Carf needs to be independent from the tax authorities – 06/03/2023 – Samuel Pessôa

Last week, the provisional measure that returned to the Federal Revenue the casting vote in CARF (Administrative Council of Tax Appeals) expired. The law of April 2020, by the Bolsonaro government, which extinguished the casting vote for the tax authorities, is back in effect. The issue will be addressed through a bill that the government sent to Congress.

CARF is a Federal Treasury body that judges tax cases at the administrative level. It is joint, with representatives of the Treasury and taxpayers, the companies, appointed by the employers’ confederations, CNA, CNI and CNC.

Before April 2020, if there was a tie, the president of the collegiate, a representative of the Federal Revenue, had the casting vote. In general, the Revenue won the pendency in the administrative sphere. The taxpayer could access the Judiciary. After the law of April 2020, the tie means victory for the taxpayer. And, in this case, the tax authorities cannot appeal to the Judiciary. Clearly, the incentives were unbalanced against the IRS.

And, in fact, Minister Fernando Haddad is correct when he recalls that this situation is unique. Nowhere in the administrative sphere is there parity composition. However, I think that the return to the situation that prevailed before the April 2020 law makes the incentives unbalanced in the other direction.

The reason is that indirect federal taxes paid by companies in Brazil —PIS/Cofins, IPI— have a unique complexity, and therefore the whole process is unique. For income taxes paid by companies, although complexity is not the biggest problem, there is enormous arbitrariness in the way the Revenue interprets the law.

Here the company calculates its own tax. The counting rule has numerous ambiguities. The Revenue, in turn, does not clearly establish how the rule should be exactly applied. And, by law, the tax authorities have five years to ratify or not the self-declared tax. If the Revenue disagrees with the company, the assumption is that there was a serious error, which generates a notice of infraction and a fine of 75%.

Therefore, if it is true that the situation after the 2020 law —the IRS loses the casting vote— is a jabuticaba, the entire compliance process with the payment of taxes levied on companies in Brazil is also a jabuticaba.

For example: a company considers that the acquisition of safety material —boots and helmets— represents an essential expense for production. When calculating the PIS/Cofins calculation basis, the company deducts this expense. The Revenue considers that safety material is not essential for production and fines the company. After all, is safety material essential for production or not?

In his most recent column (folha.com/hul45vgf), Marcos Lisboa listed several other examples, such as cases involving items in the remuneration of workers whose law determines exemption from social security contributions, with which the auditors disagree. Auditors have such latitude in interpreting the law that it is often almost as if they were the legislators themselves.

Additionally, there is no homogeneity in Carf’s decision, and the Treasury does not publicly establish parameters to bar tax planning, mainly in profits from subsidiaries abroad, in domestic profits, in premiums and in the various mechanisms of workers’ compensation. It is common for tax planning, based on legislation (or a possible interpretation of legislation), to be treated as fraud with a fine of 150%!

In other words, the problem is that the rule states that any disagreement between the taxpayer and a Revenue auditor generates a 75% fine and a notice of infraction or a 150% fine when the tax authorities interpret the tax planning as fraud. The natural thing is that there is some instance prior to Carf of resolving interpretive divergences. Clear cases of fraud and complex tax planning issues should go to CARF with a view to forming jurisprudence.

It can be argued that there would be no problems, as CARF is an administrative sphere and there is always recourse to the Judiciary. But, if the tie at Carf means a victory for the Revenue in the administrative sphere, as re-established the MP that expired last week, access to the Judiciary becomes particularly costly for the company: a bank guarantee or a deposit is required.

The structural solution of the problem involves two steps. First, we need to make a lot of progress in the simplification agenda so that we become a country that is a little more normal in terms of taxation and, therefore, in which compliance with the rule does not have an infinity of gray areas. Minister Haddad has been committed to approving the tax reform of indirect taxes. The column hopes for the success of the minister. It is a state agenda.

Second, that Carf has independence from the Revenue. He who judges should not be the one who audits. The CARF should be a State body with civil servants who have been selected for the function of administratively judging tax compliance with a similar status, for example, to that of the Central Bank.

Until then, it seems that the best way out is for the casting vote to return to CARF, but with the rule that, if there is a tie, the taxpayer will be able to access the judicial sphere without the need for a bank guarantee or a judicial deposit and payment of a fine. .

It would also help a lot for the Treasury to publicize its interpretation of the limits of tax planning. Then, yes, the company could, at its own risk, have another understanding and go to the Judiciary. In that case, a fine and other encumbrances would apply.

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