By: Giovanne Duarte de Queiroz, Lawyer specializing in Public Law and with a postgraduate degree in Tax Law and Procedure from IDP.
Brazil is one of the countries with the most tax litigation in the world. According to the OECD (2017), in 2015, Brazil had more than 225 active cases – approaching only Canada and France in number.
From 2011 to 2015, the country increased by 25% the percentage of federal tax credits under administrative dispute, reaching first place on the list of countries with the highest number of tax debts pending administrative decision. While not collecting revenue from these processes, Brazil also leads the ranking of countries that spend the most on administrative tax litigation in relation to GDP (2,4%).
Given this scenario, the Administrative Council of Tax Appeals (CARF), through its Internal Regulations (RICARF), implemented the system of binding precedents and repetitive appeals within the scope of the federal tax administrative process, in an attempt to optimize the procedural management of the body and standardize its jurisprudence.
The aforementioned system of administrative "precedents" has generated intense debates in academic and legal circles – especially regarding the possible application of the system for judging repetitive cases under the 2015 Code of Civil Procedure to tax administrative proceedings.
General concepts about the tax administrative process.
The administrative tax process (PAT) is the set of rules that governs the activity aimed at resolving conflicts between the parties involved in the tax legal relationship within the administrative sphere.
It is possible to extract its fundamental principles directly from the Federal Constitution, starting with the right to petition (article 5, XXXIV, 'a'); due process of law (article 5, LIV) and the right to a fair hearing and full defense, with the means and resources inherent to it (article 5, LV), in addition to the explicit principles of Public Administration contained in article 37.
Currently, there is no uniform legislation regarding federal, state, district, and municipal tax administrative processes. At the federal level, the general procedure for the Administrative Tax Procedure (PAT) is prescribed in Decree No. 70.235/72, while the other procedural and functional rules of the Administrative Council of Tax Appeals (CARF), which deal with administrative judgments in the second instance, are found in its Internal Regulations (RICARF).
Thus, despite the provisions of Decree No. 70.235/72 and Law No. 9.784/99 for the federal PAT (Tax Administration Program), each state and municipality in the federation has its own procedural rules for dealing with tax disputes within its jurisdiction.
The formalization of the tax collection claim by the active subject is materialized through the infraction notice (AI) or assessment notice (NL); aware of the charge, the passive subject may: (i) pay the full amount and extinguish the tax obligation (art. 156, I, of the CTN), (ii) do nothing (giving rise to the executive collection of the tax credit later), or (iii) challenge the tax assessment, initiating the litigation phase of the PAT.
If the administrative appeal is deemed fully justified, the tax credit is extinguished (article 156, IX, of the CTN); if it is deemed partially justified or unjustified, and all appeals have been exhausted, the collection of the respective tax credit will continue – in which case the taxpayer may file a lawsuit to contest the collection. If the taxpayer does not make an "amicable" payment within 30 days, the debt will be registered as an active debt, giving rise to its executive collection.
The impacts of the CPC/2015 on the Tax Administrative Process
Article 15 of the Brazilian Code of Civil Procedure (CPC/2015) establishes that: "in the absence of rules governing electoral, labor, or administrative proceedings, the provisions contained therein shall be applied supplementarily and subsidiarily."
The aforementioned normative innovation ends up building mechanisms to overcome "supervening axiological gaps" in the administrative tax process, so that the rules of the CPC/2015 become vectors of integration in the absence (supplementary) or insufficiency (subsidiary) of specific rules to deal with administrative tax litigation (MELLO, 2016). According to the teachings of Rodrigo Dalla Pria and Paulo Cesar Conrado:
In the first situation, that of supplementary application, what is assumed is the total absence of a specific rule regulating the administrative process, in which case the Code of Civil Procedure ends up assuming the 'normative-substitutive' function.
