Carf: What will change and why is it important? – 07/12/2023 – Market

Last week, the Chamber of Deputies approved a bill that changes the rules of the Carf (Administrative Council of Tax Appeals), the last instance for judging tax issues in the federal administration.

The result represented a partial victory for the Minister of Finance, Fernando Haddad. It was necessary to reach a compromise with the deputies to make the proposal advance and it will still pass through the Senate.

Below are some of the main changes:

What is Carf?

Carf works like a Revenue court, which judges tax cases at the administrative level (without involving the Judiciary) —the Union and companies have billionaire disputes around the payment of taxes. It brings together representatives of the Treasury and taxpayers, and companies are nominated by employers.

Carf emerged in 2009 from the merger of three councils. To get an idea, from January to April, 5,000 processes were completed by the council, involving R$ 139 billion.

Who participated in the negotiation?

This was one of the main points of the economic team’s fiscal adjustment package, and the negotiation included minister Fernando Haddad, who spoke with representatives of the private sector, congressmen, the proposal’s rapporteur, Beto Pereira (PSDB-MS) and the president of the Chamber, Arthur Lira (PP-AL).

The progress of the proposal was also important to “unlock” the economic agenda in the Chamber, which includes issues considered fundamental by the government, such as the new fiscal framework and the Tax Reform.

What was at stake?

The government wanted to return to having the so-called quality vote, in which it could define the outcome of a dispute in the event of a tie, but which was extinguished by Congress in 2020. Companies complained that this tool made the government always win.

The Union, in turn, argued that the end of the casting vote generated a loss of revenue of R$ 59 billion, and its return was important to help with the primary result (this is the balance between government expenditures and revenue, without count interest on public debt).

The casting vote was even recreated via MP (provisional measure) sent to Congress in January, right at the beginning of President Lula’s (PT) government, with immediate effect, but which lost its validity.

The government also defended that, if the taxpayer lost the dispute in the tiebreaker, he could appeal to Justice, but if the tiebreaker was in favor of the taxpayer, the tax credit would be extinguished definitively and the Revenue could not fight in Justice.

And who can trigger Carf?

The minimum amount in dispute to appeal to Carf is 60 minimum wages (R$ 79.2 thousand). Haddad was also trying to raise that amount to one thousand minimum wages (R$1.32 million), to reduce the number of lawsuits. The government’s MP, before losing its validity, already did this, but the rapporteur maintained the current rule, of 60 salaries.

“There was an appeal from the productive sector, parliamentary fronts and several confederations, a very big questioning about curtailing the taxpayer’s right”, justified the rapporteur.

Did the government win or lose?

The approval is considered a victory for the government, especially for the Minister of Finance, but the text that passed in the Chamber last week placed conditions for the return of the casting vote.

In the event of a tie, the collection of the principal amount of the debt remains valid, but interest and fines are forgiven if the debt is settled at the administrative level. The Treasury also cannot represent the taxpayer to the Public Prosecutor’s Office for a tax crime.

It was also defined that, within 90 days of the final decision in favor of the Treasury, the taxpayer will be able to pay the debt without accrued late payment interest (delay). This interest is calculated at the Selic rate (basic interest, currently at 13.75% per year), from the moment the credit is due. It’s like putting a premium for him to pay without having to take the case to court.

Is the change good or bad?

Analysts have differed over the changes to Carf.

For Livio Ribeiro, a partner at economic consultancy BRCG and an associate researcher at FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation), this is a gain for the government —albeit not a complete victory.

“It was a short-term revenue strategy. If, on the one hand, this strategy worked, several mitigating factors were placed by the rapporteur. I don’t see it as positive or negative, but these changes can lead us to instability in the rules, which is something very harmful,” he says.

“If the solution follows as approved by the Chamber, it is a compromise, in which government and taxpayers win and lose. Taxpayers lose the previous possibility, of a tiebreaker favorable to them. On the other hand, they win by the casting vote overthrowing all fines and tax representation for criminal purposes”, says tax attorney Breno Vasconcelos, also from FGV and former advisor to Carf.

“The Union won on two points: it has the casting vote again and the chances of recovering amounts owed increase – today, the recoverability of cases that end up in Carf and are taken to the Judiciary is less than 5%.”

Economic consultant and specialist in public accounts Raul Velloso, on the other hand, is not in favor of steps like this, which, in his view, look for ways to resolve the tax issue by collecting more, especially when it comes to disputes in the tax orbit.

“I have said and repeated that the point is to attack the excessive growth of social security spending, something that the Constitution itself commands today. And we have a well-known path to do this without unduly affecting anyone. Why not follow this route?”

In a column published in Sheet In early June, economist Samuel Pessôa assessed that the return to the situation that prevailed before the law that ended the casting vote made incentives unbalanced.

“The structural solution of the problem involves two steps. First, it is necessary that we make a lot of progress in the simplification agenda so that we become a country that is a little more normal in tax matters (…) and second, that CARF has independence from the Revenue. “