New Regulations for Tax Settlements in Brazil
Tax settlement is defined as a type of agreement entered into between the parties to a tax obligation, namely, the government and the taxpayer, always by means of legal provisions, which, through mutual concessions, seek to extinguish the obligation.
The institution offers advantages to both the government and the taxpayer, since it reduces the high level of litigation involved in the collection of tax debts by the government, avoiding the congestion of the administrative tribunals and the judiciary, and enabling regularisation of the taxpayer’s situation as debtor.
Although the tax settlement has been provided for in articles 156, II and 171 of the National Revenue Code since its creation in 1966, it was only in 2020 that it was regulated by Law no. 13.988/2020. On this occasion, although the requirements and conditions for a settlement with the Federal Government were defined, various doubts relating to its application arose, which resulted in the need for the publication of Law No. 14.375, on July 22, 2022, in order to clarify the rules.
The new law changed several provisions of the previous law with considerable advances. The discounts were increased (from 50% to 65%), as well as the period for payment of the debts (from 84 to 120 months). The negotiation of debts discussed at the administrative level is now allowed (previously only debts registered as overdue tax liabilities could be the subject of settlement), as well as the use of credits from tax losses and the CSLL negative calculation basis up to the defined limits. It is expressly provided that the amount of the reductions would not be subject to taxation, in addition to the fact that the lack of a guarantee would not invalidate the settlement or the possibility of settling balances from previous instalment plans, among other changes favourable to taxpayers.
In order to regulate the new law and enable the use of the settlement in the federal sphere, the Attorney General of the National Treasury issued PGFN Ordinance no. 6757, of July 29, 2022. Subsequently, the Brazilian Federal Revenue Service issued Ordinance no. 208 of August 11, 2022. Both regulations now establish the conditions for the settlement to take place.
In accordance with PGFN Ordinance no. 6757/2022, the following are the types of settlement on the collection of overdue federal tax and FGTS liability: I – settlement through adhesion to the proposal of the Attorney General of the National Treasury (by notice to the public stipulating the deadline for adhesion, the criteria for eligibility of the debts and conditions preventing adhesion, the commitments and obligations required, cases of exclusion, etc.); II – individual settlement proposed by the Attorney General of the National Treasury (debtors whose consolidated liabilities registered as overdue exceed R$ 10 million (FGTS liabilities in excess of R$ 1 million), debtors that are bankrupt, under judicial or extrajudicial reorganisation or liquidation, or under extrajudicial intervention; also public entities; and debtors whose consolidated liabilities registered as overdue exceed R$ 1 million (FGTS R$ 100.000,00) and that are suspended by court order or guaranteed; and III – individual settlement proposed by the debtor with registered overdue federal tax or FGTS liability, including the simplified form (through REGULARISE).
Moreover, the Federal Revenue Service of Brazil (RFB), through Ordinance no. 208/22, now provides for the following types of tax settlement in administrative fiscal litigation: I – settlement by adherence to the RFB proposal (in accordance with rules announced by notice to the public); II – individual transaction proposed by the RFB (debtors whose debts subject to administrative tax litigation exceed R$ 10 million, debtors who are bankrupt, under judicial or extrajudicial reorganisation or liquidation, or under extrajudicial intervention; in addition to public entities); and III – individual transaction proposed by the taxpayer (effected solely through the opening of a digital process in e-CAC, including the simplified form).
In the year 2022, three different notices were published with a proposal of settlement by adhesion: notice no. 09/2022 providing for settlement by adhesion in tax litigation of an important and widespread legal dispute involving debts arising from the tax amortisation of the premium under the legal regime prior to Law no. 12. 973/14; notice no. 01/2022 providing for settlement of tax claims constituted on the initiative of the tax authority and considered irrecoverable, administered by the RFB; and notice no. 02/2022 providing for the settlement by adhesion of small-value debts in tax administrative litigation (60 minimum wages on the date of adhesion, including principal and administrative fine), related to taxes administered by the RFB.
Despite the regulation, certain aspects are still pending definition, such as the method of calculating the amounts for the individual settlement proposed by the PGFN and RFB; in this case, whether all debts should be totalled or whether partial adhesion is allowed; the need or otherwise for the use of taxpayers’ credits pending refund/offset for the settlement; possible limits on the use of tax losses and negative tax base; among others.
The new PGFN Ordinance no. 8798 has recently been published in the Official Gazette of October 7, 2022, instituting the Program for Early Payment of Settlements and Registration of Overdue Federal Tax Liabilities with the Attorney General of the National Treasury – “QuitaPGFN”. The Ordinance provides special conditions for payment of balances on certain settlements (entered into up to October 31, 2022) and on debts registered as overdue liabilities up to October 7, 2022 (not yet settled), which are considered irrecoverable or difficult to recover, with the possibility of discounts.
In such case, taxpayers who have already settled their debts may use the “QuitaPGFN” to take advantage of balances of IRPJ tax losses and negative CSLL calculation base and possibly obtain a greater reduction of the debts.
On adhering to the “QuitaPGFN” programme, it is necessary to pay at least 30% of the outstanding balance in cash. The remainder of the settled debt may be paid using IRPJ tax losses and the CSL negative tax base ascertained up to December 31, 2021. Adhesion must be done through the PGFN website (“Regularise”) between November 1, 2022, and December 30, 2022.
Considering the various existing methods of tax settlement, the choice must be based on an adequate analysis of the legislation, on the company’s economic situation and on the feasibility of gathering the documentation and information required for each method. A careful analysis allows the best available benefit to be obtained for settlement of the tax debts and maintenance of fiscal regularity.
Patrícia Giacomin Pádua
Partner in the Tax Area – São Paulo