Originally published in the September 4 edition of World Tax Daily (Copyrights Tax Analysts)
Two weeks after the Supreme Court ruled that the extra federal excise tax (IPI) credit for exports, which exporters have claimed for almost 20 years, expired in 1990, Brazilian President Luiz Inácio Lula da Silva has vetoed provisions that would have given exporters some relief in the wake of the expired credit.
During the legislative process of Provisional Measure 460, which introduced a series of construction tax breaks, Congress included provisions that would allow the government to negotiate debts related to extra IPI credits.
The provisions called for the recognition of all extra IPI credits until December 31, 2002, provided that exporters had an administrative or judicial claim to them. Debts related to extra IPI credits for periods after December 31, 2002, could be paid in up to 180 monthly installments according to the special tax payment schedule created by Law 11,941/2009. These provisions were included before the Supreme Court’s ruling that the extra IPI credits expired in 1990.
Upon signing the conversion of the provisional measure into Law 12,024, which was published August 28 in Brazil’s official gazette, President Lula da Silva vetoed all provisions related to the extra IPI credit after hearing arguments from the Ministry of Finance. The MOF argued that the recognition of the extra IPI credits violated:
- the Fiscal Responsibility Act, which requires that to grant any tax benefit, the fiscal impact of the measure and the corresponding source of revenues that will fund such a benefit must be shown;
- the National Tax Code, which provides that any tax negotiation must include mutual concessions from all parties involved — in this case, only taxpayers would benefit from the extension of an expired tax benefit;
- the constitutional principle of equality because it benefits only exporters that claimed the extra IPI credit administratively or before a court of law; and
- the Supreme Court decision ruling that extra IPI credits expired in 1990.
However, a few days after the veto, the government began considering granting significant discounts to aid exporters in paying their unpaid extra IPI credits liabilities. In a meeting held on September 1 between Finance Minister Guido Mantega and allied parties in Congress, the government came up with a proposal that would grant discounts of 90 percent for interest and 80 percent for delay penalties if exporters paid their extra credits debts in up to six monthly installments.
The new discounts should be included in the text of Provisional Measure 462, which is already under congressional review in order to expedite implementation.
David Roberto R. Soares da Silva