Normative Instruction No. 1,765/17, published on December 4 of last year, conditioned the receipt of offsetting statements for IPI credits, contribution to PIS, Cofins, and negative IRPJ or CSLL balances on prior confirmation of transmission of tax documents in which the right to a credit is demonstrated.

Due to electronic cross-referencing of data, it is common that some offsets are not ratified by the Brazilian Federal Revenue Service (RFB) because of mistaken information transmitted by the taxpayer itself through DCTF, EFD, and ECF, which do not reflect payment in excess. Not infrequently, only when after becoming aware of what transpired does the taxpayer identify the error it committed and submit a response in disagreement supported by evidence of its credit right with a basis on the principles of substantive truth and good faith.

With the enactment of Cosit Normative Opinion No. 2, of August 28, 2015 (PN Cosit No. 2/15), it was established that, if an error is identified in the statement of credit subject to an offset, the SRF shall allow the taxpayer to transmit a corrected DCTF to prove its right to a credit at a time subsequent to delivery of the offsetting statement or even after a decision denying ratification of the offsetting. In this situation, the case should be released to the Brazilian Federal Revenue Office (DRF) for review of the decision not to ratify the offset, thus returning for a judgment by the Brazilian Federal Revenue Office’s Review Board (DRJ) only if the review is partial or if there is a question of law to be decided.

The Attorney General of the National Treasury (PGFN) also recognizes the duty of the Tax Administration to review, at any time, tax documents that may result in reduction or extinguishment of tax credits arising from an error of fact committed by the taxpayer, as per Opinion PGFN/CAT No. 591/14 and Opinion PGFN/CDA No. 1,194/04, since it is against the public interest to collect debts that may be corrected through an administrative review.

In fact, the taxpayer's credit right is born with the undue payment or overpayment of a tax, as per the provisions of article 165 of the CTN, regardless of the information contained in the tax documents transmitted to the RFB. This same conclusion may be extracted from article 168, I, of the CTN, according to which the taxpayer's credit right expires within a period of five years from the extinction of the tax credit, and not from the transmission of supporting documents.

In this context, a recent amendment to IN No. 1,765/17 began to require that the offsetting statements not be received without the respective proof of the amount of the credit. This has resulted in a real restriction on the right of taxpayers to recover, by way of offsetting, amounts wrongly collected, since the receipt of RFB offset statements is conditioned on prior transmission of the tax documents showing the right to a credit (EFD-ICMS/IPI, EFD-Contributions, and ECF).

The rule established by the RFB will have a significant impact on the offsetting of credits arising from negative IRPJ and CSLL balances, since companies that calculate profit per the real profit tax framework on December 31 of each year will be obliged to postpone the offsetting of the negative balance of said taxes until the delivery of the ECF, which occurs “by the last business day of July of the year following the calendar year to which it refers" (article 3, of IN No. 1,422/13). This will oblige taxpayers to seek other funds to settle federal taxes even though they are aware of the existence of a negative balance, which will impact on their cash flow.

For taxpayers who calculate IRPJ and CSLL in quarterly periods, the restriction will only apply after the close of the calendar year.

If a taxpayer insists on offsetting the negative IRPJ and CSLL balance with other taxes administered by the RFB prior to the transmission of the ECF, there is a risk that the offsetting statement will not be "received", which may entail immediate collection of the offset taxes, and even result in the registration of such amounts as delinquent debt.

Thus, although it seems that the RFB seeks to improve the control and review of credits offset by the taxpayers, IN No. 1,765/17 ended up imposing a restriction on the right to an offset to which taxpayers are entitled, without any basis on articles 165, 168, and 170 of the CTN or article 74 of Law No. 9,430/96. The measure therefore violates the constitutional principle of legality (article 5, II, of the Federal Constitution).

In addition, by conditioning the "receipt" of the offset statement on the transmission of the tax document proving the credit right, IN No. 1,765/17 assumes that the taxpayer's right to a credit arises with the tax document, which interferes with the starting point for the statutory limitations period for the taxpayer to recover the amounts unduly collected by making it the moment of effective delivery of the tax documents, which constitutes a matter reserved for a Complementary Law (146, III, b, of the Federal Constitution).

In view of the aforementioned defects, taxpayers have litigated this change in court. An injunction granted by the Federal Court of the Judicial District of Rio de Janeiro ensures the right of the taxpayer to regulate the processing of the offset statements based on negative IRPJ and CSLL balances, regardless of the previous transmission of the ECF, precisely because it recognizes that IN No. 1,765/17 illegitimately restricted the right to offset without any legal support.

Although the change brought about by IN No. 1,765/17 is also applicable to IPI credits (article 161-B) and contribution to PIS and Cofins (article 161-C), the economic and/or financial impacts to companies are not as marked, since EFD-ICMS-IPI and EFD-Contributions are delivered monthly.

In view of this scenario, companies must remain vigilant when the information transmitted to the RFB is delivered and corrected through DCTF, EFD-Contributions, EFD-ICMS/IPI, and ECF in order to ensure the receipt and processing of their offset, and to continue to be assured the right to rectify actual errors. In addition, if taxpayers have calculated a negative IRPJ and CSLL balance for 2017 and intend to offset it with other taxes administered by the RFB prior to the transmission of the ECF, there is a basis for the filing of a judicial measure questioning the unconstitutionalities and illegalities of the restriction imposed by IN No. 1,765/17.