Originally published in the August 28 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
The assets of one company cannot be frozen to secure the tax debts of another company, even if both are owned by the same shareholders, according to an August 22 ruling by the 21st Civil Chamber of the Court of Appeals of the state of Rio Grande do Sul, in southern Brazil.
In case no. 70018876060, Agropecuária Piratini appealed to the Court of Appeals after a trial court accepted the state government’s request to freeze the company’s assets to secure the tax debts of sister company Comercial de Alimentos Piratini, which was under an enforced tax collection procedure. Government attorneys had argued that both companies’ management and daily business were interconnected because they both were part of a family business, which should justify the use of one company’s assets to secure the other company’s tax debts.
Agropecuária Piratini argued that its assets had no connection with Comercial de Alimentos Piratini and could not be pledged as intended by the state government. Justice Marco Aurélio Heinz accepted the company’s arguments, saying the mere fact that two companies have the same owners does not trigger tax successor liability between them. Brazil has no legal provisions allowing for such a tax succession; therefore, the assets of sister companies cannot be frozen to guarantee the tax debts of other sister companies, the court said in a unanimous decision.
Although it is not binding, the decision serves as an important precedent for group companies when the government tries to use one company’s assets to secure the tax debts of an affiliate company. As long as both companies can demonstrate that they have their own assets, no tax successor liability should apply.
David Roberto R. Soares da Silva