Tax transaction in Brazil, US, UK and Italy – 06/14/2023 – What tax is this

The tax transaction has become an increasingly relevant institute in the relationship between the tax authorities and taxpayers, given its characteristics of speed and effectiveness in solving tax debt, avoiding the extension of processes —something ingrained in Brazilian culture— and reducing machine costs public in the collection of the tax credit.

In Brazil, the tax transaction was recently regulated and the law brought important innovations to the tax system. Despite being young here, similar institutes are used with great success in other countries, such as the United States, which inspired our model, as well as the United Kingdom and Italy.

In this context, it is always healthy to take a “peek at the neighbors’ grass” so that it is possible to learn from the differences, making use of the comparative exercise, in order to contribute to its improvement, but above all, in an attempt to promote a culture of greater dialogue and negotiation between the Tax Authorities and taxpayers.

It is important to point out that Brazilian legislation provides for three modalities of alternative solution for tax disputes: the procedural legal transaction, the individual transaction and the transaction by adhesion.

The tax transaction in Brazil presents itself as an alternative to administrative or judicial proceedings and allows taxpayers to settle their debts, avoiding the consequences of collection in overdue debt.

In these countries —United States, United Kingdom and Italy—, institutes similar to the tax transaction are also used.

In the United States, there is the “offer in compromisse”, regulated by the IRS (Internal Revenue Service), the federal agency responsible for administering and enforcing tax laws. The IRS plays a key role in formulating the “offer in compromisse”.

The “offer in compromisse” is applicable to cases of tax collection or denial of deductions, being carried out by proposals from the taxpayer or the IRS itself.

One of the main characteristics of the US system is the possibility of an agreement with a lower value, but its admissibility depends on the careful analysis of the IRS, which verifies whether the proposal is adequate and whether the debt can be settled in the suggested manner, with broad discretion. for negotiation, which can be done individually or through collective programs.

According to IRS data, in 2020, 54,106 proposals were received, of which 17,712 were accepted. This represents an acceptance rate of around 32.7% of the proposals received. In the same year, the IRS raised approximately $269.9 million from the institute.[1]

In the United Kingdom, on the other hand, HMRC (HM Revenue & Customs) is the tax authority that organizes “time to pay”. This government agency is responsible for administering and enforcing the country’s tax laws, as well as customs control.

The “time to pay” stands out as a renegotiation program managed by HMRC, which allows taxpayers to pay the tax debt in installments.

The process begins with the taxpayer contacting HMRC to request their “time to pay” and detailing their financial situation and the nature of the debt. Upon review by HMRC, there may or may not be recognition of the taxpayer’s eligibility for the arrangement. Taxpayers who are eligible to participate in a “time to pay” will receive a personalized payment plan.

In 2020, HMRC disclosed that it had received around 8,000 tax transaction requests, with a total tax debt amount of around £2.4 billion. HMRC has awarded around 6,000 tax transaction agreements, totaling around £500m in tax debt payments.[2]

Italy also has similar tools known as “accertamento con adesione” and “conciliazione fiscale”, two mechanisms that allow the resolution of disputes with the Agenzia delle Entrate, responsible for the administration and application of the country’s tax laws, as well as for the control and supervision of economic activities.

In the scenario of negotiations between the tax authorities and Italian taxpayers, the “accertamento con adesione” appears as a completely extrajudicial procedure, the taxpayer receives a notification from the Guardia di Finanzae, if interested, he must accept, without contestation, the correction proposed by the Agenzia delle Enter.[3]

On the other hand, in the “conciliazione fiscale” there is, in fact, a negotiation. In this case, the taxpayer contests the correction proposed by the tax administration and seeks an agreement on the amounts in dispute. During the conciliation procedure, the parties involved negotiate the terms of the agreement which, once reached, the taxpayer starts paying the agreed amount.[4]

The analysis of the different institutes above reveals the diversity of approaches. In each one, the form of conflict resolution was developed based on culture, values ​​and specific needs, but, above all, on the relationship of trust existing between the Tax Authorities and taxpayers. Thus, the greater the trust, the more developed the mechanism.

The comparison leads to the conclusion that there has been evolution, with significant improvements in relation to the Italian model. However, among the Brazilian, American and British models, it is clear that there is still room for improvement. The individual tax transaction, at this point, appears to be the surest bet, as it represents the correct remedy for the pain existing in each of the taxpayers, and should prevail over membership programs that are more generic and may give the false impression that are new incentives for the persistent debtor.

[1] https://www.irs.gov/pub/irs-pdf/p55b.pdf
[2] https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2019-to-2020
[3] https://www.agenziaentrate.gov.it/portale/web/guest/schede/accertamenti/contenzioso-e-strumenti-deflativi/accertamento-con-adesione-cont-strum-defl
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