Breaking tax decisions by the STF creates legal uncertainty, experts say

Report published today in FOLHA DE S.PAULO interviewed Dr. Eduardo Maneira, partner of Maneira Advogados, to comment on the decision of the Federal Supreme Court taken last Wednesday (08/2), which understood that tax cases deliberated by the court prevail over previously final and unappealable decisions, that is, they “break” the sentences which were definitive.

Breach of tax decision by the STF creates legal uncertainty, experts say

Tax experts see potential billion-dollar impact for companies

José Marques
Thiago Bethônico
SÃO PAULO and BRASÍLIA

The break of definitive decisions on tax issues, established by the STF (Supreme Federal Court) in this Wednesday (8), is reckless, creates legal uncertainty and could have a negative effect on the cash flow of several companies in Brazil, experts say.

The Supremo determined that tax cases deliberated by the court prevail over previously final decisions (when there is no longer any possibility of appeal), that is, they “break” the sentences that were definitive.

In practice, this means that a taxpayer who has obtained a favorable tax decision in the past, but the Supreme Court has subsequently decided differently, can be sued by the Federal Revenue Service without the need for a rescission action.

As the majority of ministers (6 to 5) decided not to apply the so-called modulation of effects, companies that were previously exempt will not only pay the tax again from now on, but may also be charged retroactively.

As a result, STF judgments with binding effect — of general repercussion and concentrated control of constitutionality — will have immediate effect on previous sentences.

Decisions will need to respect, however, the principles of anteriority, which establishes that increases in certain taxes can only be applied in the year following the year of approval, and the principle of nineteen days — which determines a period of 90 days for collection.

The trial began on February 1 and ended this Wednesday. On the one hand, taxpayers argued that the effects of the decisions they had obtained in court not to pay taxes continued to be valid even after the Supreme Court declared the collection of taxes constitutional.

On the other hand, the Union understood that these decisions were no longer valid after the Court's new judgment.

One of the appeals that reached the STF was filed by the Union against a textile industry that obtained a court order, final and unappealable in 1992, to stop collecting CSLL (Social Contribution on Net Profit). The decision had been taken by the TRF-5 (Federal Regional Court of the 5th Region).

In 2007, however, the Supreme Court decided that this tax was constitutional, when ruling on an ADI (direct action of unconstitutionality).

CSLL is charged by the Union and is levied on the net profit of companies. The most common rate is 9% of the value, but there are cases where the charge is even higher, depending on the activity performed. For banks, for example, the rate is 20%.

The tax was the focus of Wednesday's decision, but the charge may apply to other taxes that have also undergone changes in jurisprudence.

In 2020, for example, it was decided that charging IPI on the resale of imported products was constitutional. The same occurred in 2008, in relation to the Cofins requirement for uniprofessional companies, such as doctors, lawyers and engineers.

“In Brazil, even the past is uncertain.” This is how Eduardo Maneira, partner at Maneira Advogados and associate professor of Tax Law at UFRJ (Federal University of Rio de Janeiro), evaluates this Wednesday's STF decision.

According to the expert, the option not to modulate the effects is the most worrying. The merit of the definition, he says, is not a problem, and it makes sense that a decision with general repercussions can prevail over something previously judged.

Manner remembers that the discussion considered, among other things, respect for the principle of equality. A company could have an advantage over a competitor due to an old court decision that exempted it from CSLL, for example.

“The problem is that the Supreme Court said this for the first time last week. So modulation would be absolutely necessary”, he says.

According to him, the impact of retroactive charges can be billions, especially in the case of CSLL.

Carolina Romanini, partner at Cescon Barrieu in the tax area, also sees the Supreme Court's decision as worrying.

She recalls that article 5 of the Constitution establishes that the law must not prejudice res judicata, which can be a potential point of conflict.

Like Maneira, she also understands that the merit of the decision is fair, as it can correct distortions between companies exempt from taxes and others that need to pay.

“Free competition and equality are committed. These were the principles considered by the STF to judge in this way.”

