, around 30 special installment programs have been designed, according to a survey by the Federal Revenue Service. There have been cases where taxpayers had access to a reduction of up to 100% in interest and fines.

Given this history, a large part of those who have tax debts with the Federal Government prefer to wait for a new installment program and, therefore, the demand for the tax transaction has been low. "Of my clients, few have joined because they are expecting to get bigger discounts with a new installment program", says Leonardo Andrade, partner in the tax area of ​​the Andrade Maia office. “Many clients came to us to do a simulation, but no one did it,” says Luis Alexandre Oliveira Castelo, partner at Lopes & Castelo Advogados.

“In the short term, after this transaction law, I don't see any possibility of Refills. There is no political climate for a new Refis, ”says Mauro Silva, president of the National Association of Tax Auditors of the Federal Revenue of Brazil (Unafisco). In May, Congressman Ricardo Guidi (PSD-SC) presented the 2735 / 2020 Bill, which proposes a new installment program due to the state of public calamity motivated by the pandemic.

The proposal provides for discounts of up to 90% for late fees and official fines, late fees and legal charges, but there is no prospect of advancing the text in Congress.

There are also those who consider the terms allowed by the law of the transaction to be too short. “In the transaction law, the maximum term that the Treasury can grant is 84 months, and if it is a Simples company, up to 100 months. The old refills had terms of 15 and even 20 years ”, highlights Maurício Maioli, from Feijó Lopes Advogados.

In addition, the law resolves a portion of corporate tax debts, specifically those with the PGFN. For the time being, debt negotiations with the IRS lack regulation.

“If I am a businessman, I keep thinking 'I have a debt with the Attorney's Office, the Federal Revenue and ICMS'. This law grants me the federal installment payment in the Attorney's Office of Finance, I will still be in default both for the debts I have with the Federal Revenue, as well as for the debts I have with the state ”, reports Castelo, from Lopes & Castelo. “What benefit would the entrepreneur have? None. Because what is needed to operate in the market is the certificate of tax compliance, CND, and with this transaction it is not possible to obtain it. There is no attraction that encourages adherence to the tax transaction today ”.

On the other hand, there are lawyers who understand that the law will require a change in taxpayer thinking. "The law must evolve together with good taxpayers, who will mature with these new rules of the game that the Union is bringing to the negotiation", evaluates Tatiana Chiaradia, partner at Candido Martins Advogados. "There will have to be a change in culture, mainly by taxpayers who are badly paying," says Fernanda Lains, partner at Bueno e Castro.

“People were very used to that old Refis model. And the transaction is not that, it involves another type of dialogue with the Attorney General. Together with the taxpayer, a judicial reorganization plan will be considered, but considering tax credits ”, he says. "It is a dialogue on new bases, it is a new culture".

Transaction in litigation

Another novelty of Law 13.988 / 2019 is in article 16, which says that the Ministry of Economy may propose to taxable persons transaction of customs or tax disputes arising from relevant and widespread legal controversy.

“We are waiting for the regulation of the transaction that involves dispute litigation. This is going to be the big news. Here it will involve companies that are discussing theses ”, explains Leonardo Varella Gianetti, lawyer for Rolim, Viotti and Leite Campos.

The rules for discount and negotiation will be the same, with discount limits and classification of each debt. In this case, PGFN will classify as irrecoverable or difficult to recover credits in which there is a greater chance that the taxpayer will have the thesis accepted by the judges.

“What we are predicting is that if the taxpayer has a lawsuit in progress and will be judged by the STF on appeal with general repercussion, why will he give it up? It will be a game theory decision and case by case ”, says Maurício Maioli, from Feijó Lopes Advogados. Gianetti makes a reservation: “The problem is knowing the time of the process and whether you will win. An objective criterion that we have is the jurisprudence. It takes a long time and it is very fearful to say that the thesis is a winner ”.

Penal fines from outside

The tax transaction law does not allow discounts on penal fines. ETCO's executive chairman, Edson Vismona, believes that the law should have made it clearer what would be "penalties of a criminal nature".

“The expression 'of a penal nature' raises doubts about the limits of the fence imposed by the device”, says Vismona. "It would be convenient to clarify that only the fines imposed in the context of criminal proceedings, according to Law No. 8.137, cannot be the object of a transaction, with no restriction in relation to the qualified fines imposed by tax authorities".

