To Mr. David Lewis Executive Secretary, FATF Secretariat 2, rue André Pascal 75016 Paris Cedex 16 France Dear Mr. Secretary, JOTA Info
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To
Mr. David Lewis
Executive Secretary, FATF Secretariat
2, rue André Pascal
75016 Paris Cedex 16
France
Dear Mr. Secretary,
SINDIFISCO NACIONAL (National Union of Federal Revenue of Brazil Tax Auditors), entity
representing Brazilian revenue service Tax Auditors, hereby presents information and expresses its
concern regarding the effects of recent legislative change that suppressed the “quality vote” rule
in the Administrative Council of Tax Appeals (Conselho Administrativo de Recursos Fiscais - CARF),
the federal-level Brazilian board of tax appeals, which may henceforth influence the performance
of competent federal authorities to assert and consolidate relevant tax legal facts, and
compromise the fight against tax evasion, corruption, money laundering, financing of terrorism
and of other criminal activities, among others.
A – The Federative Republic of Brazil commitment to the highest of standards in the fight against
corruption, tax crimes and the financing of terrorism and of criminal organizations
Internationally, the Federative Republic of Brazil has been constantly expressing its
commitment to and sharing its efforts in fighting corruption, tax crimes and the financing of
terrorism and of criminal organizations.
In its relations with the Organisation for Economic Co-operation and Development (OECD),
widening since the 1990s, Brazil is considered the OECD’s most engaged Key Partner and a source
of valuable policy experience. Brazilian federal administrative bodies, namely the Federal Revenue
of Brazil (RFB, tax authority), the Administrative Council for Economic Defence (CADE, competition
regulator), and the Federal Court of Auditors (TCU, court of auditors - budget) set fine examples of
vivid interaction with the Organisation.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brFurthermore, Brazil take part in a number of forums, committees and working groups
within the OECD sphere, in matters that encompass tax administration, aggressive tax planning,
the BEPS package1, among many others, notwithstanding the number of agreements signed by
Brazil in related subjects, denoting the significance of its commitment to the objectives and
themes addressed in the OECD. And, in May 2017, at the OECD’s Ministerial Council Meeting, the
Federative Republic of Brazil expressed its intention to join the Organization, knowing that the
interactions between the OECD and Brazilian public administration bodies already are a reality.
In regard to the Financial Action Task Force (FATF), Brazil is a member of the international
group since 2000, also in a regional sense (Latin American, GAFILAT), having already been
scheduled for June and July 2021 an in loco visit in the context of mutual assessments, as well as a
plenary discussion for February 2022, highlighting several Brazilian administrative bodies and
agencies continuous efforts to combat money laundering and the financing of terrorism.
The incorporation of international norms in the Brazilian legal system, such as the United
Nations Convention against Corruption2, the Inter-American Convention Against Corruption3, the
United Nations Convention against Transnational Organized Crime (the Palermo Convention) 4, and
the Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions (The OECD Anti-Bribery Convention)5, attests to the aforementioned commitment to
the highest standards in the fight against corruption, and against tax and financial crimes.
Brazil specifically addresses the crime of money laundering in federal Law nº 9613, of 3
March, 1998, and subsequent amendments that also emphasised harmful acts against foreign
public administration bodies and the financing of terrorism, challenging the latter with even more
determination after federal Law nº 13260, of 16 March, 2016.
The Federal Revenue of Brazil, according to its functions as the federal-level tax authority,
acts with a daily promptness to counter those crimes, and SINDIFISCO NACIONAL, entity
representing Brazilian revenue service Tax Auditors, on behalf of this professional category, and
aligned with the utmost performance of the Brazilian tax authority and the country in its entirety,
hereby manifests its deep concern after the legislative change prompted by federal Law nº 13988,
of 14 April, 2020, as follows.
B – The Administrative Council of Tax Appeals
Body of the federal public administration, linked to the currently-named Ministry of
Economy, the Administrative Council of Tax Appeals (CARF) is the federal-level Brazilian board of
1 In G20 meetings, Brazil has also been favouring progress in themes developed within the scope of the OECD.
2 Federal Decree nº 5687, of 31 January, 2006.
3 Federal Decree nº 4410, of 7 October, 2002.
4 Federal Decree nº 5015, of 12 March, 2004.
5 Federal Decree nº 3678, of 30 November, 2000.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brtax appeals6 responsible for ruling on tax demands arising from acts of competence of the Federal
Revenue of Brazil (RFB), making decisions in the administrative level about the application of
legislation regarding taxes administered by the previously mentioned RFB.
The CARF was established by Provisional Measure nº 499, of 3 December, 2008, later
converted into federal Law nº 11941, of 27 May, 2009, and implemented by the then Minister of
Economy in 15 February, 2009, by means of Ordinance nº 41, of 17 February, 2009. Another act by
the same Ministry (Ordinance nº 256, 22 July, 2009) passed the by-laws of the new administrative
body7, in force since then, considering amendments to it.
In its structure, the Sections and the Superior Chamber of CARF are composed of panels of
councillors, representatives from the fiscal administration and from the taxpayers8, each
occupying half of the seats at court, with a representative of the former serving as President, to
whom is conferred the prerogative of making use of the so-called “quality vote” (a casting vote) in
the event of a draw between the councillors (judges), thus avoiding stalemates in the decision-
making process. In these terms, federal Decree nº 70235, of 6 March, 1972, altered by the
aforementioned Law nº 11941, of 27 May, 2009, provides (free translation):
Article 25. [...] § 9o The positions of President of the Panels of the
Administrative Council of Tax Appeals, of chambers, its panels and of special
panels are to be occupied by councillors representing the Fiscal
Administration, who, in case of a stalemate, shall have the quality vote, and
the Vice-President positions, by taxpayers representatives.
