Originally published in the August 11 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Supreme Court on August 5 confirmed its prior positions on the constitutionality of the rate increase and tax base expansion of the Contribution for the Financing of Social Security (COFINS).
The ruling extinguished taxpayers’ last hope to have the COFINS rate increase from 2 percent to 3 percent declared unconstitutional. Both the rate increase and the tax base expansion were made in 1999 by Law 9,718/1999.
The expansion of the COFINS tax base, which the Supreme Court initially found unconstitutional in November 2005, has been routinely confirmed by the Court in several recent decisions.1 The Supreme Court had found the COFINS rate increase constitutional in 2005, but taxpayers persisted in trying to reverse the unfavorable decision.
An opportunity arose when the Court accepted for review Extraordinary Appeal 527,602, filed by publishing company Plural Editora e Gráfica Ltda in January 2007. Taxpayers had hoped — because of changes in the Supreme Court’s composition since 2005 — that the Court would reverse its position on the COFINS rate increase. The main argument in the appeal was that COFINS, and its original 2 percent rate, was created by Complementary Law 70/91 and only another complementary law could increase its rate. Because Law 9,718/1999 was formally an ordinary law, it could not increase the rate to 3 percent.
Justice Eros Grau, who was designated to deliver the Court’s position, entered his opinion in favor of the taxpayer, accepting the unconstitutionality of the COFINS rate increase. However, the other justices present ruled that Law 9,718/1999 did not violate the Federal Constitution and that the rate increase was constitutional.
The decision seems to settle once and for all the constitutionality issue of the COFINS rate increase. The decision’s practical implications may be minimal, however; because the Court ruled the tax base expansion unconstitutional in 2005, many taxpayers have given up challenging the rate increase to pursue other issues.
FOOTNOTE
1 Extraordinary appeals 357,950; 390,840; 358,273; and 346,084.
END OF FOOTNOTE
David Roberto R. Soares da Silva