Tax attorney Leonardo Andrade is also critical of this point of the law. “This type of measure ignores the practice that there are many tax plans that had the improper application of the fine. In practice, the fines were applied to any case ”, he argues. "I have several clients who had a qualified fine applied in cases where there was no crime and they will not have any benefit because it was understood in the law that there can be no discount for qualified fines", he says. "The transaction had a much smaller scope than it should have."

Article published on 21/08/2020 on the Jota Portal, in the Jota Discute session, which has the support of ETCO.

 

The deep well

Public authorities increase spending and look for ways to increase revenue. The taxpayer is unable to afford the size of the state, but mandatory and related expenses are growing. The budgetary margin narrows and tax creativity has been stimulated, with the introduction of new taxes and ancillary obligations, generating a tangle of laws, decrees, normative instructions that challenge the understanding of our tax system. The result of this equation is the tax burden that consumes 35% of GDP and investments, and the quality of services provided is not proportional to public spending. The account does not close.

Lawyers, lawyers and market experts point to a point that has not been discussed and is of great importance: the size of Brazil's tax litigation. In order to determine the amount of this problem, the (Etco) hired the consultancy EY to carry out a study.

The result showed that, analyzing the data from the Federal Treasury, the tax liability is half of the country's GDP (R $ 3,4 trillion). This amount grows every year and, moreover, there was an increase in tax representations for criminal purposes of 5% in one year (2017 to 2018) and the value of credits launched increased by 68% (2016 to 2017). The average process time, if linear until the last judicial instance, is 19 years and 2 months. These data demonstrate that we are in a well and that, instead of looking for a ladder to get out of this situation, we are, in fact, with a shovel deepening and increasing this liability. The tax authorities need resources and the taxpayer, the vast majority, wants to keep up with their obligations, that is, one needs to receive, the other wants to pay, but the existing mechanism does not allow a quick and effective exit. This situation, as absurd as it may seem, does not serve the Tax Authorities or the regular taxpayer, but it is great for the so-called persistent debtor, the one who structures himself to never pay taxes, and who uses all the procedural possibilities for that, and thus , greatly increase its profit margins, eroding competitiveness and harming the tax authorities by billions. The way out to reduce the long and costly litigation processes must first consider the feasibility of an agreement before or at the beginning of the assessment. The US tax authorities, for example, recognized for their rigor, adopt fast mediation and arbitration procedures. The goal is to set the amount due and receive. Secondly, the possibility of agreements that speed up the effective payment, regularizing the situation of most taxpayers, regulating, finally, articles 171 and 156, item III, must be made possible, with all legality, transparency and control. National Tax Code. Law 13.988 / 2020 indicates this direction. The estimate is that R $ 900 billion could be collected. With the payment in installments, for example, in ten years, the Federal Revenue Service would have R $ 90 billion per year, more than was predicted by the pension reform. Finally, in order to combat the action of persistent debtors, who should not be confused with occasional or even repeated debtors - they fail to pay taxes for economic difficulties, while the former never pays taxes, in fact, evasion makes up their disproportionate profit - , is that we defend the approval of PLS ​​284/17, which is at the end of the process in the Federal Senate, specifying who should be considered a regular debtor, with the exact classification by the Judiciary. In short, it is urgent that we discuss the taxpayer-taxpayer relationship, valuing those who act in good faith and punishing those who intentionally do everything to not comply with their obligations. We can no longer remain in this well that brings the financial resources of the tax authorities and taxpayers.

The tributary well

For decades, we identified the so-called “Custo Brasil” as a factor of loss of competitiveness in comparison with other countries. Companies demonstrate that “from the door to the inside” are competitive, the problem would be in the costs “from the door to the outside” and, in this context, the tax issue is always pointed out as one of the causes.

 

 

 

 

Public authorities increase spending and constantly seek ways to increase tax revenues. The taxpayer is unable to afford the size of the state, but mandatory and related expenses are growing. The budgetary margin narrows and tax creativity has been stimulated, with the introduction of new taxes and ancillary obligations, generating a tangle of laws, decrees, normative instructions that challenge the understanding of our tax system.

The result of this equation is the tax burden that consumes 35% of GDP and investments and the quality of services provided are not proportional to public spending. The account does not close.

With this panorama, tax reform is always remembered. However, what tax reform? Should it be more restricted or more comprehensive? Which account and who will pay more? We do not have the answers, which causes great apprehension in the productive segments and in the taxpayer in general that pays for everything.

On the other hand, lawyers, lawyers and market specialists point to another point that has not been discussed and is of great importance, the size of Brazil's tax litigation. What is the amount of the Union's tax liability?

