On October 16th, the Provisional Measure No. 899/2019 was published, regulating tax settlements provided by article No. 171 of the Brazilian Tax Code, which may be entered into by the Federal Union whenever it understands that this mechanism fulfills public interest.
According to this Provisional Measure, tax settlements may cover: (i) tax credits under the responsibility of the Federal Revenue Service not being disputed in court; (ii) tax credits under collection by the National Treasury Attorney’s Office (PGFN); (iii) credits held by federal agencies and foundations; and (iv) tax credits collected by the Federal Union General Attorney’s Office.
Three categories of tax settlements have been established, which are: (a) tax settlements of credits enrolled as active credits (“dívida ativa”); (b) tax settlements on litigation involving relevant and widespread legal controversy; and (c) tax settlements on administrative litigation of low amounts.
For adhesion to categories (a) and (b), taxpayers cannot cumulate reductions obtained in tax settlements with others provided by law.
Public agents who participate on the negotiation of a tax settlement, judicial or extrajudicial, may be held liable, civilly, administratively or criminally, when they act with intent or fraud to obtain any undue advantage in their benefit or of third parties.
I. Tax settlements of credits enrolled as active credits (dívida ativa)
The Provisional Measure No. 899/2019 establishes that the National Treasury Attorney, the Federal General Attorney, Federal Union General Attorney and also taxpayers can propose tax settlements providing discounts on tax credits classified as non-recoverable or of difficult collection by the tax authorities, provided that there are no indicative of fraudulent asset eviction or that credits are not related to SIMPLES Nacional or to FGTS.
In this category, parties can argue to measures related to (i) payment terms, which should be limited to 84 monthly installments; (ii) discounts up to 50% of the total credits to be settled, to the extent that they do not relate to principal, qualified penalties or tax fraud; and (iii) offering, substitution or sales of guarantees or constraints.
In cases of individuals, micro or small companies, discounts may reach up to 70% of the total credits which may be paid in be up to 100 monthly installments.
The proposal of tax settlements do not suspend collection of credits and tax enforcement actions, which may be possible only under a judicial convention between the parties, specifically entered into for this purpose.
I.A. Minimum commitments of taxpayers
Taxpayers are require to agree to the following minimum commitments:
(i) not to use tax settlements in an abusive way, aiming to limit, falsify or harm in any form free competition or free initiative;
(ii) not to use individuals or companies to conceal or disguise the origin or the destination of assets, rights or values, their real interests or the identity of the beneficiaries, harming the National Treasury;
(iii) not to sell or encumber assets or rights without communication of competent tax authorities, when required by law; and
(iv) to waive any, current or future, legal arguments that ground judicial actions, individual or collective, related to the credits, by means of a request to terminate of the proceedings.
I.B. Acceptance of the tax settlements and its effects
The acceptance of tax settlement proposals occurs with the signature of the General Attorney of PGFN or another agent designated by him, when proposed by taxpayer, or by the latter when proposed by one of the mentioned authorities.
After acceptance, tax settlements constitute an irrevocable and irreversible confession of tax credits and, if it involves payments in installments, credits will have their collectability suspended. Credits are extinguished after full compliance of the settlement.
Acceptance of tax settlements proposals does not represent novation of tax credits.
I.C. Termination of tax settlements and the possibility of the Tax Authorities requesting liquidation
The termination of tax settlements may occur on the following cases: (i) non-compliance of the conditions, clauses or commitments assumed by taxpayers; (ii) notice by tax authorities of any act tending to defraud the execution of tax settlement, even if performed prior to signing; (iii) a bankruptcy liquidation decree or liquidation of the company; or (iv) the occurrence of any other termination cases additionally provided for in the respective tax settlement term.
Taxpayers must be notified about termination and have the possibility to file an opposition in 30 days. In the same period, taxpayers can address the situation which would lead to termination, with the tax settlement being preserved in all terms.
After the period to file an opposition or after the decision which has denied it, benefits resulting from tax settlement are reversed; collection restarts with deduction of amounts paid; and tax authorities become authorized to file the bankruptcy request of taxpayer.
