reform of the Administrative Council of Fiscal Resources (CARF)
earlier in 2016, we have noticed a clear change of position
in the "new CARF" regarding the tax treatment of goodwill
resulting from the privatisation processes. Only a few years
ago, many decisions were being found in favour of the
taxpayers, but now many are being decided in the opposite way,
i.e. against taxpayers.
For the period between 2010 and 2013, within the scope of
the Regular Chambers, the jurisprudence of the CARF was set
through the validation of goodwill from privatisations through
a number of cases (see table).
July 10 2013
June 11 2013
May 8 2012
August 7 2012
April 11 2012
During this three-year period, the decisions delivered by
the administrative ruling body were, in the overwhelming
majority, favourable to the taxpayers. Therefore, independently
of the use special-purpose entities (SPEs) or the transferring
of goodwill to a company outside the economic group, the CARF
issued decisions by validating the taxpayer’s
records and the transaction and, consequently, its tax
However, at the time, the position of the Upper Chamber of
Tax Appeals (CSRF) was still completely unknown in some of the
cases mentioned in the table and its decisions were,
unfortunately, unfavourable to the taxpayer. In early 2016, in
the hearing of the special appeals filed by the Federal Union
in the Cosern and Celpe cases, the position
of the CSRF became known.
The Cosern and Celpe cases
delivered by the CARF
When the Regular Chambers of the CARF were hearing these two
emblematic cases of Cosern and Celpe, the
court referred to the judgment in the Santander case
(ruling number 1402-00.802).
The Regular Chambers analysed what they described as the
three basic authorising assumptions for determining the tax
depreciation of financial goodwill, as follows:
effective payment of the total cost of the acquisition,
carrying out of the original transactions between unrelated
Proof of a proper evaluation of the acquired company, including
its profit forecast.
With these assumptions evidently fulfilled in the cases of
acquisitions in privatisations, the panels in both cases
– but especially in the Cosern case
– recognised the demonstration of the business
In the Celpe case, the vote of the reporting judge
in the ruling delivered by the Regular Chambers affirmed that
because it was impossible for Celpe to incorporate the parent
companies due to administrative and corporate issues, there was
no impediment to creating new companies in order to make the
tax depreciation feasible (p. 51 of ruling number
In this sense, the two rulings recognised that in the moment
the title of the acquired stock was transferred, accompanied by
the goodwill underlying them, to a third-party company to the
economic group (the SPE), then the latter (the SPE) would
become the real acquirer of such assets, making possible the
legitimate tax utilisation of the goodwill after the
acquisition transaction is complete.
If no defects are found in the generation of the goodwill,
because of the existence of effective payment and a legitimate
evaluation report including a demonstration of the profit
forecast, the tax depreciation cannot be questioned based on
the suitability to apply tax legislation.
The CSRF’s rulings in Cosern
The CSRF’s decision in Cosern and
Celpe was substantially different to the judgment of
the Regular Chambers.
Looking at the main foundations of the CSRF’s
decisions, the validity of the formation of the goodwill was
not enough to authorise its tax depreciation. The CSRF examined
the corporate aspects involved in the transaction, looking at,
above all, the utilisation of the SPE and the corporate
acquisition without the participation of the original acquiring
In the Cosern and Celpe cases, it decided
that tax utilisation of goodwill could only occur when the
original investor and investee transform into a single entity.
The tax norm would be restricted to the originating corporate
investor, the one that creates the added-value of the
investment through research into profit forecasts and
disbursing the resources for the acquisition to the corporate
investee, which gave rise to the acquisition.
The restriction to the tax utilisation of goodwill in
transactions involving the original investee and investor is
unquestionably the central point of both the decisions
delivered by the CSRF.
This limiting point of view does not allow, for example, the
transfer of goodwill originally registered by the investor to
another corporate entity within the economic group and its
subsequent tax depreciation, nor does it allow the utilisation
of a SPE for the acquisition.
This being the case, the essential question that arose
within the scope of the CSRF’s decision concerned
the impossibility of having a corporate structure with filed
corporate entities (SPEs) for the tax utilisation of goodwill;
or the transfer of this asset to another company within the
economic group, which would preclude an acquisition transaction
between the original investor and investee.
The companies have appealed the decisions by filing an
"Embargos de declaração" (a declaration of
The controversial decisions delivered by the CSRF are a
cause for significant concern on the part of corporate entities
because of the fact that they reflect, not only on further
privatisation cases, but also on those that discuss
depreciation of goodwill resulting from private transactions,
seeing as the applicable tax legislation and concepts are the
In fact, in the majority of the tax assessments, the
collection of the tax depreciation of goodwill is based on the
use of a SPE, or on the transfer of the goodwill to a third
party company of the economic group, which are precisely the
points faced by the CSRF and characterised as prohibitive for
We note that this jurisprudential tendency has already been
reflected in the bases for new tax assessments before the CARF.
Contemporary checking procedures have pursued the
disqualification of the original investor and/or investee and
the identification of supposed SPEs in order to replicate the
understanding delivered by the CSRF. This means that taxpayers
are unlikely to win cases in the CARF that relate to goodwill
amortisation when privatising a business.
Ana Paula S Lui Barreto represents clients in
administrative proceedings involving complex tax disputes
before the Brazilian Federal Administrative Tribunals. She has
successfully argued against federal tax authorities assessments
and she has extensive experience in presenting oral arguments
before the CARF.