Originally published in the June 17 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Less than one year after Brazil’s Superior Court of Justice ruled that the 10-year statute of limitations for unpaid social security taxes was unconstitutional, Brazil’s Supreme Court on June 11 reached the same conclusion in a binding decision.
The 10-year statute of limitations was provided by article 45 of Law 8,212/91; the Court found article 45 and article 46 of the same law unconstitutional.
The decision (Extraordinary Appeals Nos. 556664, 559882, 559943, and 560626) is important not only because it is the first time that the Supreme Court, the guardian of the federal constitution, has ruled on the subject, but also because the Court’s decision becomes binding precedent for the lower courts.
As a result of the decision, the Supreme Court issued Binding Rule (Súmula Vinculante) No. 8, which states: “The sole paragraph of article 5 of Decree-law 1569/77 and articles 45 and 46 of Law No. 8,212/91, which deal with statutes of limitations of tax debts, are unconstitutional.”
Taxpayers litigating social security taxes at both administrative and judicial levels, to the extent the cases include challenges to articles 45 and 46 of Law No. 8,212/91, will benefit almost immediately from the Supreme Court’s decision. However, taxpayers that have already paid social security taxes after the five-year statute of limitations had elapsed are not entitled to a tax refund unless they have already filed a lawsuit or refund request.
The basic difference between the provisions of articles 45 and 46 is that article 45 deals with the term for assessment of unpaid social security taxes, while article 46 deals with the term for the government to file a collection action (for example, tax execution) before a court of law for social security taxes already assessed.
The Court used the same rationale to find both articles unconstitutional. Under the federal constitution, social security taxes, like other ordinary taxes, require a complementary law to provide general taxation rules, including those regulating the applicable statute of limitations. Because Law 8,212/91 was an ordinary law, it would violate the constitution. As a result, social security taxes should follow the five-year statute of limitations provided by the National Tax Code, deemed as a complementary law.
This is one of the most important tax rulings issued by the Supreme Court in recent years. Since 1991, when Law No. 8,212/91 was enacted, taxpayers have fought to reduce social security’s 10-year statute of limitations to five years.
However, the period, and number of taxpayers, affected by the ruling is somewhat limited. Fearing it would have to refund billions in taxes paid after the new five-year statute of limitations, the Federal Revenue Attorney General’s Office (PGFN) filed a motion with the Supreme Court for the decision not to be retroactive.
On June 12 the Supreme Court justices accepted the motion in part. By majority vote, the Court ruled that the PGFN cannot benefit from the 10-year statute of limitations for debts already in collection procedures, whether or not before a court of law. In that sense, the Supreme Court’s decision is retroactive. However, the Court accepted the motion concerning social security taxes already paid by taxpayers. In other words, taxpayers that have paid social security taxes after the five-year statute of limitations had elapsed are not entitled to a tax refund unless they have filed a lawsuit or request for refund (with the Federal Revenue Department) in that regard by June 11.
According to the PGFN, the Supreme Court’s decision will cancel BRL 21 billion in social security tax debts still under administrative litigation, BRL 20 billion under ongoing payment schedules, and BRL 42 billion in court collections. This is one of the government’s greatest tax defeats in recent years, particularly because of the immediate effects of the binding rule.
David Roberto R. Soares da Silva