Originally published in the July 6 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Supreme Court on June 25 ruled that the expired 0.38 percent banking transactions tax (CPMF) was due in the first three months of 2004 after the tax was extended by Constitutional Amendment 42/2003. The decision resolves the issue of whether the CPMF extension should be subject to a constitutional rule requiring a tax law to be in place for at least 90 days before it can affect taxpayers.
By majority vote, the Court accepted the government’s arguments (Extraordinary Appeal 566032) and reversed a decision in favor of the taxpayer (Cortume Krumenauer S/A) delivered by the Regional Federal Court of Appeals for the Fourth Region. 1
The regional court had ruled that because Constitutional Amendment 42/2003 was published in the official gazette on December 31, 2003, no CPMF could be levied until the 90-day period has elapsed (in accordance with article 195, paragraph 6 of the Federal Constitution). The court also argued that the amendment did not extend CPMF but rather, increased it, because the law effective before the amendment called for a CPMF rate of 0.08 percent as of January 1, 2004. Constitutional Amendment 42/2003 allowed the government to keep CPMF at the same rate that existed until December 31, 2003 — 0.38 percent on any bank transaction. The court ruled that because of this rate increase, the 90-day rule should be observed and no CPMF could be levied until that period elapsed.
In its appeal to the Supreme Court, the government argued that there was no rate increase but only an extension of a tax rate that existed in 2003, and for that reason, the 90-day period requirement should not apply.
On reviewing the case, the Supreme Court, led by Justice Gilmar Mendes, sided with the government and accepted that no rate increase took place. Among the arguments, the Court held that taxpayers continued to pay CPMF in 2004 at the same rate they had paid it in 2002 and 2003, which proved there was no rate increase. Constitutional Amendment 42/2003 just retained for 2004 the same CPMF tax rate that existed on December 31, 2003. Therefore, the 90-day rule should not apply.
Justices Cármen Lúcia, Ricardo Lewandowski, Eros Grau, Joaquim Barbosa, Cezar Peluso, and Ellen Gracie voted with Justice Mendes and ruled in favor of the government. Three justices, Carlos Ayres Britto, Marco Aurélio, and Celso de Mello, dissented by arguing that the CPMF was in fact increased, because on December 31, 2003, taxpayers expected that they would pay less CPMF (at 0.08 percent) as of January 1, 2004.
The Supreme Court’s decision gives valuable insight into the Court’s view on the extension of taxes vis-à-vis the constitutional rule requiring a 90-day suspension period. As a result of this ruling, the government might be tempted in the future to extend taxes on the final days of the year without having to comply with the 90-day rule.
Regarding the constitutionality of the CPMF extension itself, the decision has minimal impact because few companies had decisions or injunctions that freed them from CPMF during that short period of time. Also, the amounts involved should not be significant to most taxpayers. For example, to owe BRL 1 million of CPMF during that three-month period, a taxpayer must have had BRL 263.15 million in CPMF taxable transactions (debits) in its bank accounts.
FOOTNOTE
1 The Regional Federal Court of Appeals for the Fourth Region has jurisdiction over federal appeals filed in the southern states of Rio Grandedo Sul, Santa Catarina, and Paraná.
END OF FOOTNOTE
David Roberto R. Soares da Silva