According to the most recent data from 2023, the average length of administrative tax litigation is 5 to 6 years, considering the processing of cases in the Judgment Offices (DRJ) and the Administrative Council of Tax Appeals (Carf). In the judicial sphere, the collection of the active debt of the Union, which is handled by the National Treasury Attorney’s Office (PGFN), lasts on average 12.2 years. This means that a taxpayer who does not obtain a favorable decision in the administrative sphere will take almost 18 years to resolve their outstanding debts with the Tax Authorities.
Someone could argue that during the administrative discussion, the tax debts will have their enforceability suspended, which prevents the judicial collection of the debt and ensures the maintenance of the taxpayer’s tax regularity. This is true. However, considering that the cancellation rate for tax assessments by the DRJs is 50% and only 36% by the Carf, the probability of success works against the taxpayer.
In the judicial sphere, in addition to the loss of the benefit of the automatic suspension of the tax credit’s enforceability (the taxpayer will need a favorable decision preventing the collection of debts), maintaining the discussion involves additional expenses: hiring lawyers, court costs and fees, remuneration of experts and technical assistants, attorneys’ fees (in case of loss of the dispute), offering guarantees (in the case of objections to tax enforcement), etc.
In a scenario of high Selic interest rate (by 2025, the estimate is that the basic interest rate will reach 15%), it is necessary to consider the viability of carrying out tax disputes for many years.
Of course, it is necessary to distinguish between stillborn discussions, on highly controversial or already consolidated topics that are unfavorable to taxpayers, in which the taxpayer may, at most, roll over their tax debts, with no prospect of success, and discussions involving patent illegalities or unconstitutionalities, which should, in fact, be the subject of administrative or judicial litigation and which often prevent the regular operation of companies.
In the first case, since the enactment of Law No. 13,988/2020, which provides for tax settlements at the federal level, regulating article 171 of the National Tax Code, taxpayers now have an interesting alternative for regularizing their tax liabilities, in addition to the options of payment in cash or ordinary installments (in 60 months, without any discount), which often prove to be unfeasible from a financial point of view.
The objective of the tax settlement is to end the litigation and extinguish the tax credit. Furthermore, the transaction aims to enable the maintenance of the company and the jobs it generates, stimulate economic activity and guarantee resources for public policies (within the scope of the PGFN alone, the estimated revenue from tax transactions in 2024 was R$32 billion).
At the federal level, Law No. 13,988/2020 authorizes the granting of several benefits, such as discounts on fines, interest and legal charges related to credits to be transacted that are classified as irrecoverable or difficult to recover (including those owed by companies undergoing judicial recovery, judicial liquidation, extrajudicial liquidation or bankruptcy); the offering of special terms and forms of payment (limited to 120 months, for companies in general, or 145 months, in the case of individuals, microenterprises or small businesses); the offering, replacement or sale of guarantees and constraints; the use of tax loss credits (IRPJ) and negative tax base (CSLL) up to the limit of 70% of the remaining balance after the application of discounts, if any; and the use of court orders or credit rights recognized by a final judgment for the amortization of principal tax debt, fines and interest.
These benefits are essential for companies and individuals facing financial difficulties, allowing them to adapt their tax obligations to their payment capacity and avoiding drastic measures such as tax enforcement or asset freezing. In addition, tax settlements provide greater legal certainty, avoiding future legal and administrative disputes and creating a stable and predictable environment for companies to plan their activities and investments.
In addition to the individual transaction, in which the taxpayer presents its proposal to the Brazilian Federal Revenue Service (RFB)/PGFN, respecting the conditions established by law, there are also transactions by adhesion, in which negotiation proposals are disclosed by the RFB/PGFN establishing the deadline for adhesion, the benefits granted, the profiles of the taxpayers and debts covered, and the other conditions of the agreement (currently, within the scope of the PGFN, there are open notices for to Simples Nacional debts, for discussions involving the use of premiums and the incidence of social security contributions on PLR, stock option plans and private pensions).
In the wake of the pro-transaction movement led by the RFB/PGFN, several states began to regulate tax transactions within the scope of their jurisdictions. This is the case, for example, of the state of São Paulo, which instituted the Paulista Agreement program through Law No. 17,843/2023, which provides, among other benefits, the possibility of granting discounts of up to 65% of the total value of the credits to be transacted.
Thus, in addition to strategic tax litigation, an important tool for controlling illegalities/unconstitutionalities committed by the tax authorities, tax settlements offer an opportunity to regularize the taxpayer’s tax situation in a more accessible and less costly manner, with discounts on fines and interest, longer payment terms and the possibility of paying the debt in installments, especially in situations where tax litigation shows little prospect of success.
By Ednaldo Rodrigues de Almeida Filho, associate at Candido Martins Advogados