"Understandable, stable and predictable right"

Full professor of Tax Law at the University of São Paulo Humberto Ávila is one of the greatest Brazilian scholars on the subject of tax security. With an academic trajectory that includes doctorate and postdoctoral studies in Germany and postdoctoral studies at Harvard, in the United States, he is the author of the book Theory of Legal Security, with 744 pages, a “true treatise on the subject”, in the words of the chairman of the ETCO Advisory Board, Everardo Maciel.

In a lecture at the Taxation and Legal Security seminar, Ávila addressed three aspects that she considers essential for tax legal security. "There is security only when the law is understandable, stable and predictable," he said, attributing these factors to the relationship with time.

Understanding concerns the present: "The right to be followed must be at least well understood".

Stability, with the passage from the past to the present. “The taxpayer who trusts the law yesterday cannot be betrayed by the law today. For this reason, the right protects the acquired right, the perfect legal act, the res judicata, the protection of trust, the consolidated situations, the preclusions, prescriptions and decadences ”, he exemplified.

Predictability refers to the transition from the present to the future. "The taxpayer, when he acts, needs to minimally predict what are the consequences that will fall in the future on the acts he practices in the present," he said.

Didacticism of the courts

Then, he pointed out the main problems that exist today in Brazil in these three dimensions. He criticized the practice, common in the country, of not looking for the precise meaning of words and thus allowing for very elastic possibilities of interpretation. "There is no country in the world that is developed and in which words have no meaning," he warned.

Citing a recent decision by the United States Supreme Court, which instructed the courts of that country to declare laws that were badly formulated by Congress instead of trying to correct them, argued that a large part of the problems of legal insecurity seen in Brazil today are due to the lack of determination of the Judiciary to demand more quality in Legislative decisions.

“Do you know why in Brazil the legislation is bad? Because the Federal Supreme Court does not declare the laws unconstitutional because they are bad, ”he said. “We have to recover the didactic role of the courts and start declaring the unconstitutionality of rules that are contradictory, that are too vague, too ambiguous. Because the taxpayer has to guide himself or his behavior based on some direction. ”

Ávila condemned the practice of federated entities of instituting or increasing taxes through regulations, not laws, as required by the Constitution. He also criticized changes in orientation in jurisprudence that produce retroactive effects, violating taxpayers' rights.

At the end of the lecture, in conversation with Everardo Maciel, he drew attention to the risk that the country is taking with the institution of modulating the effects of judicial decisions to protect the state's finances. According to Ávila, this instrument encourages the State to disregard the Constitution, which ends up benefiting financially from unconstitutional laws. “The right has many effects, one of which is to define what is right and what is wrong. Now, if right is equal to wrong, I wonder what kind of citizenship there will be in Brazil and what kind of exercise of public power there will be in Brazil ”, he pondered.

"Should reforms be disruptive or timely?"

Hamilton Dias de Souza, a member of the ETCO Advisory Council, spoke about the principles he believes should guide tax reform and criticized the proposed project in the Chamber of Deputies (PEC 45). He recalled that the country is faced with two possibilities: making a comprehensive reform, which he called “disruptive”, involving profound changes in the federal pact and in the Constitution; or make specific changes to correct the problems already identified in the current model. He defended the second alternative. “I don't think that a tax reform should abolish concepts that are already established. Especially because these concepts often take twenty, thirty years to settle, ”he said.

Citing divergences that still persist in the current system, such as the return of amounts charged excessively in the tax substitution regime, the collection of ISS on leasing operations and the creation of federal contributions by ordinary laws, warned of the risk that a radical reform introduce new points of legal uncertainty without solving the old ones. “When there is a disruptive tax reform, changing all concepts, we can all imagine what will happen. How long will it take for all these things to settle, and how businessmen, taxpayers, how we can all organize our lives, ”he said.

