Tie-breaking vote in Carf increases Union gain – 03/11/2024 – Market

The judgments of Carf (Administrative Council of Tax Appeals) decided through the so-called tie-breaking vote, recreated in 2023, helped to increase the Union’s revenues last year. Still, the instrument was not enough to change taxpayer favoritism in the body’s conclusions.

There were R$278 billion judged in 2023 by Carf. Of this total, 15% (or R$40.9 billion) were decided through a tie-breaking vote and, according to the Ministry of Finance, the Federal Revenue was victorious in the “overwhelming majority” of these cases.

Recreated by the government of Luiz Inácio Lula da Silva (PT) last year amid the search for more federal revenue, the tie-breaking vote is from the president of the session, a representative of the Treasury. Before the recreation, the tie was automatically in favor of the taxpayer.

The tie-breaking vote, which ended during the government of Jair Bolsonaro (PL), was recreated by the current government through an MP (provisional measure). The initiative faced a series of resistance among businesspeople and parliamentarians, who linked the measure to a “fundraising drive” by the current administration, and ended up being approved through a bill after concessions made by Minister Fernando Haddad (Finance).

Even with the return of the instrument, however, people and companies disputing cases with the Union emerged victorious in 61% (or R$169 billion) of the appeals judged by Carf in 2023. The value is lower than in 2022 (78 %), when the mechanism had been extinguished and the ties automatically favored the taxpayer, but it is just below the average of 62% observed in the pre-pandemic years (2018 and 2019).

The president of Carf, Carlos Higino, states that the changes were beneficial and have helped to reduce the number of cases that continue to be discussed in the judicial sphere. This is because the taxpayer who accepts the result of the trial decided by a tie-breaking vote without recourse to the Judiciary has interest and fines deducted.

“The quality vote with benefits [tem o mérito] to try to reduce the litigation, so that the discussion does not go to the Judiciary. In case of decision with vote [de desempate], there is no fine, which can reach up to 220% of the value. And if you pay in 90 days, you also remove the interest,” he said.

Carf is equal, with half of the advisors appointed by taxpayers and the other half by the federal government. The presidents of each class are chosen from among those nominated by the Federal Revenue Service.

For Higino, the time taken to resolve disputes is a central issue to be faced by the body. “The main problem we see is that litigation takes too long,” Higino pointed out.

The law that governs the functioning of the body defines that all appeals must be judged within one year. This happens in the last instance, whose average decision time is 345 days.

The biggest problem is in the instance below, the first in Carf, whose average trial time is 1,269 days (3.4 years).

Higino’s goal is to be able to reduce, by 2026, this average time to what the law says: 365 days. This will be the focus of the effort starting in 2025. This year, the main objective is to reduce the total value at trial when deciding on large cases.

To this end, Carf is developing two new tools in partnership with the state-owned Serpro (Federal Data Processing Service). The first is the creation of a virtual plenary session along the lines of what already happens in the STF (Supreme Federal Court). The idea is to use it from the second semester onwards for minor cases. Processes involving larger figures will continue to be discussed in the traditional plenary.

The second is an artificial intelligence tool to help advisors write their votes. The idea is to create a program that uses language model learning, software similar to Chat GPT. The program will be fed with decisions from Carf and other bodies.

Carf currently has a backlog of 83,900 cases, totaling R$1.2 trillion under discussion. “That’s almost 10% of GDP [Produto Interno Bruto]totally out of the norm”, said Higino.

The number of cases has fallen since 2018, when the year ended with 123 thousand cases, but the same did not happen with the value under discussion — which went from R$638 billion in 2018 to the current value.

Of the total under debate in the council, R$497.8 billion (around 40%) are concentrated in just 177 cases. At the other end, there are 22.2 thousand processes whose values ​​are under discussion are below R$84.7 thousand (together, they total R$563.5 million).

Lawyer Leandro Bettini, partner at MJ Alves Burle and Viana Advogados, says that Carf’s focus in 2024 on higher-value cases should increase the financial volume of pro-Union decisions. “The Ministry of Finance saw Carf as a revenue opportunity and it should not be a body that aims to collect revenue”, he said.

For him, the value of pro-taxpayer decisions greater than others hides a harmful dynamic. “History, academic studies and data show that higher value processes are more complex and tend to have close decisions and ties. With the casting vote, these are almost always pro-Treasury decisions,” he said.

Professor and former Carf advisor, Karem Jureidini, points out that the new legislation, with the forgiveness of fines and interest in the event of a tie, was “extremely balanced”, but she regrets still having a high value decided with the tie-breaking vote —since the decisions have been predominantly pro-Treasury.

“Our picture today is that we remain with many bench votes [empate]but the new standard mitigates these effects. [Com o empate] reasonable doubt is evident. Remove the fine and the taxpayer [também] can defend itself,” he says.