Even though proceedings are carried out at the administrative level, in a process of
administrative acts review, the Administrative Council of Tax Appeals values the soundness of its
procedures, affirming guarantees of publicity and due process, as well as the adversary system and
full defence. The capacity to object decisions, taking the demands to the presence of a Superior
Chamber (CSRF) to settle conflicts and define understandings regarding tax legislation, in addition
to the ability to consolidate recurring and uniform decisions through binding precedents (of
mandatory observance), attest to CARF abidance for the precepts listed above.
It is very important to notice that, with regard to its functions, CARF assesses the legality of
administrative acts with due consideration of the interpretation of tax legislation offered by the
6 Article 25, federal Decree nº 70237/1972 (free translation). Rulings on tax and social security imposition procedures administered
by the Federal Revenue of Brazil is of the competence: I - at the first level, of the Offices of Trial of the Federal Revenue Service; […] II
- at the level of appeals, of the Administrative Council of Tax Appeals, body composed of a panel of judges equally from the fiscal
administration and from the taxpayers, part of the structure of the Ministry of Economy, with the task to rule on ex officio and
voluntary appeals of the first level, as well as appeals of a especial nature.
7 Available at: http://idg.carf.fazenda.gov.br/acesso-a-informacao/institucional/regimento-interno/ricarf-multivigente-junho-2019-
v2.pdf.
8 Appointment of councillors representing the fiscal administration considers candidates nominated from a triple list, sent by the
Federal Revenue of Brazil, while that of representatives of taxpayers from a triple list drafted by confederations representing
economic sectors and categories and union centrals. In both cases, the selection of councillors is made based on the technical
evaluation of the Committee for Monitoring, Evaluation and Selection of Directors (CSC), deciding on the aforementioned triple lists
sent by the respective representation groups. The CSC is made up of the President of the Administrative Council of Tax Appeals
(CARF) and representatives of the Federal Revenue of Brazil (RFB), the Attorney-General Office (PGFN), the confederations
representing national economic sectors and categories, civil society, and the Brazilian Bar Association (OAB).
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brtaxpayers - half of the body seats - without losing sight of the fact that it represents the federal
fiscal administration ruling on its own acts - therefore, implementing the administrative review of
those acts.
This is essential to understand the logic that legitimises the use of the “quality vote” as a
mechanism to overcome deadlocks in CARF decision-making process. As a body created, it is
noteworthy, for the administrative review of acts originated from the federal public administration
itself (more specifically, acts from the Federal Revenue of Brazil), it is only reasonable, including in
terms of legal certainty, that in the eventuality of an impasse the fiscal administration - again, in
the administrative level - has the disruptive vote.
It is worth to observe that taxpayer discontentment with the ruling can later on be brought
before the Judiciary, which, as a general rule, does not occur in the event of a verdict contrary to
the understanding of the federal tax administration, obliged to comply with CARF administrative
decision - the ruling is then deemed definitive. Thus, arguing the system would fail to contribute to
the reduction of tax litigation - the Judiciary being called upon to act - is certainly not justified,
since there is undoubtedly, in the administrative level, a balance in post-ruling prerogatives and
processes, especially regarding the possibility of an end to a conflict in favour of the taxpayer at
the administrative level - definitively.
In figures, according to data provided by CARF itself9, decisions are increasingly unanimous
(71.1% in 2017, 76.6% in 2018, 81.5% in 2019, 89.3% between January and February 2020), while
the use of the “quality vote” is decreasing (7.2% in 2017, 6.8% in 2018, 5.3% in 2019, 3.2%
between January and February 2020) 10. In this sense, any allegation that CARF, bearing in mind its
shared seats, would abuse the “quality vote” rule unfairly harming the taxpayer should be refuted.
On the contrary: the continuous effectiveness of CARF deliberations is visible, requiring less and
less the use of this deadlock solution mechanism, not to mention that even in the event of its use
the results not necessarily translate into a decision opposing the taxpayer view.
C – Advent of Law nº 13988/2020 and ending the “quality vote”
Provisional Measure nº 899, of 16 October, 2019, essentially dealt with what is referred to
in Brazil as “tax transaction”, id est, the opening to negotiations between the federal
administration and taxpayers concerning, in general, credits that the former holds against the
latter, contemplating the public interest in solving the bottleneck caused by the growing pending
tax issues. As its name suggests, a provisional measure is valid only for a short period of time, so
Provisional Measure nº 899/2019 was converted into federal Law nº 13988, of 14 April, 2020, after
being sanctioned without vetoes by the President of the Republic.
9 Available at: http://idg.carf.fazenda.gov.br/dados-abertos/relatorios-gerenciais/2020/dados-abertos.pdf.
10 Majority decisions were: 21.7% in 2017, 16.6% in 2018, 13,3% in 2019, 7.5% between January and February 2020.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brDuring the legislative process of converting the provisional measure into law, a device was
inserted and came into force with the publication of the new norm (free translation):
Article 28. Law nº 10522, of 19 July, 2002, comes into force with the
addition of the following art. 19-E:
“Art. 19-E. In the event of a draw in rulings regarding definition and
enforcement of tax credit, the quality vote referred to by Article 25, § 9º,
Decree nº 70235, of 6 March, 1972, does not apply, resolving the conflict
favourably to the taxpayer.”
