Source: Legal Consultant - São Paulo / SP - LAWS - 11/05/2010

The tax has a powerful influence on price formation. The profit margin of a product, when exemption due to tax exemption or tax evasion, can reach 388%, in the case of soap, and 1.850%, in the case of the automobile. It was with this framework, based on data from the Administrative Council for Economic Law, that lawyer Hamilton Dias de Souza demonstrated the importance of legislation capable of combating tax evasion and promoting free competition. Specialized in Tax Law, Hamilton is an advisor to the Brazilian Institute of Competition Ethics.

The debate on the “Tax Competition Imbalance and the Brazilian Constitution” was during the seminar that the Etco Institute held, this Monday (10/5), in Brasília. With analysis of the constitutional provisions, the organization demanded a more productive regulation project than that provided for in article 146-A of the Federal Constitution, instituted by EC 42/03, to combat the competitive imbalances caused by elision, tax evasion and evasion.

According to the counselor of Instituto Etco, practices that affect competition are diverse, from evasion, through abuse of lawsuits, to fraud with the use of "oranges" in transactions. According to him, situations of competitive tax imbalance have long occurred, also caused by a differentiated tax system. "Taxation at the state level is being challenged in court, without success, but there is an excess of injunctions that disturb the market with unbalanced competition," he explained.

Hamilton Dias reported that in the fuel sector, smaller companies usually operate in different counties under tax benefits allowed through injunctions, harming traditional companies in the market. “The states do not have the competence to deal with different taxation regimes to prevent competitive imbalances, but they end up promoting a fiscal war.”

The situation led scholars and entities in the sector to submit various solutions to the National Congress. That is how Article 146-A of the CF emerged, which stated: “Complementary law may establish special taxation criteria, with the objective of preventing competition imbalances, without prejudice to the Union's competence, by law, to establish norms with the same objective ”.

Hamilton Dias states that the constitutional article raised doubts about its application. “The problem is that the complementary law can only outline general guidelines. Only ordinary law can provide for material aspects of the tax obligation, such as taxable event, calculation basis, and fixed taxation, to guide states and municipalities. However, states will have to be guided by the complementary law. ”

Instituto Etco's main concern is with regard to tax evasion and abuse of the Judiciary in an abusive manner so as not to pay taxes, in order to destabilize the market. However, Article 146-A enshrines the principle of competitive neutrality in tax matters. "If any entity edits a rule that causes this imbalance, that rule may be subject to questioning of constitutionality," warned the councilor. 

Conflict of competence

Professor Luís Eduardo Schoueri, doctor in Tax Law, said that there is room, indeed, for article 146-A, which will eliminate the conflict of tax jurisdiction. He understands that the provision will prevent states and municipalities from promoting the so-called fiscal war and leave the competence to regulate markets to the Union. "The complementary law should prevent disturbances and increase competition in the market, establishing criteria that should be adopted by states and municipalities," he said.

For Schoueri, it is through free competition that barriers to market access are avoided. He explained that free competition is preserved by tax law when the principle of neutrality is obeyed, which should prevent disturbances of competition. “The imbalance occurs when entities use tax benefits, such as immunity, and start to influence the economic domain, causing illegal competition. Immunity may even increase competition, but the problem is when immune entities operate in the market at predatory prices, ”he said.