Originally published in the December 17, 2009 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Administrative Council of Tax Appeals (Conselho Administrativo de Recursos Fiscais, or CARF), the highest administrative tax court of appeals, on December 8 issued a directive (súmulas) that grants tax authorities retroactive access to information related to the expired 0.38 percent bank transactions tax (CPMF).
The directive is controversial because it allows tax authorities to use CPMF information even as it relates to a period when the use of such information was not yet legally permitted.
Although CPMF was in place from 1996 through 2007, until 2001 there was no legal provision allowing tax authorities to use CPMF information to assess taxpayers for unreported income. Because CPMF was due on any debit in a Brazilian bank account, the amount of CPMF paid by a given taxpayer could indicate unreported income if it was inconsistent with income, capital gains, and earnings reported in the taxpayer’s annual tax return.
Therefore, cross-checking with CPMF information was a strong instrument against tax evasion.
However, between 1996 and 2001 tax authorities were not legally allowed to use CPMF information for tax assessments. Law No. 10,174/2001 amended article 11 of Law 9,311/1996 (the CPMF statute) to allow such use. Complementary Law 105/2001 also allowed administrative breaches of banking secrecy.
Previously, a taxpayer’s confidentiality in banking matters could be breached only with a court order.
The CARF directive confirms that tax authorities may use CPMF information preceding Law No. 10,174/2001 to assess taxpayers. This is an important development because the directive will henceforth be used by the CARF and lower tax courts to sustain tax assessments based on the use of CPMF information before 2001.
Moreover, the chances of reversing the directive in a court of law could be difficult because it is in line with the position taken in 2006 by Brazil’s Superior Court of Justice.
When reviewing a case in which the Federal Revenue Department breached the taxpayer’s banking confidentiality and also used pre-2001 CPMF information to identify inconsistencies in her financial activities, the court ruled that none of the Revenue Department’s actions were unconstitutional.
According to that decision (Special Appeal 668.012-PR), the prohibition of retroactivity applies only to the creation or increase of a tax; it does not apply to the use of new audit instruments made available to the tax administration by a law enacted after the taxable event.
David Roberto R. Soares da Silva