Gerdau closer to winning 15-year-old tax case against Treasury
Gerdau Aços Especiais is one vote away from winning its battle against the National Treasury at the Federal Regional Court (TRF) of the 4th Region, in Porto Alegre. The company currently has two of the three votes required to cancel a fine for its alleged misuse of goodwill generated by a corporate reorganization carried out between 2004 and 2005.
The judgment is an important precedent for taxpayers and is considered by attorneys to be the first case heard by TRF of the 4th Region that involves internal goodwill - that is, goodwill generated within the same economic group. In similar cases, the TRF of the 3rd Region, in São Paulo, ruled twice against transportation company Viação Cometa, which has already appealed to the Superior Court of Justice (STJ).
In the Cometa case, the judges said that the use of internal goodwill is forbidden by law, based on rules of the Federal Accounting Council and the Securities and Exchange Commission of Brazil (CVM). (Case No. 0027143-60.2009.4.03.6100).
The accounting term ?goodwill' generally refers to an amount paid for the future profitability of an acquired or merged company. It may be included as an expense on the balance sheet and amortized to reduce the amount of Income Taxes and Social Contribution on Net Profit (CSLL) a company owes. However, the Federal Revenue Service has fined taxpayers in the past when an operation was carried out between companies solely for the purposes of reducing taxes.
Gerdau's case involves a R$367 million fine, in addition to back Income Tax and CSLL owed to the Secretariat of Federal Revenue. Gerdau took the matter to court after losing in the Superior Chamber of the Administrative Council of Tax Appeals (Carf) in 2016 after a tie-breaking vote by the chamber's president. In May 2018, the company received a favorable ruling from the 16th Federal Court of Porto Alegre.
Amortization of this so-called internal goodwill was carried out between September 2005 and June 2010, after an injection of capital through several corporate reorganization proceedings initiated in 2004. The changes generated tax-deficiency notices, including against other Gerdau subsidiaries. The company says these were regular operations, which generated goodwill due to the spin-off of Gerdau Açominas.
The case was heard during a virtual session of the TRF-4 on September 29. The rapporteur for the 2nd Panel, federal judge Alexandre Rossato da Silva Ávila, stated in his vote that the corporate operations...
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