The problem, she says, is allowing retroactive charges. "This really harms companies. Imagine a subsidiary having to explain to the foreign head office that it will need to pay a tax even though there was a decision [of exemption] before. There is no legal certainty."

Romanini states that there are many cases of companies that had the right not to pay CSLL recognized and that will now have to pay the tax for at least five previous years.

The deadline she mentions concerns a legal barrier that prevents the IRS from making charges beyond the last five years.

However, Manner says that the initiation of chargeback will be examined on a case-by-case basis. According to him, despite the blockade, there are many situations in which the IRS carried out assessments and executions, even with the companies protected by the court decision.

In these cases, the five-year period does not apply and the company may have taxes charged since the Supreme Court decision came into force — in the case of CSLL, since 2007, for example.

For him, non-modulation creates legal uncertainty. "It hurts trust in the system, in res judicata. I sincerely hope that declaration embargoes change this", he says.

The legislation provides for the parties involved in the process to file a motion for clarification, which is an instrument when there is doubt, error, contradiction or obscurity in the decision. The appeal can be filed within five days.

David Andrade Silva, tax expert and partner at Andrade Silva Advogados, says that possible embargoes could modify the Supreme Court's decision, but this is rare.

“Only when there is a very big contradiction in the judgment, which would inspire the change of one of the votes. I would say that it is almost impossible for this decision to be modified”, says Silva, adding that, historically, the Supreme Court does not reform decisions due to embargoes for declaration.

Romanini also finds it difficult to make changes. She also remembers that in the case of the thesis of the century (judgment on ICMS based on PIS/Cofins), the embargoes were filed in 2017 and judged only in May 2021.

“There is hardly any change in understanding, but some correction or clarification could improve the judgment in some aspect, perhaps in relation to the production of effects for the past, which is flagrantly retroactive and compromises legal certainty and the principle of non-retroactivity”, he states.

The lawyer still fears that the Supreme Court could do this with other issues, not just tax matters. "That's the danger of judgment. We're talking about changing the past," he says.

This is what also worries Silva. "In practice, the res judicata will always be under question. I have a final decision, but I don't know whether or not that issue will be endorsed by the Supreme Court", he says. "It's a shocking thing, in a way even worrying. They recreated the Law", he adds.

He says that the decision deals with tax issues only, but the argument can go beyond that matter.

“The topic was given in a question involving the CSLL, but I worry about the intention of this understanding”, he says.

In the case of CSLL, Silva says that the impact can be high, as many companies took advantage of a final and unappealable decision to not pay the tax. According to him, some provisioned billions of reais in exemptions in the financial statement.

Jordão Oliveira, tax lawyer at Zilveti Advogados, also says that non-modulation creates great legal uncertainty. "It's the Brazil risk. How does a company that won a lawsuit report this to headquarters?", he asks.

For him, the decision is worrying for all taxpayers. “What we learned in college, that res judicata cannot be changed, except by a specific rescission action, the STF ended up putting a stone on top.”

What did the STF decide?

The STF ministers decided that, in tax cases, court decisions automatically interrupt the effects of previous judgments (even in cases where there was no longer the possibility of appeal), without the need for a rescission action by the Revenue in Court.

What are the conditions?

The principles of anteriority and noventena must be respected, for example. The first establishes that increases in certain taxes can only be applied in the year following the change, while the nineteen year establishes a period of 90 days. The legal provision exists to avoid surprising taxpayers and give them time to adapt to the new rules.

What cases are affected?

The STF focused directly on two cases, but the thesis presented by the ministers is valid for judging all similar cases.

In both actions, the Union intended to once again collect the Social Contribution on Net Profit (CSLL) from companies that, in the 1990s, had won in court, with final and unappealable judgment (without the possibility of appeal), the right not to pay the tax. Then, in 2007, the STF validated the CSLL charge — but there was still discussion about restarting the tax collection, which, as decided now, can be restarted even without rescission action from the moment the STF decides to charge it.

https://www1.folha.uol.com.br/mercado/2023/02/quebra-de-decisao-tributaria-pelo-stf-gera-inseguranca-juridica-dizem-especialistas.shtml