Originally published in the January 22 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s National Confederation of Professionals (Confederação Nacional dos Profissionais Liberais, or CNPF) on January 17 filed a direct action of unconstitutionality (ação direta de inconstitucionalidade, or ADIn) challenging Brazil’s new tax return to report taxpayers’ financial transactions.
The action (ADIn 4006) requests an injunction to suspend the effects of Instruction 802/2007 until the Supreme Court decides the case. The new tax return was created by Normative Instruction 802/2007, published in Brazil’s official gazette of December 28, 2007, effective as of January 1, 2008. (For prior coverage, see Doc 2007-28297 [PDF] or 2007 WTD 250-5 .) It requires financial institutions to disclose to the Federal Revenue Department, on a semiannual basis, taxpayers’ financial transactions information that exceeds BRL 5,000 (approximately $2,840) for individuals and BRL 10,000 (approximately $5,680) for companies.
The new return was a response by Brazil’s executive branch to fight tax evasion after Congress rejected the extension of the 0.38 percent bank transactions tax to 2011.
According to ADIn 4006, Normative Instruction 802/2007 violates the federal constitution, particularly taxpayers’ right to privacy, which may be breached only in cases in which the relevant taxpayer is under a formal investigation. It argues that the instruction presumes that all taxpayers with financial transactions in excess of BRL 5,000 (BRL 10,000 for legal entities) are tax evaders, as the Federal Revenue Department will have access to those taxpayers’ financial information regardless of an investigation against a specific taxpayer.
ADIn 4006 also claims that the BRL 5,000 (or BRL 10,000) reporting limit is arbitrary and unreasonable because it does not take into account the taxpayer’s wealth or income.
The Federal Revenue Attorney General’s Office believes that CNPF’s action will not prevail because Complementary Law 105 gives legal grounds to Instruction 802 and grants powers to the executive branch to regulate the way taxpayers’ financial information will be disclosed. If Complementary Law 105 is not challenged by ADIn 4006, the Federal Revenue Attorney General’s Office says, there should be no grounds to challenge an instruction based thereon.
But CNPF’s action may soon have company. The Brazilian Bar Association is expected to decide soon whether it will file an ADIn against Instruction 802.
David Roberto R. Soares da Silva