Lecture by Heleno Torres on Legal Security and Tax Procedure
USP law professor Heleno Torres spoke in his lecture on conflicts between taxpayers and tax authorities, the administrative and judicial process and tax reform. He regretted that the projects under discussion are too focused on the creation of the value added tax, without paying due attention to issues related to legal certainty. In his opinion, Brazil needs a system that brings more predictability to economic activity, allowing “people to know exactly what taxes they must pay and what are the obligations they must fulfill in relation to the taxes that are due and, at the same time, to constitute a state of security, a state of normality, where the business environment can favor new investments and a breadth of business expansion in Brazil ”.
He argued that changing the current system respects five principles:
1. No real cumulative taxation, “with a tax incidence that permits the taking of universal credits, that is, financial credits in all operations;
2 Single rate in the entire circulation process;
3. Reduction of exception regimes, such as tax substitution;
4. Review of the tax benefits model;
5. Simplification of ancillary obligations.
Heleno Torres drew attention to the need to control excesses of tax authorities. “The National Tax Code, for example, lacks a chapter on the inspection process and procedure, which gives taxpayers more candid rights over the limits of inspection and the action of the tax authorities in administrative relations,” he said.
The tax attorney told the case of a client who, after being warned twice by the inspection that his business should be classified as a financial institution, decided to change his corporate name to fit into this category. During this process, he was surprised by CARF's decision against the change, claiming that the company met the requirements of a financial institution. "The tax system cannot lead taxpayers to such a contradiction," he warned. “These contradictions, they aggravate the business environment, heavily aggravate taxpayers with sums of fines, interest, charges, lawyers' payments and so many other repercussions and, in fact, this is not what is expected from a tax system with legal certainty. ”
Heleno highlighted the urgency of a reform of the consultation system to make it effective in resolving taxpayers' doubts and reducing conflicts. “We need to reformulate the system of consultations very urgently, to take advantage of this opportunity so that we have, from the moment of the presentation of the notice of infraction, or even of the launch, the possibility that the taxpayer can start his challenge, that this be quick , to the extent that the market also needs quick tax decisions, ”he said.
He also spoke about the need for greater uniformity of understanding in the judgment of tax cases, to avoid that equal cases have different results in different instances. And he recalled that the current situation is also of no interest to the State, which does not receive tax debts, nor to society. “There is not a single state, a single municipality in the country where the active debt has a collection higher than 1% of the accumulated volume. In other words, the conflict does not matter to the tax authorities ”, stated Heleno Torres. “The tax that does not enter the public coffers due to spontaneity is missing from the public budget. And when there is a lack in the public budget, one of the two: either we have tax increases or we have contingencies until that revenue enters the public accounts and that budget can meet these expenses. Anyway, society loses. ”
At the end of the lecture, in a brief conversation with tax attorney Everardo Maciel, the event's coordinator, he answered a question about the integration of the administrative and judicial stages of tax processes. "If this is to simplify, to reduce litigation, it is urgent that we simplify the processes in this universe so complex that it is the administrative and judicial litigation", he concluded.
The transcript of the lecture follows.Continue...
Lecture: Legal Security and Tax Procedure
Speaker: Heleno Torres
Curriculum (on 25/6/19): Full professor at the Department of Economic, Financial and Tax Law, Faculty of Law, University of São Paulo (USP); professor (USP), doctor (PUC-SP), master (UFPE) and specialist (Università di Roma - La Sapienza) in tax law; CEO of the Brazilian Institute of Financial Law (IBDF); academic in chair 44 of the São Paulo Law Academy (APD); vice-president director of the Brazilian Association of Financial Law (ABDF); he was vice president and member of the executive committee of the International Fiscal Association (IFA), based in Amsterdam, Netherlands. Lawyer and referee.
Good afternoon everyone.
Dear Edson, I want to thank you for this invitation, and also to my dear friend Dr. Everardo Maciel. I want to say that you have two options: either I can give a lecture here in professorship or sit in that chair and discuss with you the topic. What do you prefer?
But in fact, I thank the organizers for their understanding, but I represent the congregation of the Faculty of Law in the USP University Council, and this meeting and the Council meeting coincide. There are two meetings per semester, so we usually avoid missing a lot.
