Publications

Category: Environmental

After the entry into force of Law No. 17,110/19, which prohibits the supply of plastic straws, Law No. 17,261/20, which prohibits the distribution of plastic disposables in commercial establishments in São Paulo starting next year, was passed on January 13.

As a result, it will be forbidden to provide customers with disposable plastic utensils such as cups, plates, cutlery, beverage stirrers, and balloon sticks. The ban extends to children's party spaces, nightclubs, dance halls, cultural events, and others.

Instead of plastic products, the law suggests offering others with the same functions, but made of materials considered biodegradable, compostable, and/or reusable, to allow recycling after use.

As the municipal law will come into effect on January 1, 2021, merchants will have one year to make the necessary changes in their establishments. As with the supply of plastic straws, it is possible that other municipalities will pass similar laws and regulations.

The new law does not prohibit the sale of plastic disposables, only the supply thereof to customers for immediate use. In any case, the measure is expected to affect trade in these products considerably.

The Brazilian Plastic Industry Association (Abiplast) has published criticism on its website^[1] regarding the approval of rules that prohibit the use of plastic utensils, since there has been no actual discussion of improvement in solid waste management in Brazil, an issue essential for the proper final disposal of any waste, including those containing plastics.

According to the association, "prohibition laws bring about legal uncertainty, interfere with the competitiveness and financial planning of companies, causing an impact on investments, job creation, and even the maintenance of industrial activity.

As with the ban on plastic bags and straws, the measure should provoke great debate on the constitutionality of municipal laws that prohibit the distribution of certain products and materials. Especially since, as of January 1, 2021, commercial establishments that fail to adapt will be subject to penalties ranging from the application of warnings and subpoenas for adapting the activity to monetary fines and, in more serious cases, closing the business.

[1]http://www.abiplast.org.br/noticias/lei-de-proibicao-de-fornecimento-de produtos-plasticos-posicionamento-abiplast/.

Category: Real estate

In effect since December of last year, Executive Order (MP) No. 910 provides for changes in land regularization procedures for occupations on lands of the Federal Government, with the objective of reducing the bureaucracy in the process of granting definitive titles to settlers, especially small rural producers.

The measure may be seen as a way of including small rural producers in the system of production by facilitating access to credit through land regularization. Critics, however, believe that the loosening of procedures could be used to regularize the occupation of lands arising from land grabbing.

Among the main changes brought about by the MP, we highlight the following:

• Possession time. The date from which the interested party will need to prove the occupation and direct, undisputed, and peaceful use of the property for purposes of regularization was changed from July 22, 2008, to May 5, 2014. Specifically for properties of less than 15 fiscal modules (unit of measurement that varies between 5 and 110 hectares depending on the municipality in which the property is located), proof of this has been simplified and may be done by remote sensing (for example, images obtained by drones or satellite).
• Regularization by self-declaration of the interested party. The MP expanded the scenarios in which the regularization of rural properties may be based on a declaration by the interested party itself (subject to criminal, civil, and administrative liability, if not true) without prior inspection of the property by the public authorities: this mechanism is now available for properties with up to 15 fiscal modules - previously the limit was four. For these cases, the in-person verification shall only occur when (i) the interested party is represented by means of a power of attorney; (ii) the property is subject to an environmental ban or environmental infraction; (iii) there is evidence of fraudulent division from the economic unit of use; (iv) there is a conflict declared or registered with the National Agrarian Ombudsman; or (v) there is no evidence of occupation or use prior to the required date.

This was the point that generated the most discussion regarding the MP even before its publication. Critics of the measure fear that the expansion will lead to an increase in cases of land grabbing, on the grounds that self-declaration, until now restricted to small rural properties and especially occupations by low-income persons, will now cover larger areas. This fear is aggravated by the fact that the MP was published soon after the disclosure of alarming rates of burns in the Amazon region, a practice commonly associated with land grabbers who, after falsifying documents, resell the land cleared with the burning for the performance of other activities, especially ranching.

• Waiver of consent of abutting property owners for land rectification. The MP also amended the Public Registries Law, by dispensing with the need for signature of the owners of the land abutting the rural property whose description is intended to be rectified with the Real Estate Registry Office. This formality will no longer be required where the applicant has completed the georeferencing of the property (form of surveying used to measure and describe rural properties on the basis of vertex coordinates, calculated using GPS and magnetic coordinates, via satellite).

