New law expands the possibilities of tax transactions in Brazil

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Last June, Law No. 14.375/2022 was published amending Law No. 13.988/2020 regarding tax transactions, with the expansion of possibilities for the Federal Union and tax debtors to conclude a transaction related to National Treasury debts.

The tax transaction extinguishes the tax debt, according to article 156 of the Brazilian National Tax Code, and through negotiation in which the parties are allowed to discuss conditions within the limits determined by law.

In Brazil, on April 14, 2020, Federal Law No. 13,988, which regulated the tax transaction, allowed the taxpayer to choose to resolve disputes regarding debts with the Attorney General’s Office of the National Treasury with the conclusion of an agreement.

In order to serve the public interest, reduce judicial litigation, increase revenue and achieve basic tax principles such as transparency and publicity, isonomy, ability to pay, morality, reasonable duration of proceedings and efficiency, the tax transaction is a possibility of negotiation between the taxpayer and the Public Administration, which is still in a rather embryonic state.

According to the above-mentioned legislation, there are several transaction possibilities for taxpayers, such as: (i) Transaction in the FGTS Active Debt; (ii) Extraordinary Transaction; (iii) Exceptional Transaction; (iv) Exceptional Transaction for rural and land debts; (v) Individual Transaction, among other modalities that are still in effect under Brazilian law.

As a positive financial impact of the tax Transaction in 2021, BRL 6.4 billion was recovered as a result of signed agreements and, for this reason, the deadline for adhesion to the agreement modalities are being repeatedly extended.

In accordance with the changes introduced by Federal Law No. 14,375, negotiations with the Federal Union may result in a reduction of up to 65% of the total value of the debts and its payment within up to 120 months, applicable to registered debts in Federal Active Debt, debts under the responsibility of the Attorney General’s Office or in tax administrative litigation.

The transaction may also include the granting of discounts on fines, interest and legal charges related to debts to be negotiated that are classified as irrecoverable or difficult to recover, according to requirements established by the competent authority.

In addition, the use of both tax loss and negative CSLL tax base credits may be authorized in the negotiation, up to the limit of 70% of the balance after the incidence of discounts, as well as the use of Certificate of Judgment Tax Credit or credit right authorized in a final and unappealable judgment, for payment of the main tax debt, fine and interest.

The new law also provides that discounts settled in the event of a transaction will not be taxed by the IRPJ, CSLL, PIS and COFINS.

Finally, it should be noted that the tax transaction is not limited to federal application and some states and municipalities are already publishing legislation on the subject. In the Municipality of Rio de Janeiro, for example, by Law nº 7.000/2021, regulated by Decree nº 50.032/2021, the tax transaction is already a reality.