With the objective of determining the amount of the Union's litigation (under discussion in the administrative and judicial spheres), comparing it with other countries and indicating ways for the solution, ETCO hired the consultancy EY to carry out a study.

The result showed that, analyzing the data from the Federal Treasury, the tax liability is R $ 3.4 trillion (half of GDP). This amount grows every year and more, there was an increase in tax representations for criminal purposes of 5% in one year (2017 to 2018) and the value of credits launched increased by 68% (2016 to 2017. The process, if linear, until the last judicial instance, the average time is 19 years and two months.

In the comparison with the United States, Mexico, Germany, Portugal, India and Australia, analyzed by the work, none comes close to the Brazilian reality, that is, we completely failed in the treatment given to the collection of taxes.

These data demonstrate that we are in a well and that instead of looking for a ladder to get out of this desperate situation, we are, in fact, with a shovel, deepening and increasing this liability. The tax authorities need resources and the taxpayer, the vast majority, wants to keep up with their obligations, that is, one needs to receive, the other wants to pay, but the existing mechanism does not allow a quick and effective exit.

Through the study, it appears that in Brazil, the taxpayer is often punished with a fine increased by 150% and tax representations for criminal purposes, criminalizing their acts. In a chaotic system, which many times not even the tax authorities understand, it is evident that divergences are common and in case of error in the inspection, instead of a reassessment, the taxpayer is taken to defense in administrative and judicial instances. Result, the litigation grows.

This situation, as absurd as it may seem, does not serve the tax authorities nor the regular taxpayer, but it is great for the so-called regular debtor, one who structures himself to never pay taxes and who uses all the procedural possibilities to do so, and thus greatly increase its profit margins, eroding competitiveness and damaging tax revenue by billions.

The way out to reduce the long and costly litigation processes must first consider the reversal of the order that exists today in Brazil, enabling the possibility of an agreement before or at the beginning of the assessment. The United States, Australia, Germany, Portugal and Mexico adopt this stance and in India there is a solution to conflicts in more complex cases. The US tax authorities, for example, recognized for their rigor, adopt fast mediation and arbitration procedures. The goal is to set the amount due and receive.

Second, for the existing passive trillionaire, the possibility of agreements that speed up the effective payment, regularizing the situation of most taxpayers, finally regulating articles 171 and 156, item III of the National Tax Code. Law 13.988 / 2020 indicates this direction. The estimate is that R $ 900 billion could be collected. With the payment in installments, for example, in ten years, the federal tax authorities would have R $ 90 billion per year, more than was predicted by the pension reform.

Finally, to combat the nefarious action of persistent debtors, who should not be confused with occasional or even repeated debtors - they fail to pay taxes due to economic difficulties - the former never pays taxes, in fact, evasion makes up his disproportionate profit, is that we defend the approval of PLS ​​284/17, which is currently being processed in the Federal Senate, specifying who should be considered as a debtor, with the exact classification by the judiciary.

In short, it is urgent that we discuss the taxpayer - taxpayer relationship, valuing those who act in good faith and punishing those who intentionally do everything to not comply with their obligations. We can no longer remain in that well that brings the financial resources of the tax authorities and taxpayers.

 

* President of the Brazilian Institute of Ethics in Competition - ETCO, he was secretary of justice and defense of citizenship in the State of São Paulo (2000/2002).

“Brazil's tax litigation is equivalent to half a GDP”, says Edson Vismona to Istoé Dinheiro

“If you join the Union, states and municipalities, the tax litigation is over R $ 5 trillion” - Edson Vismona, president of ETCO.

Only at the federal level, the lack of agreement between the tax authorities and taxpayers leaves the equivalent of half of the Brazilian GDP at a standstill. The amount reached R $ 3,4 trillion in 2019. It is something unparalleled in the world. Part of that money could migrate to public coffers and become State investment. For that, it is necessary to establish a new relationship with the Revenue. According to the president of the Brazilian Institute of Ethics in Competition, “the current one has broken”.