Thanks to another change made by Federal Law No. 13,838/19 in the Public Registries Law, the georeferencing of rural real estate, necessary for processes of subdividing, parceling, combining, and transferring rural real estate, could already be carried out without the consent of abutting landowners, supported by a declaration of the applicant itself that it respected the limits and boundaries. On this subject, already explored in an article published on this Portal, one reiterates the concern regarding the legal certain of the procedure, which has now been relaxed, since there is room for future litigation by neighbors who feel harmed.

Principal impacts

This loosening should speed up administrative proceedings related to the subject, but this may come at the cost of questioning the legal certain of registration procedures for opening and updating real estate registries, since they should now occur without full documentation and exhaustive confirmation.

It is too early to say that the changes in the MP will necessarily be negative or positive, but the attempt to cut red tape is evident. In order to evaluate the actual results of the measure, it will be necessary to monitor how it will be applied by the bodies of the Public Administration, whether the MP will be converted into law, and, especially, whether there will be an increase in actions for dissolution and rectification of public records.

Meanwhile, it is recommended that acquisition of rights over rural properties be preceded by careful legal and technical diligence, in order to minimize the risks of self-declaration or dividing line rectification procedures that may affect the exercise of the rights intended.

In order for the MP to be converted into law and have definitive effects, it must be reviewed and approved by the National Congress within 120 days of its publication, that is, by April 8 of this year.

Category: Real estate

The São Paulo City Hall is preparing to discuss a draft bill to amend Law No. 16,402/16, the current Land Division, Use, and Occupancy Law (LPUOS), with the purpose of adapting real estate production to the urban policy guidelines defined by the Strategic Master Plan. The document was submitted for review by the public on October 31 of this year, through a participatory process in public hearings mediated by the Municipal Department of Urban Development (SMDU).

As presented, the draft bill brings in targeted adjustments to the parameters of land use and occupation, with the intention of meeting some of the wishes of the real estate market in order to reduce construction costs in the city of São Paulo.

The last stage of the participatory process to discuss the draft bill, which is in its second version, occurred on December 2, 2019. The final version will be sent to City Hall, on a date yet to be defined by City Hall, to be review and debated by city councilmembers.

In summary, the main changes proposed are as follows:

1. Increased construction standards for buildings on terrain with vehicle access made for a street with a width equal to or greater than 12 meters and a minimum setback from the street of 25%, inserted in ZC (Centrality Zones) and ZM (Mixed Zones). The increase, applied on the maximum construction standards currently in force for ZC and ZM, corresponds to 12 meters in height in ZC and 20 meters in ZM. The change will be an exception to the general parameters for these areas, as already contained in Table 3 of the current legislation. Even if the setback requirement is met, the increase will not apply to lots found in the Metropolitan Structuring Macro Area (MEM), or adjacent to ZER (Exclusively Residential Zone) or ZCOR (Corridor Zone), except for the specific parameters of Urban Operations and Consortium Urban Operations. In the material published on its website, City Hall justifies this increase with the expectation of a reduction in the overall cost of construction due to the possibility of building higher towers instead of multiple lower towers.

2. Explicit possibility of pedestrian path exemption on blocks with irregular geometry or other impediments, on perimeters of blocks longer than 150 meters. This possibility was expressly provided for only for lots and slopes with a more than 20% grade.

3. Increase in the maximum number of parking spaces in residential uses of the Urban and Metropolitan Transformation Structuring Zones (ZEU, ZEUa, ZEUPa, ZEM, and ZEMP), with a provision of one parking space per housing unit or one parking space every 60 square meters of computable built area. Controversial, this rule was widely debated when the current law was published, which until then had chosen to limit the number of parking spaces. Critics of this change claim privilege for vehicle transport and increasing vehicle traffic in regions that may already be saturated with slow traffic.

4. Incentives for renovations, with an increase in areas in hospitals, educational establishments, and hotels located in certain categories of Urban and Metropolitan Transformation Structuring Zones (ZEUa, ZEUPa, ZEM, and ZEMP) and in Centrality Zones (ZC), with the possibility of increasing the maximum utilization coefficient by 50% of the general maximum coefficient. Currently, this increase was only provided for ZEU.

5. Provision for requalification of licensed buildings based on the law in force before September 23, 1992, with possible expansion of noncomputable area up to a maximum limit of 20% in relation to the existing built area. However, the implementation of this mechanism is subject to regulation by means of an Act of the Executive.

6. General rule changes in Special Zones of Social Interest (Zeis). The main ones are the detailing of criteria for the installation of public equipment and the application of a minimum percentage allocation of units in these areas, as well as an incentive for the construction of units for the population with an income of up to three minimum wages in Zeis (the draft presents the possibility of granting up to 20% of additional construction potential not computable when there is construction of at least 80% of units for this population).

