Originally published in the June 30 edition of World Tax Daily (Copyrights Tax Analysts)
Stockholders and officers of Brazilian limited liability companies are benefiting from the recent revocation of a 15-year-old rule that made them jointly liable for unpaid social security debts of companies they owned or managed. From now on, the government will have to prove that they have exceeded their granted powers or are in violation of the law or the company’s bylaws or articles.
Article 79, item VII of Law 11,941/2009, published in Brazil’s official gazette on May 28, revoked article 13 of Law 8,620/1993, which automatically included company owners and managers as jointly liable for unpaid social security debts. In practical terms, the rule enabled the government to seize owners’ and managers’ personal assets to expedite the collection of unpaid social security taxes.
The provision was highly controversial, and in many cases Brazilian courts rejected the automatic joint tax liability and required the social security section of the Federal Revenue Department to prove that stockholders and/or managers acted in violation of the law or the company’s bylaws or articles of association.
In one leading case 1 that ended in taxpayers’ favor, the first section of the Superior Court of Justice (STJ) in 2004 unanimously voted to limit the joint responsibility of a former stockholder for the unpaid social security debts of the stockholder’s company.
In any type of commercial company, it is the company’s assets that must be used to satisfy the company’s debts. Officers are not liable for obligations assumed in the name of the company, but are jointly and fully liable for acts committed in excess of their granted powers or in violation of the company’s articles or bylaws under article 158, items I and II of Law 6,404/76 (the Corporations Law).
With the revocation of article 13 of Law 8,620/1993, the Federal Revenue Department, in charge of social security tax collection since 2007, now will have to follow the joint liability rule (article 135, item III) established in the National Tax Code.
Under article 135, item III, a company’s stockholders, officers, managers, or representatives are responsible for tax liabilities resulting from acts committed in excess of their granted powers or in violation of the law or the company’s bylaws or articles. The burden of proof lies with the government, and a mere allegation of violation of the law or the company’s bylaws or articles is not sufficient.
In ongoing cases in which stockholders and managers have already been held personally liable for their companies’ unpaid social security debts, the revocation adds a new argument (along with the STJ precedent) against the revoked rule, though they still will have to fight it throughout the remainder of their cases.
FOOTNOTE
1 Special Appeal 260107, published in the April 19, 2004, edition of the judiciary official gazette.
David Roberto R. Soares da Silva