Brazilian Tax Review – March/April 2018

Superior Court of Justice Establishes Criteria for Approval of PIS/COFINS Credits on Inputs

The Superior Court of Justice has taken up the decision of Special Appeal #1.221.170/PR, which deals with the definition of inputs for the purposes of Social Integration Program Tax (Programa de Integração Social), or PIS, and Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, credits.

In the decision, which was submitted to the system for repetitive binding appeals, the court solidified the position that using the credits must observe the criteria of the essentiality or relevance of the expense for the taxpayer's activities.

The Superior Court of Justice also approved the following thesis that summarizes the issue: "The definition of input must be determined in light of the criteria of the essentiality or relevance, taking into account the importance of a given item, good or service for the conduct of the taxpayer's economic activity."

Although the appellate decision has not yet been formalized and will need to be analyzed to determine the real scope of the decision, it is nonetheless true that the Superior Court of Justice's position is favorable to taxpayers and could open a path to recovering amounts overpaid in the past and to reducing PIS/COFINS amounts paid monthly by companies.

PGFN Issues Regulations for Freezing Assets without a Court Order

Attorney General's Office for the National Treasury (Procuradoria-Geral da Fazenda Nacional), or PGFN, Ordinance 33/2018 regulates the procedures for freezing debtors' assets without seeking a court order, under Law 13,606/18. With this ordinance, the treasury can record the debt in real and chattel property registries immediately after it has been listed as a past-due debt, even before a tax execution action has been filed.

The constitutionality of this measure has already been challenged before the Federal Supreme Court, under the argument that the so-called "pre-execution recording" violates the principles of due process, adversary proceedings, a broad defense and separation of powers, among others.

OECD/G20 and the European Commission Publish Reports about the Tax Challenges of the Digital Economy

On March 16, 2018, the OECD published an intermediary report about the tax challenges arising under the digital economy, as a continuation to the studies published in BEPS Action 1.

The report discusses how digitalization affects all the areas of tax systems...