The draft brings in other changes, such as increasing the Incentive Factors in Zepecs (Special Zones for Cultural Preservation), adjustments in the area parameters for clubs located in Sapavel (System of Protected Areas, Green Areas, and Open Spaces), detailing the calculation of areas in storefront areas and in non-building strips, detailing of the extinction of villas and the opening of public paths, and voluntary adherence to the solidarity quota in developments with a computable built area of less than 20 thousand square meters.

The document does not, however, address the issues of reducing the value of onerous grants and increasing the maximum quota of land per residential unit. This agenda item has already been discussed for the publication of the current law and, according to city hall, the proposals run counter to the provisions of the Strategic Master Plan. 

Category: Tax

Since the Federal Supreme Court (STF) recognized, in 2016, the right to a refund of the difference in the Tax on Circulation of Goods and Services (ICMS) paid in excess of the tax substitution regime when the actual tax basis of the transaction is lower than the presumed one (Extraordinary Appeal (RE) No. 593.849) there has been discussion of whether the states of the Federation, supported by the same precedent, could charge the ICMS-ST supplement in transactions where the actual amount of the transaction is higher than the presumed amount.

The STF’s decision was reached in the joint judgment of extraordinary appeal and Direct Action of Unconstitutionality (ADI) No. 2,777, considered unfounded by the justices. By majority and in accordance with the decision reached in an appeal admitted due to general repercussion, the STF granted relief to RE 593.849 and declared the constitutionality of article 66-B, II, of State Law 6374/89 of São Paulo, which ensures the right to a refund of tax paid in advance, "if it is proven that in the final transaction with goods or services there is a tax obligation that is less than the presumed amount."

The issue of the ICMS-ST supplement was subject to debate in the motion for clarification filed by the Minas Gerais State Revenue Service in light of the appellate decision handed down, in order for the justices to rule on the possibility of requiring supplementation of the ICMS-ST in cases where products are sold for an amount higher than the presumed basis. However, the STF found that this was a matter foreign to the dispute.

Since 2009, the state of São Paulo has had in its tax law a specific provision of law (article 265 of RICMS/SP and article 66-C of State Law 6,374/89) authorizing the tax supplement by substituted taxpayers when the amount of the transaction or final installment with supply of the goods or service is higher than the withholding calculation basis, if it has been established pursuant to the terms of article. 40-A (which deals with the rules governing tax matters). However, considering STF's previous understanding that the ICMS-ST is definitive, this provision of law was not used by the São Paulo State tax authorities to collect ICMS supplements.

The question now hanging over São Paulo taxpayers is whether the state of São Paulo could base ICMS-ST supplements on this provision of law and what the risks involved and the tax consequences throughout the chain would be.

According to opinion on the matter provided by the São Paulo State Attorney General's Office (PGE) (set forth in PAT Opinion No. 23/2018), the premise that the ICMS-ST calculation basis is not definitive reaffirms the legitimacy of the provision contained in article 66-C of State Law 6,374/89, which imposes on the substituted taxpayer the obligation to pay any ICMS-ST supplement when the price is higher than the basis presumed.

According to the PGE, this position is supported on the same basis that would oblige the state to refund the tax. As set out in the opinion, this alternative was made explicit by the STF in the opinions in ADI No. 2.777 and RE No. 593.849 and, from the standpoint of São Paulo laws and regulations, it is supported by article 66-C of Law No. 6,374/89.

The opinion was, however, was directed at the administrative processing of applications for ICMS-ST refunds. At the conclusion of the document, PGE instructs the tax authority, when processing an application for a refund, to verify in advance whether prices higher than the presumed tax basis are realized in order to then fix the amount to be refunded, as detailed in paragraph 73 of the document: "In fact, in addition to the burden on the interested party to prove (i) the realization of prices lower than the presumed tax basis and (ii) the assumption of the economic burden of the taxation, it is also up to the tax authorities to investigate the possible realization of transactions in which prices may have been higher than the presumed tax basis, an issue of greater relevance in ascertaining whether the interested party is entitled to the refund and, if so, to define how and delimit the 'quantum' of the refund, to be provided according to the rules issued by the State of São Paulo to govern the matter.

The text is aimed at taxpayers who file a claim for a refund and deals with the question of the supplement as an element in the settlement of the quantum of the refund claimed.