But I also felt I had a duty to attend this meeting and I thank Professor Humberto Ávila for making this time transition, because in fact Everardo's invitation to speak to them about tax reform is very important to me. Exactly because I have shared with him, shared some international and national forums on this topic and always looking for what I think is common to all of you, which is how to build a possible tax reform, that really brings results as soon as possible to reflect in the lives of people and companies and that it is justified to finance the State in a sufficient way on the one hand, and at the same time guarantee legal security for all citizens and all companies.
I could, Edson, continuing your speech, say that these are really all setbacks. And for this reason, it strikes me that attention is so focused on a tax reform that is based strictly on VAT, as if our only problem was in the area of consumption tax or consumer relations in general.
I want to point out to you that, in fact, what citizens and companies are demanding is for a tax reform of legal certainty.
A tax reform that brings predictability to the business environment. Let people know exactly what are the taxes they must pay and what are the obligations they must fulfill in relation to the taxes that are due and, at the same time, constitute a state of security, a state of normality, where the business environment can favor new investments and an expansion in business expansion in Brazil.
There is no rule of law without legal certainty. Legal certainty is the basis of everything. It is the origin of the rule of law itself and it is exactly here that this great theme of legal certainty is found in relation to the application of taxes.
The creation and application of taxes received very important preeminence under Brazilian law. There is no constitutionalized tax system in the world as we have it. This should be a factor of legal certainty.
In contrast, what we have is just the opposite, where the processes and the conflict show the permanent emergence of tensions between the tax authorities and the taxpayer and, at the same time, with a source of normative production impossible to be monitored and understood even by specialists.
So, we are all aware and convinced that it is time for a real tax reform.
But is this tax reform just one that focuses on value added tax, VAT, or in other terms that has been put into everyday life? No. I want to point out to you that I think this proposal is even virtuous insofar as it was available for parliamentarians to initiate this dialogue, this construction with society of a deeper discussion about tax reform and, starting with this impulse, then we start this great debate as we are doing here.
But the reform of the Brazilian tax system is much greater. It goes not only through taxes on consumption, on industry, on services and, obviously, this is not the theme that is assigned to me here at the moment, but it goes through this dynamics of consumption taxes, which truly bring everyone a feeling of huge tax cost, because one of the options of our tax model was to concentrate, really, the impact on these circulation relations, but I would say to you that, in fact, it is not the IBS that will really promise paradise on Earth.
I would say that we have five great values to be pursued in this tax reform with regard to the taxation of consumption.
The first is a real non-cumulativeness, that is, with a tax incidence that allows the taking of universal credits, that is, financial credits in all operations. This is a constitutional commandment that has never been fulfilled.
The second is that we have one and only one rate applicable throughout the circulation process.
The third is that we eliminate or at least have the courage to drastically reduce perverse figures of exception that should only fit in very strict situations - and I speak here of tax substitution, at least as it stands.
Another aspect that I think is of the utmost importance is also the urgent revision of the tax benefits and incentives model, at least in the way they are placed. Special regimes that swarm left and right. Even the beneficiaries of these regimes themselves have difficulties in fulfilling all their obligations and that is why it seems to me that this is also another major focus of the reform of consumption taxation.
But we have income tax, we still have discussions regarding the taxation of services. I personally think that the tax on communication services could perfectly well, then, yes, have a tax base shared with municipalities, with a common rate on certain well-marked services that would then be shared with the states, since the whole discussion focuses on this debate about the digital economy, so that we have a shared competence there.
But only then does this justify the sharing of powers or the practically extinction of the municipal services tax to give states the right to have a single or common rate in relation to other states and taxation based on fate, which is not the state but rather I personally strongly disagree with this choice that is put in the project that is underway.
But I honestly think that this project will not be successful. What will really succeed is the greater concentration of VAT at the federal level, at the level of the Union, and in the states and municipalities, profound reforms, which, in fact, demonstrate these assumptions that I have just anticipated.
Now, this is a focus of tax reform. The reform of the tax system, distribution, distribution of the collected product.
The other, which, yes, this is extremely relevant, is the one that touched Edson [Vismona] in his exposition: the accessory obligations, the process, the inspection procedure, the criminal tax law, in short, what corresponds to life , to the taxpayer's daily life in relation to this tax system.
And to tell you in a very objective way how much this part really needs to be reformed, I would say to you that the entire content of the National Tax Code, truly, today, is almost untouchable, compared to the Constitution, precisely in what corresponds to those fundamentals. It's because? Because it became practically the last stronghold of citizen protection in relation to the tax authorities.
