On January 12th of this year the federal government published Executive Order 1,160/23 and PGFN/RFB Joint Ordinance 1/23, which bring in a series of proposals for reducing the primary deficit.

The package of measures, called "Zero Litigation", modifies the processing of administrative tax proceedings and establishes new models for settlements or installment plans

On the same date, Executive Order 1,159/23 was published, which contains a specific provision on the calculation basis of PIS and Cofins contributions.

The following points are worth mentioning:

  • Revocation of article 19-E of Law 10,522/02 and reinstitution of the casting vote

Executive Order 1.160/23 revoked article 19-E of Law 10,522/02, which established a tie-breaking criterion in favor of taxpayers in the judgments of tax proceedings by the Administrative Council of Tax Appeals (Carf).

This article was introduced in the legal system in 2020 by an act of the Legislative Branch, as part of the conversion of Executive Order 899/19 into Law 13,988/20.

Since then, tax authorities have been trying to reduce the scope of application or even attack the constitutionality of the provision, but without much success. It is important to point out that, in the judgment yet to be concluded of Direct Actions of Unconstitutionality 6,399, 6,403, and 641, which deal with this matter, the Justices of the Federal Supreme Court (STF) have been voting, in their majority, in favor of the constitutionality of the provision.

With the repeal of article 19-E of Law 10,522/02, the tie-breaking criterion of paragraph 9 of article 25 of Decree 70,235/72 returns, namely, the prevalence of the vote of the chairman of the panel ("casting vote"). Per a provision of the internal rules, the chairman of the panel is always a board member from the representation of the National Treasury, which had been generating discussions regarding the existence of a voting tendency in favor of the Tax Authorities, that is, in favor of maintaining assessments, especially for high impact issues.

The reinstatement of the casting vote was announced as a measure that would promote increased tax revenues. However, its most likely effect is an increase in litigation of tax disputes, with a rush to the Judiciary for review of administrative acts that have been upheld in judgments decided by casting vote.

The new judgment tie-breaking system is valid as of now, and should be applied in the Carf's next judgment sessions, scheduled for February.

In any case, the definitive introduction of the casting vote in the legal system will depend on the conversion into law of Executive Order 1,160/23 within the deadline provided for in article 62, paragraph 3, of the Federal Constitution.

  • Low value litigation - access to the Carf

Executive Order 1,160/2023 also established a restriction on access to the Carf for disputes involving smaller amounts. The tax assessment or tax dispute that does not exceed one thousand minimum wages must be decided in the last level of appeal by the Regional Judgment Offices.

In practice, the increase in the authority limit will serve as a barrier to the Carf, reducing, in the long run, the backlog of administrative proceedings. The order may, however, result in more lawsuits in the judiciary.

  • Increase in the limit for filing an ex-officio appeal with the Carf

The federal government has also announced a change in the limit for filing ex officio appeals with the Carf. This appeal is filed by the National Treasury against decisions by the Regional Judgment Offices that lift, in whole or in part, tax credits.

The new limit established by the Ministry of Finance will be R$15 million. In practical terms, DRJ decisions canceling assessments of up to R$15 million will be final.

  • Tax Litigation Reduction Program (PRLF) of the National Treasury Attorney's Office

The federal government's program of measures also included new scenarios for tax settlements. PGFN/RFB Joint Ordinance No. 1, of January 12, 2023, establishes conditions for exceptional settlements in the collection of federal debts under discussion in tax administrative litigation or already entered as outstanding federal debt.

The measure aims to reduce the backlog of pending cases and increase tax collection by granting discounts to individuals, companies, and micro and small enterprises.

For transactions involving individuals, micro and small enterprises, the discounts granted can reduce the total debt by 40% to 50%. The adherence will encompass debts of up to 60 minimum wages.

The transaction involving other legal entities is intended only for debts classified as low recoverability (measured according to the provisions of Chapter II of PGFN Ordinance 6,757/22), but will allow a reduction of up to 100% in the accrual of fines and interest. It is also possible to use tax losses and a negative tax basis to discharge part of the debt.

The ordinance goes into effect on February 1, 2023, and adherence to the program can be done until March 31 of the same year.

  • Executive Order 1,159/23 - exclusion of ICMS from the PIS and COFINS tax bases

Executive Order 1,159/23 amended Laws 10,637/02 and 10,833/03 to confirm the exclusion of the ICMS amounts from the PIS and Cofins calculation basis, as decided by the STF in the judgment of Extraordinary Appeal 574.706.

The change was the introduction of a provision establishing that the ICMS is also not included in the calculation basis for the PIS and Cofins credits when determining the cost of acquisition.

Specifically for this provision, which causes a restriction on the right to a credit, the measure will only take effect on the first day of the fourth month following its publication, respecting the ninety day notice period.

We will continue to monitor any other related measures and will inform taxpayers of their impacts.