Recently, the Special Body of the São Paulo State Court of Appeals accepted Motion to Resolve Argument of Unconstitutionality No. 0033098-49.2018.8.26.0000, ruling out the limitation of the ICMS-ST refund provided for in article 66-B, II, paragraph 3, of Law No. 6,374/89 only in cases where the calculation basis is set by the competent authority (tax matters).

This recent decision by the Special Body of the TJ/SP, which is not yet final, recognized the unconstitutionality of paragraph 3 of article 66-B of State Law No. 6,374/89, which restricted the possibility of reimbursement of the ICMS-ST. If later upheld, this decision will represent a paradigm favorable to the taxpayer with respect to reimbursement, led by the STF’s guidance that recognized the right to a ICMS-ST refund, regardless of the method for setting the presumed calculation basis.

The possibility that the tax authorities may require supplementation of the tax has not been examined or mentioned in the appellate decision by the TJ/SP, which is why it would not be possible to draw a clear conclusion from that precedent that the tax authorities are authorized to do so.

In addition, based on the principle of strict legality set out in article 150, subsection I, and article 155, paragraph 2, subsection XII, of the Federal Constitution, and article 97 of the National Tax Code, it is possible to argue that there is no provision of law in LC 87/96 authorizing the states and the Federal District to require ICMS supplementation in cases where the presumed calculation basis is higher than the actual basis realized.

There are additional arguments to maintain that it is not fitting for the State of São Paulo to charge ICMS supplementation in a situation where the actual basis is higher than the presumed one. They are based on the fact that article 66-C of Law No. 6,374/89 would be insufficient to justify the existence of a legal basis in the state of São Paulo to require a ICMS-ST supplement in cases where the actual and final transaction is greater than the presumed one, since, in dealing with supplementary liability, the text of the article paraphrases the provisions of article 128 of the National Tax Code (CTN), according to which the law may expressly assign the liability for the tax debt to a third person linked to the taxable event triggering the respective obligation, thereby excluding the liability of the taxpayer or assigning to the taxpayer in a supplementary manner total or partial compliance with the obligation.

Article 66-C of Law No. 6,374/89 does not seek to support supplementation of the tax, but rather liability in the event that the substitute does not settle the tax debt, which does not occur in the event of ICMS supplementation.

After the publication of PAT Opinion No. 23/2018, there were no concrete changes in São Paulo's laws and regulations regarding the conditions for the requirement of ICMS-ST supplementation. Article 265 of RICMS/SP and article 66-C of State Law No. 6,374/89 were unchanged, which provide for a tax supplement when: (i) the price realized in the transaction is lower than the presumed calculation basis determined or authorized by the tax authority (tax administration office); and (ii) there is a supervening increase in the tax burden levied on the transaction. Therefore, according to the state’s laws and regulations, we believe that the São Paulo tax authorities continue to not be authorized to demand payment of the supplementation imposed in situations that go beyond these scenarios.

In our view, therefore, although there may be opposing positions on the part of the tax authorities, the requirement of an ICMS supplement in cases where the basis realized is higher than the presumed basis is not an immediate result of the STF's decision, nor does it find legal support in the current legal system, especially in the state of São Paulo.

Category: Tax

Section 54 of Law n.9,430/96 (Law 9430) provides that legal entities that adopt the presumed profit regime for purposes of corporate income tax (CIT) shall, in the first calculation period in which they are subject to that regime, submit to taxation the balance of the amounts whose taxation was deferred during the adoption of the real profit regime.

The Brazilian Federal Revenue Service (RFB) adopts a very broad interpretation of that provision, applying it virtually to any and all amounts excluded by the taxpayer that should be subject to some kind of control while the taxpayer was subject to the real profit regime - whether in Part B of the Real Profit Book (Lalur) or by any other means.

In our experience, we have noted that, in any inspection procedure involving a company that migrated from the real profit to the presumed profit system, tax authorities tend to demand taxation of the amounts mentioned in the above paragraph in the first quarter in which the company began to opt for the presumed profit system, without necessarily analyzing whether such exclusions refer to amounts that can be subject to taxation, that is, whether they constitute an actual addition to the assets of the taxpayer whose taxation had been deferred as a result of a benefit in the tax laws and regulations. We are even aware of inspections initiated against taxpayers solely because of the migration from the real profit to the presumed profit system.

In our opinion, the application of Section 54 of Law 9430 must be limited to the scope established by Section 43 of the National Tax Code (CTN), which defines the taxable event for the income tax. According to this provision, the income tax has as its taxable event the acquisition of economic or legal availability over income or profits of any nature, the latter being understood as an asset increase not included in the concept of income. Thus, the scenario for levying income tax does not only require the existence of an asset increase, but also requires that these factors be available to the taxpayer.

