Government wins in court lower fiscal risks, but major liabilities remain

Compared with 2024, the 2025 figure represents a 2% decline—equivalent to R$53 billion. The reduction is largely the result of victories the federal government has secured in higher courts. The total can also fluctuate due to the reclassification of risks—when cases are downgraded to “remote”—as well as court defeats, which remove items from the government’s risk list. These figures are used by the government to assess how much it can spend or needs to save to achieve fiscal balance.

Victories in tax-related cases at the Supreme Federal Court were the most significant factor behind the reduction recorded in 2025. Contingent liabilities in this area fell by 17.6%, the sharpest drop among all categories. The amount declined from R$649.2 billion in 2024 to R$534.6 billion last year.

One of these cases involved the limit on deductions for education expenses from personal income tax (IRPF). The Supreme Court ruled in favor of the Treasury in March last year, removing it from the list of fiscal risks. The case could have resulted in losses of R$115 billion (ADI 4927).

The performance of the National Treasury Attorney’s Office (PGFN) at the Supreme Court also prevented losses of R$4 billion to public coffers in a case involving the 90-day waiting period before new rules on tax benefits for exporters take effect, under the Special Regime for the Reinstatement of Tax Values for Exporting Companies (Reintegra). Taxpayers argued that a one-year waiting period should apply (Theme 1108).

“Even a 2% figure can mean a great deal,” said Raquel Godoy de Miranda Araujo, deputy attorney general for judicial representation. The PGFN’s victories, however, were offset by the inclusion of other high-impact tax lawsuits, as well as increased fiscal risk in other areas.

Potential losses in lawsuits involving the Central Bank, for example, tripled in 2025, rising from R$5.5 billion to R$16.2 billion. According to the LDO, these cases involve economic stabilization plans, labor claims, government bonds, and the liquidation of financial institutions.

The volume of probable risks against foundations and autonomous agencies, such as the National Social Security Institute (INSS), doubled over the same period, increasing from R$2.5 billion to R$5.2 billion. One case involves a request for contract termination with compensation. Another is a class action discussing the expansion of a judicial settlement related to the so-called “whole life review” thesis, which concerns the recalculation of pension benefits.

According to lawyer and economist João Leme, an analyst at Tendências Consultoria, the risk profile of judicial disputes changed between 2024 and 2025. “The risks that remained and were adjusted upward were the probable ones, which the federal government has a greater chance of losing,” he said. “That, in a way, raises a warning sign.”

This is a warning because such risks may affect public accounts, either by reducing revenue or increasing spending in future primary balances. “They may materialize as lower tax collection, due to changes in the tax base that create ongoing revenue challenges,” he said. “They can also generate compensation liabilities, in which the government must return amounts in the form of credits that companies can use to pay other taxes.” These liabilities may also materialize as court-ordered payments.

At the Supreme Court, the PGFN prevailed in the most relevant cases of 2025—whether listed in the fiscal risks annex or not—according to a survey by Machado Associados. One such case, which still appears in the LDO annex, involved the levy of the federal tax Cide on remittances sent abroad, preventing an annual loss of R$19.6 billion to public coffers. The justices ruled that the tax should apply broadly to all contracts, not only technology transfer agreements (Theme 914).

According to Godoy, this was a particularly important victory, given its implications for promoting domestic investment in science and technology and the amounts at stake—the Treasury had estimated it might have to refund R$60 billion related to the previous five years.

Another relevant ruling, on the setting of a cap on fines, was concluded on December 17. According to the deputy attorney general, the federal government does not impose penalties exceeding this cap, and the carve-out for customs fines was particularly significant.

Also in 2025, the Supreme Court ruling that relaxed the limits of tax-related court decisions became final and unappealable. The Court allowed the revision of decisions that conflict with theses approved at a later stage (Theme 881). Once the ruling became final, the PGFN was able to identify and notify the Federal Revenue Service of companies that could once again be subject to taxation.

The Court also upheld the inclusion of social taxes PIS and Cofins in the calculation base of the Social Security Contribution on Gross Revenue (CPRB). The case is considered a spin-off of the so-called “thesis of the century,” a landmark legal decision in which the Supreme Court ruled that the sales tax ICMS should not be included in the social taxes PIS and Cofins bases, significantly impacting businesses with potential substantial tax refunds, but it ended differently (Theme 69). Expectations of success among companies were low, as a similar ruling on ICMS had already been unfavorable (Theme 1048).

According to João Leme, since the “thesis of the century,” the Supreme Court has taken a closer look at the economic impact of its decisions. “From the ministers’ reasoning, it appears that the Court has become more aware that its pen carries significant weight in the government’s ability to meet fiscal targets and design the budget,” he said.

According to lawyer Renato Silveira, a partner at Machado Associados, most STF rulings favorable to companies in 2025 were partial victories. In other words, the main request was not granted, as in the Reintegra case. “Taxpayers suffered a major defeat with the non-application of the annual waiting period. For the purposes of calculating Reintegra credits, that makes a very large difference,” he said.

A similar outcome occurred in the case involving the ICMS rate differential (Difal), as the 90-day waiting period was applied. At least, it preserved the rights of taxpayers who had already filed lawsuits on the matter. “The key issue is how this applies when the taxpayer has an ongoing administrative or judicial case,” said tax lawyer João Amadeus, a partner at Martorelli Advogados.

There had previously been, he added, “a very unfavorable modulation, and now, due to a dissenting opinion by Justice Flávio Dino, the Supreme Court ruled that if the taxpayer had filed an administrative claim or lawsuit by November 29, 2023, the tax charge would only apply to them starting in January 2023” (Theme 1266).

At the Superior Court of Justice (STJ), outcomes were more balanced, with nearly the same number of victories for the federal government and for taxpayers. A relevant win for companies was the ability to deduct Interest on Equity (JCP) from corporate income tax (IRPJ) and the social contribution on net profit (CSLL) in a year subsequent to the shareholders’ decision authorizing payment (Theme 1319). “There was already favorable case law from both the First and Second Panels, so the First Section’s ruling served to consolidate it,” said Silveira.

For the National Treasury, meanwhile, a key victory at the STJ was the requirement of prior registration with the National Registry of Tourism Service Providers (Cadastur) to qualify for the Emergency Program to Support the Events Sector (Perse), Godoy noted.

*By Marcela Villar and Beatriz Olivon — São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/