By Joana Gayoso da Silva Marcel and Ricardo de Sequeira Toledo Article 163 of the National Tax Code (CTN) provides that the payment allocation method shall apply whenever the same taxpayer has, simultaneously, two or more debts overdue with the same government authority. In these cases, the Tax Authority with competence to receive the payment may indicate the tax liability to be settled, in compliance with the criteria set out in said legal provision. Disregarding the CTN rule, Federal Tax Authorities have been allocating, retroactively, debts paid prior to or on their maturity date. The amounts have been used to settle tax credits already extinguished by laches or expiration of the statute of limitations, generating an outstanding balance in later periods.

By Joana Gayoso da Silva Marcel and Ricardo de Sequeira Toledo

Article 163 of the National Tax Code (CTN) provides that the payment allocation method shall apply whenever the same taxpayer has, simultaneously, two or more debts overdue with the same government authority. In these cases, the Tax Authority with competence to receive the payment may indicate the tax liability to be settled, in compliance with the criteria set out in said legal provision. Disregarding the CTN rule, Federal Tax Authorities have been allocating, retroactively, debts paid prior to or on their maturity date. The amounts have been used to settle tax credits already extinguished by laches or expiration of the statute of limitations, generating an outstanding balance in later periods.

Contrary to the tax legislation, Tax Authorities have been disregarding not only the payment allocation parameters set forth in the CTN, but also the premise that authorizes the use of this method in the case of simultaneous existence of two or more debts overdue.

In this case, the provisions of Article 163 of the CTN are breached, since there is no discussion (i) about the "simultaneous" existence of "debts overdue", given that debts paid by the taxpayer on their maturity date cannot be regarded as overdue, and (ii) about the existence of debts per se, in relation to tax liabilities already extinguished by laches or expiration of the statute of limitations, which actually characterize a situation of "no debts", specifically because they were extinguished before the allocation intended by the Tax Authorities.

We are of the view that if the National Treasury could confiscate and transfer payments, later allocating them to any and all presumed debts, laches and statute of limitation periods would not apply.

In practice, the procedure adopted by the Federal Tax Authorities is just a ruse to try circumventing laches and the expiration of statute of limitations, which are cases of tax credit extinguishment, in accordance with Article 156, item V of the CTN.

If the National Treasury could rearrange the payment of tax credits made within their maturity, allocating them to past debts, we would have, consequently, an outstanding balance, plus penalty and default interest, on debts that taxpayers effectively settled on maturity.

This is precisely the intention of the Federal Tax Authorities in disregarding the rules of the CTN and the principles of good faith of the taxpayer, legal certainty and no confiscation.

The teachings of Professor Leandro Paulsen go along the same lines:

"It is not acceptable that Tax Authorities, by using a payment allocation method, circumvent all applicable formalities to demand the payment of tax credits, charging the passive taxpayer a tax that such taxpayer does not want to pay, had no opportunity to challenge and that sometimes is entirely unknown."

Given this scenario, it is our understanding that the Federal Tax Authorities may not allocate payments of taxes credits made on maturity to debts already extinguished by expiration of the statute of limitations or laches.