The requirement of effective availability of income or an asset increase for the levying income tax stems from the principle of taxpayer capacity, which requires the taxpayer to have the means to comply with the tax obligation. Thus, income unavailable to the taxpayer is not subject to the imposition of CIT, since it does not show the entity's ability to contribute with the payment of taxes.

According to Section 43 of the CTN, income or an asset increase is considered available when definitively incorporated into the taxpayer's assets (i.e., the taxpayer’s patrimonial sphere). This incorporation into the assets may occur because the object is in the taxpayer's possession or the taxpayer may demand it from a third party. On the other hand, as long as the income or asset increase is not definitively incorporated into the taxpayer's assets, levying of income tax cannot be contemplated.

In this sense, an exclusion from net income, per se, does not necessarily indicate a deferment, even if tax laws and regulations require the taxpayer to account for it in specific records for later addition to CIT basis under the real profit regime. In fact, there are many occasions when the taxpayer excludes certain amounts from the computation of CIT basis under the real profit regime and accounts for them simply because, at that first moment, such amounts do not represent available income for the taxpayer. Although registered in the entity’s P&L for accounting purposes, for tax purposes, the amount does not represent an income or asset increase subject to the imposition of CIT.

Therefore, when making the transition from real profit to presumed profit, the company must assess whether: (i) it has made exclusions from its CIT calculation basis under the real profit regime in the past and (ii) whether such exclusions correspond to events deemed as income tax triggering events under Section 43 of the CTN. In our view, the scope of application of Section 54 of Law 9430 may only encompass amounts excluded and accounted for due to a deferment, that is, a postponement of the payment of the tax arising from taxable events that already occurred.

The attempt to apply Section 54 to amounts accounted for and excluded due to the non-occurrence, whether temporary or definitive, of the taxable event violates Section 43 of the CTN. This is the case, for example, of gains from adjustment to fair value (GAFV), the exclusion of which is expressly authorized by tax laws and regulations, provided they are accounted for under a specific sub-account.

For accounting purposes, fair value is defined by CPC Technical Pronouncement No. 46 (CPC 46) as the price that would be received for the sale of an asset in a non-forced transaction between market participants on the measurement date. In such cases, when the legal entity submits its assets to this type of valuation, an income or expense will be recognized in its P&L and may, therefore, contribute to the formation of an accounting profit.

The inclusion of these amounts in the calculation of net income occurs because, from the accounting point of view, they already make up the taxpayer's assets. In fact, accounting sciences aim at demonstrating, for creditors, shareholders, and other stakeholders, the equity situation of the entity through a means that is different from that of the science of law, which is why accounting requires that some items on the balance sheet be subject to periodic self-valuation (or revaluation).

However, tax law adopts a different approach, as indicated by Section 43 of the CTN. The principle of taxpayer capacity requires that the income or asset increase be available to the taxpayer in order to be taxed. In this sense, taxpayers have no economic or legal availability of income resulting from the recognition of GAFV at the time they recognize it on their balance sheet. The adjustment is an estimate of the amount that could be realized under certain conditions, but does not represent an amount that may be demanded from third parties. In other words, no matter the extent to which the GAFV may represent an estimate of the market value of an asset, this adjustment does not have a transactional nature, an essential component to establishing the asset increase required by Section 43 of the CTN.

As there is no taxable event in the recognition of the GAFV, the law itself provides for taxation thereof under the real profit system only when the asset that gave rise to its recognition is disposed of (i.e., sold, depreciated, amortized, written off, etc.). Therefore, since they do not refer to a case of actual tax deferral, we believe that the amounts excluded on this account should not be added to the income tax basis when changing to the presumed profit system. And if the asset that gave rise to the recording of the GAFV is disposed when the taxpayer is subject to the presumed profit, there is nothing to be said of taxation of the GAFV, since Section 25 of Law 9430 expressly provides that the GAFV is neither included the CIT basis, nor is it included the asset acquisition cost for the purposes of calculating capital gains.

Similarly, Transition Tax Regime (RTT) adjustments do not represent income or an asset increase available to the taxpayer either. The RTT was introduced by Law No. 11,941/09 to neutralize the tax effects of new accounting rules, the adoption of which was provided for by Law No. 11,638/07. Thus, taxpayers were obliged to adopt the newest accounting techniques, but when calculating federal taxes, they had to make adjustments so that the tax assessment would comply with the accounting rules previously in force.

