Change in Carf should increase litigation and will not bring revenue, say tax experts


The return of the rule that gives the government the tie-breaking vote in CARF (Administrative Council of Tax Appeals) judgments should increase tax litigation and thwart the plans of the Ministry of Finance to collect R$ 50 billion this year with this and other changes in the way of functioning of the organ.

This is the assessment of tax lawyers who follow the council’s decisions.

The Carf is a body of the Ministry of Finance, formed half and half by representatives of the Union and taxpayers, which judges in the second administrative instance disputes in tax and customs matters.

Changes to the council’s rules are part of the fiscal package announced by Minister Fernando Haddad (Finance) in early January to increase revenue.

Among them is a provisional measure that ended the pro-taxpayer tiebreaker instituted in April 2020 at the initiative of Congress. As a result, the so-called “quality vote” of the tax authorities’ representative in cases of tie in judgments was once again valid. The government also limited access to the court to cases worth more than one thousand minimum wages (R$ 1.32 million).

According to Carf data, 76% of judgments were decided unanimously and 19% by majority vote last year. The other 5% ended in a tie, with 1.9% having a pro-taxpayer decision provided for by law for cases where there is a requirement for a tax credit.

Renata Emery, specialist in Tax Law at TozziniFreire Advogados, says that the existence of the casting vote did not lead to an increase in revenue in the past and will not bring more revenue now. This is because taxpayers defeated based on this provision usually resort to the Judiciary. Often with two processes. One contesting the constitutionality of the tiebreaker mechanism. Another against the assessment by the Federal Revenue that gave rise to the discussion.

“Everything that the Treasury won with a casting vote, it did not take. It became a lawsuit, which drags on until today. It did not increase the collection. It only increased the litigation”, says the lawyer.

One of the Treasury’s arguments against the pro-taxpayer tiebreaker is that, when the latter loses, it can re-discuss the issue in the Judiciary. When the Tax Authorities are defeated, the Union has no way to appeal to the courts.

The government also claims that many decisions contrary to the Tax Authorities have been taken since 2020 in disagreement with the understanding consolidated in the Judiciary – and that the National Treasury is studying charging taxpayers in court in these cases.

Aconcarf, the association of taxpayers’ representatives on the council, says that “it is not allowed not to apply judicial decisions already pacified” by the Judiciary and that this has not changed with the end of the casting vote.

Some tax experts claim that tax authorities have interpreted or distorted court decisions by applying them to judgments in the body.

“Carf’s decisions became more legalistic [com o fim do voto de qualidade]which brought a certain alignment with the Judiciary”, says Alamy Candido, partner at Candido Martins Advogados.

The tax expert claims that discussions on the tie-breaking vote are oscillating between two extremes: either in favor of the tax authorities or the taxpayer. For him, it is possible to think of another mechanism, such as having representatives of the taxpayers in the presidency of some Carf groups or promoting internal discussions to pacify the understanding on some themes, two things that have resulted in the Court of Taxes and Fees in São Paulo.

Lawyers see another obstacle for potential tax authorities to turn into immediate revenue: the choice of a provisional measure to bring back the casting vote. With that, the rule takes effect immediately, but the instrument needs to be approved by Congress within 120 days so as not to lose its validity. Representatives of the private sector have already asked parliamentarians not to approve the change.

With this, the company that has an unfavorable decision during the period of validity of the MP will be able to question the use of the casting vote if the norm is overturned in Congress.

“I have no doubt that the large companies that will possibly lose out in this new system will resort to the Judiciary. So it will not have the cash effect that the government expects. The measure will be innocuous if the expectation is to collect more”, says Diego Miguita, partner at VBSO Advogados.

According to Rodrigo Massud, from Choaib, Paiva e Justo Advogados, the uncertainty brought about by the MP is an argument used by taxpayers who have already sued the Judiciary to remove cases that will go to trial in February from the agenda.

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