In relation to the proposal, inserted in PEC 45, for the creation of a national tax, the IBS (Goods and Services Tax), replacing federal, state and municipal taxes, Hamilton expressed his understanding that the change violates the constitutional clause of the Constitution , which prevents “amendment to abolish the federation”. “There is a jurisprudence in the Supreme Court that says: when you weaken, when the federation weakens, there is a tendency to abolish it. Therefore, "tending to" is "diminishing power", "weakening autonomy" ", he argued. In his assessment, by reducing the autonomy of states and municipalities to institute and freely change their taxes, IBS fits this definition.

Double complexity

Hamilton also questioned the argument that tax unification would bring about the necessary tax simplification, noting that it provides for a ten-year transition period with the overlap of the two systems. “We will have the coexistence of IBS with all other taxes replaced: ICMS, IPI, PIS, Cofins, Service Tax. Therefore, with compliance costs for both tax systems and inspections for both taxes. I would say that the poor taxpayer will surely suffer a lot ”, he said.

Other changes foreseen in the proposal, according to Hamilton, may cause new points of legal uncertainty, such as the migration of taxation to the destination of products and services, the application of IPI to primary products and the creation of a new tax on “special consumption”. “And what will special consumption be? Whatever the legislator of the future wants. It starts as a selective tax, and then the selective tax starts to reach even reasonably essential products ”, he warned.

The tax attorney warned of the extraordinary increase that PEC 45 proposes for the taxation of the service sector, in comparison with what is currently practiced. "The maximum tax burden, which is 5%, the next day would become 25%, and we would have a 500% increase on services," he said.

Hamilton also dealt with issues that he considers problematic in the current system, such as the distortion of the use of funds collected through fees, the excess of freedom to impose taxes by provisional measure and the increase in taxes for acts of the Executive.

Then, he listed some principles that the tax reform should obey to improve the business environment and bring more legal security to the country: simplification, harmony of the rules of the administrative / tax process, transparency and neutrality.

At the end of his lecture, the event coordinator, Everardo Maciel, asked him if the IBS proposed in PEC 45 could be compared with Simples, in order to respect the constitutional principle of the federation. Hamilton showed the distinction between the two tributes. “Simples does not absolutely prevent the existence of a normal institution of taxes by the Union, states and municipalities - not least because it is optional”, he replied. And he reaffirmed his view on the unconstitutionality of IBS.

The challenges of taxing the digital economy

The lawyer, professor of law and president of the Brazilian Association of Financial Law (ABDF), Gustavo Brigagão, spoke about the past and future of taxation. He outlined a brief historical overview of the choices made by Brazil in tax matters and the reflexes they produced in terms of legal uncertainty. He then addressed the new challenges facing the world in the field of taxation.

"Our tax system dates back to 1965, when the world was completely different," he recalled. “The goods were tangible goods that circulated between industry, wholesale and retail, until they reached consumption. The service was the result of human activity, necessarily. ”

At that time, according to him, while most countries were moving towards a national value-added tax, Brazil chose to create separate taxes for each federative entity - IPI, federal; ICM, then ICMS, for states; and the ISS, municipal. In Brigagão's assessment, this choice created many of the legal problems that would arise in the following decades, as the economy became more complex and the federal units began to dispute the right to tax the new activities that came into existence.

He cited several conflicts and their coming and going through the courts, such as the distinction between goods and services, the characterization of the place where the services are provided and the definition of inputs. Then, he presented a long list of new challenges that countries are facing due to the globalization and technological revolution of the last decades. “These new technologies have made the tax system, not only the Brazilian one, but the international tax system, chaotic”, he commented.

According to him, innovations such as e-commerce, cloud computing, internet of things, 3D printing, software subscription, streaming services, rental of properties by application, sale of consumer data, digital advertising and cryptocurrency have brought a series of tax challenges that still do not find satisfactory answers anywhere in the world. “Today, the merchandise can be sold via email. And printing is done at the consumer's home. In other words, the chain that existed for the circulation of goods becomes a chain of values, ”he said.

International initiatives

To scale the size of these businesses, he recalled that the five technology giants that make up the acronym GAFAM (Google, Amazon, Facebook, Apple and Microsoft) had a turnover of US $ 767 billion in 2017. “This is equivalent to the GDP of Switzerland”, he compared.

