Levying PIS and Cofins on recovered embezzlement is absurd

BY EDUARDO MANEIRA AND DANIEL LIMA

It is said that nothing is certain in life, except death and taxes. In Brazil, with the current state of legal uncertainty in tax matters, it can be said that nothing is certain for legal entities, with the exception of the incidence of PIS and COFINS.

The exacerbated taxation of revenue in the Brazilian legal system has proven to be a real torment for companies, as this tax is due: (a) even when it has more expenses than revenue in a given period (loss); (b) even if the company suffers from the default of its own recorded revenue (as decided by the STF Plenary in RE 586.482); and (c), at least in the view of the Federal Revenue, PIS and Cofins are also due when a loss is reduced or recovered.

Ignoring not only the material rules of jurisdiction that delimit the scope of taxation, but also the principle of contributory capacity, the Federal Revenue Service has been defending that debt forgiveness constitutes operational income subject to PIS/Cofins at a rate of 9.25%.

“DEBT REMISSION. INCIDENCE OF IRPJ, CSLL, PIS/PASEP AND COFINS. Debt remission means for the debtor (remitted) an asset increase (operating income other than financial income), as it is an insubsistence of the liability, the impossibility of which materializes at the time of the remitting act.” (DISIT, 1st Tax Region, Query Solution nº 17 of 27.04 2010)

In times of severe economic recession, which has led numerous entities to file for judicial recovery, it is not difficult to see that this understanding can make the preservation of companies unfeasible.

Now, judicial recovery imposes sacrifices on both shareholders and creditors and, inevitably, leads to the forgiveness of part of the companies' debt. And what does the Treasury do? It takes advantage of this to demand taxes in a situation that does not reveal any available wealth, going against the collective interest related to overcoming the economic and financial crisis the company is going through.

But that's not all.

In a recently published consultation solution, the Federal Revenue maintains that the recovery of embezzlement resulting from overpricing in the cost of acquiring assets (in times of car wash, this immediately refers to the case of Petrobrás), should also be taxed by PIS/COFINS.

“CONTRIBUTION TO PIS/PASEP SUMMARY: RETURN OF AMOUNT TO THE LEGAL ENTITY. COURT DECISION. IDENTIFICATION OF THE OCCURRENCE OF CRIME IN PRICE NEGOTIATION. COST RECOVERY. TAXABLE INCOME.

Amounts returned to the legal entity that were previously paid by it to third parties on a definitive basis within the scope of business negotiations that led to the acquisition of assets constitute revenue subject to the PIS/Pasep Contribution in the non-cumulative calculation regime, even if the occurrence of criminal offenses in such negotiations perpetrated by agents of the legal entity itself together with agents of third parties is judicially recognized. (COSIT, Consultation Solution nº 268, dated 05/30/2017)”

In other words, the company already injured by illicit practices, upon succeeding in recovering part of these amounts from those who embezzled its assets, will be penalized again with the requirement of 9.25% on the said amount. Again it doesn't take much effort to realize the absurdity of this interpretation.

The argument to justify the incidence of contributions on such values is puerile: for the Federal Revenue, except for express legal exceptions, any revenue recorded must be taxed by PIS/Cofins. This, however, is a mistaken and unreasonable interpretation of tax legislation.

Firstly, the Federal Revenue Service errs in equating the PIS/Cofins taxable event with the accounting concept of revenue. It is intuitive to note that articles 1 of laws 10,833/2003 and 10,637/2002 in fine establish that contributions are levied on revenue, “regardless of their denomination or accounting classification.” The Tax Authorities tend to interpret this legal provision as a generic authorization for the levy of PIS/Cofins on all amounts recorded as revenue (be it financial, operational, etc.).

However, the understanding does not hold. If, according to the aforementioned legal provision, the incidence of contributions on revenue is independent of their accounting classification, the best interpretation should be that the accounting classification is irrelevant, precisely because revenue is a legal concept.

In other words, not all accounting income will be taxed, but only those that legally qualify as income. Likewise, just because a certain gain was not recorded as income does not mean it will not be taxed. Although it can help to measure economic events in some cases, in others the method of accounting does not correspond to the correct representation of the hypothesis of incidence of taxes (which presuppose contributory capacity), especially given the profound changes made to accounting law by Law 11,638/2007, precisely to distance it from the tax calculation rules.

In this sense, having verified the discrepancy between the fact as portrayed by accounting and its definition by the legal system, the first must be considered irrelevant, with legal effects only being conferred on the second. In other words, accounting does not have the power to change the nature of facts, but only to portray the reality found according to its purposes. This is why it is argued that accounting is not responsible for defining the concept of revenue as a hypothesis of tax incidence.

On at least two occasions the Plenary of the STF has already established the irrelevance of the way in which revenues are recorded for the respective legal effects. Firstly, it is worth highlighting RE 606.107, which analyzed the incidence of PIS/Cofins on presumed ICMS credits, and rejected the exaction precisely because it understood that there is no taxable income, but mere reimbursement of expenses (even if recorded as income).

The second precedent (RE 627.815) deals with the extension of PIS/Cofins immunity to positive exchange rate variations linked to export operations. In that judgment, the STF again ruled out an alleged identity between the accounting concept and the constitutional concept of revenue; thus, it considered that monetary variations linked to export operations have the legal nature of export revenues, although accounted for separately from them.

It seems unequivocal to us that the mere accounting of a certain event as revenue is not sufficient to determine the incidence of PIS/Cofins contributions (and no other taxes) on such values, and it is absolutely necessary to demonstrate the existence of an inflow representing new wealth, which adds to the taxpayer's assets.

Accepting the incidence of PIS/Cofins on amounts merely recorded as revenue implies admitting the taxation of “paper” wealth, fictitious, with no economic value, to the absolute detriment of contributory capacity, which is the guiding principle of the entire constitutional tax system (art. 145, §1 of CF/88).

In conclusion, article 195, I, b, of the Federal Constitution and article 1 of Laws 10,833/2003 and 10,637/2002 must be interpreted in a coherent and integrated manner with the legal system, in order to avoid the incidence on amounts merely recorded as revenue, but which do not reveal an economic capacity capable of supporting the incidence of the tax burden.

By: Eduardo Maneira and Daniel Serra Lima

Source: Legal Consultant