AUGUST, 2020

More than half GDP in tax litigation

The revelations of the study that ETCO commissioned EY (Ernst & Young) to show the status of disputes between the Federal Revenue Service and taxpayers

ETCO Magazine

The taxes that the IRS tries to collect from taxpayers, but fails to receive, do not stop growing. They rose from R $ 2,275 trillion in 2013 to R $ 3,440 trillion in 2018. To get an idea of ​​what these values ​​represent - and the pace of the increase -, it is worth comparing them with GDP. During this period, they jumped from the equivalent of 42,7% to 50,4% of all wealth produced in the country in one year.

These figures constitute the so-called federal tax litigation. The fact that they are in the collection process does not necessarily mean that they are due by taxpayers. There are cases in which debts are indisputable, but they accumulate because the State is unable to receive them. The reasons range from the slowness of justice to the insolvency of those who owe. But a good part of this total are charges that taxpayers consider unfair and, therefore, are contesting in the administrative or judicial instances in charge of giving the final say in the dispute.

Whatever the reason, however, the result is that tax litigation of this size - and growing this way - causes a lot of damage to the country. For the State, it means that it is increasingly difficult and costly to collect the taxes necessary to finance the public services, hampering the effectiveness in obtaining results. What could become a school and hospital is spent on lawyers, accountants, judges and other collection costs. For Brazilian companies, the same thing: they spend energy and resources on long processes that have nothing to do with their core activity and that impact on their accounting balance sheets, creating legal uncertainty. When they see these figures, international investors think twice before investing their resources in Brazil.

Weight for the State

To further expose this topic to the public debate and contribute to the search for solutions, ETCO hired one of the most important consultancies in the world, EY (Ernst & Young), to carry out a diagnosis of the federal government's tax litigation. The study analyzed public data and shed light on some factors that may be related to the increase in disputed values. EY also mobilized its offices in six other countries to show how they deal with differences between tax authorities and taxpayers (see below).