In the second hypothesis, when the subject is subsidiarity, some regulation is assumed, with the 2015 Code of Civil Procedure having a 'normative-complementary' function (CONRADO; PRIA, 2016, p. 256).
Within the scope of the CARF (Administrative Council of Tax Appeals), there are several cases of subsidiary and/or supplementary application of the CPC (Code of Civil Procedure) to the federal PAT (Tax Assessment Procedure). As an example, the following ruling invokes the burden of proof (article 373, I of the CPC) on the taxpayer to prove the constitutive fact of their right to offset tax credits:
Subject: Social Contribution on Net Profit – CSLL. Calendar Year: 2003. TAX COMPENSATION. CREDIT RIGHT. BURDEN OF PROOF. ERROR OF FACT. CREDIT NOT PROVEN. In light of article 373, I, of the CPC (Law No. 13.105, of 2015), of subsidiary application in the federal tax administrative process, the burden of proof of the constitutive fact of the alleged credit right rests with the applicant for the credit, by presenting valid and suitable evidence of the existence of the credit against the National Treasury so that its liquidity and certainty may be ascertained, pursuant to article 170 of the National Tax Code (CARF, 2018, emphasis added).
Another positive transformation, with the advent of the CPC/2015, was the strengthening of the system of binding precedents and the judgment of repetitive cases. The use of these procedural techniques is justified in view of the growing number of mass lawsuits pending judgment in the Judiciary, a result of an intense mutation in the social and legal values existing in society, which is becoming increasingly complex and plural (ATAÍDE JR., 2011).
This shift in values inevitably leads to increased litigation between parties in legal relationships. In this scenario, the State (that is, the Public Power) figures as a preponderant actor in the face of the surge in repetitive cases that end up in Brazilian courts – especially in matters involving Tax Law.
This situation arises from the very public and compulsory nature of tax rules, which affect a huge number of people at the same time, with an infinite number of generating events of common origin, prescribed in the matrix rules of tax incidence (TEIXEIRA, 2013).
Given this scenario, Article 62, § 2 of the CARF Internal Regulations now expressly provides for the binding nature of administrative judgments to precedents established by the Superior Court of Justice (STJ) and the Supreme Federal Court (STF). Therefore, in addition to observing its own jurisprudence, CARF judges now have a legal duty to follow binding precedents established by the Superior Courts, under penalty of losing their mandate (Article 45, VI of the CARF Internal Regulations).
The CARF precedent system
The system of repetitive appeals in the federal tax administrative process was introduced by the RICARF (Internal Regulations of the Administrative Council of Tax Appeals), which came into effect in 2015, and was subsequently amended by Ministry of Finance Ordinance No. 153 of 2018. Article 47, Annex II, of the RICARF prescribes as follows:
Art. 47. The cases will be electronically assigned to the Panels and from there, also electronically, to the advisors, organized into batches, preferably formed by related, resulting or reflective cases, of the same subject matter or thematic concentration, observing the competence and procedure foreseen in art. 46.
§ 1 When there are multiple appeals based on the same legal issue, a batch of repetitive appeals will be formed, and the appeal most representative of the controversy will be defined as the paradigm.
§ 2 The paradigm case referred to in § 1 will be drawn by lot among the panels and, within the selected panel, drawn by lot among the council members, with the remaining cases included in the batch of repetitive cases being transferred to the aforementioned panel.
§ 3 When the leading case is included on the agenda, the corresponding cases from the batch of repetitive cases will be included on the same agenda and session, in the name of the President of the Panel, and the result of the leading case's judgment will be applied to them.
In the federal administrative process, it is also important to highlight the procedure for issuing administrative rulings (article 72, annex II, of the CARF Internal Regulations). The rulings issued by CARF, initially, bind exclusively the members of the Council itself, who must reproduce the rulings in their judgments.
For rulings to become true "precedents," binding on the entire federal Tax Administration, they need to be approved by a normative act of the Minister of Economy. Recently, Ministerial Decrees ME No. 277/2018 and 129/2019 were issued by the Minister of Economy, which gave binding effect to several rulings of the CARF (Administrative Council of Tax Appeals).
