Compensation of Tax Losses and Negative CSLL Bases on Gains Obtained from the Judicial Sale of Assets and Rights in the New Bankruptcy Law

By Roberto Codorniz Leite Pereira and Pedro Henrique Garzon Ribas

1. Introduction

The introduction of the institute of judicial recovery of companies was certainly an important milestone in Brazilian commercial legislation. Pursuant to article 47 of Law no. 11,101/2005 (Bankruptcy and Business Recovery Law or LFRE), the purpose of judicial recovery consists of “overcoming the debtor's economic-financial crisis situation, in order to allow the maintenance of the production source, the employment of workers, its social function and stimulation of economic activity”.

Instead of exclusively protecting creditors by withdrawing from the market companies that prove to be incapable of participating in it (the basis for declaring bankruptcy), judicial recovery seeks to balance the multiple interests involved, so that, once the economic viability of the company under recovery is demonstrated, its existence is protected and, as a consequence, its social function is promoted.

In other words, judicial recovery honors the interests of all third parties interested in the company – i.e., workers, the community in which it operates, consumers, State bodies such as Tax Administrations, among others – not limited to the interests of its creditors. Thus, the aim is not to protect the interests of some stakeholders to the detriment of others, but of everyone.

And Tax Law does not remain oblivious to this reality.

As we know, tax rules, along with their collection function, appear as an important and powerful instrument, in favor of the State, of intervention in the economic domain1. In this sense, considering that business recovery has strong support in the so-called Constitutional Economic Order2 (whose principles are outlined in article 170 of the Federal Constitution3), it is up to the tax rules to stimulate – i.e., positively induce – its use, as long as this does not offend other purposes equally prestigious in the legal system.

In this brief article, we will analyze one of the main tax innovations introduced in LFRE by Law no. 14,112/2020. This involves the possibility of full compensation of tax losses and negative CSLL bases on gains obtained from the judicial sale of assets and rights. Undeniably, this is a tax rule with positive inducing effectiveness in enabling business recovery.

Next, we will analyze the aforementioned tax rule in light of the legal regime applicable to the offset of tax losses and negative CSLL bases by companies, when its objective scope of application will be defined, as well as its compliance with the principles of equality in tax matters and proportionality. Furthermore, the anti-avoidance rule introduced by the legislator will also be subject to analysis, defining the hypotheses of its application.

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Roberto Codorniz Leite Pereira
Pedro Henrique Garzon Ribas