So, practically no rule of the National Tax Code has been modified, unlike what happens with the constitutional text. This is paradigmatic, isn't it? Only in Brazil something similar happens.
But that brings us to a reflection. Now, this immutability occurs because the Tax Code is perfect, in the last 50 years has nothing changed to justify its reform? Or because, in fact, there are important rules and that both the tax authorities and the taxpayer understand that they should be kept as part of this system?
I would say to you that this system is still working very well, but it is already showing great fatigue. He really needs to make progress towards objective changes at several points.
The National Tax Code, for example, lacks a chapter on the inspection process and procedure, which gives taxpayers more candid rights over the limits of inspection and the action of the tax authorities in administrative relations.
I recently received a request for an opinion that I had an extremely alarming case. It was an entity that understood itself as a non-financial institution, collected by non-cumulative regime, PIS and COFINS, the inspector then said: “No, you are a financial institution, I will charge you and charge you as such in the cumulative regime” . A year later, another inspector comes and does the same thing. It acts as a financial institution under the cumulative regime.
The company holds a meeting and decides: “Now, since the inspection came twice and notified us as a financial institution, we will then change our corporate name, our structure to a financial institution”.
They took all the procedures, which obviously is not simple, it is expensive and difficult, and it came to that. What's the surprise? CARF then decides that that entity is not a financial institution and must collect PIS and COFINS on a non-cumulative basis. And later another inspector appears and fines the company because it would be a non-financial institution and, therefore, was using the “cumulative system”, in quotes, wrongly. But it does not give you the right to credits, which is a peculiarity.
And then, in which inspector does this company - which is public, stand out, that is, we are not talking about a drawer company, or a tax planning, in quotes, “aggressive” - [must believe]? It is a company that wants to be correct about its procedures. This company then, perplexed, asked about, after all, what was it? A financial or non-financial institution?
You see, the tax system cannot lead taxpayers to such a contradiction. These contradictions, they aggravate the business environment, heavily aggravate taxpayers with sums of fines, interest, charges, lawyers' payments and so many other repercussions and, in fact, this is not what is expected from a responsive tax system , with legal certainty.
That is why we need to build, reform this model of legal security through the procedure - and there, really, there are many aspects to be worked on. This is the case with consultations.
Everardo and I have already worked in different situations on this topic. We need to reformulate the system of consultations very urgently, to take advantage of this opportunity so that we have, from the moment of the presentation of the notice of infraction, or even of the launch, the possibility that the taxpayer can start his challenge, that this be quick, insofar as the market also needs quick tax decisions. It does not serve the market, the companies, that administrative decisions take 2, 3, 4, 5 years to be taken, not least because that business often doesn't exist until then. Just look at the issue of [bitcoin], for example. Last year, I saw a client who said: “Professor, I need this urgent decision, I cannot wait 6 months. Maybe in 6 months the competitors will have already surpassed me, I am already surpassed in the technique, in the day to day business ”.
These aspects, unfortunately, are left behind when we think of the model we have today of administrative / judicial processes or even consultations. Besides that, from the administrative process to the judicial process, everything that was discussed in the administrative process is repeated by article 38 of the Law of Execution.
It is necessary that, with legal certainty and protection of taxpayers' rights, we must be able to reduce this period, right?
I remember that in 2007, when we started examining this issue in an attempt to propose alternative measures for resolving disputes in the administrative / judicial process, by way of conciliation, tax transactions or even the inclusion of arbitration, there was none in Brazil. calculation of the amounts of the amount of taxes that were in judicial or administrative proceedings.
Today, we have, and are alarming, these numbers. We have R $ 2 trillion of tax liabilities in active debt. Now, what does that show? It shows that exactly we need a tax reform that avoids conflict. It is not enough to solve the problem of the judicial process itself, it is necessary to avoid conflict in advance.
But avoiding conflict also calls for another very important point, which is the service of the tax authorities to the taxpayer, which today is terrible, does not exist. We need the service to be provided by the Federal Revenue and the Regional Attorneys of the National Treasury, but also in the State Attorneys, the Municipal Prosecutors, the state and municipal Treasury Departments. And quality care, not superficial care. It is a service for the solution of problems, for those who really want to have a solution to their daily tax problems.
For this reason, I am very appreciative of what Everardo says regarding the need to jump, for example, from CARF or an administrative decision to a court. Why would we be held hostage to the formation of monocratic decisions if we can already form jurisprudence on specific cases, those that are arriving, and on the themes [that] decisions are made?
