Tax Authorities in Brazil



The division of tax authorities between the Federation, the 26 Federal States and the Municipalities is as follows.

The Federation has the authority on:

  • Income tax (IRPF),
  • Corporate tax (IRPJ + CSLL),
  • Industrialized products tax (IPI),
  • Credit, exchange, stock market, insurances (IOF),
  • Foreign trade tax (imports, exports),
  • Rural land tax (ITR),
  • Personal assets (IGF),
  • Employer contributions (INSS),
  • Social contributions (PIS and COFINS),
  • Compulsory Provident Fund (FGTS),
  • Contribution to Interventions in the Economic Domain (CIDE).

The Federal States have authority on:

  • Services, transport, communication and movement of goods tax (ICMS),
  • Annual vehicle license (IPVA),
  • Inheritance tax (ITCMD),

The Municipalities have authority on:

  • Tax on services (ISS),
  • Urban land sale tax (IPTU),
  • Tax on real estate and related rights (ITBI).

It is important for a company to know whether a tax is controlled by the Federation, the Federal States or the Municipalities. Indeed, a company subject to the IPI (which appears under the heading ‘Industrialized Products Tax’ in the “Federal” category) will not need to choose among states on the basis of this tax. Since this tax is federal, it is the same throughout the entire Brazilian territory.

On the other hand, ICMS appears in the “State” category. Thus, the rate of this tax will vary from state to state (26 states plus the Federal District). A foreign company looking for the best location for its implantation should take into account the rates of ICMS in all the different states.

Be aware that Federal States redistribute 25% of ICMS revenue to the Municipalities, according to a “Participation Index”.

Similarly, as the rate of ISS is controlled by Municipalities, the choice of location of the implantation must be decided upon, on the basis of the rates offered by Municipalities.

There have been various technological innovations since the internet revolution – such as downloading, streaming, software as a service, the use of robots, and the performance of activities on the blockchain platform. The world has changed and become virtual. The economy has become dominated by companies in the technology sector (Google, Amazon, Apple, Facebook and Microsoft), facilitating the emergence of unimaginable business arrangements. The unprecedented intangibility of these companies has made physical presence in a particular jurisdiction unnecessary. As such, transactions have started to occur remotely. The current legal system is full of peculiarities, and is neither prepared nor structured to adequately handle taxation of wealth in this new, virtual world.

This ultimately results in an intense conflict for authority – one in which states and municipalities fight to bring these new technologies under their purview of taxation. For example, not too long ago states and municipalities discussed the taxation of internet providers. The states claimed these were telecoms services, subject to ICMS; the municipalities argued that they were data processing services, subject to municipal service tax (ISS). Case law has not set a precedent for either argument, and there are no specific rules that apply to this matter.

Another example is the recent publication of different rules about the taxation of streaming. This caused states (Cooperation Agreement ICMS 106/17) and municipalities (Supplementary Law 157/16) to each consider that they had authority to tax the streaming services. Taxpayers were thus doubly taxed for their streaming activities.

This situation of legislative uncertainty about the rules (and taxes) applicable to these new technologies, resulting from a conflict of tax laws or the absence of clear regulatory standards that define them, leave taxpayers baffled over how to pay.

Fortunately, at a political level, there does appear to be some concern over these issues, which ultimately damage the Brazilian economy and chase foreign investors away. Most current political speeches clearly express desire for tax reform.

The new government took office in January 2019. President Jair Bolsonaro and his top financial minister Paulo Guedes have thus far outlined a tax plan designed to spur the economy by reducing income taxes for businesses to a flat 20 percent corporate tax rate.

Brazil’s current corporate tax rate is 34 percent. Such a drastic cut would come in response to a similar move in the U.S., which lowered its corporate tax rate to 21 percent from 35 percent in 2017. The measure could make Brazilian companies more competitive.


Whenever taxpayers fail to collect and pay taxes in a timely manner or to submit their tax returns on time, penalties may be imposed. Penalties for non-compliance with ancillary duties may be charged even if there was not any miscollection of taxes.

There are two types of penalties that can be applied by the tax authorities if they eventually issue an Infraction Notice against the taxpayer:

  • a 75 per cent default penalty; or
  • a 150 per cent aggravated penalty.

The 75 per cent penalty is applied in most of the cases where the tax authorities understand that the taxpayer did not act in wilful misconduct, fraud or simulation. Conversely, the 150 per cent aggravated penalty will be imposed if the tax authorities understand that the taxpayer did practice acts that are to be treated as wilful misconduct, fraud or simulation.

Under Brazilian tax law, an aggravated penalty of 150 per cent can only be imposed in cases where an evident intent of fraud is proved, that is, when the tax authorities are able to establish unequivocally the taxpayer’s purpose of deluding, hiding from or deceiving them.

There are also other types of penalties, such as an isolated penalty of 50 per cent if the taxpayer fails to anticipate taxes in a certain collection regime or if it has an offset request denied by tax authorities. Furthermore, under Brazilian tax law, if the taxpayer acknowledges any debts prior to any action being taken by the tax authorities and settles these before any Notice is issued, then it will be subject to a penalty equivalent to 20 per cent on the claimed taxes, added to SELIC interest (base interest rate set by the Brazilian Central Bank to control inflation). Depending on the circumstances, there will be arguments to defend that even the 20 per cent would not have to be paid, as this would be a voluntary disclosure procedure.

In the case of non-compliance with ancillary duties, there are a series of penalties that the taxpayer may be subject to. Those penalties may involve either a small fixed amount or a percentage of the taxpayer’s gross revenues or of the challenged transaction.