Finally, it is worth highlighting Ministry of Economy Ordinance No. 340/2020, which prescribes, in its article 50, that in the judgments of cases subject to the special procedure of administrative tax litigation of small value, the judge must observe the summaries and resolutions of uniformity of divergent theses issued by CARF.
The above provision is innovative – in a very positive way, in fact – by providing for the automatic linking of decisions in small-value tax disputes, at first instance, to all CARF (Administrative Council of Tax Appeals) rulings and resolutions – even those that do not have binding effect endorsed by the Minister of State for the Economy.
The results of applying the CARF precedent system
According to a survey conducted in 2015 by the Ministry of Transparency, Oversight and Control (MTFC), prior to the enactment of the current RICARF (Regulations for Administrative Councils for Tax Appeals), the average time for judging appeals that reached the Council was 5 to 10 years.
At that time, the estimated time for adjudication of the total backlog of cases (including those that had not yet been assigned to a rapporteur) was around 77 years. The report stated that approximately 13 cases (11% of the total backlog) had been awaiting judgment by the council members for more than 10 years.
Back in 2019, a survey conducted by CARF itself found that, after adopting measures aimed at increasing procedural speed – e.g., the use of the repetitive appeals system – the estimated time for judging the entire backlog of cases at the body decreased from 77 years to about 6 years. Furthermore, it is estimated that the time for judging appeals also decreased, varying from 1 year and 2 months to 6 years and 1 month, depending on the judging panel.
However, reducing the processing time of cases – while extremely necessary – is not, in itself, an ideal solution to resolve the thousands of repetitive cases clogging administrative bodies. More than shortening the time of judgments, it is necessary to foster the creation of precedents that bring legal certainty to the tax administrative process.
Alternatives to the current precedent system in Tax Administrative Proceedings
Regarding the aspect of precedent formation, it is clear that the procedure prescribed in the RICARF does not have an adequate normative structure, concerning: (i) the procedure for selecting and processing appeals; (ii) the exercise of prior adversarial proceedings by the taxpayer whose appeal has been affected, through the demonstration of distinction; and (iii) the extent of the binding nature of the dominant legal theses.
Regarding the procedure for choosing the leading case, § 1 of article 47, annex II, of the RICARF (Internal Regulations of the Administrative Council of Tax Appeals) states that, within the batch of repetitive appeals, the one that best represents the controversy will be defined as the leading case. The legal thesis adopted in the judgment of the leading case will therefore be applied to the other cases.
The expression, in its literal interpretation, presupposes that there is no set deadline for the incident to be judged, which leads to the conclusion that other taxpayers affected by the precedent may have to wait indefinitely for a final decision from CARF.
It is also noticeable that the provision stipulates that a preliminary analysis be carried out by the advisors, in order to elevate to the position of paradigm only one appeal – among hundreds of others – that, in theory, best represents the controversy.
From the analysis of the points raised above, it is clear that the aforementioned rule does not have the deserved concern for the quality of the legal thesis to be established, or for the effective participation of the taxpayers affected by the procedure (GASPERIN, 2017). Firstly, instead of choosing only one appeal, the ideal would be to carry out a joint analysis of multiple processes – two to four cases, for example – to encompass a broader and more comprehensive discussion about the matter to be judged.
Following this parameter, it would be possible to construct a broad range of arguments, with different points raised by both taxpayers and tax authorities – which would certainly enrich the debate and give the council members the opportunity to familiarize themselves with the issues to be decided.
Furthermore, in an ideal model, the reporting advisor, when assigning other repetitive appeals, should : (i) precisely identify the tax issue to be decided in the judgment; (ii) then notify the taxpayers affected by the measure so that, if they wish, they can exercise their right to a hearing; (iii) give preference to judging the batch of repetitive appeals over other cases, ceasing the procedural suspension of the other appeals if the incident is not judged within a maximum of one year, at which point they would return for individual judgment by the CARF panels.
