Last week, the Brazilian Supreme Court (STF) issued decisions on two relevant tax issues: (i) the effective reduction in percentage of the amounts reimbursed to exporters under the Special Regime for the Reintegration of Tax Values for Exporting Companies (“Reintegra”); and (ii) the limits of the qualified penalty applicable in cases of tax evasion, fraud or collusion.
Below is a brief summary of the outcome of the judgments and an analysis of the impact on taxpayers.
Reintegra – ADIs No. 6,040 and 6,055
Created to reduce the impact of taxes on the final cost of exported products, Reintegra allows the partial recovery of taxes paid during the production chain, but which were not properly compensated. As provided for in Law No. 13,043/2014, this special regime thus allows tax residuals to be returned to exporters.
Prior to the filing of lawsuits, controversy existed over the possibility of the Executive Branch reducing the amount that would returned to exporting companies. In this regard, ADIs No. 6.040 and 6.055 challenged whether this limitation could still occur, once the percentage had been set.
By a majority vote, STF held that Reintegra was not a tax immunity, but an incentive to promote exports and national industrial development (i.e., an economic subsidy). For this reason, according to Reporting Justice Gilmar Mendes, it would be the Executive's prerogative to freely define and reduce the percentage according to the economic situation and the intended effects, as long as the margins provided for in the law (0.1% to 3%) are respected.
The court established that Article 22 of Law No. 13,043/2014—which allows the Federal Executive Branch to set the percentage for the calculation of credits by exporters under REINTEGRA, given its unequivocal nature as a subsidy—is not to be confused with tax immunity, and can be freely reduced. Tax immunity would only apply to the actual export, and would not extend to the production process.
Notably, STF did not mention any restrictions on the effects of its decision, which may eventually be requested by taxpayers.
Limits to Qualified Penalty – RE No. 736.090 (Theme 863)
RE No. 736.090 (Theme 863 of the general repercussion) discussed the qualified penalty applied in cases of tax evasion, fraud or collusion, which is 150% of the tax credit.
Recognizing the unequivocal applicability of the prohibition on confiscation of tax penalties, the STF´s Plenary unanimously decided that the rule of reason and proportionality must be applied when setting qualified penalties. Thus, the qualified penalties must be applied observing the limit of 100% of the tax credit, and the 150% penalty may only be applied when a recurrence has been proven, as provided for in Article 44, paragraph 1-A, of Law No. 9,430/1996, included in Law No. 14,689/2023.
The Ministers pointed out the need to restrict the decision´s effects—having retroactive effects from the date of enactment of Law No. 14.689/2023, and applying to all political entities—until a complementary federal law is enacted to regulate the issue nationwide.
Therefore, the decision will only affect cases where the taxpayer has been assessed above the percentage allowed after the enactment of Law No. 14,689/2023, with the exceptions of (i) administrative or judicial litigation, pending conclusion up to the referred date; and (ii) taxable events that occurred before the aforementioned date, on which has been no payment of a penalty covered by the thesis of general repercussion.
Despite the STF only setting a ceiling for all public entities, the decision highlights the need to observe a minimum parameter in order to avoid encouraging non-compliance with tax legislation. For this reason, the levels currently set by the federative entities—up to the limits of the thesis—will remain unchanged.
Visit us at mayerbrown.com
Mayer Brown is a global services provider comprising associated legal practices that are separate entities, including Mayer Brown LLP (Illinois, USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados (a Brazilian law partnership) and non-legal service providers, which provide consultancy services (collectively, the "Mayer Brown Practices"). The Mayer Brown Practices are established in various jurisdictions and may be a legal person or a partnership. PK Wong & Nair LLC ("PKWN") is the constituent Singapore law practice of our licensed joint law venture in Singapore, Mayer Brown PK Wong & Nair Pte. Ltd. Details of the individual Mayer Brown Practices and PKWN can be found in the Legal Notices section of our website. "Mayer Brown" and the Mayer Brown logo are the trademarks of Mayer Brown.
© Copyright 2024. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.