I.D. Regulation by PGFN’s General Attorney’s Act
Provisional Measure No. 899/2019 provides that the National Treasury Attorney will issue an Act to regulate and govern: procedures applicable to tax settlements; possibilities of conditioning tax settlements to a down payment, presenting of guarantee and maintaining of the existing ones; situations in which tax settlements can only be entered into by adhesion and those in which proposals by taxpayers are denied; form and requirements of tax settlements proposals; documents that may be presented; and criteria for measuring the extent of credit recoverability, parameters for individual tax settlements and granting of discounts.
II. Tax settlements on litigation involving relevant and widespread legal controversy
Provisional Measure No. 899/2019 also provides that the Ministry of Economy can propose tax settlements involving relevant and widespread legal controversy, which must be made public in the official press, by means of a public notice.
The public notice should specify, objectively, the factual and legal hypotheses in which tax settlements may be entered into and inform taxpayers that they can adhere to the extent they meet settlement conditions. Moreover, public notice should define the conditions to be complied with by the parties, as well as the reductions and other concessions, with a maximum extension of 84 months.
Tax settlements cannot be applied to credits related to SIMPLES Nacional, FGTS and to controversies consolidated as completely favorable either to the Federal Government or to taxpayers on repetitive appeals, binding precedents, concentrated control of constitutionality, diffuse control of constitutionality – with suspension of the respective law by Senate or general repercussion.
Taxpayers may adhere to tax settlements if, at the time of publication of the public notice, there are judicial actions, motions to stay tax enforcement actions or administrative appeals pending for judgement, which are related to the object of the tax settlements made available by the Ministry of Economy.
At the request for adhesion, the administrative proceedings related to tax credits included in tax settlements may be suspended. However, the collection of credits in court continues.
The proposal of tax settlements and occasional adhesion by taxpayers cannot be alleged as a legal argument or a success prognosis of the thesis argued by any of the parties.
II.A. Commitments of taxpayers
Provisional Measure No. 899/2019 expressly provides that the refund or offset of taxes paid at sight or on installments before the settlement cannot be recovered as a result of settling.
In the adhesion moment, taxpayers must observe the period for adhesion and occasional limitation of coverage. Moreover, taxpayers must include all proceedings related to the object of tax settlements that exist at the day of adhesion request, even though they may not be final yet and meet the following commitments:
(i) to waive any, current or future, legal arguments that ground judicial actions, individual or collective, related to the credits, by means of a request to terminate of the proceedings;
(ii) to request the judicial homologation of the tax settlement; and
(iii) to waive any oppositions or other administrative appeals in which it discusses the credits included in tax settlements and waive any allegation related to such credits.
II.B. Approval of adhesion
The approval of the adhesion request implies full and irreversible acceptance of all conditions provided by the Provisional Measure and its regulations, and constitutes an irrevocable and irreversible confession of tax credits.
After approval, the tax settlement is formalized by electronic means, with signature of the Special Secretary of the Federal Revenue Service.
The adhesion may be denied if it does not result in the extinction of the administrative or judicial litigation, apart from cases in which the object of a given action may be split.
The Provisional Measure No. 899/2019 provides the possibility of tax settlement termination in case of (i) contradiction of a final court decision issued before signing of the tax settlement; (ii) prevarication, concussion or passive corruption in its formation; (iii) willful misconduct, fraud, simulation, essential error regarding the person or the object of the conflict; or (iv) non-compliance with any provisions of Provisional Measure No. 899/2019 or the public notice.
Termination implies removal of benefits granted and the restart of credits collection, with deduction of amounts already paid, as well as other consequences to be provided in public notice.
II.D. Regulation by the Ministry of Economy’s Act
Provisional Measure No. 899/2019 provides that the Ministry of Economy may issue an Act regulating the procedures to adhere to a tax settlement and other regulation needed to their application. In addition, this Act can condition tax settlements to the compliance of public financial legislation.
Moreover, the Provisional Measure No. 899/2019 provides that tax settlements involving higher amounts than those fixed by the Ministry of Economy’s Act can be entered into, provided that previous and express ministerial authorization is granted.