Brigagão highlighted three specific characteristics of these businesses that impose great difficulty on their taxation: not needing a physical presence in the country where the service is provided; have most of its value concentrated in intangible assets; and generate revenue from the user himself. “Providing data from these participants creates value that makes these companies worth billions. Whether through the use they make of this data, or through advertising, the level of audience that the marketing of these companies can reach ”, he explained.

He gave an account of the initiatives being studied or proposed by organizations such as the OECD, the G20 and the European Council and others recently adopted by countries like France, Spain and the United Kingdom to tax these new businesses. But he stressed that they still do not point in a clear direction on the best way to tax these companies.

Brigagão also spoke about the difficulties that global companies have in understanding the Brazilian system and made an assessment of the tax reform proposals under discussion in the country today. He defended the adoption of VAT to solve some of the main problems of the current model, such as yours complexity and cumulativeness, and recalled that it is adopted by 165 of the 193 countries in the world. But he considered the way it is proposed in PEC 45 to be inadequate and possibly unconstitutional.

Investor understanding

At the end of the lecture, tax attorney Everardo Maciel, coordinator of the seminar, reinforced the points brought by Brigagão about the challenges that countries face to tax the technology giants. However, he presented a point of view contrary to the adoption of VAT, considering it a tribute from the past, while recognizing the problems of the current system. "We are discussing the 1949 solution for the XNUMXst century," he noted.

Brigagão agreed with the obsolescence of VAT, but reinforced his criticism of the cumulative nature of national taxation and returned to defend its adoption to solve problems that affect the development of Brazil. ”I would very much like to be able to tell foreign investors that we have a form of taxation that is compatible with what they know. And today I can't say that ”, he lamented.

Experts defend the improvement of tax reform at CDH

For the director of the Union of Public Prosecutors of the National Treasury (Sinprofaz), Achilles Linhares, the texts of PEC 45/2019, pending in the Chamber, and the PEC 110 / 2019, discussed in the Senate, focus on the unification of taxes with the creation of the Tax on Operations with Goods and Services (IBS). For Linhares, the measure simplifies the system, but does not resolve the issue of high taxation on consumption.

Proposed amendments to the Constitution under analysis in Congress to change the Tax System do not solve the fiscal inequality in the country, concluded experts who participated in a public hearing of the Human Rights Commission (HRC) on Tuesday (8).

Among all the countries of the Organization for Economic Cooperation and Development (OECD), Brazil is the third country that most levies taxes on goods and services. However, it is the last one in the list when the tax burden on income, profit and capital gain is analyzed.

- Much is said about high tax burden in Brazil, but in fact, we have a bad composition. Among the participating OECD countries, we are on the same average. The problem is that our composition is opposite to that of the others, because in Brazil we violently tax consumption and payroll, much less equity and income - said Achilles.

Another problem pointed out during the hearing is the lack of economic data in the justification of the proposals, noted the professor at the Federal University of Ceará (UFC), Denise Lucena. She demanded statistical studies that prove the effectiveness of PECs in simplifying and reducing the tax burden.

- I want accurate proof that the unification of taxes will be able to reduce the amounts paid. I am very afraid that in this reform as the proposal is, focused on consumption, the burden will fall, again, to Brazilian society - he said.

The Sinprofaz union delegate, José Leite dos Santos Neto, proposed measures such as taxing assets and income; progressive taxation on inheritance; taxation on large fortunes; increased income tax for the wealthiest; elimination of privileges on capital gains and dividends; taxation of excessive or sumptuous consumption; and end of the social security contributions ceiling.

"This is a compilation of what could become a more just tax reform," he said.

The meeting was also chaired by Senator Paulo Paim (PT-RS), the president of Sinprofaz, José Ernane de Souza Brito; the professor at the University of São Paulo (USP), José Maria Arruda de Andrade; Sinprofaz's Director of Professional Affairs and Technical Studies, Sérgio Luís de Souza Carneiro; the professor at the State University of Rio de Janeiro (Uerj) Adilson Rodrigues Pires; and the president of the Brazilian Institute of Ethics in Competition, Edson Vismona.

