The taxpayer and the state

The thinker Alceu de Amoroso Lima taught that “Brazil began at the end” since when we were found, the State, Portuguese sovereignty imposed itself, the people came later.

I use this phrase to demonstrate that the power of the State is decisive in the Brazilian reality. We know the difficult relationship that the citizen has with the public power. Notwithstanding article 5 of the Federal Constitution defining our fundamental rights and guarantees as stony clauses, the recognition and practice of these rights faces great difficulties on a day-to-day basis. It is common for rulers to confuse the State with the government and the latter with their political parties and personal interests.

The tax area reproduces these difficulties. The tax action, with the argument that it is defending the public interests of the treasury, sometimes goes beyond limits in the interpretation of the law, through decrees, ordinances and regulations, pointing to the taxpayer the path of administrative and judicial litigation. Thus, it is not surprising that we have the largest tax litigation in the world, with more than BRL 5.0 trillion under discussion.

Aware of this context, the ETCO Institute, at the suggestion of the chairman of its Advisory Board, doctor Everardo Maciel, contracted, together with the EY consultancy, a technical study on the instruments of defense and protection of the taxpayer in Brazilian legislation and in international comparative tax law. The following were addressed: Current scenario; The Brazilian taxpayer at the federal and state levels (with the mapping of existing constitutional and infra-constitutional norms) Comparative analysis: foreign instruments to protect the taxpayer. The proposal is to identify how the taxpayer is treated in Brazil and in countries with the best practices so that we can reflect on how to evolve in the taxpayer's relationship with the tax authorities, a point directly linked to improving the business environment and strengthening the legal security of citizens and companies.

The study presented data that demonstrate that, despite initiatives such as the Tax Cooperative Compliance Program (Confia) of the Federal Revenue and Tax Compliance Programs in the States, the rate of taxpayer dissatisfaction with the services provided (Research of the Federal Revenue) in 2021 had an average of 74%.

Read also Solutions for tax litigation — ETCO Magazine brings contributions from 27 names involved in the subject from different points of view

Alongside this finding, aspects that deserve attention were identified: Provision of taxpayer rights dispersed in various legal provisions and regulations, making it difficult for the taxpayer to understand their guarantees; Imposition of an aggravated fine before the actual proof of possible fraud, with a focus on large taxpayers; Absence of different treatments for taxpayers, occasional, repeated and persistent, in breach of the principle of equity; Expressive percentage of application of tax representation for criminal purposes, whose taxpayer data are published before completion in the administrative sphere; Absence of tax administration performance assessment initiatives through international tools, which were adopted by some of the federated entities, such as the TADAT (Tax Administration Diagnostic Assessment Tool), which identified that we are among the lowest rates of efficient dispute resolution tributaries in the world, among other findings.

At the state level, 12 Brazilian states were identified that adopted the positivization of taxpayer rights and guarantees through codes, in addition to the Federal District: Ceará, Espírito Santo, Goiás, Maranhão, Mato Grosso do Sul, Minas Gerais, Pará, Paraná, Piauí , Rio Grande do Sul, Santa Catarina and São Paulo.

In comparison with the best practices, three countries were evaluated: USA; Germany and Australia. In all of them there are laws aimed at defending the rights of taxpayers, with emphasis in the US for the Taxpayer First Act with a focus on taxpayer service and inspection procedures; Taxpayers Advocate Services (TAS) which, within the scope of the Internal Revenue Service (IRS), is the independent taxpayer defense body; Taxpayer Advocacy Panel (TAP) IRS federal advisory committee that assists in identifying tax issues relevant to the taxpayer; And the express provision of contact with superiors under the terms of item 2 of the Taxpayer Bill of Rights, ensuring the right to a quality service that includes the possibility of contacting superiors of tax agents in case of problems during inspections.

In Australia, as in the USA, taxpayers' rights are recognized through the Taxpayers' Charter, highlighting the following positions: Right to be heard, taxpayers have the right to be heard in the course of the administrative process; The Australian Taxation Office (ATO) undertakes to assist the taxpayer when necessary, explain its manifestations, respond to the taxpayer's requests and promote its effective service and the right of representation before the ATO and even to question the ATO which will explain the procedures possible, in case the taxpayer decides to appeal a decision of the agency, it will seek quick resolution of the problems and will keep the taxpayer informed.

Finally, in Germany, the adoption of the preliminary defense (Anhörung Beteiligter) was identified, in which the taxpayer has the right to a preliminary hearing, which precedes administrative acts that “would impact the rights of the party involved”, and also the hearing at the end of the inspection ( Schlussbesprechung) that takes place after delivery, by the taxpayer, of all documents and information requested by the tax authorities. If the authorities identify any irregularities, the hearing is mandatory.

The aforementioned study demonstrates that we must advance in improving the relationship between the tax authorities and the taxpayer and that legislative measures, such as PL 17/22, instituting general rules regarding the rights, guarantees and duties of the taxpayer should not be considered acts against the tax authorities and agents, but of balance, overcoming ancient quarrels between the Brazilian State and its citizens.