If an Infraction Notice is issued, the following options are available:

(i) settling the Notice within 30 days, with a 50 per cent discount on whatever penalty was applied; or

(ii) filing an objection to the Infraction Notice, outlining the reasons why the Notice should be cancelled and then officially initiating the litigation in the tax administrative sphere.

If the notice is settled within 30 days with a 50 per cent discount on the penalty applied, no litigation in the administrative sphere will be permitted. Nonetheless, the taxpayer will still have the option of filing a lawsuit in a court of law seeking to receive back the amounts paid in settlement of the Infraction Notice.

Any possible charges accrue interest, which is calculated, at the federal level, according to the SELIC rate.

Pursuant to public information made available in databases maintained by the Brazilian IRS, a figure of approximately 1.84 trillion reais in infraction notices is being discussed, being 1,125.29 billion reais still under discussion in the administrative level of review and 339.39 billion reais still under discussion in the judicial level of review.

It is legally possible to cooperate with the tax authorities in other countries. Brazil has entered into double taxation conventions and treaties for exchange of tax information (including the Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS)).


Tax claims may be started either by the taxpayer or by the tax authorities (this latter case usually involving an assessment), and there are two main levels where taxpayers may discuss tax matters:

  • the administrative level of review; and
  • the judicial level of review.

Both have a similar structure, grounded in three different levels of review.

In the administrative level, after the claim has been submitted, there is a first level-decision issued locally by the Federal Revenue Chief Officer (if the dispute derives from an assessment, the taxpayer may present an objection, where it will appoint its arguments and evidences). Once the first-level decision is issued, an appeal (called Voluntary Appeal) may be filed by the party, requesting its case to be reviewed by the Tax Administrative Appeals Council (CARF), at the second level within the administrative sphere.

Each Judgment Chamber in the Tax Administrative Appeals Council is made up of six members, three being appointed by the tax authorities and three by the taxpayers’ associations. If a case is tied, it will be deemed to have been ruled in favour of the government.

There is a third level in the administrative sphere, which is the Tax Appeals Superior Chamber (CSRF), but it will only review a case if the party (either the taxpayer or the government, as the case may be) is able to show that a conflicting decision was handed down on the same subject by the Tax Administrative Appeals Council, either by the same Chamber or by a different one.

As a result, if the Tax Administrative Appeals Council rules the case against the taxpayer, and the taxpayer is able to find a divergent decision on the same subject, it will be allowed to file a further appeal (called a Special Appeal) to the Tax Appeals Superior Chamber. The contrary is also true – tax authorities can also file a Special Appeal to the Tax Appeals Superior Chamber if the case is ruled in favour of the taxpayer by the Tax Administrative Appeals Council.

Each chamber of the Tax Appeals Superior Chamber is made up of eight members, four being appointed by the tax authorities and four by the taxpayers. As in the Tax Administrative Appeals Council, a tie result in the Tax Appeals Superior Chamber is deemed to be in favour of the government.

It is important to point out that the taxpayer cannot litigate the same case at the same time in both the administrative and judicial spheres. In practice, the judicial sphere will always be an open option for the taxpayer, whereas the administrative sphere will only review a case of the taxpayer that has not initiated any judicial discussion in the same regard.

It is also worth mentioning that if a final decision is issued in favour of the taxpayer in the administrative sphere, the case will be over, because, except in some very special circumstances, the tax authorities will not be allowed to take the case to the judiciary to be reviewed. In contrast, if a final decision is handed down against the taxpayer in the administrative sphere, the taxpayer will still have the option of going to the judiciary and filing a lawsuit claiming for its case to be further reviewed, either on the same arguments or different ones.

In turn, the judicial level of review is also made up of three levels:

  • first-degree court of law;
  • Appeals Court; and
  • the Superior Court of Justice (STJ) and the Federal Supreme Court (STF).

In the first-degree court of law, a single judge will examine and rule on the case. In the event of an unfavourable decision, the party (taxpayer or the tax authorities) will be allowed to file an appeal to the Appeals Court, which is made up of three judges. In the case of another unfavourable decision, the party may file another appeal to the STJ and the STF.

While the STJ will review every case where the appealed decision had allegedly violated a law, the STF will only do so if it deems the case to be of general interest to the country and society.

At the administrative level of review, each party bears its own costs. At the judicial level of review, in turn, the defeated party may be required to reimburse dispute costs, depending on the type of action.

There is no defined time frame for tax trials. On average, an administrative tax review takes from five to seven years, while a judicial dispute may take from eight to 12 years including the final avenues of review (Superior Court of Justice/Federal Supreme Court).

At the administrative level of review, there is no formal obligation to have an attorney for filing defences, appeals and presenting the arguments before CARF/CSRF, although it is rather common and even recommended, due to the technicalities usually involved in tax cases.

On the other hand, for judicial claims it is mandatory to have a lawyer duly enrolled with the Brazilian Bar. If the taxpayer is not able to afford legal representation, it may request free judicial assistance (although not common in tax disputes): Brazilian legislation (Federal Law No. 1,060 of 1950) and Special Court’s Ruling No. 481 (STJ) allow the taxpayer to be represented by a public attorney, provided that the absence of financial conditions is proved.

One very important difference between the judicial and the administrative spheres is that, in the administrative level, the taxpayer is allowed to litigate the case without having to present guarantees or deposit the disputed amounts. In contrast, if an unfavourable decision is handed down at any stage in the judicial sphere, the taxpayer will be required to:

  • make a deposit in court; or
  • present guarantees covering the whole amount of the disputed tax debt;

Otherwise, the tax authorities are able to initiate the execution of the disputed amounts, regardless of whether the litigation in the judicial sphere is over yet.

Source: Pinheiro Neto