State attorney’s office regulates clearing of writs of payment (precatórios) with outstanding debts
PGE Resolution No. 12/18, published in the Government Gazette of the State of São Paulo on May 04th 2018, regulates the clearing of writ of payment credits (precatórios) with debts (tax-related or otherwise) that have been enrolled as outstanding debts by March 25th, 2015, in accordance with Constitutional Amendment No. 99/2017.
The clearing must be requested by an interested party who is both: (i) the holder of a writ of payment of a certain, due value of a fixed amount which is not under discussion (challenge or pending appeal); as well as(ii) the holder of a debt (tax-related or otherwise) with the State Treasury Office, its authorities and foundations, which has been enrolled as an outstanding debt by March 25th, 2015.
In order to clear the credit, the creditor, their proxy, or the attorney who represented them in the original proceeding must first submit a credit clearance request on the PGE site (www.pge.sp.gov.br), to be reviewed within 30 days, after which it may be approved or denied by the State Assistant Attorney General, with the accompanying decision to be published in the Government Gazette of the State of São Paulo. Applicants whose requests were approved will be summoned within 90 days to present documents, thus clearing the credit and enabling them to request the clearing on the website www.dividaativa.pge.sp.gov.br.
Initial validity date of rule that introduced federal tax liens is postponed to October 1st
The National Treasury Attorney’s Office has postponed the initial validity date of PGFN Ordinance No. 33, which regulates the rule that enables the creation of liens on taxpayer property without judicial authorization. The Ordinance’s provisions were originally scheduled to come into force in the first fortnight of June, but were delayed to October 1st, by means of PGFN Ordinance No. 48, published in May 28th, 2018.
Aside from the term postponement, PGFN also increased the delivery time for offering a tax execution guarantee or submitting an application for review from 10 to 30 days. Furthermore, it also explained that it is impossible for administrative liens to fall on small-scale rural properties, family assets, and other unattachable assets.
In April, PGFN promoted a public hearing to debate the provisions contained in PGFN Ordinance No. 33. Although the recent changes do not reflect the discussions that took place on that occasion, the delaying of the expiry date suggests the possibility of further adjustments before the rule comes into effect.
Exporters may file judicial complaints to challenge reintegra reduction
By means of Decree No. 9.393, published on May 30th, the Executive reduced the Special Regime for the Reinstatement of Taxes for Exporters (“Reintegra”) benefit rate from 2% to 0,1%, applicable from June 1st. Not only does the Decree hinder competitivity among exporters, it also infringes the 90-day holding period principle, according to which the tax burden mark-up must be preceded by a 90-day period, counting from the day in which the rule that introduced the increase was issued.
Reintegra is a program established by Provisional Measure No. 540/11 (converted into Law No. 12.546/11) aiming to ease the burden on export operations through the partial or total reimbursement of the remaining residual tax in the production chain of exported, manufactured, and semi-manufactured goods that fit the requirements put forth by Law No. 12.546/11. The discount is granted on a percentage of the export revenue and set by the Executive via Decree.
High court caselaw has already consolidated the stand that the reduction of tax benefits implies an indirect tax burden increase, and so must follow the principle of anteriority. Hence, taxpayers may appeal to the Judicial branch to seek the upholding of the 2% Reintegra benefit rate, at least until the end of 2018.
This is not an unprecedented state of affairs. In 2015, Decree No. 8.415/15, reduced the Reintegra benefit rate from 3% to 1%, with no regard for constitutional deadlines. At the time, several taxpayers achieved the upholding of the 3% benefit rate for that year through judicial means.
Gerdau wins favorable judicial decision on goodwill deduction
Recently, an IRPJ and CSLL tax assessment originated from a goodwill disallowance regarding the corporate reorganization that happened between 2004 and 2005 among companies belonging to the Gerdau group (internal goodwill) was brought to Court. The Federal Revenue claims that internal goodwill is not deductible, since in such cases the sole aim of the operation would be to reduce taxation. Administratively, the proceeding ended with an unfavorable decision, delivered by a casting vote from the Chairman of the Board.
The debt was enrolled as an outstanding debt and a tax execution action was filed. Regarding motions to appeal the tax execution action, the ruling handed down by Deputy Judge Tiago Scherer, from the 16th Federal Court in Porto Alegre, established that the changes introduced by Law No. 12.973/14, which restricted goodwill deductibility to operations between independent companies, could not be applied retroactively to operations that happened between 2004 and 2005. Furthermore, the judge stressed that employing societal operations to achieve a secondary goal of reducing tax liabilities is lawful and intrinsic to economic activities.
This is a hotly debated topic in the Administrative Tax Appeals council (CARF), but there are few ongoing cases in the Judiciary. The ruling reinforces the argument that the restrictions put in place by Law No. 12.973/14 signals that prior to the rule’s publication, there were no hindrances to goodwill deductibility between dependent companies.
Monthly IRPJ and CSLL estimates can no longer be cleared
Law No. 13.670/18, published on May 30th, 2018, brought significant amendments to Law No. 9.430/96, which addresses the procedures for federal tax restitution and compensation. The main change concerns the preclusion of the clearing of debts pertaining to monthly IRPJ and CSLL estimates with Federal Revenue-managed tax credits. The measure is intended to increase federal tax collection, and was implemented upon its publication, meaning it’s not possible to clear June IRPJ and CSLL estimates anymore.
In 2008, there was an attempt to introduce this restriction with Provisional Measure No. 449, which ended up not being incorporated into the legal text, but rather converted into Law No. 11.941/09. At the time, the measure was highly criticized by taxpayers, and Federal Courts rulings determined that the change could only take effect in the following calendar year, due to principles of legal security and anteriority.
We highlight that the change introduced by Law No. 13.670/18 may be disputed in Court.
New provisions for the Leniency Agreement calculations (Normative Instruction 2/2018)
Published on May 21, 2018, in the Federal Official Gazette, Normative Instruction 2/2018 regulates the methodology for calculating the administrative fine, provided for by Law 12.846/2013 (Brazilian Clean Company Act), which rules leniency agreements negotiated with offending companies.
The leniency agreement guidelines of the Office of the Comptroller General (“CGU”) and Federal Attorney General’s Office (“AGU”) are the first to be published by a Brazilian enforcement agency to standardize the procedures followed by members of the CGU and AGU, as well as to give more precise indications of the financial impact of an investigation. Additionally, the normative instruction guarantees more transparency in applying the fine for illicit acts, according to the mitigating and aggravating criteria set forth in Decree 8,420/2015.
The Clean Company Act sets fixes the penalty for the practice of undue acts between 0.1 to 20% of the gross revenues of the year prior to the initiation of the administrative process. Therefore, Normative Instruction 2/2018 encourages the adoption of compliance programs, and sets forth the requirements of an effective program. The regulating norm establishes that companies may have 4% of penalty reduction, once proven the existence of a robust compliance program. Furthermore, the self-reporting misconduct can reduce the total penalty by up to 2%.
The Brazilian enforcement structure is divided in two fronts of action. The CGU is the entity responsible for administrative sanctions under the Clean Company Act, while the AGU acts in the interest of the Brazilian government in enforcement actions. In collaboration, the two agencies have already signed four leniency agreements, as follows: Bilfinger, UTC Engenharia and the advertising agencies MullenLowe and FCB Brasil, the last two resulting from investigations of Operation Car Wash. Thus far, nine other leniency agreements are in progress and may be concluded by the end of the year.