Taxpayers await Brazilian Supreme Court decision on date of tax refunds

On September 24 2021, the Brazilian Supreme Court (STF) concluded the trial of an important tax discussion existing in Brazil. This related to the exclusion of the Sistema Especial de Liquidação e Custodia (SELIC) interest rate calculated on the refund of unduly paid taxes from corporate income tax (IRPJ) and social security contribution on net profit (CSLL) tax base.

In 2021, the STF analysed and decided on the issue and adopted a favourable understanding for taxpayers, recognising and ruling that IRPJ and CSLL should not be calculated and levied on the SELIC rate (interest) calculated on the refund of unduly paid taxes, as it is not characterised as a taxable asset increase but rather as indemnity.

This legal discussion earned wide attention after the STF ruling on the exclusion of tax on the circulation of goods and services from the Programme of Social Integration and the Contribution for the Financing of Social Security tax base, concluded on May 13 2021.

This entitled taxpayers to the refund of very high amounts of unduly paid taxes in which the SELIC rate had been applied. 

Shortly after this decision, in February  2022, the Office of the General Counsel for the Federal Treasury (PGFN) filed a motion for clarification (embargos de declaração).

The motion for clarification argued for the application of the ‘modulation of temporal effects’, and sought to have the decision only become binding and applicable as from the judgment of the case (September 24 2021). In practical terms, this would prevent the recovery of significant amounts of unduly paid taxes by taxpayers.

Alternatively, PGFN requested that the ruling only become applicable in relation to lawsuits filed prior to the inclusion of the case in the trial calendar (September 1 2021) or prior to the date of the judgment (September 17 2021).

In order to support the claim for ‘modulation of effects’, PGFN stated that since the inclusion of the case in the STF judgment calendar almost 2,000 lawsuits have been filed by taxpayers so that the limitation of temporal effects of the decision would be necessary in order to minimise the financial impact of the decision on the State Treasury.  

The table summarises the three different types of modulation of effects suggested by PGFN.

Modulation of temporal effects
Total modulation of effects (PGFN´s main claim)	Companies may exclude the SELIC interest rate from IRPJ and CSLL tax base as of September 24 2021 and are prevented from recovering unduly paid amounts prior to this date.
Partial modulation of effects (PGFN subsidiary claim)	Only companies that filed lawsuits prior to September 1 2021 may exclude the SELIC rate from IRPJ and CSLL tax base and refund amounts unduly paid in the five years prior to the filing of the individual lawsuit.
Partial modulation of effects (PGFN subsidiary claim no. 2)	Only companies that filed lawsuits prior to September 17 2021 may exclude the SELIC rate from IRPJ and CSLL tax base and refund amounts unduly paid in the five years prior to the filing of the individual lawsuit.

In addition, in the same motion, PGFN requested that companies should only be entitled to exclude the SELIC rate from IRPJ and CSLL tax base if the refund of unduly collected taxes relates to a judicial lawsuit.

That is, in PGFN´s view, the STF ruling would not be applicable if the refund claim were held in an administrative way or through the withdrawal of judicial deposits.

That is because, according to PGFN’s claim, the reason the STF decision excluded the SELIC rate from IRPJ and CSLL tax base was that SELIC rate acts like an indemnity for the State Treasury’s delay on the refund of unduly paid amounts.

In PGFN´s view, this indemnity nature of the SELIC rate does not occur in the event of an administrative claim for refund or upon the withdrawal of judicial deposits.

Therefore, although the final decision has not yet been drafted by the STF, it is possible to observe that, depending on company’s specific situation, the motion for clarification filed by PGFN might have different impacts on companies located in Brazil that seek recognition of the right to refund or compensate the amounts unduly paid due to the requirement for the inclusion of SELIC interest rate in the calculation of IRPJ and CSLL.

Based on the STF jurisprudence, Brazilian lawyers and scholars expect that some kind of modulation of effects may actually occur, while preserving the right of those taxpayers who had already filed a lawsuit before the trial (September 17 2021) to recover the amounts unduly paid.

 

Leandro LuconPartner, Finocchio & Ustra E: leandro.lucon@fius.com.br  

 

Rodrigo da Cunha FerreiraHead of tax litigation, Finocchio & Ustra E: rodrigo.ferreira@fius.com.br  

 

Julia Ferreira Cossi BarbosaTax litigation lawyer, Finocchio & Ustra E: julia.cossi@fius.com.br