With it, Article 28, Law nº 13988/2020, added Article 19-E to Law nº 10522/2002, which
does reference to a provision in Decree nº 70235, of 6 March 1972, in particular to Paragraph 9 of
Article 25, already cited (free translation):
Article 25. [...] § 9o The positions of President of the Panels of the
Administrative Council of Tax Appeals, of chambers, its panels and of special
panels are to be occupied by councillors representing the Fiscal
Administration, who, in case of a stalemate, shall have the quality vote, and
the Vice-President positions, by taxpayers representatives.
Thus, with the new article 19-E, of Law nº 10522/2002, introduced by the reform at issue
(the advent of Law nº 13988/2020, with its Article 28), not only the “quality vote” rule does not
apply in the event of a stalemate in CARF decision-making process anymore, as new draws shall all
be resolved in favour of the taxpayer. In other words, a complete turnaround in the logic
governing the process of administrative review of acts by the fiscal administration itself.
D – Bringing the matter before the Brazilian Supreme Court
The gravity of the situation caused its arrival before the Federal Supreme Court (STF), the
Brazilian supreme court, to be inevitable.
In April, the Attorney-General of the Republic (PGR) filed a lawsuit (ADI 6399 11) before the
STF questioning the constitutionality of said Article 28, Law nº 13988/2020, which added Article
19-E to Law nº 10522/2020 and brought to an end the “quality vote” under CARF. In his
allegations, the PGR stands for the formal unconstitutionality of the provision due to
inconsistencies in the legislative process of conversion of Provisional Measure nº 899/2019 into
the now Law nº 13988/2020. More precisely, by virtue of what is known in Brazil as “legislative
smuggling”, a practice that consists in inserting provisions that do not have thematic relevance
with the original rule, infiltrating the legal system with rules that may cause changes that are not
properly discussed in the legislative sphere. This practice has been repudiated since May 2016 by
11The acronym “ADI”, in a free translation, stands for “Direct Unconstitutionality Action”, lawsuit applicable in the Brazilian legal
system to directly call upon the Federal Supreme Court to assess the constitutionality or unconstitutionality of a certain legal rule.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brthe supreme court itself12 - by attributing “ex nunc” effects to its decision, STF ruled that as of the
date of its judgment, such practice was deemed unacceptable, and contrary to the 1988
Constitution of the Federative Republic of Brazil (CF), emphasising that the contested law was
introduced in the Brazilian legal system afterwards (2020).
Law nº 13988/2020, in essence, concerns the extrajudicial negotiation of existing and
consolidated tax credits aiming at the resolution of disputes between the Union (the federal
Government) and indebted taxpayers, nothing to do with the aforementioned Article 28, which
disciplines procedural aspects of judgments of administrative demands to fix and enforce tax
credits, specifically with regard to the tiebreaker rule in administrative decisions.
Additionally, the Brazilian Constitution entitles the President of the Republic to regulate
the structuring and functioning of federal public administration bodies, whether by proposing law
or issuing unilateral acts, such as decrees (Articles 61, Paragraph 1, “e”, and 84, VI, CF), therefore
including the Administrative Council of Tax Appeals in this spectrum.
Despite that, the adding of Article 28 to the conversion into law project 13 that resulted in
the enactment of Law nº 13988/2020 was made by parliamentary amendment - an instrument
guaranteed to Brazilian members of Congress to improve the text targeted for legislative
deliberation, commonly used in budgetary matters -, thus disrespecting the constitutionally
entitlement of the President of the Republic to act in this regard. In perspective, the PGR highlights
that, although the procedure for converting a provisional measure into law has its peculiarities, it
cannot be an escape route from the ordinary legislative process.
Moreover, the PGR affirms the legitimacy (constitutional compatibility) of the “quality
vote” in CARF procedures, drawing parallels with the Administrative Court for Economic Defence 14
- body of the Administrative Council for Economic Defence (CADE) - and with STF by-laws (Article
13, IX, CF), pointing that the supreme court has already ruled on other provisions allowing use of
the “quality vote” rule in specific situations, asserting then its legitimacy, minding that, as a
procedural option, the mechanism (Article 25, Paragraph 9, Decree nº 70235/1972) is in affinity
with the Brazilian Constitution, as well as a legitimate, proportional and reasonable criterion for
resolving impasse in judgment procedures under CARF.
It is important to notice that the PGR mentions, in his petition, the document forwarded by
SINDIFISCO NACIONAL to the Attorney-General's Office (PGR), stressing the risks of lessening the
fiscal administration ability to present its understandings on tax matters even in the administrative
(not judicial) domain, the serious and manifest unconstitutionality of the provision, the stimulus
that the legislative change might concede to harmful tax planning and to the abandoning of
spontaneous payment of taxes, as well as refusing to accept the idea that the CARF councillors
representing the fiscal administration would inevitably vote en bloc. In numbers, based on data
12Ruling on ADI 5127/DF.
13Conversion into Law Project 2/2020.
14 Responsible for ruling on offenses to the economic order.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brfrom previous years, the fear of automatic (federal) revenue losses beyond USD 11 billion
annually.
Further ahead, the PGR requested the concession of urgency (preventive) measure in order
to halt the effects of Article 28, Law nº 13988/2020, highlighting that the abolition of CARF’s
“quality vote” rule would harm its performance markedly in the face of major tax planning
schemes, making big private interest prevail over public in the administrative level, and potentially
leading the federal revenue to suffer heavy erosion, especially in demanding Covid-19 times.
Apart from ADI 6399, two extra lawsuits in similar terms have been filed before the
Brazilian supreme court: ADI 6403, by the Brazilian Socialist Party (PSB), and ADI 6415, by the
National Association of Tax Auditors of the Federal Revenue of Brazil (ANFIP). The latter adds to its
arguments the violation of Article 62, Paragraph 9, CF, for the new provision (Article 28, Law nº
13988/2020) was not submitted to assessment by a mixed commission of members of Congress
(representatives and senators), competent to issue an opinion on the proposal - the text of the
amendment that resulted in the contested rule -, a legislative procedural rule that should have
been complied with.