Ideal time to rethink taxes

The simplification of the tax system and the burden on various sectors, such as fuels, one of the ones that most pay taxes in the country, were some of the topics of Correio Debate. Authorities, such as João Otávio de Noronha, president of the STJ and André Luiz Mendonça, attorney general of the Union, attended the meeting, which took place on 21/08/2019. ETCO's president, Edson Vismona, was also one of the speakers and spoke about the need to simplify the tax system, as one of the tools in the fight against stubborn tax debtors.

Jornal Correio Braziliense published the full coverage of the event in a special section and also on the website.

See here the link to the main articles:

Current model makes room for tax evasion [click here]

In the sector that most collects in the country, that of fuels, besides the complexity, there is still the chaos of each of the Federation units to practice different rates for products, points out the president of ETCO








For improvements, legislation needs to be reformed [click here]

A defaulting debtor is protected by law, which treats defaulting taxpayers equally for different reasons. Identifying the fraudster is critical

Change the federal pact to decentralize tax collection [click here]

Government intends to advance the discussion on tax reform, without increasing the burden, currently at 33% of the Gross Domestic Product. To do so, it will have to face several challenges, says the Union's attorney general

Reduce cost with default defaults competitive mechanism  [click here]

The selection of the market puts the most efficient and productive in better conditions. When the dishonest ones stand out, there is a distortion, points out the secretary of Competition and Competitiveness of the Ministry of Economy

The country's complex system leads to excessive judicialization  [click here]

Disproportionate taxation, with a lot of cumulative taxes, provokes a taxpayer reaction, which seeks to discuss the reduction of the burden in court, Power not appropriate for discussion

Experts defend few rates to avoid chaos [click here]

Congressman Alexis Fonteyne (Novo-SP) points out that many entrepreneurs who are taxed today as tax debtors are victims of the complexity of the Brazilian tax system

Taxation Seminar in Brazil

ETCO, in partnership with the newspaper Valor Econômico, held on Tuesday (July 23), in São Paulo, the Taxation in Brazil seminar.

The event brought together renowned experts to discuss how tax reform can contribute to Brazil's growth. Access here the exclusive articles covering the event, published on July 30, in a special section of the Valor Econômico newspaper:

Illegality advances and funds violence

In an interview, Edson Luiz Vismona, chief executive of ETCO, tells how smugglers and heavy debtors benefit from the tax system.

Tax review is crucial to the country

Brazilian system is put in check by experts during Taxation seminar in Brazil

Read more…

"We don't need to unify taxes"

Roberto Mosquera defends minor changes with more significant economic results

Read more…

Smuggling is an evil to be fought

Tax review should prioritize productive sector and focus on weakening the illegal market

Read more…

"History in Brazil is a big mistake"

Belief that foreign models can be reproduced here is a mistake, says tax expert

Read more…

Fiscal balance challenges lawmakers

Sustainable and harmonious taxes will favor more advantageous negotiations

Read more…



"We don't need to unify taxes"

For the doctor and professor of Tax Law Roberto Quiroga Mosquera, the ideal would be for less drastic changes to be made than those currently being discussed by the government. He believes that one way is not to focus on tax unification.
“It is no use just joining the taxes that already exist and putting a different name for them” - says Mosquera. As an example, he cites so-called excise taxes, taxes on specific products such as fuels, tobacco and energy. “We already have our
IPI (Industrialized Product Tax). It is a selective tax, which represents less than 5% of the collection, but which already takes the place of excise taxes. There is no need, therefore, to change this tax. ”
For him, taxation alone will not be enough to change the situation in Brazil. “Currently, R $ 1,4 trillion is collected
federal taxes, 80% of which are levied on income and revenue. It would hardly be possible to raise so many resources otherwise. With only 5% of the population earning more than R $ 4 thousand, it is complicated to transfer taxes in an economy
that is stagnant. It is necessary to have an economic change to then make the taxation accompany it. ”