De Osvaldo, honesty. From Alice, humility. The pillars that guide Edson Vismona's daily life came from his parents. Paulistano do Brás, 60 years old, graduated from Largo de São Francisco Law School (University of São Paulo), the executive president of the Brazilian Institute of Competitive Ethics (Etco) has just started conducting his biggest crusade: building a new relationship between taxpayers, especially large ones, and the tax authorities. "The one that exists no longer serves," he says. Etco's struggles so far were not small. Maintained by companies in the beverage, cigarette and fuel sectors, which face piracy, fraud and persistent debtors - only the cigarette segment collected R $ 11,8 billion in 2019, but evasion totaled R $ 12,2 billion -, the entity hired the consultancy EY to prepare the most detailed study on tax litigation in Brazil. Money equivalent to half a GDP (R $ 3,4 trillion) stopped in court and could be injected into the purse. “The fight now is for the whole of society. It is our contribution to the country ”,

MONEY - Etco prepared a robust study on the issue of tax litigation in Brazil and found something frightening, that the volume of resources under litigation is equivalent to half of GDP, R $ 3,4 trillion. How did that come about?
EDSON VISMONA - Our associates brought this concern, that there is a lot of money being discussed at administrative levels, or judicial levels. We hired EY not only to check the situation, but also to compare it to other countries, to see if Brazil is out of the curve or not. What was a comment translated into numbers: R $ 3,4 trillion in 2019, which is equivalent to 50,4% of GDP.
Through the study, this data has grown. In 2013 it was R $ 2,2 trillion (42% of GDP). Nominally, there was an increase of 54% in seven years, to R $ 3,4 trillion. Yes, in addition to an already dramatic scenario, the bias is high. It's scary.

What happens in the other countries surveyed in comparison with Brazil?
We chose six countries, all better placed than Brazil (80th) in the Global Competitiveness Report 2017-2018: United States (2nd), Germany (5th), Australia (21st), India (40th), Portugal (42nd) and Mexico (51st). The selection sought different legal systems that would function as benchmarking [the first three], nations of direct influence, such as Portugal, or of economic similarities with Brazil [India and Mexico].

And what did they discover?
Nowhere is litigation similar to ours. In other countries, it barely exceeds 2% of GDP.

Does this have to do with the complexity of the Brazilian tax system?A complex tax system is that of every country. Ours does not escape. But in addition to being complex, ours is chaotic. Why?
There was an insane production of tax rules. From 1988 [Constitution] to 2018, more than 390 thousand rules were edited. This shows the state's voracity in wanting to regulate.

In that period (1988-2018) it gives almost 20 thousand standards per year.
What causes the opposite of the intended [which is to collect]. Because the more you regulate the more discussion alternatives you create. We lost the whole idea of ​​a rational collection structure.

A collecting machine is not only voracious, as you define, but irrational. But the appetite has apparently not changed.
But it hits its limit. We have a 35% tax burden in a country that offers very little to society. Where does that money go? It goes to pay Social Security. It goes to pay salary. It is not to invest. The value of the Union's investment budget is ridiculous. It is not a question of asking whether the State should spend or not. You must spend, but spend well. What is important. In particular, I defend a strong presence on the social issue, especially in a country as unequal as ours. But I do not advocate a staff. And there was no discussion in previous governments to contain the size of that state.

It bloated and still growing makes the money get smaller.
There was a very crazy idea that money appears. I've heard it from [public] managers: 'Ah, one hour the money comes'. Where? It appears because it is not yours. The relationship of the public administrator with public money is often an irresponsible one.

One hour the bill arrives.
Yes, the bill and the nightmare. A state that traditionally came in a process of increasing spending will want to increase revenue in every possible way, creating all the pendants to collect, no matter how. The account does not close, litigation increases, the deficit increases. Here comes the madness.

With so much norm, the environment to discuss with the Treasury is fertile.
I'll give you an example. The tax authorities declare the following: you did not pay such a tax, this is a crime and you, or your director, will be reported to the Public Ministry. You answer: 'Wait a minute, what went wrong ?, where did I go wrong ?, we had a different interpretation than yours, this is not a crime'. The answer is: 'I'm going to act anyway, then you turn around, go and defend yourself'. This impacts any serious business. Only the percentage of tax representations for criminal purposes grows from 25,4% of the total (2017) to 29,4% of the total (2018). Do you mean that in a year the companies decided to become criminals? Companies with shares on the stock exchange, who pay billions of taxes, who have equity ...

What can be done so that this fiscally at war environment is undone?
We need a DR, to discuss the relationship. Let's discuss the Tax-Taxpayer relationship. Because the one that exists has broken. The state wants to receive and the taxpayer wants to pay. I read in a news article that litigation is good for companies because they don't pay and push with their bellies for 19 years. Is not true. Because this 'not paying' is recorded in the balance sheet.

And it brings impacts.
It impacts on the stock exchange, in the evaluation of that company, it harms rating. This is nothing good for the taxpayer.

