Government gives up on counting on “tax court” to boost revenue

When announcing the freezing of expenses and the increase in the IOF to meet fiscal targets, the government's economic team also reported having given up on one of the least fruitful collection strategies of the Lula 3 administration: resources arising from judgments by the Administrative Council of Tax Appeals, the Carf, a type of "tax court".

At the beginning of the year, in yet another attempt to show commitment to the fiscal target and interest in plugging the gap in public accounts, the federal government had once again inflated the revenue forecast with the Carf judgments. The practice had already been adopted in 2024 with the same inconsistencies.

To give you an idea, last year, the Lula government projected to collect R$55 billion from the sentences handed down by the agency. However, the actual amount collected was R$308 million – that is, only 0.55% of the expected amount.

Even in the face of the tax collection fiasco, the government subsequently regained its optimism, albeit in a somewhat more measured manner. In the 2025 budget, it predicted that revenue from Carf decisions would reach R$28.6 billion.

But it had to backtrack in light of the clear discrepancy between expectations and reality. When announcing the freeze package, the government zeroed out the revenue projections related to the agency.

Bets on raising tens or hundreds of billions of reais were based on the return of the so-called quality vote, established by Law 14,689 of 2023. However, as the members of the economic team themselves clarified, the mechanism ended up favoring the extension of the dispute, taking it out of the administrative sphere and taking it to the Judiciary.

Even before the withdrawal, members of the economic team had already stated that raising funds through the agency was unlikely.

The head of the Federal Revenue's Tax and Customs Studies Center, Claudemir Malaquias, had acknowledged that the government had erred in using overestimated projections, and that the value projected for this year had used the same methodology as a basis, developed by Carf itself.

Goodwill lawsuits have become Carf's main focus

Much of the government's tax collection optimism was based on judgments related to the premium — which is the amount paid above the book value of assets in negotiations for the purchase or corporate reorganization of a company, based on future expectations of profitability.

In 2024, the Carf Superior Chamber judged 122 cases on this subject, 100% more than in 2023, when 61 decisions were issued on the subject. Considering the lower chambers, the ordinary panels, the number rises to 172.

Legislation provides for IR and CSLL discounts on premium transactions

Brazilian legislation allows the amortization of goodwill to reduce the calculation basis for Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL).

The tax benefit was introduced by Law 9,532/1997 to supposedly encourage economic groups to acquire at a premium the state-owned companies auctioned in the privatization program underway at that time, recalls Helder Santos, a tax management specialist at Fipecafi.

He highlights that, until 2014, with the publication of Law 12,973/2014, when changes were introduced to the rules, there was no legal limitation on the use of goodwill in corporate reorganizations within the same economic group.

New legislation restricts premiums between companies in the same group

The actions on goodwill at Carf are based on this new legislation, since, among other changes, it prohibited the amortization of internal goodwill – when it is done in the negotiation or corporate reorganization between companies in the same group.

Furthermore, the new rule now requires that there be a business purpose when a vehicle company is created – a company created specifically to facilitate the acquisition of another, as occurs with the creation of holding companies to attract international investments, for example.

Priscila Dias, a lawyer at the Brazilian Institute of Planning and Taxation (IBPT), states that, in recent years, the Federal Revenue Service has adopted a more rigorous stance in relation to internal goodwill and vehicle companies.

“Distrust turns into a fine when the tax authorities understand that there is no legitimate business purpose behind the transaction, that is, when they identify that the acquisition occurred solely to obtain tax benefits,” he states.

Expert dismisses possible misalignment between Carf and Receita

Asked whether the difference between the government's estimates for Carf and the outcome of the trials indicates a misalignment of perspectives, Helder Santos, from Fipecafi, says it is unlikely.

He believes that auditors act to find possible irregularities in the generation of the premium. And that a rigorous evaluation of the evidence presented is expected, which may even lead to a decision contrary to that which led to the officialization of the infraction.

“This demonstrates the need for this judgment to exist in the administrative sphere, reducing unnecessary judicialization,” he assessed. He also points out that Carf is composed of an equal number of representatives from the National Treasury and taxpayers.

Carf adopts cautious stance

On the other hand, Priscila Dias, from IBPT, assesses that, while the IRS tends to fine premium transactions in which it does not identify a business purpose, Carf adopts a more cautious stance.

According to the lawyer, the agency recognizes that such operations “may have valid justification, even if they are not formalized in the terms required by the IRS”.

In addition to frustrating revenue forecasts, as has in fact happened, it warns that the differences between the perspectives of the IRS and Carf may even bring legal uncertainty to companies, which are exposed to fines even when acting within the law.

Government estimates put pressure on Carf to collect more revenue

Priscila Dias states that, obviously, there was government pressure to increase revenue via Carf decisions, predicting that the reduction in the stock of pending cases at the agency would lead to the payment of fines.

In 2024, Carf judged more than 18 thousand cases, representing a significant increase in relation to 2023. The increase in bets at Carf came from the expectations created with the institution of the quality vote, brought by Law 14.689/2023.

According to José Helder, the estimated R$55 billion in revenue in 2024 depended on the casting vote — the tiebreaker made by representatives of the Treasury in the Carf. But, in practice, the mechanism had the opposite effect to that intended.

Carf's qualitative vote made the administrative process more advantageous

In the expert's view, the quality vote legislation encourages the taxpayer to open the administrative process and, if the decision is not favorable, take it to court.

When a company is fined, it must choose between paying the amount required by the tax authorities or challenging the notice of violation and discussing this liability in the administrative sphere, until it reaches the Carf. For payment of the violation, a 50% reduction of the fine charged by the tax authorities is granted.

However, Law 14,689/2023 establishes that, if the decision in Carf is made through a casting vote, the company may pay the debt without a fine, in installments of up to 12 months, and may also use its own tax losses or those of related parties (affiliates or controlled companies) to pay off the debt.

Furthermore, if the company chooses to continue with the discussion in court, it may be exempted from presenting guarantees and will have the positive certificate with negative effects released, says Helder Santos.

Tax disputes can take more than ten years to be resolved

The expert also points out that studies by the Brazilian Jurimetrics Association (ABJ) indicate an average time of more than ten years for tax disputes in the administrative sphere – which is an incentive to protect companies' cash flow.

According to Helder, “the incentive generated is to not pay the fine, discuss it administratively and, after the casting vote, evaluate whether it is advantageous to make the payment with all the benefits offered or continue the discussion in the judicial sphere, at no cost”.