In all three of them (ADI 6399, ADI 6403 and ADI 6415), although illustrating several
inconsistencies with the Brazilian Constitution, judge-rapporteur Marco Aurélio Mello opted to
bring forth his decision only when the court’s plenary delivers its ruling on merits, therefore
rejecting requests for preventive measures to halt the effects of Article 28, Law nº 13988/2020.
There’s yet no time frame set for the trial.
E – A systemic hazard
Since April 2020, SINDIFISCO NACIONAL has expressed its concern about the consequences
of abolishing the “quality vote” rule within the scope of the Administrative Council of Tax Appeals
(CARF).
Preceding the entry into force of Law nº 13988, on 14 April, 2020, the entity had already
addressed the General Secretariat of the Presidency of the Republic, requesting a veto on the
provision (Article 28, Law nº 13988/2020) which came to alter the voting dynamics at the
conclusion of rulings made under CARF in the event of a draw by revoking the “quality vote” rule.
Brazilian State bodies were unanimous on a veto recommendation. The Attorney-General of the
Republic (PGR), the Justice Minister, the Federal Revenue of Brazil (RFB) and the Attorney-General
Office (PGFN), all pointed out to the President of the Republic the far-reaching consequences
resulting from such legal innovation. The then Minister of Justice, Sérgio Moro, stressed concrete
examples of tax assessment notices - related to Operation Car Wash - which would have been
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brannulled had the new norm been in effect 15. Notwithstanding these manifestations, Law nº
13988/2020 was sanctioned without vetoes.
Its astonishment in front of the legislative change has several reasons, as follows,
conferring itself the task of stressing that, in reality, the legal reform does not lend itself, even if
mistakenly, to taxpayers in general, but rather to a specific group of persons and companies,
mainly those with superior economic capacity, and sometimes involving cases of aggressive tax
planning, tax evasion, money laundering, among other criminal activities. Truly, criticism made for
the purposes of abolishing the “quality vote” rule usually is centred in misinterpretations and in
the reference of a model already abandoned worldwide, that is, of shared structure, aggravated
by the fact that taxpayers' representatives are appointed by business confederations, the latter
which evidently have an interest in resolving disputes under CARF’s competence.
Tiebreaker mechanism adopted since its inception, the “quality vote” in CARF ruling
procedure was never designed to favour the fiscal administration16. It is recalled that a triumph of
the taxpayer serves as a definitive ruling vis-à-vis the fiscal administration, which cannot take the
matter for review to the Brazilian Judiciary; on the other hand, in the event of a defeat, the
taxpayer has always guaranteed the right to call upon the Judiciary to examine the administrative
final decision.
And more: the “quality vote” rule is aligned with the general attribute of presumption of
legitimacy of administrative acts. Evidently, it is precisely in administrative review - basis of CARF’s
functions - that these administrative acts (as are those from the Federal Revenue of Brazil) are re-
examined, pondering about illegalities relative to the act itself or its interpretation as did the fiscal
administration. In a way, it is the last opportunity given to the public administration to externalise
its vox regarding relevant legal facts in tax matters, which could be compromised by presuming
error by the tax administration whenever a stalemate occurs. Then the reason Article 28, Law nº
13988/2020, caused an absolute distortion in the decision logic within CARF.
The Administrative Council of Tax Appeals is a body of the federal public administration,
and its decisions represent the understandings of the State with regard to the legality of
administrative acts originating from the same State - acts that have, it is repeated, presumption of
legitimacy. And they, once again, undergo administrative review. Despite that, in the current
scenario of inapplicability of the “quality vote” mechanism, if - and this is alarming - the final
decisions on administrative review, when a draw takes place, result from a “presumption of error”
in favour of the taxpayer, the administrative jurisprudence itself (id est, the legal interpretation of
the State on legal facts of tax relevance) shall become based on false “presumptions”,
compromising not only the res judicata but future deliberations on similar demands, thereby
consolidating interpretations that will prevent new readings, potentially leading to omission over
evidences of criminal behaviour, both in tax and criminal fields.
15Some examples are presented in items F.1 and F.2, as well as are CARF’s rulings in full attached to this document.
16Data already mentioned (http://idg.carf.fazenda.gov.br/dados-abertos/relatorios-gerenciais/2020/dados-abertos.pdf) indicates
that in the first two months of 2020, around 40% of times the “quality vote” was used, it favoured the taxpayer.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brRegarding the unconstitutionality of Article 28, of Law nº 13.988/2020, SINDIFISCO
NACIONAL has constantly stated its incompatibility with the Brazilian Lex Mater. Disregard for the
provisional measure thematic by the amendment that inserted the provision in the legislative
process of conversion into law of Provisional Measure nº 899/2019, as well as the indifference to
the competence of the President of the Republic to regulate the structuring and functioning of
federal public administration, justified the aforementioned communication to the Attorney-
General's Office, preceding the filing, by the latter, of the lawsuit before the Federal Supreme
Court (ADI 6399).
