Originally published in the April 2 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Supreme Court on March 28 took aim at a controversial practice that has sometimes made administrative tax appeals impractical for taxpayers: the requirement that the taxpayer make a cash deposit, or asset pledge, to secure an administrative tax appeal.
Brazil’s Supreme Court on March 28 took aim at a controversial practice that has sometimes made administrative tax appeals impractical for taxpayers: the requirement that the taxpayer make a cash deposit, or asset pledge, to secure an administrative tax appeal.
In separate decisions,1 the Court banned the cash deposit requirement for social security administrative appeals and the 30 percent asset pledge requirement for federal administrative tax appeals.
In the former case, the Court ruled against paragraphs 1 and 2, article 126, of Law 8,213/91, as amended, which required cash deposits of 30 percent of the tax debt to secure a tax appeals. In the latter case, it ruled against article 32 of Law 10,522 of 2002, which requires taxpayers who want to file federal tax appeals before the Taxpayers’ Council (an administrative tax court of appeal within the Ministry of Finance) to present a list of pledgeable fixed assets (real estate, vehicles, and machinery and equipment) equivalent to 30 percent of the amount of the assessment at the time of the appeal. In cases in which 30 percent of the amount assessed exceeds the value of a company’s fixed assets, the list must include all existing fixed assets as shown on the company’s balance sheet. Failure to comply with that requirement prevents the appeal to the Taxpayers’ Council, and the assessment is deemed to be final.
In both cases, the Court ruled that any cash deposit or asset pledge requirement for a taxpayer to secure an administrative appeal is a violation of the taxpayer’s constitutional right to a full and broad defense. Justice Cezar Peluso further added that, in his opinion, any appeals requirement based on a taxpayer’s financial condition is a direct violation of the constitutional right to equality.
The two cases will, however, have different immediate effects on taxpayers. For federal administrative tax appeals, the Supreme Court decision is binding and immediately applicable because it originated from an Unconstitutionality Direct Action.
But because the decision in the social security appeal was delivered in a case filed by a single taxpayer, it applies only to that case, although it now represents an important precedent to other taxpayers that want to fight the cash deposit requirement in court. That means that taxpayers filing social security administrative appeals will have to file for injunctions to avoid the cash deposit, at least until paragraphs 1 and 2, article 126, of Law 8,213/91 are formally revoked.
- FOOTNOTE
1 An extraordinary appeal filed by HTM – Distribuidora de Melaço Ltda (Appeal No. 388,359), and Unconstitutionality Direct Action No. 1976, filed by the National Industry Confederation (Confederação Nacional de Indústria, or CNI), respectively.
- END OF FOOTNOTE
David Roberto R. Soares da Silva