In this case, there is also no deferral, but only a process of making differences between the old accounting rules and the new rules established from 2008 onwards compatible. The exclusions, and additions, performed to comply with the RTT were only intended to prevent the new accounting rules from interfering with tax assessments before the law properly regulated the matter. The taxpayer's equity did not increase or decrease due to the new accounting standards. Therefore, income tax on amounts recognized according to these standards is undue.

Therefore, in this case, one also cannot apply Section 54 of Law 9430/96, in view of the non-occurrence of an income tax triggering event at the time of transition from the real to the presumed profit system.^[1]

This study does not suggest that Section 54 of Law 9430 is unconstitutional or always ends up violating Section 43 of the CTN. On the contrary, the provision is perfectly applicable to cases in which, in fact, there was a deferral of taxation while the taxpayer was opting for the actual profit regime.

On various occasions, tax law allows taxpayers to pay income tax on certain amounts over time, even if the taxable event associated therewith has already occurred. This is the case, for example, with the possibility of taxation on a cash basis of profits arising from a supply contract with a term higher than 12 months with a governmental entity.

In such cases, the taxable event occurs when the amounts become due by the public entity, even if it does not make the payment to the private party. However, the law authorizes the taxpayer to postpone the payment of the tax until the time when it actually receives the payment.

Another example is the case of a sale of non-current assets in order to receive the price, in whole or in part, after the end of the fiscal year following the deal. In such cases, although, from a legal standpoint, there has already been an actual addition to the taxpayer's assets, the law allows the taxpayer to recognize the gain in proportion to the portion of the price received in each calculation period.

In such cases, one finds a typical case of deferral, to which Section 54 of Law 9430 shall apply if the transition from the actual profit to the presumed profit system occurs.

One sees, therefore, that Section 54 of Law 9430 has its scope of application assured, which, however, should not go beyond the scenarios for application of income tax defined by Section 43 of the CTN so as to reach sums that do not constitute actual income or an asset increase.

^[1] Like the rules applicable to GAFV, tax law only provides for taxation of RTT differences when recognized by a company under the actual profit system. Considering the silence of the law regarding the taxation of such differences when recognized by a legal entity under the presumed profit system, it is possible to conclude that the law does not require the tax to be levied in that case.

Category: Tax

More than a decade after the decision granted by the First Section of the Superior Court of Appeals (STJ) recognizing taxpayers' right to claim an offset as a matter of defense in motions to stay tax foreclosure, precedents can still be found, even within the STJ itself, not authorizing the claim, based on a mistaken interpretation of the vote drafted by Justice Luiz Fux.

Although the Justices held a unanimous position in 2009 in granting Special Appeal No. 1.008.343/SP, after reviewing the scope of paragraph 3 of article 16 of Law No. 6,830/1980, the two Public Law panels of the STJ are still giving different interpretations. This becomes evident, for example, when comparing the decision in AgInt no REsp 1.694.942/RJ, of the authorship of Justice Mauro Campbell Marques, of the Second Panel, with the decision handed down in AgRg no REsp 1.482.273/SC, of the authorship of Justice Benedito Gonçalves, of the First Panel.

This divergence of interpretation will certainly lead again to further discussion of the matter within the First Section in order to provide the correct interpretation of the provision in question.

Although both positions defend the possibility of discussing offsets performed before the tax foreclosure in the context of a motion to stay, a part of the enforcers of the law believes that it is only possible to debate in court offsets already approved by the tax authorities, i.e., where the taxpayer's credit has already been recognized by the tax authorities themselves. The other part of the enforcers of the law duty only restrict the claim for an offset when it is done in the motion itself, which makes it possible to discuss the validity of administrative acts that do not approve an offset.

Those who argue that taxpayers could only raise a validated offset in the filing of a motion also argue that the review of a non-validated offset would be a form of judicial offsetting, which does not seem to us the best interpretation on the subject. This is because the limitation on the discussion of a validated offset is incompatible with the very existence of the tax debt being enforced, in addition to being far from the current reality surrounding the institute of tax offsetting at the federal level.

When taxpayers find that they have unduly paid a certain tax, they must fill out an electronic form using the PER/DCOMP program, created by the Brazilian Federal Revenue Service (RFB), and report that they owns a tax credit that they will use to offset (extinguish by offsetting) a certain tax debt that has become due or is yet to mature.

From the moment the electronic transmission of PER/DCOMP is carried out, the RFB has five years to approve or deny the offset performed by the taxpayer. In parallel, taxpayers register the debit in the RFB's system and report that it has been "settled by offsetting", therein listing the corresponding PER/DCOMP number in their declaration.