Of major relevance is the fact that, in 16 April, 2020, 144 (a hundred and forty-four)
councillors and specialists representing the fiscal administration in CARF signed a manifest 17
against the legislative change that revoked the applicability of the “quality vote” rule in the
decision-making process within the administration body. They contest the constitutionality of the
legislative process that lead to the conversion of the provisional measure into law, for both formal
and material reasons, declaring their worry about impacts the measure in federal revenue, to the
stimulus to avoid compliance with tax obligations, and to the violation of public interest. They also
cite that taxpayers are already raising the question whether the new norm should affect past
rulings, a clear offense against any notion of legal certainty. Disregard to the presumption of
legitimacy of administrative acts - which are submitted to review by CARF - would lead, under the
new system, to a takeover of tax administrative process by private interests, a scenario without
precedent in the world. After all, as explained above, this legislative change runs contrary to the
efforts of developed countries, which see aggressive tax planning, especially transnational ones, as
the biggest challenge for tax revenue and tax justice. In addition, this change does not affect all
taxpayers equally, since low-value cases will no longer have access to the second instance of
judgment. Furthermore, it is recalled that the taxpayer has the power to take demands before the
Judiciary when not agreeing with interpretations consolidated by the administrative decision-
making body. They conclude by highlighting the risks to public finances, mainly due to large
taxpayers, reaffirming their discontent with the abolishment of the “quality vote”, while hoping
for the measure to be reversed.
Members of Congress have also manifested their disapproval to the new system. Senators
Álvaro Dias (Podemos-PR), Marcos do Val (Podemos-ES) e Eduardo Girão (Podemos-CE) are among
those who publicly opposed it, worrying about potential consequences of ending the “quality
vote” rule, particularly attentive to public finances, impunity and distortion of the system in its
entirety. The same political party (Podemos) had its request to join ADI 6403 as amicus curiae
accepted by judge-rapporteur Marco Aurélio Mello, lawsuit which was - as cited - filed by the
Brazilian Socialist Party (PSB).
The risk of falling revenues and of damage to public reserves, especially in emergency
times of a global pandemic, are alarming. One should bear in mind that many stalemates in the
context of the Administrative Council of Tax Appeals occur when large values are at the discussion
17 Available at: https://www.conjur.com.br/dl/fim-voto-qualidade-carf-ira-reduzir.pdf.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brtable and cover precisely the cases involving the most sophisticated aggressive tax plans and the
finest structured harmful practices.
Still, the long-term effects within the scope of CARF decision-making process may be even
more perverse: relative to criminal prosecution and on the very core of the Federal Revenue of
Brazil.
E.1 – Criminal Prosecution from tax matters
In carrying out their duties, the Tax Auditors of the Federal Revenue of Brazil may
encounter evidence of criminal behaviour - covering crimes such as tax evasion, corruption,
money laundering, financing of terrorism and other criminal organizations, smuggling and
embezzlement, administrative improbity, among others. On these occasions, the Tax Auditor
formulates what is called a “Tax Representation for Criminal Purposes” (RFFP)18, addressed
directly and administratively to the Federal Public Attorney Office (MPF), kicking-off the criminal
prosecution of suspicious activities. The purpose for this communication is quite simple: only
Public Attorney Offices (federal19 and state-level), Federal Police, and state judicial polices
(civilians) have “police power” in criminal matters, i.e., tasked with investigating criminal
behaviour and bringing it before the Judiciary.
Even in the case of legal entities, the RFFP also serves as an instrument to indicate the
possible involvement of natural persons, related to these companies, in behaviours deemed
criminal. As the rule is for the proof of intent in criminal practice, it is up to the MPF to
demonstrate it for the continuation of criminal prosecution against such persons. In any case, tax
representation for criminal purposes is essential in communicating to the competent body to
assess doubtful conduct, which otherwise would possibly not even be noticed, notably in cases of
organized crime (individuals and companies).
With the advent of Law nº 13988 - and its Article 28 -, on 14 April, 2020, the reversal in the
voting system logic when facing draws within CARF decision-making process brings even more
concern to the fact that, according to this board of appeals procedure rules, cases that contain
circumstances indicative of crime, object of tax representation for criminal purposes, have priority
in processing and judgment20. This means that administrative disputes that include indications of
criminal practices will be appreciated even more rapidly and their results may prove beneficial to
offenders simply by the occurrence of a stalemate in the voting phase, concealing, therefore,
crimes that might have been perpetrated.
Even though CARF is not entitled to analyse tax representations for criminal purposes per
se, its interpretation in tax terms affects possible criminal consequences - the notion that the
18 Currently regulated by RFB Ordinance nº 1750, of 12 November, 2018.
19 The PGR is part of the Federal Public Attorney Office.
20 Article 2, Paragraph 1, III, CARF Ordinance nº 57, of 4 April, 2016.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
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https://www.sindifisconacional.org.braccessory (criminal) follows the principal (tax) -, impairing many criminal prosecutions from birth.
In fact, the RFFP will not even be forwarded to the MPF, which, therefore, will never be made
aware of elements of evidence of crime collected during the course of tax inspection. In this sense,
the extinction of the “quality vote” rule and the reversal of the decision logic in the event of draws
within CARF may lead the latter to resolve impasses automatically in favour of the private interest
despite as administrative review of acts originating from the federal public administration itself.
And worse: the enforcement of new understandings can cause a reinterpretation of rules
and activities in such a way that evidence of criminal tax and financial practices - detected by the
Tax Auditors of the Federal Revenue of Brazil - never reach the Federal Public Attorney Office for
analysis and further processing. This shall strongly impact Brazil’s capacity to face crimes such as
tax evasion, corruption, money laundering, among many others.
E.2 – Undermining Federal Revenue of Brazil efforts in the fight against corruption, tax crimes
and the financing of terrorism and of criminal organizations
SINFISCO NACIONAL hereby vehemently expresses its concern about the grave
consequences to the optimal performance of the Federal Revenue of Brazil (RFB) of the repeal of
the “quality vote” rule and the reversal of the decision-making logic within CARF scope when
facing draws, as brought by the aforementioned Article 28, of Law nº 13988/2020.
