Until the advent of Law No. 13,988/20, known as the Legal Taxpayer Law or the Tax Settlement Law, the procedure for administrative resolution of small tax disputes (litigation of up to 60 minimum wages) was essentially regulated by the system introduced in Decree No. 70,235/72. According to the criteria established therein, administrative litigation of federal credits and debts occurred at two levels or trial stages.

In the first stage, which takes place within the scope of the Judicial Offices of the Special Federal Revenue Service (DRJs), a board formed solely of representatives of the Federal Revenue Service is responsible for examining the legality of the tax assessment or the decision that denies the restitution/compensation of a claim.

According to data released by the Brazilian Federal Revenue Service (RFB),[1] of the total stock of 267,000 administrative cases awaiting consideration in this first phase, in February of 2020, about 184,000, or almost 70% of the total, were cases with small value disputes. These cases waited an average of 948 days until the end of this trial phase.

The parties that did not have their claims accepted by the DRJs could enter a second stage of administrative dispute, submitting the case to trial by a joint body of the Administrative Tax Appeals Board (Carf),[2] which would lead take on average six years.

According to management data published on the Carf website, of the universe of 116,000 tax lawsuits awaiting judgment in February of 2020, 71,000 were small claims, that is, up to 60 minimum wages. In Brazilian Reais, small claims corresponded to a dispute of approximately R$ 1.6 billion, against R$ 627.9 billion referring to the value of the whole inventory of Carf proceedings. That is, 61% of all Carf's cases pending judgment represent not even 1% of the total amount in dispute.

The figures show that the model of administrative tax litigation, as it had been presented, was exhausted. Disputes for very low amounts ended up perpetuating themselves in time and congesting the judicial bodies, also responsible for deciding the largest tax controversies. The overall result of the equation is a deficiency in the provision of Public Administration services to society and an excessive slowness to resolve tax issues.

In this scenario, and with the declared goal of attributing greater speed and ensuring greater efficiency to federal administrative litigation for small claims, Law No. 13,899/20 was published, whose articles 23 et seq. were dedicated to instituting new measures to change the system for deciding administrative tax litigation for small claims.

The main changes introduced by Law No. 13,988/20 were: (i) final administrative judgment by the DRJs; and (ii) the possibility of adhering to a tax settlement, following its own criteria and procedures. We will look at the two measures below.

The judgment at last instance by the DRJ

Article 23 of Law No. 13,988/20, regulated by ME Ordinance No. 340/20, now provides that tax disputes for small amounts are ultimately examined by a board of the Brazilian Federal Revenue Service, prohibiting access to such administrative proceedings by an adjudicatory body with the Carf.

There are advantages and disadvantages to the new measure.

Although the measure strongly tends to speed up the judgment of low-value administrative tax proceedings, it ends up modifying the quorum for the body responsible for the second phase and, thus, restricting the taxpayers' defense.

One must recall that, until the enactment of Law No. 13,988/20, small claims litigation was judged at the appellate level by the extraordinary panels of Carf, a peer body, formed by the same number of representatives of the tax authorities and the taxpayer and with the opportunity for oral argument and monitoring of the judgment.

With the advent of this law, and its recent regulation by ME Ordinance No. 340/20, the plurality of parties in dispute in small claims administrative tax litigation has ended. In these cases, appeals are now ultimately examined by the appellate chambers of the DRJs, composed of three to seven judges selected from among the chief judges of the ordinary panels of the DRJs, all of whom are tax auditors and therefore representatives of the Brazilian Internal Revenue Service.

Moreover, in trials before the DRJ, oral arguments or even monitoring of the sessions by the parties is not allowed. For administrative proceedings for small amounts, therefore, defenses will be exercised only on paper, without reinforcement via oral arguments. Consequently, it becomes even more relevant to prepare a consistent and founded initial defense containing all the elements to prove the facts and the law.

An attempt to contribute to an environment of greater legal certainty came in the form of mandatory observance of the Precedents and Resolutions of the Carf by the DRJs, thus binding the position of the DRJs to that already included within the Carf’s guidance. The measure converges on greater uniformity of positioning. However, any repeated positions of the Carf, if not treated as a summary of law or precedent, will not be mandatory for the appellate panels of the DRJ.

Another point of attention is that, in the regulation of small claims litigation under ME Ordinance No. 340/20, the tie-breaking criterion was maintained by the vote of the presiding judge’s vote, contrary to the criterion established by Law No. 13,988/20 itself for the other administrative proceedings under the Carf, in which ties in judgments finding and ordering tax debts to be resolved favorably to the taxpayer.

Considering that administrative proceedings for small claims will no longer reach the Carf, the best solution, even to ensure the preservation of article 112 of the National Tax Code (CTN), would be that of disputes at the appellate level also in favor of the taxpayer.

The adoption of a special procedure for the judgment of administrative tax proceedings for small claims ensures greater speed in administrative litigation and, consequently, should substantially reduce the number of proceedings awaiting examination by the Carf. However, in pursuit of its objectives, Law No. 13,988/20 ended up sacrificing important constitutional principles for procedural practice, focusing on speed of review at the expense of full exercise of rights of defense.

Possibility of settlement

The second important measure adopted by Law No. 13,988/20 was the institution of settlements in tax matters. Bringing to reality the command until then pending regulation of the eighty-year old article 171 of the CTN, Law No. 13,988/20 allowed taxpayers and the Federal Government to settle regarding their debts.

Settlements, because they are an instrument that aims to solve tax disputes by extinguishing the debt through mutual concessions, represent an unequivocal change in the paradigm of the Public Administration in tax collection and should contribute to greater efficiency in tax litigation.

Among the modalities of settlement provided for in Law No. 13,988/20, a specific settlement was instituted for small tax litigation, allowing a discount of up to 50% of the tax debt with a payment period of up to 60 months.

Adherence to this type of settlement is subject to the rules that will be instituted by the PGFN and the RFB, as published notices.

The first notice for small value litigation settlements was published in August of 2020 (RFB Notice of Settlement No. 1/2020), allowing the payment of a downpayment of 6% of the net debt, after the application of the percentage reduction, and the payment of the remaining net debt from 7 to 52 installments, with discounts that could vary from 50% to 20% of the value of the principal, fine, interest, and other charges. Up to December 29, 2020, interested taxpayers could adhere to the conditions of this first notice. It is expected that the next notices will be published soon.

Although the measure represents a major advance in the tax authority/taxpayer relationship, its effectiveness depends on its scope. In order for the transaction to become a reality as a possible method of dispute resolution, especially in cases of small claims, the Brazilian Federal Revenue Service and the National Treasury Attorney's Office must follow a constant work of approximation with taxpayers, granting the advantages that effectively facilitate the settlement of tax debts and make the settlement attractive to a larger public.

The regulation of low-value administrative tax litigation and the possibility of offering these debts for tax settlements demonstrate an extreme concern by the federal government with reducing the serious tax outlook and the large amount of pending litigation. The proposed measures tend to translate into gains in speed, efficiency in dispute resolution, and savings for the public coffers, but are still on a path for improvement.

[1] NETO, José Barroso Tostes. "Contencioso administrativo tributário federal: diagnóstico e perspectivas” [“Federal administrative tax litigation: diagnosis and perspectives”] in Revista ETCO - Instituto Brasileiro de Ética Concorrencial [“ETCO Review - Brazilian Institute of Competition Ethics”]. Special Edition No. 25. Year 17. August 2020, p. 9.

[2] Within Carf, there is also a special trial body, under the responsibility of the Superior Chamber of Tax Appeals (CSRF), which is in charge of standardizing case law in tax matters, this being the last stage of federal administrative litigation.