Companies estimate millionaire losses after STF authorizes review of tax decisions

Companies such as Vale and GPA, which owns Pão de Açúcar, are estimating millionaire losses after the STF (Federal Supreme Court) established that it is possible to review tax decisions if there is a subsequent ruling against the court, including for actions that were already final and unappealable ( no possibility of appeal).

In addition to the mining company and the supermarket group, companies like Havan and Samarco must also have their cash impacted. With the definition of the Supreme, they can be charged retroactively for taxes that they were not paying due to court decisions.

The court’s understanding changed the way these cases were handled. Previously, a taxpayer who had obtained a favorable decision in court did not lose that right if the STF decided differently in the future. The only way to “break” the protection guaranteed in the past was through a specific rescission action.

Now, decisions on tax matters lose effect from the moment there is a different judgment by the STF.

Most ministers still decided not to apply the so-called effects modulation. With this, companies that were previously exempt will not only pay the tax again from now on, but may also be charged retroactively.

In the evaluation of experts, the decision is worrying and creates legal uncertainty.

One of the companies that is already calculating the impacts is Vale. In a financial document, the mining company made it clear that it held administrative and judicial discussions with the tax authorities in Brazil related to tax matters.

The company had a final court decision regarding the collection of CSLL (Social Contribution on Net Income). However, even with the protection, Vale says in its balance sheet that it was assessed in 2016 and 2017. The total amount in question would be BRL 2.3 billion.

Sought by the report, the mining company said that it discusses the deductibility of CSLL from the IRPJ (Corporate Income Tax) calculation base, and that the amount mentioned in the financial statements has already been administratively reduced.

“The votes cast in Wednesday’s judgment at the STF reach the deductions made in the period of 2016 and 2017, whose estimated value is approximately R$ 800 million. It is, however, necessary to wait for the publication of the decision for an accurate assessment of impacts” , he said in a note.

CSLL was at the center of this week’s Supreme Court judgment. The contribution is charged by the Union and is levied on the net profit of companies. The most common rate is 9% on the value, but there are cases in which the charge is higher, depending on the activity performed. For banks, for example, the rate is 20%.

In the court’s discussion, the Union filed an appeal against a textile industry that obtained a court order, final and unappealable in 1992, to stop paying the tax. In 2007, however, the STF ruled that the tax was constitutional.

Wednesday’s decision ruled that the 2007 sentence breaks all previous ones that went in the opposite direction.

GPA, owner of the Pão de Açúcar flag and controlled by the French Casino, is another company that is calculating the financial impacts. The supermarket group had favorable decisions —and final and unappealable decisions— allowing the non-payment of CSLL.

The day after the decision by the STF, the company published a material fact saying that it anticipates losses of around R$ 290 million, which refer to processes in progress since 2007, as well as amounts not collected in the last five years.

“The impact on the company’s cash will depend on the outcome of these processes, immediately generating only a 9% increase in profit taxation”, said the GPA, adding that it awaits the publication of the STF judgment to define the legal strategy to be followed.

With the announcement that the group will pay CSLL again, Goldman Sachs estimated the impact that the decision could have on the group. According to a report published by the bank, a 9% higher Income Tax rate would generate an increase of 2 to 2.5 percentage points in the GPA numbers.

“Flowing this through our model/evaluation, we estimate a potential negative impact of R$ 1.30 to R$ 1.60 per share”, says the document.

Goldman Sachs also noted that GPA may have to pay R$290 million retroactively, which would generate an impact of R$1.10 per share, although this scenario is still uncertain.

Samarco, a joint venture between Vale and BHP Billiton, may also have to pay the CSLL from which it was exempt in the past.

In the financial statement, the company mentions a figure of R$ 6.06 billion. The amount would refer to assessments that the company received from the Federal Revenue and other administrative discussions on CSLL collection since 2007.

In the same document, the company points out that it has a final and unappealable court decision deeming the CSSL unconstitutional, and that, therefore, it does not tax and pays the contribution.

Contacted by the report, Samarco said it would not comment.

Although the CSLL was the focus of the Supreme Court’s decision, the change in understanding will affect the collection of other taxes that also underwent changes in jurisprudence.

In 2020, for example, it was decided by the constitutionality of charging the IPI (Tax on Industrialized Products) on the resale of imported products.

With the breach of decisions, Havan may suffer cash losses. The company has a final and unappealable decision for seven years that exempts it from IPI double taxation. But the new understanding of the STF will change that.

According to the company, the effects are still being analyzed by the legal sector, but the estimate is that the impact is not so significant.

Without informing an exact value, Havan said that imported products represent only 5% of the company’s sales, and not all of them are subject to the IPI tax.

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 the Federal Revenue to file a rescission action in court.

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 rules.

Which cases are affected?

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

In both actions, the Union intended to collect CSLL from companies that, in the 1990s, had won in court, with final and unappealable decision, the right not to pay the tax. 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 that it is due.