Taxpayer rights and tax justice

For a long time, a tax reform has been defended that is structuring of a model that makes fiscal and tax justice feasible, that is, that reduces social inequality and incorporates some principles, such as efficiency, equity, simplicity, stimulating competitiveness and combating those who pervert the system, not paying taxes intentionally. For this purpose, it is important to value the taxpayer and curb what we call “constant debtor”, so that the taxes collected are destined to meet the demands of society and that the State receives what is effectively due, nothing more.

However, it is feasible — before we achieve a tax reform that deserves the name — to have legislation that simplifies the system, combating deviations and facilitating collection. The Brazilian Institute of Competition Ethics — ETCO, has, since its foundation in 2003, contributed with technical studies, presenting suggestions for the improvement of relations between the tax authorities and the taxpayer. We identified that it is urgent to remove inaccuracies that encourage litigation, causing damage to both parties. The taxpayer wants its tax regularization and the treasury needs to receive it, however, these objectives are not achieved in the face of the troubled system in force. The taxpayer cannot be treated as an enemy and the tax authorities as an executioner.

In 2019, to present the serious situation we face, ETCO contracted an international study with the consultancy EY dealing with the tax litigation. A bleak picture was presented, nothing comparable with other countries: at the federal level alone, around R$ 3,4 trillion were being discussed in administrative and judicial instances. To face this debacle, we point out, looking to the past, the need to improve the tax transaction and, for the future, the adoption of mediation and tax arbitration. For the first situation, we stimulated this discussion in seminars with the PGFN and tax lawyers and, at the initiative of the federal government, Law 13.988/2020 was approved, which was reinforced by Law 14.375/2022. These provisions and the action of PGFN resulted in clear advances, allowing the solution of old pending issues. The taxpayer regularizes himself and the tax authorities collect. With regard to mediation and arbitration, we have bills in the States and in the National Congress, which should advance.

Validating the expression “separating the wheat from the chaff”, while we defend a new tax-taxpayer relationship, reducing the endless and harmful disputes to those who act in good faith, we need to fight those who take advantage of the existing confusing situation for the collection of taxes and if benefits, by structuring its actions to never pay taxes, the aforementioned “constant debtor” who has active debts with the federal tax authorities of R$ 100 billion, only in the fuel and tobacco sectors. We have a Bill in the Federal Senate (PLS 284/17) defining who should be considered a persistent debtor, differentiating them from occasional debtors and even repeated ones. It is in plenary and, without a reason that can be understood, is not voted on.

The most recent ETCO initiative is a new international study with the consultancy EY — which is in its final phase — dealing with taxpayer rights, presenting a diagnosis of our constitutional and infra-constitutional legislation and evaluating the posture of countries with the best practices (USA, Germany and Australia). The objective is to measure, as we did in the study of litigation, how the taxpayer is treated and what suggestions can be made to guarantee rights and define duties, with the objective of establishing a new level in this relationship, today of animosity, for an attitude of greater understanding and accuracy of the obligations, which is in the interest of the State and of citizens in good faith.

Thus, we must, for example, combat possible abuses, such as the normalization of tax representation for criminal purposes and the application of fines increased by up to 150%, without criteria.

This work by ETCO found in 17 / 2022 Bill, authored by Deputy Felipe Rigoni, demonstrating how important this initiative is to achieve a balance in more citizen-oriented coexistence in the fiscal sphere. That must be the goal.

At the public hearing held by the Finance and Taxation Commission of the Federal Chamber, ETCO demonstrated that PL 17/22 should consolidate taxpayer rights without inhibiting the legitimate action of the tax authorities. This bill should not be seen as a measure against the tax authorities or against fiscal presence, in fact, for the exercise of this action it is the duty of the public agent to defend rights and define duties. In this sense, the reduction of litigation; the valuation of good faith, support the composition before the imposition of penalty, allowing the taxpayer to point out facts and documents are measures that, far from defending tax evaders, demonstrate a sense of respect for citizens and companies, for the benefit of the work of inspection, which does not aim to punish, but to collect what is fair. It is important to point out that the countries that contributed to the ETCO/EY study, recognized as rigorous in the efficient fight against tax evaders, encourage the defense of taxpayers. The US, for example, has the “Taxpayers Bill of Rights”. Once the tax and its value are defined, the tax authorities' action is strengthened.

Of course, the bill can and should be improved, but it is not credible that it will be discredited. This stance removes seriousness from criticism. Why don't we have a law that guarantees taxpayer rights and points out duties and that, once established, are fulfilled?

In order to strengthen legal certainty, it is necessary that we have, on the one hand, the exact definition of the tax due, simplifying its payment and the efficiency of collection, avoiding excessive litigation and, on the other hand, a law that combats tax evaders and persistent debtors.

This is the path that should represent advances in the search for tax justice, even before we reach an effective tax reform.

*Edson Luiz Vismona is a lawyer, president of the Brazilian Institute of Competition Ethics (ETCO) and of the National Forum Against Piracy and Illegality (FNCP). He was secretary of justice and defense of citizenship of the State of São Paulo (2000/2002)