In tax law practice, it is essential for legal professionals to have a deep understanding of the concept of tax credit, from its creation to its extinction.

In general terms, it's important to say that tax credit is the name given to the formalization of a tax obligation. To make it easier to understand, I'll give you an example!

1. John bought a property.

2. João will have to pay IPTU (Property Tax).

3. In order for the tax assessment to be carried out, and consequently, for the tax credit to be established, it is necessary to send the payment slip to João.

4. When the property tax bill arrives at João's house, the tax liability will be considered assessed.

This is precisely what Summary 397 of the Superior Court of Justice states: "The IPTU taxpayer is notified of the assessment by sending the payment slip to their address."

According to Professor Hugo de Brito Machado Segundo, it is the assessment that transforms the tax obligation into a tax credit.

The establishment of tax credit

According to article 142 of the Brazilian Tax Code (CTN), "it is the exclusive responsibility of the administrative authority to establish the tax credit through assessment".

The launch is the administrative procedure aimed at:

a) verify the occurrence of the event that gives rise to the corresponding obligation;

b) determine the taxable matter;

c) calculate the amount of tax due;

d) identify the passive subject;

(e) or, if applicable, propose the application of the appropriate penalty.

This administrative procedure for tax assessment is a mandatory and binding administrative activity, under penalty of disciplinary action. 

Consequently, the competent authority, upon ascertaining the existence of a tax obligation, cannot fail to issue an assessment, under penalty of being held liable for it.

The tax assessment will only be considered complete when the taxpayer has been duly notified of it. 

Since this is an administrative procedure, the notification must respect the principles of due process and the right to a full defense, and must grant a period for payment of the assessed amount, or for the presentation of an objection (administrative defense). 

Challenging the assessment of tax credits

If the taxpayer files an objection, it will have the effect of suspending the enforceability of the tax credit (CTN, art. 151, III), initiating an internal administrative process to control the legality of the assessment.

As we have already discussed in another post here on the IDP blog, the purpose of administrative tax proceedings is to protect the interests of taxpayers who suffer arbitrary or illegal measures from the Public Administration when a tax or tax penalty is mistakenly levied.

This means that by challenging the tax assessment, the Public Administration may exercise self-regulation, in accordance with Precedent 473 of the Supreme Federal Court.

"The administration may annul its own acts when they are flawed by defects that render them illegal, because no rights originate from them; or revoke them for reasons of convenience or opportunity, respecting acquired rights, and reserving, in all cases, judicial review."

Therefore, if the tax authorities recognize that the tax is illegal, they may, on their own initiative, annul the administrative act of assessing the tax liability.

Suspension of tax credit enforceability: some examples

One of the hypotheses for suspending the enforceability of tax credits is the moratorium, as can be seen in article 151, item I of the National Tax Code.

In general terms, a moratorium is understood to be an extension of the deadline for the payment of a debt, whether already due or not yet due, granted by the creditor to the debtor.

Tax moratoriums were a much-discussed topic during the COVID-19 pandemic, not only in Brazil but throughout the world.

This is because there was a legislative proposal to the effect that: "Tax debts of legal entities opting for the Simples Nacional (Simplified National Tax Regime) that become due during the state of calamity resulting from the Covid-19 pandemic may be postponed until mid-2021." This is one example we can give to explain the moratorium.

Another possibility for suspending the enforceability of tax credits is installment payment.

In this case, the law explains how the payment will be made in installments, in how many installments, and what conditions must be met by the taxpayer.

Regarding installment payments, two issues should be noted:

The first is that the conditions for granting tax installment plans must strictly adhere to the principle of legality, and there is no authorization for sub-legal acts to address conditions not foreseen in the law governing the benefit. 

The issue was decided by the First Panel of the Superior Court of Justice in REsp 1.739.641-RS, with Justice Gurgel de Faria as the reporting judge.

The second issue led to the issuance of Precedent No. 653 by the Superior Court of Justice.

According to the aforementioned Summary: "The request for tax installment payment, even if denied, interrupts the statute of limitations, as it constitutes an extrajudicial confession of the debt." 

Besides moratoriums and installment plans, there are other instances of suspension of the enforceability of tax credits foreseen in article 151 of the Brazilian Tax Code (CTN). These are situations you will explore in more detail during your specialization in Tax Law.

The extinction of tax credit

In this topic, I also want to discuss with you some hypotheses for the extinction of tax credits.

Whether due to its natural course intended by law, which is payment, or due to the occurrence of another circumstance, the fact is that the tax relationship must be extinguished.

Brazilian legal doctrine, when analyzing Article 156 of the National Tax Code, typically makes the following classification:

Methods of directly extinguishing tax debt:

a) Payment; 

b) Approval of advance payment; 

c) Lapse (loss of the right to levy the tax); 

d) Statute of limitations (loss of the right to collect the tax). 

Indirect methods of extinguishing tax debt:

e) Tax credit offset; 

f) Transaction; 

g) Remission; 

h) Payment in kind with real estate. 

Methods of extinguishing tax credits through procedural means:

i) Conversion of a deposit into income

j) Consignment in payment; 

k) Irrevocable administrative decision; 

l) Final and unappealable court decision. 

This classification helps you better understand how tax credit extinction is carried out, as well as giving you a general overview of all the methods provided for in the legislation.

It's important to remember that here on the IDP online blog we've already discussed several times the opportunities in tax law and how tax recovery works.

These articles aim to provide you with an overview of tax law, so that you have the necessary tools to deepen your studies.

Specialize in Tax Law at IDP Online!

Here's an important piece of advice for you: specializing in tax law is essential for your professional development. You'll see how many more job opportunities will open up for you.

With IDP's specialization, online classes (and even better, live classes), for example, you will be able to do thorough reading on complex tax law topics and have your questions answered by professors who are experts in tax credit recovery.

I often say that specialization is the gateway to establishing authority in a discipline. With it, you can work in large firms, prepare legal opinions in highly complex cases, and become a leading figure in the legal profession.

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References

Segundo, Hugo de Brito M. Manual de Direito Tributário. 12th edition. Grupo GEN, 2022.

National Tax Code