Originally published in the April 4 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
São Paulo taxpayers with pending ICMS (state VAT) debts now may have another reason to fear state revenue attorneys in charge of ICMS collections: the possibility of having their trademarks mandatorily “pledged” to guarantee tax payment.
Pledges of assets to guarantee tax payments are not limited to ICMS debts. Under Brazil’s Tax Execution Act (Law 6,830/1980), taxpayer’s disputing an enforced tax collection are required to offer assets — or have them pledged — to guarantee payment of the tax debt. If the Revenue Department prevails, the pledged assets may be sold in a court auction.
Historically, the preferred assets for pledges in tax collections were real estate and motor vehicles, presumably because of the broad market for such goods. More recently, an electronic system connecting the state and federal courts with Brazil’s Central Bank has enabled authorities to access taxpayers’ bank accounts and freeze the amounts in dispute (solely to guarantee tax payment, and not to pay the tax debt, per se). However, many taxpayers — citing hardships in their daily operations — have succeeded in getting their frozen funds released.
Based on a recent change to article 655 of the Code of Civil Procedure that allows for pledges of “other rights,” the São Paulo Revenue Attorney’s Office is now taking a new approach to asset pledging. If the taxpayer owns a well-known trademark, the Revenue Attorney’s Office is requesting a pledge of that trademark (or trademarks, if there are others) to secure ICMS payment by the taxpayer.
The Revenue Attorney’s Office says it will use pledges of trademarks — along with the freezing of bank accounts — as a last resort against taxpayers that continually owe and do not pay state taxes. In São Paulo, those taxpayers cause significant work for the Revenue Attorney’s Office, accounting for 50 percent of all enforced tax collections filed in the state and for unpaid state taxes totaling BRL 5 billion (approximately US $2.43 billion).
In a recent case (in which the taxpayer’s name has not been disclosed), the state Revenue Attorney’s Office pledged the trademark of a well-known jewelry store. The taxpayer, however, challenged the pledge before an appeals court and freed the trademark because the amount at stake (BRL 5,000) did not justify such an extreme measure.
Although the trademark pledge has been used only at the state level so far, nothing prevents federal revenue attorneys from requesting trademark pledges. The Code of Civil Procedure is a federal law applicable not only to state litigation but to federal litigation as well. Taxpayers with significant tax debts under a collection procedure who attempt to hide their assets or funds to avoid pledges now must be concerned about their valuable trademarks, as they may become an important instrument to enforce payments of unpaid taxes.
David Roberto R. Soares da Silva