Another difficulty is tax litigation, litigation between companies and the tax authorities. According to Mosquera, there are about 15 thousand companies in this situation, which will end in a discussion in the Judiciary with a ten-year term and a decapitalization of the company, which can generate a major macroeconomic problem.
“And today it is not easy to discuss a tax issue within the federal court. Judges demand guarantees, and this is costly for a
company." According to Mosquera, the tax rule has to adapt to the country's economic factors.
“There is no use for a magic rule to solve the economic problem. It is the substrate of the tax issue. Of course, it will impact business, but that means she is not the savior of the country. We need to change the economy a lot to have a tax rule that is really efficient. ”
For Mosquera, it is necessary to create specific solutions for the country and not have principles based on parameters from abroad.
“What to do so that there is no more cigarette smuggling in Brazil? Eventually companies that manufacture cigarettes
Premium can produce other products to compete with the tax evader. You need to know the Brazilian reality to find the best solutions. ”
As alternatives for greater efficiency in Brazilian taxation, Mosquera points to small reforms, which can be much more assertive. “I find it difficult for the merger of taxes at the federal, state and municipal levels to be accepted. But taxing fate and not origin is an interesting idea. And sometimes, a value added tax, thinking about public finances, may be the most correct. ”

Ethics and legality are fundamental to development

The tobacco industry pays the country's highest tax rates, between 70 and 90%. Meanwhile, taxation in Paraguay is the lowest on the continent, at 18%. The consequence of this, together with the lack of border control, is the growth of the illegal cigarette market in the country. Today more than 50% of the cigarette consumed in Brazil is illegal. As a result, the government stopped collecting R $ 11,5 billion in taxes on the sector last year. In addition, as contraband cigarettes do not meet the phytosanitary standards imposed on Brazilian companies, reducing smuggling will prevent Brazilians from consuming unregulated products. For the Brazilian Institute of Ethics in Competition (ETCO), if the taxes were lower, the consumer would buy more of the national product, and this would increase public revenue.
A survey carried out by ETCO, in partnership with the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV IBRE), reveals that 16,9% of GDP - about R $ 1,17 trillion - originates from the informal economy. This calculation includes the production of goods and services not declared to the government. The evasion of taxes and contributions reduces costs and increases the profit of these companies in an illegal way.

“In the meantime, we, who want to keep up with our contributions, encounter all kinds of difficulties. Many 'penduricalhos' have been
placed over the years, and often the Treasury itself cannot understand this whole mechanism ”- highlighted Edson Vismona, president of ETCO and the National Forum Against Piracy and Illegality, during the Taxation and Sustainable Economy panel.
For him, effective practices that guarantee inspection and fair competition are not only a matter of ethics and legality, but, rather, a fundamental step for the development of the
parents. In the case of cigarettes, according to Vismona, the difference in price is drastic: if a pack of legal cigarettes is sold for R $ 7, the one obtained through smuggling can cost only R $ 3.
- Our market is being delivered to the traffic of these illegal products. In states like Mato Grosso do Sul, for example, 82% of the cigarette consumed comes from smuggling.
Organized crime finances itself with these billions that are evaded.


To solve the issue of parallel products and guarantee the survival of companies in the sector, a group composed of several players has been discussing proposals to make legal trade viable and, thus, to benefit both companies and the government. One solution would be to review the taxation model for these industries.
- We agree that the tax burden on these products needs to be high. But we have to look at the demand, act to crack down on criminal organizations that benefit from this money.

If not, the market will be increasingly dominated by smugglers who pay nothing for it. The largest share of the market does not pay tax. Another practice suggested by currents in these sectors is the physical control of beverages and cigarettes. The ETCO president also stresses that the convergence of actions between public authorities and companies must be a two-way street, always respecting those taxpayers who are up to date with their obligations.
- Otherwise, the beneficiary will always be the regular debtor who makes non-payment of taxes his source of income, harming public coffers, competition and the whole of society.