If the offsetting of the taxes is validated, the debit in the tax system is automatically extinguished. That is: if there is no debit, there will be no tax foreclosure. Consequently, if there is no tax foreclosure, there will be no motion to stay, much less any discussion as to the correct interpretation of paragraph 3 of article 16 of Law No. 6,830/1980.

Therefore, the advocates of the position that it is only possible to argue a validated offset as a matter of defense in a motion to stay are far from the current reality involving tax offsetting. It is not denied that there may be cases where the tax authorities mistakenly demand a debt already extinguished by offsetting, but that is not the rule. This is an increasingly rare exception, as the RFB’s procedures are all automated.

Thus, limiting the taxpayer's defense at the stage of a motion to stay enforcement on the basis of an extremely restrictive interpretation undermines the logic of the legal system.

It is worth remembering that the beginning of the vote given by Justice Luiz Fux demonstrates that the allegation that only a validated offset could be discussed is invalid. He clearly stated in his vote that “tax offsets acquire the nature of a subjective right of the taxpayer (also enforceable in the context of a motion to stay tax enforcement), in the event of simultaneous presence of three essential elements: (i) the existence of a tax credit, as a product of the administrative act of the entry or the standard act of the taxpayer that creates the tax credit; (ii) the existence of a tax debt, as a result of: (a) an administrative act invalidating the tax entry, (b) an administrative decision, (c) a judicial decision, or (d) an act of the taxpayer itself, when authorized by law, it being incumbent on the Tax Administration to inspect and subsequently approve the tax debt calculated by the taxpayer; and (iii) the existence of a specific law, promulgated by the competent entity, authorizing the offset, by force of article 170, of the CTN, according to which 'the law may, under the conditions and under the guarantees it stipulates, or the stipulation of which in each case it assigns to the administrative authority, authorize the offsetting of tax credits against liquidated and certain debts, past due or falling due, of the taxable person against the Public Treasury'.”

It is possible to note, from this part of Justice Luiz Fux’s vote, that the "tax authority’s debit" (or credit of the taxpayer) may arise in four different situations, were, in one of them (ii.d), the credit arises from an act from the taxpayer itself.

The fact that the tax administration is responsible for the inspection and subsequent approval of a given tax offset does not strike down the act performed by the taxpayer, since the liquidity and certainty of the tax credit are not related to its recognition by the tax authority, as professors Fredie Didier Jr. and Júlia Lipiani teach:

"In this perspective (of inapplicability of civil rules to tax offsetting), the only general conditions for the exercise of the right to offset in the tax field are that it occur between liquidated credits and fungible things (CC (LGL\2002\400), article 369) and that there be, between the taxable entity and the taxpayer for the tax obligation, reciprocal credits and debits.

Tax withheld in error is liquidated and certain when its current existence is found, that is, when it is not a credit that depends on a future event. The liquidity and certainty of the tax credit are not related to recognition by the tax or judicial authority or to the existence of evidence to that effect" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax foreclosure. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Thus, if a given taxpayer finds that he has paid more in tax based on a mistaken premise, which, incidentally, may be related to an (in)correct interpretation of the provisions of law in force, it suffices for him to perform settlement of his credit and so indicate in PER/DCOMP to offset against a tax debt due by the same taxpayer to the RFB.

In a large part of the orders with decisions not granting the offsets conducted by the taxpayer, the RFB merely interprets the current legal rules so as to conclude that the taxpayer would not be entitled to use the credit, i.e., the agency does not perform any assessment in order to say whether or not the amount calculated is correct according to the divergent interpretation.

An example is a case debating the theory of non-inclusion of the ICMS in the PIS and Cofins calculation basis. For years, various offsets were not granted by the RFB based on the interpretation that this state tax should be included the calculation basis of those contributions. The non-granting of these offsets caused the PIS and Cofins debts to reappear and led to the filing of countless tax foreclosures.

In this scenario, considering that the STF recognized the unconstitutionality of the inclusion of the ICMS in the PIS and Cofins tax basis, is it compatible with the Rule of Law to prevent the taxpayer from defending the validity of the offset that was not validated at the stage of a motion to stay enforcement or the illegality of the administrative act that did not validate the offsetting thereof? It seems obvious to us that it is not.

There are also cases where the RFB does not grant the offset on the grounds that the taxpayer does not have a credit, solely on the basis of cross-checking of information in its computerized system. Thus, the credit right of a given taxpayer may be affected, for example, by the fact that another taxpayer forgot to report the withholding of income tax in a certain assessment.