In the same way that the decisions of the upper chamber of fiscal appeals, for example, within the scope of CARF, could well, in communion with COSIT, permanently standardize understandings on various items of the discussions that are held there and arrive at results. The formula of the overviews may not be the only possibility, but we can actually have devices that add up as criteria for the uniformity of jurisprudence on the most varied cases.
The model we have today, where the CARF decides at every moment in a different way and, later, within the administration, these decisions are not considered by the inspection - quite the contrary, they are often deliberately breached because the inspector understands differently and it's over. And so it follows a world of permanent conflict and that only brings fragility to our business environment.
For this reason, the connection between the procedure for inspecting or producing tax assessments, challenging and discussing the administrative route and judicial litigation must somehow coincide in a leaner structure, with fewer deadlines and more agility, without a doubt. This is a path that we have no doubt that Brazil needs to follow.
And alongside that, we do have measures for simplification. And for the first time, I am convinced that there is a feeling of understanding on the part of the municipal, state and state prosecutors' offices, and the National Treasury Office itself about the importance of alternative forms of conflict resolution.
There is not a single state, a single municipality in the country where the active debt has a collection higher than 1% of the accumulated volume. In other words, the conflict does not matter to the tax authorities. The tax authorities simply cannot collect this debt. Now, because he is unable to collect this debt, it does not mean that we have an advantage there. No. Because the tax that does not enter the public coffers due to spontaneity is missing from the public budget. And when there is a lack in the public budget, one of the two: either we have tax increases or we have contingencies until that revenue enters the public accounts and that budget can meet these expenses. Anyway, society loses.
Who wins? The hard-hitting tax evader. It is against this that we all have to act. Organized civil society, tax authorities, authorities, we all have to act against this evil that prevails in the tax system. Why? Because he takes advantage of these legislative and even jurisprudential flaws and uses these mechanisms to find himself in his favor in the realm of competition, in clear unfair competition.
That is why I understand that legal certainty meets exactly this necessary predictability, that is, the paths of the procedural rite where necessarily the taxpayer, the good taxpayer, has at the same time speed in his decisions, find it there in the administration or in judicial scope solution to their conflicts in a serious and objective way, but at the same time the society also has the satisfaction of these credits, see the result of these taxes applied in its interests and its purposes.
The worst of the evils is what we are seeing, which is the increase in taxes, the search for the exceptional tax law permanently being built by the tax administrations or by the legislators, as now: to finance, with social security reform banks, brokers, insurance companies are used as financing instruments for something that is of interest to everyone. As if this were a kind of justicialism or Robin Wood of the modern era. No. This, in fact, is a typical case of exceptional taxation, where you go out of the ordinary to meet urgent demands because the system as it stands cannot be sufficient for state funding.
I could talk here about several points regarding each of these items, of course the time is very short, but I think the most important thing here is to point out this need.
Finally, I would say that it is part of this great process that we arrive at a code of conduct for the tax authorities and taxpayers, that is, to have clearer rules about the rights and duties of the taxpayer in relation to the duties and rights of the tax administration. This would also bring and should bring better rules on compliance, on the tax compliance model that the good taxpayer must meet.
Gustavo Brigagão talks a lot about this in the questions about indirect taxes etc., about how we should have this balanced, equitable treatment between subjects who are in the non-cumulative tax system. That, I would say to you, in addition to the consumption tax system, in fact, every tax model increasingly demands a system based on compliance, based on respect for competition rights, but especially that we have in this set of rules provisions that ensure greater predictability and better quality in the relationship between tax authorities and taxpayers.
For this reason, I avoid calling what used to stand out as a taxpayer defense code, but I really like a model that takes advantage of the National Tax Code, especially in its first part, to reinforce rules that are of protection, of defense of taxpayers. contributors.
I would stay here, Everardo, and put myself at your disposal for any additional comments or anyone in the audience that you would like to make. Thank you.
Question from Everardo Maciel to Heleno Torres:
EVERARDO MACIEL: Thank you Heleno. I think you hurt many points on the issue of legal certainty particularly focused on the issue of the process, but I think two points that you mentioned that I think deserve special attention and therefore I was going to ask you exactly that question. What is this, let's call it, this lack of limits in the release that exists today, that allows situations like the ones you narrated to happen that are not unique. In fact, on the contrary, they are the most frequent questions we face. Because there is, allow me to use a non-technical expression to define, because there is the launch without fault. "You can launch that there is no problem."