As previously indicated, a potential takeover by big private interest, opposing the
legitimate (and democratic) protection of the public interest in the administrative review of acts
originating from the public administration itself - as is the role of CARF -, may lead to consolidation
of reinterpretative understandings on tax rules in a manner that the very performance of the Tax
Auditors of the Federal Revenue of Brazil could be severely impaired.
Apart from the depletion of tax representation for criminal purposes as an able instrument
to communicate the competent authority (MPF) to investigate and bring to Justice criminal
practices, new readings on the Brazilian legal tax system made by CARF have a devastating
potential on the performance of the Federal Revenue of Brazil - as provided by its functions - at its
roots.
Considering that CARF is a body of the federal public administration competent to resolve
tax disputes in the administrative level in terms of administrative review of acts originated from
the public administration itself, its decisions may establish new paradigms in the interpretation of
legal rules and relevant facts. Its understandings have the ability to influence procedures of the tax
authority (the RFB), since the latter will be reprogrammed adopting as valid - because, if not, it
would be in contradiction to the positioning of the tax administration itself - such understandings
emanated by the administrative ruling body (CARF).
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brThe meaning of this to the Federal Revenue of Brazil is that all its internal planning (in a
formal sense) would be adapted to the newly consolidated standards, from procedures to detect,
assess and report tax and financial crimes within its competence, to the non-processing of certain
acts and facts that knowingly will be rejected when taken before administrative courts. All of this
based on decisions merely made by the occurrence of an impasse in decision-making process and
not by the active review (and enforcing) of the inadequacy of tax and criminal relevant acts and
facts by the public administration.
The apprehensiveness with the imminent restriction of the ability of Tax Auditors of the
Federal Revenue of Brazil to act in the face of practices harmful to public finances and criminal per
se becomes the new reality, leading to both a limitation and a significant discouragement of
procedures for investigation, processing and communication of these harmful and criminal
practices, directly affecting the capacity of the Federal Revenue of Brazil - and, consequently, of
the Federative Republic of Brazil - in its efforts to combat tax and financial crimes, including, as has
been said, tax evasion, corruption, money laundering, financing of terrorism and criminal
organizations, etc., in absolute contradiction to the principles that govern Brazilian public
administration, such as legality, morality and efficiency.
F – Hindrances to harmonization with international standards
The Organization for Economic Cooperation and Development strives to promote
international cooperation and, among its many missions, to fight tax evasion as well as tax
avoidance. OECD work emphasises the identification of trends in international tax planning and
the dissemination of this information so that governments can more quickly and effectively
address risks to the tax system.
Within the scope of the OECD, the BEPS Project (Base Erosion and Profit Shifting) brings a
set of strategies to combat tax planning that exploit loopholes in the international tax system to
artificially shift profits to locations with very low or no taxation, the so-called “tax havens”.
Following is participation in various Organization committees, working groups and forums,
the Brazil increased its level of engagement with the actions developed within the OECD in 2017,
by expressing its interest in formalising its accession process as a member of the Organization for
Economic Cooperation and Development.
However, contrary to this, the Brazilian government has just approved a new law (Law nº
13988/2020), which in its Article 28 establishes that in the event of a stalemate in administrative
ruling processes regarding the definition and enforcement of tax credit, the “quality vote” no
longer applies, automatically resolving the dispute in favour of the taxpayer.
The legislative change means, in practical terms, that the taxpayers’ legal theses on various
themes shall prevail, being most sensitive those concerning tax planning and its legitimacy.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
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https://www.sindifisconacional.org.brAggressive tax planning structures, as so viewed by the OECD - and which have always been
censored by the Administrative Council of Tax Appeals (CARF), acting on behalf of the tax
administration -, may be deemed legitimate from the perspective of taxpayers representatives at
the administrative tax-ruling body, designated to office by business confederations, who might
then have the final say in these matters. This, since several disputes anent to aggressive tax
planning were decided by the “quality vote”, many comprising categories of more privileged
taxpayers - as a rule, large companies that have specialized tax consultants.
As follows, a few examples of tax planning regarded as aggressive by CARF - which were
decided with the use of the “quality vote”, before the new norm (Law nº 13988/2020) - are
presented. The first of them concerns income tax on indirect transfers; the second is about the
treaty aimed at preventing double taxation signed by Brazil and Austria.
F.1 – Income tax on indirect transfers
The OECD, together with the International Monetary Fund (IMF), the World Bank (WBG)
and the United Nations (UN), participated in the drafting and publication of “The Taxation of
Offshore Indirect Transfers - A Toolkit”21, a document addressing the taxation of indirect transfers
between entities located abroad. It recognises that this issue is especially significant for
developing countries22, and that there is a concern about the possibility that, by indirectly
transferring equity interests, investors may avoid taxation of capital gains in the country where the
assets transferred indirectly are in fact located23.
In Brazil, the matter has been subject to assessments by the tax authority, in cases where
there is use of aggressive tax planning, through manoeuvre structures for the sole purpose of tax
avoidance in the country, particularly taxation on the capital gain on those transferred assets. It is
of remark the example of administrative proceeding nº 16682.720343/2013-25, ruled by CARF’s
Ordinary Panel in decision nº 2201-002.666 (Annex nº 1) - using the “quality vote” mechanism to
settle a stalemate in its decision-making process -, transcribed below the relevant excerpts (free
translation):
“SUBJECT: WITHHOLDING INCOME TAX IRRF
Accountable Period: 30/11/2001 to 30/12/2001
21 Available at: https://www.tax-
platform.org/sites/pct/files/publications/PCT_Toolkit_The_Taxation_of_Offshore_Indirect_Transfers.pdf.
