Breach of tax decision by the STF creates legal uncertainty, say experts

The breaking of final decisions on tax matters, established by the STF (Federal Supreme Court) this Wednesday (8), is reckless, creates legal uncertainty and could have a negative effect on the cash flow of several companies in Brazil, according to experts.

The Supreme Court determined that tax cases deliberated by the court prevail over final and unappealable decisions (when there is no longer any possibility of appeal) previously, that is, they “break” the sentences that were final.

In practice, this means that a taxpayer who has obtained a favorable tax decision in the past, but which the Supreme Court has subsequently decided differently, can be sued by the Federal Revenue Service without the need for a rescission action.

As most ministers (6 to 5) decided not to apply the so-called modulation of effects, companies that were previously exempt will not only pay the tax again from now on, but may also be charged retroactively.

As a result, STF judgments with binding effect —with general repercussions and concentrated constitutionality control— will have immediate effect on previous sentences.

Decisions will need to respect, however, the principles of precedence, which establishes that increases in certain taxes can only be applied in the fiscal year following the approval, and the principle of novena —which determines a period of 90 days for collection.

The trial began on February 1 and ended on Wednesday. On the one hand, taxpayers argued that the effects of the decisions they had obtained in court not to pay taxes were still valid even after the Supreme Court declared the collection of taxes constitutional.

On the other hand, there was the Union’s understanding that these decisions are no longer valid after a new judgment by the Court.

One of the appeals that reached the STF was filed by the Union against a textile industry that obtained a court order, final and unappealable in 1992, to stop paying CSLL (Social Contribution on Net Income). The decision had been taken by the TRF-5 (Federal Regional Court of the 5th Region).

In 2007, however, the Supreme Court decided that this tax was constitutional, when judging an ADI (direct action of unconstitutionality).

CSLL is levied by the Union and levied on the net income of companies. The most common rate is 9% on the amount, but there are cases in which the charge is even higher, depending on the activity performed. For banks, for example, the rate is 20%.

The tribute was the focus of this Wednesday’s decision, but the collection may apply to other taxes that have also undergone changes in jurisprudence.

In 2020, for example, it was decided by the constitutionality of charging IPI on the resale of imported products. The same occurred in 2008, in relation to the Cofins requirement for single-professional companies, such as doctors, lawyers and engineers.

“In Brazil, even the past is uncertain.” This is how Eduardo Maneira, partner at Maneira Advogados and associate professor of Tax Law at UFRJ (Federal University of Rio de Janeiro), evaluates the decision of the STF this Wednesday.

According to the expert, the option not to modulate the effects is the most worrying thing. The merit of the definition, he says, is not really an issue, and it makes sense that a decision with general repercussions could prevail over something judged previously.

Maneira recalls that the discussion considered, among other things, respect for the principle of isonomy. A company could have an advantage over a competitor due to an old court decision that exempted it from CSLL, for example.

“The problem is that the Supreme said this for the first time last week. So the modulation would be absolutely necessary”, he says.

According to him, the impact of retroactive charges can be billions, especially in the case of CSLL.

Carolina Romanini, a partner at Cescon Barrieu in the tax area, also sees the Supreme Court’s decision as worrying.

She recalls that Article 5 of the Constitution establishes that the law should not prejudice res judicata, which could be a potential point of conflict.

Like Maneira, she also understands that the merits of the decision are fair, as it can correct distortions between tax-exempt companies and others that need to pay.

“Free competition, equality is committed. These were the principles considered by the STF to judge in this way.”

The problem, she says, is allowing chargebacks. “This harms companies a lot. Imagine a subsidiary having to explain to the foreign parent company that it will need to pay a tax when there was a decision [de isenção] before. There is no legal certainty.”

Romanini states that there are many cases of companies that had the right not to collect CSLL recognized and that now they will have to pay the tribute referring to the previous five years, at least.

The deadline she mentions concerns a legal lock that prevents the Federal Revenue from making charges beyond the last five years.

However, Maneira says that the initiation of chargeback will be examined on a case-by-case basis. According to him, despite the blockade, there are many situations in which the Revenue has made assessments and executions, even with companies protected by the court decision.

In these cases, the five-year period does not apply and the company may have taxes collected since the Supreme Court’s decision came into effect —in the case of CSLL, since 2007, for example.

For him, non-modulation creates legal uncertainty. “It hurts trust in the system, in res judicata. I sincerely hope that a motion for clarification will change that”, he says.

The legislation provides that the parties involved in the process file embargoes for clarification, which is an instrument for when there is doubt, error, contradiction or obscurity in the decision. The appeal can be lodged within five days.

David Andrade Silva, a tax lawyer and partner at Andrade Silva Advogados, says that any embargoes may modify the Supreme Court’s decision, but it is rare.

“Only when there is a very big contradiction in the judgment, which would inspire the alteration of one of the votes. I would say that it is almost impossible for this decision to be modified”, says Silva, adding that, historically, the Supreme Court does not reform a decision due to embargoes of declaration .

Romanini also finds it difficult to change. She also recalls that in the case of the thesis of the century (judgment on ICMS based on PIS/Cofins), the embargoes were opposed in 2017 and judged only in May 2021.

“There is hardly any change in understanding, but some correction or clarification may improve the judgment in some respect, perhaps in relation to the production of effects for the past, which is blatantly retroactive and compromises legal certainty and the principle of non-retroactivity”, he says.

The lawyer also fears that the Supreme Court may do this with other issues, not just tax matters. “That’s the danger of judgment. We’re talking about changing the past,” she says.

That’s what Silva is also worried about. “In practice, the res judicata will always be under question. I have a final and unappealable decision, but I don’t know if that issue will be endorsed by the Supreme Court or not”, he says. “It’s something appalling, in a way even worrying. They recreated the Law”, he adds.

He says that the decision deals only with the tax issue, but the argument can go beyond that matter.

“The topic was given in a question involving the CSLL, but I am concerned with the intention of this understanding”, he says.

In the case of CSLL, Silva says that the impact can be high, since many companies used a final and unappealable decision not to pay the tax. According to him, some provided billions of reais in exemption in the balance sheet.

Jordão Oliveira, a tax lawyer at Zilveti Advogados, also says that non-modulation creates great legal uncertainty. “It’s the Brazil risk. How does a company that won a lawsuit report this to the parent company?”, he asks.

For him, the decision is worrying for all taxpayers. “What we learned in college, that res judicata cannot be changed, except for a specific rescission action, the STF ended up putting a stone on top.”

What did the Supreme Court decide?

The ministers of the STF decided that, in tax cases, court decisions automatically interrupt the effects of previous judgments (even in cases where there was no longer any possibility of appeal), without the need for a rescission action by the Revenue in Justice.

What are the conditions?

For example, the principles of anteriority and ninety must be respected. The first establishes that increases in certain taxes can only be applied in the fiscal year following the alteration, while the ninety one establishes a period of 90 days. The legal provision exists so as not to surprise taxpayers and give them time to adapt to the new regulations.

Which cases are affected?

The STF directly addressed two cases, but the thesis presented by the ministers is valid for judging all similar cases.

In both actions, the Union intended to collect the Social Contribution on Net Profits (CSLL) from companies that, in the 1990s, had won in court, with final and unappealable decision (with no possibility of appeal), the right not to pay the tribute. Then, in 2007, the STF validated the CSLL collection — but there was still discussion about the resumption of the tax collection, which, as decided now, can be restarted even without rescission action from the moment the STF decides to charge it.