Tax | Understanding “Active” Tax Litigation in Brazil

It is extremely important for executives and investors to verify if there are judicial lawsuits filled by the company (“active” litigation) in Brazil. Plus, it is crucial to monitor the current state of discussions involving tax issues in the Judiciary that can be relevant to the companies.

There are different reasons for that:  

(i) In Brazil, unlike other countries, discussing tax issues in Court is commonplace for all companies. It is extremely ordinary and important that companies file lawsuits to rule out and recover undue taxes if they are somehow illegal. Plus, companies that do not discuss not only face an economic loss, but also may be in disadvantaged compared to its competitors, because if there is a win, they probably will not be able to benefit from that. 

(ii) Brazilian Supreme Court (STF) has been using a judicial technique called “modulation of effects of the rulings”. This means that if a tax law is rendered unconstitutional, only companies that filed lawsuits can recover the taxes unduly paid (the others will not be able to claim the past, buy only benefit from the precedent to stop paying from that point on). There was a change at the last judgment regarding the cut-off date: the precedent will only benefit who filed the lawsuit until the judgment started at the Supreme Court;

(iii) A company can only recover taxes unduly paid from the last 5 years prior to filing the lawsuit in Brazil. This means that every month it takes to file it, one month of tax recovering is lost;  

(iv) Judicial discussions involving tax issues may be real and hidden opportunities that can strongly impact the business. A win to taxpayers can mean an expressive victory to companies, but it is to be expected that only the companies that are discussing the matter in Court will benefit from it.

In such context, it is important to notice that there are several tax rulings set to happen in 2022 before the Brazilian Supreme Court (STF), as the one discussing the (un)constitutionality of a contribution levied over remittances abroad (known as “Cide-remessas”). 


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