22 Executive Summary (p. 7): The tax treatment of ‘offshore indirect transfers’ (OITs) - in essence, the sale of an entity owning an
asset located in one country by a resident of another - has emerged as a significant issue in many developing countries. It has been
identified in IMF technical assistance work and scoping by the OECD but was not covered by the G20-OECD project on Base Erosion
and Profit Shifting (BEPS). In relation to the extractive industries, OITs are also the subject of work at the UN.
23 As provided in one of the draft documents, particularly dedicated to feedbacks from 1 August to 20 October, 2017 (available at
https://www.oecd.org/tax/discussion-draft-toolkit-taxation-of-offshore-indirect-transfers.pdf, p. 9): It is prompted by concerns with
the possibility that by selling interests indirectly (that is, by selling entities that own assets which have risen in value, rather than the
assets themselves), investors can avoid capital gains taxation in the country where those underlying assets are located.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brIRRF. CAPITAL GAIN. DISPOSAL OF GOODS AND RIGHTS SITUATED IN
BRAZIL. ALIENANT SOCIETY ABROAD. INTERPOSITION OF FOREIGN
ENTITIES.
It is the responsibility of the acquirer, as a taxable person, to withhold and
pay the Withholding Income Tax (IRRF) on the capital gain of residents or
domiciled abroad in the sale of assets located in Brazil. The interposition of
entities abroad must be disregarded, which by means of planned conduct
simulate a situation different from the actual sale, with the capital gain
being determined at the moment when the purchase or sale was
definitively constituted.
[...]
EX-OFFICIO FINE. QUALIFIED. INTERPOSITION OF FOREIGN ENTITIES.
BUSINESS VENTURE. SIMULATION. APPLICABILITY.
A “qualified” (aggravated) fine is applied when the parties, acquirer in
Brazil and seller abroad, use, in a planned manner, structured operations to
simulate a situation different from reality, to avoid the taxation on Capital
Gain earned by the foreign entity in the disposal of an entity based in
Brazil.”
In the aforementioned ruling, CARF decided, by “quality vote”, a case that dealt with
income tax on indirect transfers (specifically over capital gain) when an economic group
restructuring plan is undertaken through the interposition of an entity resident abroad, to avoid
tax on capital gain on the (indirect) sale of an asset located in Brazil.
Although the administrative court judgment was favourable to the tax administration,
similar conclusions usually make use of the “quality vote”. In this sense, abolishing the mechanism
will most likely result in plaguing the tax administration's ability to oppose this type of tax planning
and to avoid a significant loss of tax revenue.
F.2 – Conflict between Worldwide Tax System legislation and Article 7 of “Model Tax Convention
on Income and on Capital”
Currently, a significant number of countries have rules applicable to the taxation of
controlled foreign companies (emphasis given to the “CFC Rules”), rules that have become
internationally recognized as legitimate mechanisms for the protection of countries’ domestic
taxable bases. However, the application of this type of standard has often been challenged by
taxpayers who understand that, based on the interpretation of Article 7 present in bilateral tax
treaties, as well as other provisions of the conventions, the CFC Rules would be incompatible with
the application of said provisions.
Sindifisco Nacional - Sindicato Nacional dos Auditores Fiscais da Receita Federal do Brasil
SDS Conjunto Baracat, 1º andar - Asa Sul, Brasília-DF - Cep: 70392-900. Fone (61) 3218 5200 / 5201. E-mail: den@sn.org.br
https://www.sindifisconacional.org.brParagraph 14 of the Commentaries on Article 7 of the “OECD Model Tax Convention on
Income and on Capital”24 explains that this provision (specifically in its Paragraph 1) aims to limit
the right of a contracting State to tax the profits of entities resident in other Contracting States.
Thus, the text clarifies that Article 7 (1) does not limit the right of a Contracting State to tax its own
residents under controlled foreign companies [CFC] provisions found in its domestic law even
though such tax imposed on these residents may be computed by reference to the part of the
profits of an enterprise that is resident of the other Contracting State that is attributable to these
residents’ participation in that enterprise25.
In the same sense, in Paragraph 81 of the Commentaries on Article 1 of the Model
Convention, there is an express understanding that, given that the CFC regulation results in a State
taxing its own residents, there would be no conflict between this rule and the conventions to
avoid double taxation - which would be (only) reinforced by the existence of Paragraph 3 of Article
1 of the Model Convention26 in a bilateral tax treaty, heeded that the same understanding can be
derived from agreements that do not have the beforementioned clause27.
Whilst this understanding is internationally observed, taxpayers’ claim that Brazilian tax
legislation - a worldwide tax system - is incompatible with Article 7 of the treaties aimed at
preventing double taxation entered into by Brazil, in an attempt to render the referred legislation
inapplicable and to make the taxation of profits earned abroad through controlled entities
domiciled in a country with which Brazil has been in force unfeasible. In many cases, the tax
assessments have only been maintained by means of the “quality vote”, which indicates that part
of the tax revenue due as a result of the application of the taxation rules on a worldwide basis will
no longer be collected since the voting system logic reversal when facing draws within CARF
decision-making process.
As an example, when the administrative court was faced with such a tax planning,
proceeding nº 16561.720035/2012-95, ruled by CARF’s Superior Chamber (CSRF) in decision nº
9101-004.763 (Annex nº 2), transcribed below the relevant excerpts (free translation):
“SUBJECT: CORPORATE INCOME TAX (IRPJ)
Calendar year: 2007, 2008
PROFITS ABROAD. TAXATION ON A WORLDWIDE BASIS.
