Companies that hold court-recognized tax credits and engage in administrative offsetting should be aware of the risk of losing any remaining unused balance.
The risk stems from the controversy over the interpretation of the five years provided for in Article 168 of the National Tax Code (CTN), particularly regarding whether the five years counted from the final judgment serve only to initiate the offset procedure—with the qualification of the credit and the first PER/DCOMP—or whether, on the contrary, the entire credit must be fully offset within that period.
The Federal Revenue Service maintains that all offset declarations must be filed within the five-year period, subject to forfeiture of the unused balance.
Most Federal Regional Courts, however, hold that, once the procedure is timely initiated, there is no time limit for the full use of the credit, especially when its utilization depends on the volume of tax liabilities available over time.
In this context, 4 key points stand out:
1. Registration of the credit as a milestone for the timely exercise of the right to offset: The registration of the credit with the Federal Revenue Service is the act by which the taxpayer unequivocally asserts the exercise of the judicially recognized credit right, submitting it to administrative review for validation and implementation. When performed within the five-year period, it demonstrates diligent and timely action, ruling out any characterization of inaction or negligence.
2. Risk of inaction in credit registration and impact on the full realization of the offset: The taxpayer’s conduct throughout the five-year period can directly impact the effectiveness of the right to offset. There are precedents in the Superior Court of Justice (STJ) that consider prolonged inaction as a relevant factor for the time limitation on the use of the credit. In such cases, taxpayers who delay filing their claim until the end of the period end up, in practice, with a reduced period for offsetting, which may compromise or prevent the full use of the credit balance.
3. Impact of the Controversy on Companies with High Credit Balances: Companies with high-value tax credits recognized by a final and unappealable court decision are the most affected by this controversy. In such cases, the utilization occurs gradually due to the operational limitation on monthly tax liabilities eligible for offset. Thus, even when the right is exercised in a timely manner, the significant volume of the credit may prevent its full absorption within the discussed timeframe, increasing the risk of debate regarding the potential expiration of the remaining balance.
4. Preventive Measures in Light of the Approaching Five-Year Deadline: In light of the risk of limitations on the use of the credit, two preventive measures stand out: (i) adopting a legal strategy to ensure the continuity of the offset; or (ii) alternatively, converting the credit into a claim for a refund. In this second scenario, filing a lawsuit to recognize the right to a refund of the overpayment, with payment via a court-ordered payment or RPV, may be a relevant alternative to prevent the credit from expiring, especially when the five-year deadline is nearing its end or there is a concrete risk of restrictions on administrative utilization.
The outcome of this controversy will be determined by the STJ in its ruling on Repetitive Issue No. 1428, which aims to standardize the interpretation of the scope of the five-year period for the use of judicially recognized tax credits.
The ruling to be issued may directly impact the scope of the right to offset, especially regarding the possibility of fully utilizing the credit balance after the five-year period.
Until then, a scenario of legal uncertainty persists, reinforcing the need for close monitoring and the adoption of preventive measures by potentially affected taxpayers.
