On October 17, 2019, Medida Provisória no. 899/2019 was published regulating tax settlements for the purpose of resolving litigation, in other words, allowing for the possibility of taxpayers and the Federal Government making mutual concessions with a view to extinguishing tax liability. This institution is referred to in art. 171 of Law no. 5.172/66 (National Revenue Code), but has been awaiting a law to regulate it.
The Federal Government, evaluating the timeliness, convenience and the public interest, may enter into one of the types of settlement regulated by the new Provisional Decree. There are two main types, one relating to overdue federal tax liability and the other relating to debts that are the subject of dispute in administrative or judicial tax proceedings. There is also a third type relating to administrative litigation involving small amounts.
The settlement that relates to debts already registered as overdue federal tax liabilities will cover those with few chances of recovery through the traditional means of tax foreclosure. It consists of an adhesion or individual procedure, on the initiative of the National Treasury Attorneys or the taxpayers themselves, and must take the form of a duly signed legal instrument. Discounts may be granted for interest, penalties and other charges, as a general rule at a percentage of up to 50% of the total debt, although this rate may be as much as 70% for individual persons, micro-enterprises and small-sized companies. The period for payment is normally up to 84 months, with the possibility of additional moratoria.
This type of settlement is not available for criminal penalties or those resulting from tax frauds, nor for arrears of FGTS, or for companies taxed under the simplified tax system known as Simples Nacional.
This settlement involves an irreversible and irrevocable confession of the debt and may be rescinded if its terms are not complied with, if fraudulent action is proved with a view to non-payment, or if the corporate entity goes bankrupt or is dissolved. Rescission involves cancellation of the benefits, and the federal tax authority may apply for conversion from reorganization to bankruptcy, or apply directly for bankruptcy, as applicable.
The conditions must be established for this settlement, such as a down payment, the production of guarantees, as well as the format and requirements for the proposals. The criteria for measuring the degree of recoverability of the debts, as well as the necessary observance of the principle of publicity and the withholding of information protected by secrecy, must also be provided for.
As regards the kind of settlement stipulated for debts that are the subject of judicial or administrative tax proceedings, the main object is to reduce the costs of litigation. The discussion involved must be important and full. In this case, the Minister of the Economy, on the basis of statements from the Attorneys of the National Treasury, must publish the proposal for settlement in the official press, stipulating the conditions that must be complied with, the reductions or concessions offered, the deadlines and forms of payment.
Only those taxpayers who on the date of publication of the proposal are awaiting a final decision in the judicial or administrative discussion may adhere to this type of procedure.
Parties interested must manifest their interest in adhering, the request granted implying acceptance of all the conditions stipulated, and furthermore, representing an irrevocable and irreversible confession of the debt in question.
The period for payment may be fixed at up to 84 months and may not include FGTS debts or debts of companies subject to the Simples Nacional tax system.
The settlement will be rescinded if the conditions are not complied with, if it runs contrary to a final court decision delivered prior to its making, if it is shown to be tainted with prevarication or corruption, or if it involves willful misconduct, fraud or simulation.
This kind of settlement must also be regulated by an act of the Minister of the Economy who may inter alia make the settlement conditional upon observance of budgetary rules.
Finally, in relation to the settlement of tax liabilities that are not the subject of litigation, and involve a small amount, these must be governed by rules issued by the Special Secretariat of the Brazilian Federal Revenue in the Ministry of the Economy, which must, directly or by delegation, sign the settlement instrument. This method must be exercised only by adhesion exclusively by electronic means.
In view of the above, it may be concluded that, although the Provisional Decree is in force, all the kinds of settlement referred to still need to be regulated by the appropriate government agencies. Moreover, changes may be made on conversion of the decree into law by the National Congress.
Partner in the Tax Area – São Paulo
patricia.padua@stussinevessp.com.br
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