Profits, income and capital gains earned abroad will be computed in
determining the actual rate of profit [Actual Profit is a tax regime within
Brazilian tax law] corresponding to the balance sheet drawn up on
December 31 of each year (Law nº 9.249/95, arts. 25 e 26, and MP
[Provisional Measure] 2.158-35/2001, art. 74)
24 Available at https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-condensed-version-
2017_mtc_cond-2017-en.
25 OCDE (2017). Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing, p. 177.
26 The provision brings forth the so-called “saving clause”, which establishes that, with the exception of some situations, the
taxation of its own residents by a Contracting State should not be affected by the convention aimed at preventing double taxation.
27 OCDE (2017). Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing, p. 78.
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https://www.sindifisconacional.org.brBRAZIL-AUSTRIA TREATY.
There is no incompatibility between international treaties to prevent
double taxation and the application of art. 74 of Provisional Measure nº
2.158-35/2001. In the specific case, the treaty signed between Brazil and
Austria does not prevent taxation at the parent company in Brazil of profits
earned abroad, especially when this taxation falls on profits generated in
places where there is no income / profit taxation, places that are not
covered by the Brazil-Austria Treaty. The fact that the taxpayer
consolidated the profits of the indirect subsidiaries into the direct
subsidiary (located in Austria), by itself, does not neutralize Brazilian
taxation, especially when there is no payment of tax abroad, which would
constitute an evident misuse (abuse) of the treaty to prevent double
taxation.”
In this particular case, the claim was that the treaty with Austria would have a proviso
similar to that of the treaty with Denmark, object of RFB Internal Consultation Solution nº
18/2013, abdicating from taxing its residents. But the fact is that the tax was levied on the profits
from Madeira (Portugal) concentrated in the Austrian parent company. And these profits were not
recognized in Austria, due to the accounting rules of the European country, and thus they would
not be subject to the dividend exemption. The taxpayer alleged that as there would be no tax to
be compensated in Brazil, the taxation of profits could not be verified here, that is, they would not
be recognized in Austria and for that reason the non-taxation was intended in Brazil. Therefore,
here is an example of tax planning which seeks “double non-taxation”. And, despite being a simple
case of application of CFC Rules (to avoid deferral or non-taxation), the decision was made only
through the “quality vote”.
Another example, ruled in part by the “quality vote” and in part by majority - which would
nowadays, due to current seats, much likely be decided in full by the “quality vote”. In proceeding
16561.720021/2016-03, goodwill amortization expenses and financial charges in tax planning was
addressed. Transcribed below relevant excerpts of decision nº 9101-004.500 (Annex nº 3) (free
translation):
“SUBJECT: CORPORATE INCOME TAX (IRPJ)
Calendar year: 2012, 2013
GOODWILL FROM ACQUISITION WITH USE OF OTHERS’ FINANCIAL
RESOURCES. AMORTIZATION. NON-DEDUCTIBILITY.
Tax incidence of the possibility of deducting the goodwill amortization
expenses, provided for in Art. 386, of RIR/1999 [Brazilian Income Tax
Regulation], requires the actual investing legal entity to participate in the
‘equity confusion’, that is, the one that actually trusted in the ‘added value’
of the investment, did future profitability studies and disbursed the
amounts for the acquisition. It is not possible to benefit taxwise on
goodwill if the actual investor transferred funds to a ‘vehicle company’ for
the specific purpose of its application in the acquisition of equity interest in
another company and if the ‘equity confusion’ arising from the merger
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https://www.sindifisconacional.org.brprocess does not involve the legal entity that effectively disbursed the
amounts that led to the emergence of goodwill, even though the
transaction that originated it was entered into between independent third
parties and with effective payment of the price.
UNNECESSARY EXPENSES. FINANCIAL CHARGES ON LENDING AGREED TO
FINANCE OWN ACQUISITION.
As it is unnecessary to carry out transactions or operations required by the
company’s activities, and for not contributing to the maintenance of its
production sources, the loan contracted by the new parent entities to
finance the acquisition of the legal entity does not produce deductible
financial expenses when determining its taxable income.”
The tax assessment notice relative to the aforementioned proceeding dealt with the
disallowance of the taxwise benefit use of goodwill paid by a foreign (French) buyer, with the filing
of a “vehicle company” without economic substance, shifting to Brazil the deduction not only of
the goodwill amortization, but also of expenses with the financing of this acquisition. The
disallowance of expenses was decided by the “quality vote”. Since current CSRF (CARF’s Superior
Chamber) taxpayer seats admit “vehicle companies” without any economic substance, the
disallowance of goodwill amortization would most likely also be left to be decided by the same
“quality vote” mechanism.
F.3 – Repercussions at the international level
Tax consultants have sought to identify and explore interpretive opportunities, producing
increasingly sophisticated tax planning, sometimes exceeding the limits of tax planning deemed
acceptable to most OECD countries.
The Organization has already stated that fundamental changes are necessary to effectively
prevent double non-taxation, as well as cases of very low or no taxation, associated with practices
that artificially segregate the taxable profit from the activities that generate it.
Moving away from what is continually publicised by the OECD, the Brazilian government
has been bringing about changes, such as the advent of Law nº 13988/2020 (on 14 April, 2020),
the consequence of which will be favouring the taxpayer (notably large groups and multinational
enterprises) in cases similar to the ones abovementioned; and that in the administrative sphere -
of the State while reviewing its own acts -, giving vent to the prevalence of legal theses that enable
the consolidation of aggressive tax planning, the same fought at the international level, with shall
impact not only the Brazilian public funds, but also other jurisdictions - though aligned with OECD
standards -, given the uncertainty to transnational operations that measures such as the one
debated here.
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