At a trial at the end of 2010, the Brazilian Federal Supreme Court (STF), the highest judicial court responsible for analysing constitutional matters, decided an important case for the private sector related to the joint liability of quotaholders of Brazilian limited liability companies (BLLCs).
Article 13 of ordinary law no. 8,620 of January 6 1993, approved a practice that had been adopted for a long time by the prosecutor offices of the federal, state and municipal treasury: the determination of unlimited joint liability of owners, quotaholders, officers and managers of BLLC as to social security debts.
Under the excuse of “protecting the social security rights in cases of fraudulent bankruptcy or agreements with creditors”, the legislator chose to make all BLLCs quotaholders liable for the social security debts ascertained, regardless of evidence that they were directly related to the legal entity’s management or have performed acts “exceeding their statutory authority or infringing the law, the articles of association, and bylaws”, as determined by the National Tax Code (CTN).
Accordingly, if a BLLC had social security debt, the prosecutor office in charge could simply include the name of the BLLC owners, quotaholders, officers and managers as defendants in a tax foreclosure to be liable with their own property, in case the debt was not duly settled by the BLLC.
Although said provision has recently been revoked by law no. 11,941/2009 (converted from provisional measure no. 449/2008), considering that it has been effective for almost 16 years, the STF chose to finally decide this important matter, which had always been a burden on the judiciary system.
The decision issued by the STF in extraordinary appeal no. 562.276 (published on the Official Gazette on February 10 2011), implied the tax liability concepts embedded in article 135, III of the CTN which require “the performance of acts, by whoever manages or represents the company with excess of authority or infringing the law, the articles of association or by laws, and that have caused the generation or at least the default of tax liabilities”.
According to the Brazilian tax system, the CTN is a supplementary law, hierarchically above ordinary law. According to the CTN, the joint liability of officers, managers or representatives of private legal entities is an exceptional measure and would only be authorised by the STF if they cumulatively:
(a) were in fact and legally in charge of the management and administration of the BLLC at the time of occurrence of the facts that gave rise to the social security debt; and
(b) performed acts with excess of statutory authority or against the law, the articles of association or by laws, which have caused, if not the creation, at least, the default of the tax liability.
When reporting the Superior Court of Justice’s (STJ) decision on the motion for resolution of conflict on special appeal no. 374.139, the STF established that for the performance of acts with excess authority or against the law, the articles of association or bylaws are not to be mistaken with mere noncompliance with taxes attributable to business risk, that is, with the late payment of taxes, for which officers, managers or representatives are not liable for BLLC debt with their own property.
The infringement that the CTN refers to is a severe and conscious violation of an act performed against corporate law that governs the organisation and operation of a legal entity (law no. 6,404/76). Thus, the simple nonpayment of tax may never be an infringement capable to make the management or an administrator personally liable.
Therefore, according to the understanding approved by the STF, the quotaholders’ liability for the BLLC tax debts is an extraordinary measure, applicable only to the performance of acts with an excess of statutory authority or infringment of law. Such acts should be evidenced by the party that intends to impose such a liability, and the evidence of the representative’s willful misconduct or culpable conduct is essential for them to be considered liable.
Unless there is strong evidence of irregular management (such as the change of company location without informing the government) which authorises the immediate inclusion of the quotaholder as a defendant of the tax foreclosure, the tax debt creditor shall always bear the burden of proof.
This understanding has already been adopted both by the STF and by the STJ.
In a decision published on November 14 1991, the STF, through extraordinary appeal no. 108.728-5, has already established that “in case of BLLCs, the partner is not liable for the BLLC’s tax obligations if a willful misconduct or culpable conduct, with violation of law or of a contract, is not assigned to said quotaholder.”
In this case, there is no evidence that the BLLC has been created to cause loss to the public Treasury, nor it has been shown that the tax obligations resulted from acts performed by any of the quotaholders with excess of statutory authority or by infringing the law, the articles of association or bylaws.
The STJ expressed the same understanding in special appeal no. 397.074 according to which “the evidencing of the quotaholder’s liability, which is the creditor’s responsibility, is essential for the tax foreclosure to be readdressed, upon notification of said quotaholder”.
The joint liability of the quotaholder of a BLLC, according to the STF’s understanding of article 135 of the CTN, is limited to the actual exercise of administration or management powers, as well as to a violation which gives rise to a tax obligation, or at least its default.
Thus, by joining the obligation to be jointly liable for the BLLC’s social security debts with the mere fact of being a quotaholder, article 13 of ordinary law no. 8,620/93, actually established an exception not authorised by article 135 of the CTN, a higher hierarchical rule.
The STF understood that article 135 of the CNT could never been displaced by ordinary law; the federal Constitution, establishes that “the supplementary law shall establish general rules concerning tax legislation”.
The STF has not limited its analysis to this argument. It has said that by mistaking the individuals’ and legal entities’ property, the legislator misrepresented the BLLC and the constitutional assurance of free initiative, which includes the possibility of setting up a company to exercise economic activity and share profit.
The STF judged the rule unconstitutional not only for its formal aspect, but also for its material aspect, which eliminates any intention from the public Treasury to charge quotaholders and managers for the tax debts assumed by the BLLC without evidence that they have performed “acts with excess of statutory authority or against the law, the articles of association, or bylaws”.
Accordingly, and in view of guidance provided by the STF, which consolidated the issue related to the quotaholders and managers’ liability related to BLLC’s social security debts, investors may now have more legal certainty in relation to the exercise of their activities, provided they comply with the law and do not exceed their legal and statutory management powers.
Júlio de Oliveira is a partner and Átila de Carvalho Beatrice Condini an associate at Machado Associados