If the tax enforcement is brought by the Public Revenue Service, would the taxpayer be prevented from proving, at the stage of a motion to stay enforcement, that he owns a tax credit against the RFB? The answer again is no.

The administrative act of the RFB in denying the offset can and shall be challenged at the motion to stay enforcement stage, irrespective of the grounds raised by the tax authorities to not recognize the right of credit. If it is proven that the assumption adopted by the RFB was wrong, the tax debt resulting from the denial of a given tax offset should be promptly extinguished, since it originates from an erroneous administrative act.

The lessons of Fredie Didier Jr. and Júlia Lipiani in the study cited above are along the same lines:

“An administrative offset performed by a taxpayer may be refused by the tax authority, which will have to issue a specific administrative act (infraction notice in the case of article 66 of Law 8,383/1991 (LGL\1991\39) and the decision not to validate in the case of article 74 of Law 9430/1996 (LGL 1996/1998), duly supported, by which it must set out the reasons for the inadmissibility of the offset.

This administrative act, of course, may be submitted to judicial review, since, as it is not a matter subject to the discretion of the government, the offset cannot be denied for reasons of expediency or convenience. On the contrary, it is a non-discretionary act, the motives for which are determinant and may be reviewed by the judicial authority if misapplication of the Law to the specific case is demonstrated.

The debt that arises due to a refusal by the tax authorities to validate the offset performed by the taxpayer can only have its validity questioned through evaluation of the procedure adopted. To believe that an administrative decision not validating the offset cannot be subject to review in a motion to stay enforcement is to ignore that the act of authorization is an administrative act, fully non-discretionary, which must be subject to judicial control, under penalty of violation of article 5, XXV, of the Federal Constitution. There is nothing to be said of administrative res judicata to the taxpayer's disadvantage.

In this case, the taxpayer will not be seeking offset by means of a motion to stay enforcement. On the other hand, the offset would have already been carried out previously, thus restricting the discussion, in the motion, to the validity or lack thereof of this administrative offset previously carried out.

Thus, there is no obstacle for the taxpayer, when charged for a debt resulting from a denial of an offset, to raise in court the non-existence of the debt, arguing that the administrative act that refused the offset for some reason is wrong. This objection may be made both in a lawsuit at its initiative and in response to a tax enforcement, through a motion to stay" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax enforcement. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Even so, the professors are rightly critical of the STJ's interpretation that an offset could only be debated at the stage of a motion to stay:

"It is worth noting here that, from an interpretation of that appellate opinion, it is not possible to conclude that the STJ allowed only the claim of an offset preceded by a lawsuit authorizing the repetition of the tax withheld in error, or of a credit already recognized by the Public Revenue Service. When it mentions that an offset may be used as a basis for defending a motion to stay tax enforcement "especially when, at the time of the offset, the requirements of the existence of a compensable tax credit, the establishment of tax withheld in error, and the existence of a specific law authorizing the extinction of said tax credit have been met", the adjudicatory body is reinforcing its theory in relation to the specific case, in which, in addition to having been offset by the taxpayer prior to the claim, all these other situations have been established.

(...)

To prohibit the administrative decision not validating the offset, in any case, from being subject to a judicial decision in a motion to stay enforcement would be to ignore that the act of authorization is a nondiscretionary administrative act, which must be subject to judicial control. The law could not be interpreted in this way, under penalty of violation of the principles of a full defense and mandatory jurisdiction (article 5, subsections LV and XXXV).

In cases where taxpayers allege, in a motion for stay of enforcement, a prior previous administrative tax offset not validated, they seek a decision, in this motion to stay enforcement, regarding the validity of this prior administrative offset that, once recognized, will extinguish the tax debt" (DIDIER JR., Fredie; LIPIANI, Julia. Claim of tax offset as a defense in a tax enforcement. Revista de Processo [“Review of Procedure”], 2019. v. 295. p. 237-277)

Therefore, there can be no other interpretation of the appellate decision in REsp No. 1.008.343/SP and article 16, paragraph 3, of Law No. 6,830/1980, since the debate on the validity of the administrative act not recognizing the offset does not mean that the tax credit does not exist.

Faced with this scenario of uncertainty, it is more than welcome that the First Section again discuss the matter, expressly validating once again that the taxpayer may claim against the tax enforcer an offset previously performed during the motion to stay phase, regardless of whether or not it was validated by the tax authorities, in order to give value to the exercise of an adversarial proceeding and a broad defense.