‘Fiscal balance’ MP must obey the principle of no surprises

Article by Eduardo Maneira and Luis Eduardo Maneira published in JOTA addresses a recent provisional measure by the federal government that seeks to establish the so-called “fiscal balance” through compensatory measures in view of the extension of the payroll tax exemption.

MP of ‘fiscal balance’ must obey the principle of non-surprise

Constitutional guarantees are being interpreted in an increasingly restrictive way to support increasingly greater expenses

Last Tuesday (4/6), in an extra edition of the Official Gazette, the Provisional Measure 1227/24 was published, which has as its object four points: (I) conditions for the enjoyment of tax benefits; (II) delegation of competence to the Federal District and municipalities to judge ITR assessments when an agreement exists; (III) limitation of offsetting of taxes administered by the Federal Revenue Service; and (IV) revocation of hypotheses for reimbursement and offset of presumed PIS/Cofins credits.

Detailing the latter, art. 5th creates another hypothesis of “undeclared” compensation, prohibiting the so-called “cross compensation” of the accumulated credit balance of PIS/Cofins credits (non-cumulative) for the payment of debts from other taxes administered by the Federal Revenue Service.

Until then, taxpayers who had their operations exempted by PIS/Cofins due to exports(art. 6, §1, II of Laws 10,637/02 and 10,833/03) or suspension/exemption and zero rate (art. 16 of the Law 11.116/05), or even received presumed credits, they could use the credits to offset other taxes administered by the Federal Revenue, according to arts. 245 et seq. of IN RFB 2121/21.

From now on, such credits can only be used to pay off your own PIS/Cofins debts.

Following the (il)logic of prohibiting compensation discussed in the previous item, the MP, in the end, revokes the possibility of offsetting presumed PIS/Cofins credits with debts from other taxes, as well as preventing reimbursement in the following cases:

10. a) production of pharmaceutical products (Law 10,147);
11. b) industrialization of agricultural products, including cooperatives (Laws 10,925, 12,058, 12,350, 12,599, 12,794, 12,865);
12. c) petrochemical industries (Law 11,196);

In other words, for taxpayers who enjoy presumed credit, reimbursement in cash will not be possible either, expressly revoked by MP 1227/24.

The provisional measure comes with a suggestive title: “MP for fiscal balance”. The baptismal name, given by himself Ministry of Finance, sets the tone for what comes next: those who go against the normative text will be going against the country's interests in the fight for less deficient public accounts.

According to official estimates, the impact of MP 1227/24 is R$29.2 billion, still for the 2024 financial year. It would be compensation for the extension of payroll tax relief, the fiscal impact of which would not fit into the budget.

For the purposes of this article, what we would like to highlight is the sophistry of the measure, which by limiting the compensation and reimbursement of accumulated PIS and Cofins credits, generating extra revenue in the order of R$30 billion, promises not to increase taxation or violate any constitutional principle, especially that of anteriority.

Posited in our Constitution in article 150, III, b, the command is clear: the prohibition of tax collection in the same financial year as the publication of the law that instituted or increased it. Priority is, as a constitutional rule, an effective way of guaranteeing citizens the right to exercise their freedom in a planned manner. Specifically in Tax Law, it is knowing, when carrying out your economic activities, the predictability of the tax burden that will be borne.

So much so that the exceptions to anteriority are exhaustive in the constitution, and one of them is precisely that the contributions in article 195, including PIS and Cofins, would only be subject to a ninety-simal anteriority, and could be instituted and increased within a period of 90 days. MP 1227/24 did not observe this rule either.

The Ministry of Finance's justification for not observing any of the aforementioned constitutional rules is that there would be no creation or increase in taxes, but “corrections to the Brazilian tax system”.

It is true that this is not, in this hypothesis, an institution or increase in contributions to PIS and Cofins, but a systemic change in the possibility of paying taxes, which makes it impossible for taxpayers to recover credits and offset them with taxes of other nature, resulting in a need for disbursement to fulfill their obligations. The cash impact is such that the government itself estimates it at R$30 billion.

To belittle the priority of the literal content of article 150, III, b is to ignore its content as a legal principle, in the sense that legally the citizen is protected against abrupt changes in the tax system that require a larger disbursement to fulfill their obligations. Priority, as a principle derived from non-surprise, concerns temperance in changing the law, so that sudden normative changes must respect time for the citizen's need to replan their actions.

Therefore, it would not even be a case of mere application of nineagesimal precedence to PIS and Cofins, as the hypothesis conforms to the rule of annual precedence insofar as the restrictions on compensation have repercussions on an increase in the tax burden of all compensable federal taxes. In other words, the restriction on offsetting accumulated PIS and Cofins credits with other taxes is, in reality, a transversal way of increasing the taxpayer's overall tax burden and not just PIS and Cofins. Additionally:

1. They distort the (already weakened) principle of non-cumulative PIS/Cofins, as taxpayers will no longer be able to effectively release credits, generating tax waste;
2. They virtually prevent the use of PIS/Cofins credits for large exporters, undermining the destination principle according to which countries export products and not taxes;
3. They represent confiscation of the credit recorded by taxpayers, who have been prevented from offsetting them with estimated IRPJ/CSLL debts since 2018 and are now also prohibited from offsetting them against other taxes;
4. They impose on taxpayers, as the only option, the submission of a refund request which: (i)has no deadline for analysis; (ii) even if granted, there is no deadline for payment;

It is commendable that the Ministry of Finance is committed to ensuring the balance of public accounts. However, it is always worth remembering that arithmetic has two sides: addition and subtraction. Unfortunately, the government's measures to achieve balance only aim to increase revenue, without any effort to contain expenses. Without much to draw from, constitutional guarantees are being interpreted in an increasingly restrictive way to support ever-increasing expenses. We must resist.

EDUARDO MANEIRA – Lawyer and professor of Tax Law at UFRJ
LUIS EDUARDO MANEIRA – Lawyer

https://www.jota.info/opiniao-e-analise/artigos/mp-do-equilibrio-fiscal-deve-obedecer-ao-principio-da-nao-surpresa-06062024