Another point that deserves attention is the fact that taxpayers have no means to exercise their right to a fair hearing during the selection stage of repetitive appeals – there is not even the possibility of oral argument for those whose cases have been selected for judgment.
The only "solution," in this scenario, would be to file yet another round of lawsuits – which would certainly not only challenge the allegedly improper allocation of funds, but also restart the entire discussion of the matter, which had already been thoroughly considered through administrative channels.
Thus, the distinguishing principle, in a preventive capacity, becomes essential in these circumstances for three elementary reasons: (i) as a corollary applicable to all stages of the administrative process, the right to a fair hearing and full defense must also permeate the procedure for repetitive appeals; (ii) the error in the allocation of cases and in the transposition of binding precedents would ultimately only further harm the discussion carried out through administrative channels – generating, in the future, more expenses for the taxpayer and the State; (iii) without administrative means of appeal, taxpayers would resort to the Judiciary to remedy the alleged error, generating a new wave of unnecessary lawsuits, to the detriment of a simple petition in the administrative proceedings.
Finally, there is the emblematic issue of the "binding effect" of the dominant legal theses of the CARF (Administrative Council for Tax Appeals). The first problem lies in the lack of a provision that automatically links the thesis established in the judgment of repetitive appeals to analogous future cases, so that Article 47, § 3 of the CARF Internal Regulations only mentions the transposition of the legal thesis to the batch of repetitive cases in which the leading case is included.
The second problem lies in the bureaucratic procedure of article 75, annex II, of the RICARF, which is the "binding endorsement" carried out by the Minister of State for the Economy, a sine qua non condition for the federal Tax Administration to start following the precedents of the Council.
From a pragmatic point of view, the aforementioned normative provision of the RICARF appears completely counterintuitive – especially in the current scenario, where rationality and predictability of legal systems are valued through the standardization of case law and the valorization of precedents.
Following this line of thought, João Aurino de Melo Filho (2018, pp. 559-560) understands that "the final decision of the CARF is not only the final decision of the administrative instance, it is the final decision of the Public Administration". Thus, in the view of the aforementioned author, the binding nature of CARF precedents should be broad and automatic in relation to the Council and other bodies of the federal Tax Administration.
This limitation on the binding nature of the CARF's summarized understandings also brings no practical utility to the administrative process. Even if the tax authorities of the Federal Revenue Service (adjudicating or not) adopt positions different from those of the CARF, such a measure is doomed to failure – since the Council will judge it inadmissible at a later time (MELO FILHO, 2018).
According to Daniel Diniz (2018), it does not seem logical – much less rational – for a collegiate body, empowered to standardize jurisprudence, not to bind the rest of the Tax Administration. In fact, a standardization body should do precisely the opposite: automatically bind all those who are subject to its administrative “jurisdiction”.
Another point that deserves highlighting is that there is no effective exchange of information between the administrative and judicial spheres, nor even between the supervisory and adjudicative spheres of the Tax Administration. In fact, the adjustments are much more focused on collection actions (identification of addresses, participating partners, economic groups, etc.) than on the legal discussion itself (BRAZIL, 2022).
In fact, long before the advent of the CPC/2015, scholars in the field were already focusing on the lack of "systemic harmony" between the judicial and administrative tax processes. Miquerlam Chaves (2011), for example, already warned about a possible paradigm shift regarding the judicial review of decisions rendered in administrative tax litigation. For this author, there would be no point in "reviewing" the entire discussion held in the adjudicating bodies of the Executive Branch (e.g., CARF) within the Judiciary.