Is there a culture of the Revenue in not seeking the solution, the agreement, right away?
Then we discuss the relationship. In comparison with the other countries, this attracted a lot of attention. They all try to define the tax debt, how much is due, in the beginning. Even the American tax authorities, famous for being extremely tough, try to resolve the dispute at the beginning, using the mechanisms of mediation, arbitration. This goes for the United States, Germany, Australia, for Mexico, for Portugal… Even in India it works better.

Here ...
Here we are stuck. In a process in which you are fined, do not agree with that amount, the answer often comes in the form of aggravating with a 100% fine, 150% on top and still with a threat of receiving a tax representation and being taken to the MP as criminal. It happens a lot. Often at first, the tax authorities say 'oh, I was wrong'. Then you ask for the correction to be corrected, but you hear as an answer 'no, no, take it to discuss'. It does not correct the error that he himself admits. Such a process if it is linear takes almost 19 years. It remains open, without the tax authorities receiving it.

What could a change in that culture mean?
An estimate of ours, clearing fines and reaching a more feasible value in this litigation of R $ 3,4 trillion, shows that something around R $ 900 billion could turn into taxpayer contributions from large taxpayers. We will divide this in ten years, it is R $ 90 billion a year [the public deficit of the central government in 2019 was R $ 95 billion]. And it is doable.

Where does this litigious stance come from?
Talking to a supervisor he said that they do not have this freedom to, in the face of a situation, not to sue. In part it is true. But there is the possibility, in the National Tax Code [articles 156 and 171], to regulate an agreement. It is in the Code, all that is needed is the law to regulate. But it is also necessary for administrators to seek this interpretation. There are already those who work in this direction. In São Paulo we have a 2018 law, which led to the Nos Conformes Program [in force since 2019], which goes in this direction of the agreement, of transparent communication.

These are still isolated initiatives and while the scenario does not change, it gets worse.
Because this litigation increases every year. We are in a tax ditch and instead of a ladder we were thrown a shovel. I don't want a shovel, I want a ladder.

And what has Etco effectively done to make the change happen?
Based on this study, we will conduct a roadshow, taking authorities, political leaders. We want to spark the discussion. We have data that if we join states and municipalities the litigation will exceed R $ 5 trillion. Because it is a logic that does not apply only to the federal tax authorities. It is valid for the state and municipal.

Can this debate be confused with that of tax reform?
The issue of tax reform concerns us a lot because we don't have figures on it. We do not know what will come. Who has the numbers is the federal government, which has not yet entered the game. So we are not clear. And then everyone says something. Sometimes frightening, like the fact that on top of services, taxes will increase by 300% ... Anyway, what our experience shows is that every tax reform has increased litigation.

So there will be more fighting around?
Yes. It will increase litigation. In other words, we are exchanging the shovel in the tax litigation pit for an excavator.

The discussion of the Tax-Taxpayer relationship, proposed by Etco, cannot hinder the tax reform?
Our tax attorneys are unanimous in seeing the issue of litigation as something more important than the tax reform itself. Because we would give a breath of cash to the State. Resolving the dispute would be something prior to the tax reform, because it would be carried out at another level, not in despair.

But society, including practically all business, financial and economic leaders from all walks of life, everyone expects reform.
Yes, society wants an answer, but it does not want to enter a swamp. Not knowing what will come out of there.

About this inertia of the Executive. Does not a considerable part of it originate from the lack of pressure from the business elite, who spent the first year of Bolsonaro's term saying that it is possible to shield the economic agenda from political issues, which did not contaminate the other?
They are absolutely connected themes. A statement by a president or a minister, a mere statement, can topple the stock market or raise the stock market. That is why our market is so volatile. Take the issue of coronavirus, which is not a political issue in itself. Political statements can make the situation even worse, for example, if they convey the perception that our politicians are not taking the situation as seriously as it deserves. Things are all connected. There is no way to separate them.

And are the themes contaminated?
Yes. Everything is connected. The Brazilian productive sector is very competitive, from the door to the inside. But from the door out, things get difficult. We bear the burden of our situation.

The conduct of the economic agenda of Minister Paulo Guedes began to receive harsh criticism, including from economists of his own conceptual spectrum, such as Armínio Fraga and André Lara Resende, who even called Guedes's liberalism primitive. And the business sector?
The business sector is always concerned with how to optimize its earnings, but also that this process happens in balance. There is an increasing maturity that profit at any cost is no use. And a concern of the business sector has always been in relation to the size of the state. Ours has grown a lot. This burdened society too much, it burdened the productive sectors a lot. It is a heavy and inefficient state.

