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Brazil: Regulation of tax settlements

Brazil: Regulation of tax settlements

Provisional Measure no. 899 (Medida Provisória 899/2019 or MP 899) was issued on 17 October 2019 to regulate the requirements and conditions for Brazil’s federal government to settle tax disputes with taxpayers and to resolve their unpaid tax debts.

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KPMG observation

In Brazil, a Provisional Measure (Medida Provisória) is an “act” issued by the president, with the authority of law until later approved by Congress. The Provisional Measure is effective as from its date of publication for a 60-day period, and it may be extended for an additional 60-day period (for a total of 120 days) on a request from Congress.

The publication of MP 899 reflects an important evolutionary stage in the Brazilian tax system and may potentially transform the relationship between the tax authorities and taxpayers. Although since 1966, the National Tax Code (CTN) has allowed for the possibility of the tax authorities and taxpayers to engage in settlements, the effectiveness of this tax law provision has depended on the issuance of an implementing regulation. MP 899 is the first issuance of such a regulation. 

Alternative dispute resolution mechanism

MP 899 is intended to regulate the alternative dispute resolution mechanism for federal taxes, under which the federal government may propose a settlement to taxpayers whenever such an agreement would satisfy the public interest and welfare.

MP 899 provides settlements in three types of situations:

  • Overdue or unpaid tax debts
  • Relevant and widespread tax dispute or litigation
  • Small-amount tax disputes

Regarding overdue or unpaid tax debts, MP 899 provides that a settlement may be proposed either by the Office of General Attorney (PGFN) or by the taxpayer, concerning tax debts that have been enrolled in the overdue tax debt record (Dívida Ativa da União), especially those that are classified as “irrecoverable or very difficult to recover.” The taxpayer is granted the ability to initiate the settlement procedures and propose its conditions.

Regarding relevant and widespread tax dispute or litigation, the settlement must be initiated by the Minister of Economy, or its proxy, and must concern a specific subject matter that has been disputed by several taxpayers. The settlement proposal must be made public (via the official government press and on government agency websites). Taxpayers that satisfy the requirements of the proposed settlement can file an application under the settlement. The entire procedure will take place exclusively by electronic means.

Regarding small-amount tax disputes, this part of MP 899 aims exclusively at “small tax debts” under dispute. The concept of “small tax debts” is to be specified by the Ministry of Economy, and taxpayers can apply to settle their tax disputes if they satisfy the requirements provided in the Ministry release. 

KPMG observation

In Brazil, the ability to engage in a tax disputes settlement is not absolute, and therefore, the requirements under MP 899—as well as future regulations and guidance to be issued by the federal government and its agencies (such as the tax authority (Receita Federal) and PGFN)—must be strictly followed. Among the limitations imposed by MP 899, it is worth noting that there are prohibitions (1) to reduce the principal amount of the tax debt itself; (2) to reduce more than 50% of the total debt or, in case of small- and micro-companies, more than 70% of the total debt; and (3) to propose settlements related to FGTS and Simples Nacional debts, as well as tax criminal penalties.

The settlement proposal may allow for the payment to be made in installments up to maximum of 84 months or, in case of small- and micro-companies, up to maximum  of 100 months.

Filing an application to settle a tax dispute or tax debt involves an irrevocable and irreversible assumption that the debt is owed by the taxpayer; thus, this renders the taxpayer’s ability to challenge the tax debt in future litigation (whether the same debt or the subject matter related to the debt) an impossibility.

Lastly, note that as a provisional measure, MP 899 has a total of 120 days of effectiveness, pending congressional discussion and approval. It is possible that there could be changes made to the current provisions or that new measures could be added. In any event, MP 899 introduces into the Brazilian tax system an important alternative tax dispute resolution mechanism—one that is being viewed by tax professionals as a paradigm shift, in that it may affect how taxpayers address their tax risks and disputes, thereby requiring a broader strategic view and multidisciplinary approach by taxpayers concerning:

  • Risk assessment of tax positions, liabilities, and disputes
  • Strategies for addressing the tax risks
  • Calculation of liabilities and scenario projections
  • Analysis of the suitability of debts and cases for the settlement
  • Discussions with tax authorities about settlement procedures


For more information, contact a KPMG tax professional in Brazil:

Marcos Matsunaga | mmatsunaga@kpmg.com.br

Julio Assis | julioassis@kpmg.com.br

Ricardo Braghini | rbraghini@fcam.adv.br

Adler Woczikosky | awoczikosky@fcam.adv.br
 

Read a 2019 report [PDF 92 KB] prepared by the KPMG member firm in Brazil

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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