From this perspective, the most correct approach would be to "continue" the debate on the matter directly in the second instance (e.g., State Court of Appeals, Regional Federal Court, etc.), thus upholding the principles of procedural efficiency, separation of powers, and the inalienability of jurisdiction (CAVALCANTE, 2011). The main idea is that all the discussion that occurred in the administrative sphere should be used in the judicial sphere – the controversy already exhausted in the administrative bodies cannot be "started from scratch."
Furthermore, administrative decisions based on precedents – judicial or administrative – must comply with the requirements of Article 489, § 1, in conjunction with Article 927 of the CPC (RIBEIRO, 2017). In these cases, therefore, the mere reproduction of the summary of a judgment or binding precedent of the CARF would not suffice; the judge must carry out an analytical comparison between the factual and legal circumstances of the case and the precedents invoked.
Conclusion
It is possible to foresee that the use of repetitive appeals and binding precedents can, in fact, help in building a more cohesive system of precedents in the tax administrative process, based on the values of legal certainty and systemic coherence.
Fruitless and costly discussions, which lasted for years (perhaps decades), are giving way to a collaborative environment among the various administrative and judicial bodies, in search of a more rational model for dispute resolution based on the precedent system of the CPC/2015, which radiates and reaches, with excellence, the tax administrative process.
If the experience of the CARF (Administrative Council of Tax Appeals) and the Federal Tax Administration serves as an indicator for other administrative courts, it is possible to envision a promising future for Brazilian tax litigation. The search for extrajudicial solutions and the strengthening of dialogue between institutions are paving the way for the "tax reform" that the country truly needs: procedural reform.
Did you like the content?
sign to IDP Online newsletter To stay informed about the main discussions in the legal world!
References
ATAÍDE JR., Jaldemiro Rodrigues de. Binding precedent and its temporal effectiveness in the Brazilian procedural system. 2011. Master's thesis, Catholic University of
Pernambuco, Recife, 2011.
Administrative Council of Tax Appeals ( CARF ) clarifies information with management data. Brasília, February 7, 2019. Available at: http://idg.carf.fazenda.gov.br/noticias/situacao-do-atual-estoque-do-carf. Accessed on: April 09, 2022.
__ . National Council of Justice. Systematization of the diagnosis of tax litigation: initial contributions. Brasília: CNJ, 2022.
__ . Constitution (1988). Constitution of the Federative Republic of Brazil. Available at: http://www.planalto.gov.br/ccivil_03/constituicao/constituicao.htm. Accessed on: April 09, 2022.
Law No. 5.172 , of October 25, 1966. National Tax Code. Provides for the National Tax System and establishes general rules of tax law applicable to the Union, States and Municipalities. Available at: http://www.planalto.gov.br/ccivil_03/Leis/L5172.htm. Accessed on: April 09, 2022.
Law No. 13.105 , of March 16, 2015. Establishes the new Code of Civil Procedure. Available at: http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2015/Lei L. Accessed on: April 09, 2022.
Ministry of Economy. Ministry of Economy Ordinance No. 129, of April 1, 2019. Assigns binding effect to the rulings of the Administrative Council of Tax Appeals in relation to the Federal Tax Administration and provides other measures. Available at: http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=99832. Accessed on: April 09, 2022.
Ministry of Economy. Ministry of Economy Ordinance No. 340, of October 8, 2020. Regulates the constitution of the Panels and the operation of the Judgment Offices of the Special Secretariat of the Federal Revenue of Brazil – DRJs, and regulates the administrative tax litigation of small value. Available at: https://www.in.gov.br/en/web/dou/-/portaria-n-340-de-8-de-outubro-de-2020-282070519. Accessed on: April 09, 2022.
Ministry of Finance. Ministry of Finance Ordinance No. 143, of April 17, 2018. Amends the Internal Regulations of the Administrative Council of Tax Appeals (CARF), approved by Ministry of Finance Ordinance No. 343, of June 9, 2015. Available at: http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?idAto=91558&visao=anotado. Accessed on: April 09, 2022.