And the minister's speech addresses this concern.
He [Guedes] is clearly talking about reducing the state. This is good, so the business community supports it. But it gets to the point where you don't see the consequences, even considering all the difficulties that this agenda has in Congress. Here again comes the relationship with politics. The economy does not talk to politics, there is clearly no dialogue ... This worries us a lot.

The exit…
What we want is for there to be a convergence. And we have our contribution to this debate.

A bitter Jabuticaba

In an article published today (February 28) on the JOTA Portal, Milton Seligman - Professor at Insper, Global Fellow at Woodrow Wilson Center's Brazil Institute and former Minister of Justice - talks about the Brazilian tax complexity, the need to carry out an urgent reform and highlights some of the aspects that make these mechanisms so intricate.

To support some of his theses, the professor cited the study Challenges on Brazilian Tax Litigation, commissioned by ETCO from EY, in addition to highlighting the importance that the entity has in the role of defending business ethics and legality.

Among the main aspects cited by the professor about the study were: the increase in Brazilian tax litigation, which today represents half of the country's GDP, reaching R $ 3,4 trillion, the delay in completing a tax litigation process, which today it takes an average of 18 years and 11 months, and the increased rigor that the Brazilian Federal Revenue has been employing in large taxpayers.

Read the full article at: https://www.jota.info/opiniao-e-analise/colunas/coluna-do-milton-seligman/uma-jabuticaba-amarga-24022020

Tax litigation, the problem

Problems exist in all tax systems, due to their inherently imperfect nature combined with high volatility in economic and political circumstances. What changes is the type of problem.

The major tax discussions today are taxing the digital economy, tackling tax erosion associated with tax havens and identifying new sources of social security funding.

In the context of the taxation of the digital economy, the European Union did not hesitate to consider a tax on the gross revenue of digital economy companies, of a cumulative nature to the surprise of those who profess the dogma of non-cumulativity.

Likewise, the OECD is beginning to admit taxation at source instead of residence, due to the growing emptying of the concept of permanent establishment.

All of this stems from the evidence that tax systems must be pragmatic and resilient in order to face an increasingly rapid technological revolution. Whoever doesn't understand this reality will be left behind.

Here, we remain in a sterile debate about tax models that will become obsolete, without taking care of the real problems and, much less, looking forward.

Some prefer indolent copism, which gives up thinking. To paraphrase Nelson Rodrigues, a mutt complex is not improvised. It is the work of centuries.

The main tax problem is the permanent dispute that fulminates legal security, including for the tax authorities.

The disputes, including the active debt and the administrative and judicial disputes of the federal entities, reach values ​​above half of the Brazilian GDP. They are only incidentally associated with the nature of the taxes. In essence, they relate to the process.

There are three sources of litigation: the launch without fault, the questioning of tax matters through the diffuse control of constitutionality and the great indeterminacy of some concepts.

Brazilian tax procedural legislation is too lame. We don't even have general rules on taxation.

Insubsistent tax deficiency notices do not generate costs for the State, but they make the taxpayer's life inferential, involving from reputational damages to legal costs, hence the requirement of large guarantees in the judicial sphere.

It is not uncommon to encounter bill of infraction billions of reais. It is not credible that a company, with shares on the stock exchange, practices tax evasion of this size. It is only a symptom of a very serious procedural disease, which fulminates the intention to invest.

In order to face this fiscal delusion, tax lawyers Gilberto Ulhoa Canto, Geraldo Ataliba and Gustavo Miguez de Mello conceived, for decades, the integration between administrative and judicial tax processes, which would result in equating forces between the tax authorities and the taxpayer, succumbing in the hypothesis insubsistence of the notice of infraction, elimination of the requirement for guarantees in appeals and, consequently, elimination of judicial tax enforcement, responsible for more than 38% of the 80 million cases pending before the Brazilian courts. In other words, a revolution.

The theses on tax unconstitutionalities, when raised in the first instance, generate processes that can drag on for decades to, after all, result in unavoidable tax problems, not to mention the possibility of breaking isonomy due to different repercussions on taxpayers.

This is a problem that requires a lot of creativity to be solved. One clue would be the institution of a constitutionality incident that would send first instance decisions directly to the STF.

As for conceptual indeterminacy, the most relevant problems are linked to the limits of tax planning and the presumption of damage to the treasury. In both cases, it is clear that they are based on obscure and lacunaeous legislation that give rise to weird arbitrariness. The amazing thing is that nothing is done to correct these distortions.