End of the tiebreaker rule increased the Union’s losses in Carf decisions – 02/18/2023 – Market

The drop in the casting vote in CARF (Administrative Council of Tax Appeals) increased the problems in a court that already served as a postponing instance of tax collections, especially from large companies.

Conceived to assess, from an administrative point of view, the regularity of the infraction notices applied by the Federal Revenue inspectors, the CARF became an instrument of maneuver to postpone the collection of taxes for years.

The stock of cases doubled between 2011 and 2015 and skyrocketed from 2020, with the limitation of judgments due to Covid-19, reaching BRL 1.1 trillion at the end of last year. The average time between the release of the notice of infraction and the final judgment in court is almost nine years.

Even when companies lose, the payout rate is low. Between 2015 and 2019, only BRL 4.4 billion was paid after judgment at Carf, while another BRL 153.3 billion was registered in the Active Debt, according to data obtained by the LAI (Access to Information Act).

The companies prefer to continue the dispute in court, where the impasse drags on for a longer time. In this interval, either the debt is annulled, or the Legislature approves a new debt payment in installments that benefits the debtors.

In 2020, the National Congress shortened this route —in favor of taxpayers. The parliamentarians overturned the so-called casting vote, which gave the government the tie-breaking vote in CARF trials.

The change led the Union to lose a greater volume of disputes in CARF, without having the same right to appeal to Justice.

Data gathered by the Ministry of Finance at the request of the Sheet via LAI, in January, show the reversal.

In 2019, 82% of the R$74.1 billion in credits whose judgment was tied were maintained, in a decision favorable to the Treasury. Only 18% fell, benefiting taxpayers (the Revenue representative who has the casting vote can decide in favor of either side).

In 2020, after the casting vote was overturned, 41% of the BRL 39.5 billion in credits judged by this rule were annulled in favor of taxpayers. The proportion rose to 81% in 2021, reaching 98% in 2022. Last year alone, of the BRL 25.4 billion judged by tiebreaker, BRL 24.8 billion were extinct thanks to the new law.

The casting vote only ceased to be valid between 2020 and 2022 for appeals in relation to a notice of infraction, that is, a process requiring tax credit. For other cases, such as compensation, it continued to exist.

The resumption of the casting vote, via a provisional measure, was one of the first actions announced by the Minister of Finance, Fernando Haddad (PT), in an attempt to equate the situation. After a negative reaction from businessmen, the government negotiated an agreement with the OAB (Ordem dos Advogados do Brasil) to avoid a defeat in the vote on the MP by Congress.

Technicians heard privately by the Sheethowever, state that the overthrow of the casting vote only aggravated a situation that was already problematic at CARF —and that is related to the historical structure of the court, with the complex tax structure of the country and with the lack of standards in the inspections of the auditors .

Since 1931, CARF has had a parity composition: half of the directors are appointed by the federal government and the other half by entities that represent taxpayers —mainly business associations.

The design is considered a jabuticaba by the current government and also by technicians in the area, since the court analyzes the administrative collection process. The view is that disagreements on merit should be brought to justice.

Tax auditor Ricardo Fagundes da Silveira, member of the deliberative council of the IJF (Instituto Justiça Fiscal), studied the effectiveness of Carf in his doctoral thesis, in 2019.

In a recent article, he analyzed the functioning of tax disputes in 27 countries based on data from the British publication The Law Review. In 24 of them, all judges are linked to the tax administration, and two allow independent members (but without connection with companies).

Only one country, Norway, provides for the appointment of directors by business associations. The model, however, is quite different from Brazil: the process is analyzed in a single instance, lasts a maximum of two years and requires the prior payment of the tax that is being questioned.

In 2015, CARF gained the spotlight with Operation Zelotes, which investigated a vote-selling scheme to favor large companies in billionaire trials. The investigation provoked profound changes in the organization of the body.

Proceedings began to be distributed by lot, and directors could no longer advocate during the period in which they exercised their mandate.

The reorganization led to a hardening of decisions, and taxpayers began to complain about the setbacks. Government technicians, in turn, attribute to her the pressure that followed to change the casting vote.

Congress made successive attempts to change the mechanism, but was only successful in 2020. Parliamentarians took advantage of the text of an MP (provisional measure) sent the previous year and included the amendment that overturned the casting vote. The law was sanctioned by former President Jair Bolsonaro (PL).

“This comes as part of a broader movement of under-taxation of the super-rich and over-taxation of the poor and the middle class”, criticizes the president of the Sindifisco Nacional (Union of Federal Revenue Tax Auditors), Isac Falcão, who defends changes in the model. According to him, large companies have “disproportionately greater” political strength than other taxpayers.

A change in the command of the court is also pointed out by auditors and different government technicians as a factor that contributed to the expansion of the Union’s losses.

The president has a managerial function and does not usually vote in trials. This changed when Carf was chaired by the tax auditor Carlos Henrique de Oliveira, appointed by the Union in May 2022.

According to reports from auditors and judgments of decisions analyzed by the SheetOliveira participated in judgments in different sections (classes specialized by types of tax), many times to vote in favor of the taxpayer —even eliminating the need for a tiebreaker.

In one of the cases, Oliveira voted for the possibility of a company accounting for tax credits for expenses with freight between distribution centers and the company’s own stores. In practice, the decision exempted the taxpayer from paying part of his taxes.

Two counselors appointed by the Federal Revenue declared a contrary vote, warning that the decision affronted Carf’s previous position and distanced itself from “the unanimous and settled position” of the STJ (Superior Court of Justice).

Oliveira always defended his decision to participate in the trials under the justification of maintaining the uniformity of tax theses. He was also against what he called the ideological vote, understood as maintaining the collection just because he was a representative of the Tax Authorities.

In December 2022, business organizations and lawyers released manifestos in support of Oliveira remaining in charge of Carf. He was eventually fired by Haddad, who appointed Carlos Higino to the role.

wanted by SheetOliveira declined to be interviewed.

In January, the Ministry of Finance released data to refute the thesis that CARF has a pro-Union bias. According to the portfolio, the rate of lawsuits judged favorably to taxpayers has historically been around 40%. In terms of judged value, however, this percentage fluctuates close to 60%.

The work of the Federal Revenue Service, however, is not free from criticism. A wing of the government assesses that the tax authorities exaggerate in the application of penalties. Fines applied by the Revenue range up to 75%, in case of simple non-payment, and up to 150%, in case fraud is identified.

The problem, according to this wing, is that auditors assume that almost every non-payment of tax was criminally planned, to fraud taxation, and apply the two fines cumulatively. Some of these decisions are reversed by Carf himself.

Haddad has already expressed his intention to standardize tax understandings within the Federal Revenue itself, to discipline the performance of auditors. A plan to create a joint repository of tax theses is being prepared by the Treasury for application at the end by inspection, in an attempt to reduce disputes with companies.