The volume is more than triple that of the previous year, when the federal government won lawsuits totaling R$30bn
02/28/2024
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Carlos Higino — Foto: Wenderson Araujo/Valor
Taxpayers lost disputes totaling R$109 billion at the Administrative Council of Tax Appeals (CARF) in 2023, more than triple the volume recorded in the previous year of R$30 billion. It is the highest level since 2019, when the federal government won lawsuits worth R$137.1 billion, according to data obtained exclusively by Valor.
After expanding cases in 2023, the appeals body—Finance Minister Fernando Haddad’s main bet to reach the zero primary deficit target in 2024—wants to judge 50% more this year than planned, with the end of the Federal Revenue Service auditors’ strike and the return of the possibility of a tie-breaking vote in favor of the federal government: the new goal is to analyze R$870 billion in tax credits this year, compared to R$580 billion forecast in the budget.
In the first year of the Lula administration, the CARF judged tax disputes totaling R$278 billion, compared to R$138 billion in the last year of the Bolsonaro administration. The figure rose in 2023 even in the midst of the Federal Revenue Service strike and the uncertainty surrounding the return of the casting vote, which resulted in billion-reais cases being withdrawn from the bulk. Thus, under Mr. Haddad’s watch, decisions favorable to the federal government represented 39% of the total, compared to 22% in 2022.
In one of his first acts as Finance minister, Mr. Haddad appointed a new president for the CARF and, in the first half of his term, sent a bill to Congress for the return of the casting vote (the tie-breaker vote by the president of the CARF panels, who is always a tax auditor). When he sent the federal budget to Congress last year, the return of the casting vote was the most important measure in terms of revenue in the list of projects in search of a zero deficit—the bill was sanctioned at the end of September.
As the CARF analyzes the collection of taxes in the last administrative instance, the amount upheld from a tax assessment does not necessarily enter the federal coffers immediately, as the taxpayer can appeal to the courts. With the CARF trials alone, the federal government expects to raise R$54 billion this year. Historically, 10% of the total amount judged by the agency goes into the federal government’s coffers.
In an interview with Valor, Carlos Higino Ribeiro de Alencar, president of the Revenue Service’s appeals body, explained that, with the new target, the government is likely to collect the R$54 billion it wanted—with the increase in the target, in theory, up to R$87 billion could enter the federal government’s coffers. The intention, he explained, is to continue giving priority to the trial of higher-value cases.
Now, however, there is a new peculiarity: in the case of a loss by a tie-breaking vote, the taxpayer can be free of interest and fines as long as they settle the debt with the Federal Revenue Service within 90 days. At the same time as the amount paid should be lower with the exclusion of charges, the expectation is that more taxpayers will opt for payment.
In addition to the end of the Federal Revenue Service strike, three other factors could help the CARF reach the desired volume of trials: this year, the body will have 24 new board members (204 compared to 180 in 2023), it will hold extra sessions every month and, in June, it intends to launch a virtual plenary session along the lines of the Federal Supreme Court (STF), which will allow virtual trials to be held involving tax credits of up to R$60 million.
“The main problems are over. Now we have to reorganize the house and continue our work,” said Mr. Higino. With all the effort that the agency will make, he commented, there should be no difficulty in meeting the trial targets and, consequently, increasing the federal government’s revenue. “With all the turmoil, we judged everything this last year. That’s why I think we’re going to judge [what was intended] this year with ease.”
For March, for example, the CARF has already called two extra sessions per section. The president explained that there are talks with the Federal Revenue Service union about holding additional trials to compensate for the auditors’ strike. The idea is to convene extra sessions every month until the end of the year.
In the budget proposal, the federal government still plans to receive R$43 billion through tax transactions. The fully functioning CARF, said Mr. Higino, will also help with this goal since the trial schedule can prioritize theses that can be negotiated.
Alexandre Andrade, director of the Independent Fiscal Institution (IFI), believes that the increase in the number of trials could generate positive surprises for the federal government’s revenue. He pondered, however, that these are unpredictable revenues since taxpayers can always turn to the courts.
“With the return of the casting vote, an instrument that had been changed in 2020, the potential revenue for the federal government is relatively high. The only caveat I have is that the CARF represents an administrative instance, and taxpayers who have unfavorable decisions within the scope of this council can appeal to the courts,” he said.
According to Caio Quintella, a former CARF advisor and head of Nader Quintella Consultoria, even though the Finance minister’s statements indicate an effort to increase tax collection in litigation, the CARF remains a technical body with a duty to give reasons for its decisions.
For the tax expert, the increase in rulings against taxpayers is justified by two elements: the reintroduction of the casting vote and the inclusion on the schedule of their biggest cases. “Even though the number of trials was reduced, the economic impact was enormous.”
According to Bianca Rothschild, a lawyer at Mayer Brown, the first 2023 schedule already included billion-reais cases with “tie-breaking” topics, such as goodwill, profits abroad, and the 30% tax rate. The February schedule discussed cases worth R$11 billion, she added, and there were many requests to withdraw cases because of the new tie-breaker rule.
The difference now for the taxpayer, given the tie, is the benefits for making the payment, the lawyer points out. “Perhaps the 2024 approach to the settlement of cases will be a little different, with taxpayers opting to use the benefits of the transaction,” she said.
For Mírian Lavocat, a partner at Lavocat Advogados, “speeding up the internal workings of the court is commendable, but improving internal procedures does not mean ruling in favor of the federal government for the purpose of collection. To rule without the purpose of achieving tax justice is to turn the centenary court into a mere court of referendum on assessments by the Federal Revenue Service, which taxpayers cannot accept.”
*Por Guilherme Pimenta, Beatriz Olivon — Brasília
Source: Valor International