Since 2011, the government of Rio Grande do Sul has had a valuable instrument to combat ICMS tax evasion. It is a differentiated collection regime for the so-called debtor, a type of taxpayer who evades the tax on purpose to have an unlawful advantage in competition with other companies. This regime includes several measures to hinder tax evasion and has been obtaining important results. In four years, the number of companies in this situation has dropped 26%. In addition, Rio Grande do Sul was able to recover R $ 17 million owed by these taxpayers. Such results have drawn the attention of other states and inspired a draft state law against repeat debtors that has the support of ETCO-Brazilian Institute of Ethics in Competition.

The figure of the persistent debtor is present in several segments, but it is more common in sectors such as the distribution of fuels, drinks and medicines. In many cases, the payment of taxes is delayed for so long that, when the government is able to collect the debt, the value of the debt exceeds the assets of the company, making payment unfeasible. Many of these deals are closed before the government even makes a final decision on the matter.

 

Bad faith to increase profit

This type of debtor is different from the entrepreneur who, due to a momentary problem in his cash flow or any other eventuality, fails to pay the tax, but has an interest in regularizing his situation. “The regular debtor acts in bad faith, failing to pay taxes to increase his profit margins and to have undue advantages over the competition”, says Mario Luis Wunderlich, undersecretary of Revenue of Rio Grande do Sul. To separate these two types of debtors , the gaúcha legislation created a criterion to determine who can be classified as contumazado. According to the text, this category includes the taxpayer who fails to collect the ICMS for at least 8 months of the last year.

In addition, the legislation provides for the issuance of notices so that the taxpayer has the opportunity to regularize his situation before any form of penalty. Only after that can the company be included in the differentiated regime for regular debtors. Currently, 55 companies are in this category in Rio Grande do Sul - and about a thousand are at risk of joining the group.

Whoever enters this category should start to collect the ICMS at the time of issuing the note, instead of doing it monthly on the total of notes issued in that period. Another way found by the gaucho government to pressure taxpayers not to resort to this type of practice is to count on the support of the clients of these companies. For this, the redemption of ICMS credits theoretically paid by companies classified as permanent debtors is only possible if the tax collection guide is presented.

"With this, many companies end up doing business with whoever is listed," says Ricardo Pereira, who, at the time of the implementation of the law, acted as undersecretary of the State Revenue. In addition to serving as a form of pressure, this device allows the government to deal with another problem: by providing ICMS credits generated by a company that does not pay its taxes, the state tax system has a double loss. "In addition to not receiving, we had to pass this amount on, making the impact of tax evasion much greater than what is apparent," says Wunderlich.

 

DISCUSSION IN JUSTICE

Despite its benefits, the law in force in Rio Grande do Sul has been challenged. At first, the text was questioned by the State Court of Justice, which judged there was no reason to suspend its execution. Soon after, the Social Liberal Party sued the Federal Supreme Court (STF) alleging that the law is unconstitutional. According to groups that question the government's initiative, the project violates the right to free enterprise by instituting rules that make it difficult to carry out the commercial activities of companies that fall under the differentiated regime. "In fact, what hurts free enterprise are practices that are harmful to good competition," says Wunderlich. "This is what needs to be tackled." There is still no date for the judgment in the STF.

To reinforce the importance of legislation, groups with an interest in the topic, such as the National Union of Fuel and Lubricant Distribution Companies (Sindicom), have been supporting the gaucho government in the Supreme Court, through a legal instrument called amicus curiae, whereby an entity interested in the process requests the right to manifest itself in the case file, even if it is not one of the parties directly involved in the process. “Behind serious debtors there are real organizations that practice tax evasion as a source of illicit enrichment,” says Jorge Luiz Oliveira, executive director of Sindicom. "Against them, traditional inspection mechanisms are not enough: a differentiated regime is needed."

Throughout history, the STF has deemed some initiatives found by states to combat hard-hitting debtors to be unconstitutional. According to the understanding of the ministers, the appropriate way to get the taxpayer to pay his taxes would be tax enforcement. But they admit the imposition of differentiated obligations in exceptional cases.

ETCO also acts in the fight against the figure of the persistent debtor. The institute has started a series of initiatives in this direction that will be developed for at least the next two years. One of them was the support for the creation of a draft state law that details the exceptional situations to fit certain taxpayers in special regimes, prepared by the Dias de Souza Advogados Associados office based on a broad analysis of the jurisprudence. The text also describes the appropriate measures and limitations for their application. The objective is that the document serves as a reference for other states to create their own laws against heavy debtors. “It would be beneficial to adopt this law by the interested tax authorities, for the benefit of the market and the population in general,” says Hugo Funaro, a lawyer at Dias de Souza.