So, for this, the question that I ask you, that I would like to hear your opinion, is an issue that has been addressed for many years and curiously always disappears. Since Rubens, the original project of the tax code, by Rubens Gomes de Souza, later in his studies in the early 60s, notably by Gilberto Ulhôa Canto, and later with the work they did in association Gilberto Ulhôa Canto, Geraldo Ataliba and Gustavo Miguez de Mello, where there was an issue that was present: it was the idea of integration between the administrative process and the tax process. Which, by the way, was introduced in the text of the previous Constitution - and introduced, unfortunately, in a way that was politically condemned. It was exactly a constitutional amendment, promulgated by the executive, which is Amendment No. 7, known politically as the “April Package”. And the April Package technically made any future possibility of implementing this measure technically unfeasible through ordinary law.
So, the question I would ask you is very simple and is unique. What do you think of the idea of integration between the administrative and judicial process in the tax sphere?
HELENO TORRES: I, for some time, had a series of questions about this possibility precisely because of the way the Tax Code was prepared. In recent times I have come to realize that it is perfectly possible to accommodate a reform of this model of the collection system, where the act of launching… And this is an interesting fact: Rubens Gomes de Souza treated the tax assessment as provisional. Article 142 leaves this remnant in some way by saying that it is up to the infraction notice, if applicable, to propose the appropriate penalty. Propose, why? Since it is a penalty, the due legal process would then fit to arrive, from the contradictory and broad defense, to the final decision and, therefore, to the definitive tax assessment.
This finality can come at the management level as it can also come in a composition with the tax judicial process.
I just want to point out to you that it is exactly this fragility, often of theory and jurisprudence, that led us to this unconstitutional state of affairs that is there.
And I speak specifically of the penalization of the tax relations, exactly as for that taxpayer that declares the due tax, that is, it meets the criteria of the accessory obligation of the launch by approval - the mass of the launches today are by approval -, the taxpayer then complies with the legislation that concerns that point ... and there in part also the fault of the doctrine. For a long time, the doctrine went on to say that when the taxpayer makes this declaration, he promotes the self-assessment of taxes. In saying that, there was a specific intention in relation to insuring the decadent term of article 150, paragraph 4, and not of article 173.
In establishing this understanding, the Superior Court of Justice took advantage of the occasion to say: "Okay, so the taxpayer declaration constitutes the entry, it constitutes the tax obligation for the entry".
This is what is at the basis of this principle of representation for criminal purposes of the declaration without even the taxpayer having gone through any administrative or judicial discussion about that collection.
And then the tax credit simply declared unpaid and often not challenged will then serve as a ground for challenge.
I've seen everything. I have already seen PIS / COFINS, ISS, income tax, ICMS, social security contributions, all of which are taking taxpayers to criminal courts and the Federal Police with eight complaints and with the entire criminal proceedings. This is very serious. There can be no greater legal uncertainty.
There is a case, Everardo, that the taxpayer, understanding - Professor Quiroga, who is an expert in this, knows - that profit sharing payments would be exempt, a fight that is even in the Supreme Court, is very old etc., from the discussion of exemption, the taxpayer then does not make the entry of this contribution. An inspector arrives and understands that it would be due and charges the tax and the launch, etc.
The discussion, therefore, is about exemption. The taxpayer did not have this pre-existing obligation. He could never make a declaration of that tax because he believed he was justly exempt. His presumption was for non-payment. It is not for payment.
What's the surprise? That, finally, at the end, the CARF decides that the contribution would be applied to this amount. Before the taxpayer starts the judicial process, he has the surprise of a representation for criminal purposes that takes 26 executives to the Federal Police in Rio de Janeiro.
It is a large company and this obviously has repercussions on the private lives of these executives - and done only with the intention, the purpose, of pressure for taxpayers to pay what is not due, because in light of the jurisprudence of the Superior Court of Justice, the Federal Regional Court of that region, etc., is understood by the exemption of that type of tax collection.
So, I understand more and more that if this is to simplify, if this is to reduce litigation, it is urgent that we do, then, an accommodation of the National Tax Code, first with this experience of the last 50 years, and second , that we can really build the conditions for simplifying processes in this universe so complex that it is administrative and judicial litigation.