Originally published in the January 7 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil has enacted Provisional Measure 472/2009, which increases penalties for illegitimate tax setoffs claimed by taxpayers filing electronically with the Federal Revenue Department, and Normative Instruction 981/2009, which regulates Provisional Measure 472.
Provisional Measure 472 was published in the official gazette on December 16, and Normative Instruction 981 was published on December 21.
Previously, taxpayers were subject to an assessed penalty of 150 percent of the relevant amount when a tax setoff was rejected based on false information. If no falsification was deemed to have occurred, the taxpayer was required to pay the tax due, along with a delay penalty of up to 20 percent and interest.
Because of the relatively low cost of tax penalties in Brazil, many taxpayers in the aftermath of the 2008 global financial crisis have used tax setoffs to gain time to pay their taxes. They claim to have tax credits (which are actually nonexistent) in order to pay their tax liabilities through tax setoffs. When the Federal Revenue Department concludes that the setoff was illegitimate, the taxpayer pays the unpaid taxes along with a delay penalty and interest.
Measure 472 and Instruction 981 change this rule. Rejected tax setoffs will trigger a penalty of 75 percent if the setoffs are deemed illegitimate for any reason or if there were not enough tax credits to cover the tax liability. Also, the taxpayer still will be required to pay any unpaid taxes, along with the delay penalty and interest. Therefore, a taxpayer claiming an illegitimate $1,000 tax setoff will be subject to an assessed penalty of $750, plus payment of the unpaid tax due, a delay penalty of up to 20 percent, and interest. In some cases, the cost of an illegitimate tax setoff may exceed 100 percent of the tax due, depending on accrued interest.
The rule for tax setoffs that are rejected because of false information has not changed: The taxpayer continues to be subject to an assessed penalty of 150 percent, plus the delay penalty and interest on the unpaid amount.
The new rules apply to tax setoffs filed as of December 16, 2009, so taxpayers now must be very careful in filing tax setoff requests to avoid the 75 percent penalty.
David Roberto R. Soares da Silva