Ministry of Finance. Ministry of Finance Ordinance No. 277, of June 7, 2018. Assigns binding effect to the rulings of the Administrative Council of Tax Appeals – CARF in relation to the Federal Tax Administration. Available at: http://idg.carf.fazenda.gov.br/acesso-a-informacao/boletim-de-servicos-carf/portarias-do-mf-de-interesse-do-carf-2018/portarias-mf-277-sumulas-efeito-vinculantes.pdf. Accessed on: April 09, 2022.
Ministry of Finance. Ministry of Finance Ordinance No. 343, of June 9, 2015. Approves the Internal Regulations of the Administrative Council of Tax Appeals (CARF) and provides other measures. Available at: http://idg.carf.fazenda.gov.br/acesso-a-informacao/institucional/regimento-interno/ricarf-multivigente.pdf. Accessed on: April 09, 2022.
Ministry of Transparency , Oversight and Control. Audit Report No. 201504306: assessment of the integrity of CARF. Brasília, May 16, 2016. Available at: https://www.conjur.com.br/dl/relatorio-auditoria-conjunta-carf.pdf. Accessed on: April 09, 2022.
CARVALHO, Daniel Melo Nunes de. The federal tax administrative process: analysis of the federal model in light of the current legal framework and foreign experience. School of Public Administration – ESAF/MF. Brasília: ESAF, 2018.
CAVALCANTE, Miquerlam Chaves. Judicial review of decisions by judicial bodies of the Brazilian Executive Branch and Comparative Law (FINRA-USA). In: NEIVA, Juliana Sahione; LEITE, Thiago Carvalho Barreto (Coord.). 1st Introductory Course to American Law: Fundamentals of US Law Course. 1st ed. Brasília: EAGU, p. 259-275, 2011.
CONRADO, Paulo Cesar; PRIA, Rodrigo Dalla. Application of the Code of Civil Procedure to the administrative tax process. In: CONRADO, Paulo Cesar; ARAÚJO, Juliana Furtado Costa (Coord.). The new CPC and its impact on tax law. 2nd ed. São Paulo: Fiscosoft, p. 254-260, 2016.
GASPERIN, Carlos Eduardo Makoul. The “repetitive administrative appeals” within the scope of CARF and the CPC/2015. In: CARVALHO, Paulo de Barros (Coord.). Revista de Direito Tributário Contemporâneo. São Paulo, v. 7, year 2, p. 169-183, Jul.-Aug. 2017.
MELLO, Henrique. Supervening axiological gaps in Tax Administrative Proceedings as a result of the supplementary and subsidiary application of the new CPC. In: CARVALHO, Paulo de Barros (Coord.). Proceedings of the XIII National Congress of Tax Studies: 50 years of the National Tax Code. São Paulo, 2016.
MELO FILHO, João Aurino de. Legislative rationality of the tax process. Salvador: JusPodivm, 2018.
OECD. Tax Administration 2017: comparative information on OECD and other advanced and emerging economies. Paris: OECD Publishing, 2017. Available at: https://www.oecd-ilibrary.org/taxation/tax-administration-2017_tax_admin-2017-en. Accessed on: 09 Apr. 2022.
RIBEIRO, Diego Diniz. The 2015 CPC and its reflections on the Tax Administrative Process. In: CARVALHO, Paulo de Barros (Coord.). Rationalization of the tax system. 1st ed. São Paulo: Noeses, p. 219-240, 2017.
SOUZA, Matheus Diniz Marques Dittmar. Reflections of the 2015 Code of Civil Procedure (Law No. 13.105/2015) in the context of tax proceedings. 2018. Undergraduate Thesis, Federal University of Santa Catarina, Florianópolis, 2018.
TEIXEIRA, Alice Gontijo Santos. General repercussion and repetitive appeals in tax matters: the model case technique as a way of valuing precedent and protecting taxpayer confidence. 2013. Master's Dissertation, Federal University of Minas Gerais, Belo Horizonte, 2013.