Brazil Gives Tax Directives Binding Effect


Brazil Gives Tax Directives Binding Effect


Originally published in the July 20 edition of World Tax Daily (Copyrights Tax Analysts)

Finance Ministry Ordinance 843/2010, which makes binding some tax directives issued by Brazil’s federal administrative tax court of appeals (CARF), was published in the official gazette on July 14.1 The most important directives that were given binding force are summarized below.

  • Directive No. 17

No penalty is applicable in a tax assessment issued during the course of the five-year statute of limitations period for an injunction to suspend tax collection under items IV or V of article 151 of the National Tax Code.

Items IV and V provide for the suspension of collection procedures by means of an injunction granted in a writ of mandamus (Item IV) or in other types of lawsuits (Item V). Because only a formal tax assessment can interrupt the five-year statute of limitations, the tax administration may issue an assessment during the injunction period to determine the amount of tax due.

Directive No. 17 clarifies that no penalty can be imposed in such a tax assessment, because while the injunction is valid and in force, a taxpayer’s situation cannot be construed as a violation of the tax laws.

  • Directive No. 21

A notice of assessment that does not identify the issuing authority (agent) is null and void.

This directive is a result of new technology that enables the tax administration to issue notices of assessment directly from its computers, without the personal involvement of a tax agent. However, even if a tax agent does not sign the notice, Directive No. 21 requires full identification of the tax agent in charge of the assessment; otherwise the tax notice is invalid and cannot interrupt the statute of limitations.

  • Directive No. 25

The presumption of unreported revenue or income does not, in itself, authorize the imposition of an aggravated assessed penalty; evidence of any of the situations described in articles 71-73 of Law 4502/1964 is mandatory.

An aggravated assessed penalty of 150 percent applies in cases of tax evasion (article 71), fraud (article 72), or collusion (article 73).

The Federal Revenue Department (FRD) is supposed to clearly prove the occurrence of tax evasion, tax fraud, or collusion for an aggravated penalty to apply, but that has not been the FRD’s practice. It has often imposed an aggravated penalty based solely on allegations of tax evasion, tax fraud, or collusion, particularly in cases involving a presumption of unreported income.

The directive clarifies that even if there is a presumption of unreported income, the FRD must prove tax evasion, tax fraud, or collusion to impose the 150 percent penalty.

  • Directive No. 28

CARF has no jurisdiction to review matters arising from a fiscal representation for criminal purposes (a notice prepared and submitted by a tax agent to a public attorney (federal or state), reporting a taxpayer action or omission that in theory might be characterized as a tax crime).

Directive No. 28 confirms that CARF’s jurisdiction is limited solely to civil tax matters. However, the public attorney may start a criminal investigation or prosecution based on the fiscal representation after the civil tax case ends.

  • Directive No. 29

All coholders of a bank account must be instructed to prove the origin of funds deposited therein before a tax assessment can be issued for unreported revenue or income; otherwise the assessment may be invalidated.

  • Directive No. 34

An aggravated assessed penalty is valid in tax assessments for unreported income based on the unknown origin of cash deposits if it has been proved that the taxpayer’s resources have been moved through the use of bank accounts of intermediate persons.

  • Directive No. 35

Article 11, paragraph 3 of Law 9311/1996 (as amended by Law 10174/2001), which authorizes the use of information relating to the expired bank transaction tax (CPMF) for the assessment of other taxes, applies retroactively.

Directive No. 35 was originally issued by CARF as Directive No. 8 with no binding effect. It is controversial because it allows the FRD to use CPMF information even as it relates to a period when the use of such information was not yet legally permitted. The CPMF was in place from 1996 through 2007, but the legislation (Law 10,174/2001) allowing the FRD to use CPMF information to assess taxpayers for unreported income was not passed until 2001.

  • Directive No. 39

Compensation received by technicians resident in Brazil who are serving the United Nations or its special agencies under a contract is not exempt from personal income tax.

FOOTNOTE

1 It is important to note that the tax directives are binding only on the tax administration, meaning that the Federal Revenue Department’s field tax agents and judgment section are required to follow the directives when auditing taxpayers or reviewing tax assessments, as the case may be.

END OF FOOTNOTE

David Roberto R. Soares da Silva