Tax evasion is defeated in the Supreme Court


Source: ETCO Magazine, No. 7, 09/2007

In an unprecedented decision, the Supreme Federal Court (STF) took a decisive step
so that the country can stop tax evasion in the cigarette sector and ban
harmful practices to free competition. By 7 votes to 4, the STF denied,
on June 27, American Virginia's injunction request to resume operations.
The tax authorities charge the company about R $ 1,7 billion, most of it for
non-payment of the Tax on Industrialized Products (IPI), and at the beginning of
In May, its two factories - one in Rio de Janeiro and the other in Pará - were closed
by the Federal Revenue precisely because the company refuses to erase the taxes

The measure was based on the legal provision that provides for the cancellation of
special registration, necessary for the operation of cigarette factories
(item II, of article 2, of Decree-Law No. 1.593 / 77), in the event of
non-payment of taxes.

“It is the first time that the Supreme Court has made such a decision.
At the time, its own jurisprudence considered that the closing of a factory and
the ban on the exercise of industrial activity could not be a way
enforcement of tax collection ”, observes the former Attorney General of the Republic
Aristides Junqueira.

The winning thesis in the Supreme Court was that of Minister Cezar Peluso, for whom
Fiscal regularity is an indispensable condition for the functioning of
companies that produce cigarettes, since the non-payment of taxes gives them
great competitive advantage in the market. The company had already been closed in two
previous occasions, precisely because of the various tax assessments suffered, but
returned to operation due to preliminary injunctions obtained. Only this time, the company
was defeated at the Federal Regional Court of the 2nd Region, headquartered in Rio de
January, and now at the Federal Supreme Court. ETCO monitors 156 lawsuits
in the Federal Court and, in several of them, acts as an assistant to the
Attorney of the National Treasury or amicus curiae (friend of the court).

Although the Supreme Court's decision has no binding effect, it is to be expected that
influence the direction of other processes. For Ana Tereza Palhares Basílio,
lawyer at Andrade e Fitchtner who represented ETCO in this
process, “this decision changed the case law of the STF”. In recent years, in
on several occasions, the Supreme Court considered the imposition of any
restriction to private initiative by non-payment of taxes. “These decisions
constituted a summary statement, which remains in force. But now, the STF
admitted an exception to the rule, ”she notes. When judging the injunction request from the
American Virginia, the Supreme Court considered constitutional the
fiscal regularity due to the peculiarities of the sector.

Cigarette manufacturers need to obtain, in the Federal Revenue, registration
special to produce. American Virginia was unregistered in the year
passed by the Internal Revenue Service due to the existence of numerous tax debts.
According to a report by Martha Beck, published in the newspaper O Globo of 29/7/2007: “From
According to revenue estimates, in the cigarette sector, for example, the
tax evasion reaches R $ 5,5 billion, being mainly concentrated in the Tax
on Industrialized Products (IPI). Today, Brazil has 15 manufacturers of
cigarettes, with only two companies settling their accounts with Leão
regularly and are responsible for almost 100% of the sector's revenue in the

View the
full article published in edition no. 7 from ETCO Magazine