Taxpayers lose billions with CARF’s tie-breaking vote reinstatement
Petrobras faced a R$6.5 billion setback in the Upper Chamber of the Administrative Council for Tax Appeals (CARF), the council’s highest decision instance. The decision came down to a tie-breaking vote, with the panel’s president, representing the tax authorities, casting the decisive vote.This week was notable for the resumption of in-person hearings at CARF and marked the first such hearing since the enactment of Law 14,689. This law revived the tie-breaking vote in the council and provided certain concessions for taxpayers on the losing end, such as decreased fines and interest.The tie-breaking vote debate has spanned the entire year, leading to significant cases that often result in a tie being stalled. This week was marked by a breakthrough in resolving these standoffs.Matters that have historically seen contention between representatives of the Tax Authority and taxpayers were brought to the forefront. Among them was the Petrobras case, deliberated upon just Thursday (5), concerning the taxation of its controlled and affiliated foreign entities.The notice of violation, drawn up in 2018, charges Business Income Tax (IRPJ) and CSLL—a tax on companies’ net profits intended to fund social programs—on profits earned by a subsidiary in the Netherlands between 2013 and 2014 (case n. 16682.720429/2018-62).In its defense, the company asserted that profits from entities in countries with double taxation treaties, like the Netherlands, should not be taxed.However, the tax authorities reference Article 74 of Provisional Presidential Decree n. 2158 from 2001, claiming it allows for such taxation. The tax authorities argue that there’s no breach of treaties ensuring exclusive taxation in a company’s home country. When calculating its tax base, they maintain that the Brazilian company includes earnings derived from its foreign affiliate’s profits.Last year, Petrobras secured a win in the Lower Panel, a level below the Upper Chamber, when a tie occurred in the voting phase—with taxpayer representatives opposing the taxation and tax authority representatives supporting it. At that time, Law n. 13,988 of 2020, which granted a victory to the taxpayer in case of a tie, was still in force.However, this changed in January 2023 when the federal government introduced a provisional presidential decree reinstating the previous tie-breaking rule. That sparked significant debate and ultimately led to the enactment of Law n. 14,689, which currently governs the...
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