In Brazil, the company’s conduct on which the tax assessment is based with a qualified fine of 150% is considered to be attributed to the administrators due to the management power they have. Thus, additionally, the personal tax liability of the managing partners is configured.
This is the recent decision of the Higher Chamber of the Administrative Council of Tax Appeals (CARF), the higher Court in the administrative sphere of discussion of federal taxes.
In summary, the court decided that when simulation, fraud, or evasion occurs, two “penalties” necessarily occur together: (i) the fine becomes qualified, reaching the percentage of 150% of the tax, and (ii) it is configured the personal accountability of administrators, as they are the ones who have the power of management.
The main point of attention is that the Fiscal Authorities often applies a broad concept of what “simulation” means. And so, it ends up encompassing completely legitimate conduct by companies, because of the different interpretation of the tax authorities.
This occurs, for example, in cases of (i) taking tax credits to reduce the amount payable, (ii) M&A operations, and (iii) corporate restructuring. Therefore, it is up to administrators to pay extra attention to tax compliance, using an appropriate strategy to reduce these risks.
