Brazilian Tax Amnesty Program Temporarily Mitigates Unfavorable Change To Tax Proceedings

• Law Firm: Jones Day
• Subject Matter: Tax, Tax Authorities
• Author: Mr Sanjiv Kapur and Isabel Junqueira
• Published date: 16 March 2023

In Short

The Background: Most Brazilian companies face tax underpayment assessments in light of a complicated tax regime. The Lula government is planning to significantly expand government expenditures and thus needs to quickly find new revenue sources.

The Result: Brazil is changing the administrative tax procedure so that tie votes at the panel deciding appeals no longer redound in favor of the taxpayer. At the same time, Brazil has offered taxpayers with pending administrative procedures challenging tax underpayment amounts a tax amnesty providing a discount of up to 100% of the interest and penalties, which usually represent the vast majority of the tax debt.

Looking Ahead: Companies with pending tax administrative procedures should consider applying for the amnesty by the March 31, 2023, deadline. They should also note that the costs associated with tax proceedings will increase, given that a successful result at the administrative level has become more difficult.

Tax liabilities, along with labor contingencies, are often the bane of those doing business in Brazil. Recent changes in the tax administrative dispute process, along with a tax amnesty promulgated by the new administration of President Lula da Silva that expires at the end of March 2023, have added a new calculus of how to deal with tax liabilities. The tax amnesty program allows for the forgiveness of interest and penalties on tax debts being challenged through the administrative tax process. Such penalties and interest usually far surpass the original amount of alleged underpayment.

MP 1160 and Alteration of Decision-Making by CARF

When the Brazilian Receita Federal ("RF") or tax authority issues a tax assessment, taxpayers usually choose to challenge it at the administrative level as opposed to starting a judicial proceeding that usually requires posting of a guarantee of the tax debt. Victory for the RF at the first stage of the administrative proceeding is considered by most Brazilian tax practitioners as preordained since a body of the RF itself makes the decision. Any decision in favor of the RF can then be appealed to the Conselho Administrativo de Recursos Fiscais ("CARF"), where only half the deciding panel is appointed by the RF and the rest is appointed by representatives of taxpayers. Until the recent issuance of Medida Provisória 1160 of 2023, any tie within CARF redounded in favor of the taxpayer pursuant to Law 13,988 of 2020. MP 1160 changes the presumption to favor the...