Tax Defense: Litigation Strategies

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Defending against a tax assessment in Brazil calls for specific technical and procedural strategies to contest it, from the administrative challenge through judicial appeals, in order to protect the taxpayer’s assets.

Stages of Tax Litigation in Brazil

Brazilian tax litigation is divided into two separate arenas: administrative and judicial. In the administrative arena, you can challenge a tax demand without a lawyer (although professional assistance is advisable), without court costs, and with the advantage that the dispute is heard by decision-makers who specialize in tax matters. In the judicial arena, you have access to the courts to argue questions of legality and constitutionality, with all the constitutional procedural guarantees.

The federal administrative tax procedure is governed by Decree 70.235/1972 and moves through three levels: the Regional Judgment Offices (DRJ), the Panels of the Administrative Tax Appeals Council (CARF), and the Superior Tax Appeals Chamber (CSRF). At the state and municipal levels, each entity has its own administrative tax tribunal, with its own procedural rules. You may choose to exhaust the administrative route before going to court, or you may file a lawsuit directly.

The choice between the administrative and judicial routes depends on strategic factors such as the merits of the defense, the estimated time to a decision, the need for an injunction or preliminary relief, the existence of favorable case law, and the financial cost of each option. Choosing the judicial route does not prevent the administrative proceeding from continuing, but filing a lawsuit on the same subject amounts to a waiver of the administrative dispute, under Article 38 of Law 6.830/1980.

Administrative Challenge: The First Line of Defense

The administrative challenge (impugnação) is the taxpayer’s first defense against a notice of infraction or an assessment notice. The deadline to file is 30 days from the date you are notified of the assessment, under Article 15 of Decree 70.235/1972. The challenge must be in writing and must identify the person filing it, point out the items in dispute, state the factual and legal grounds, include documentary evidence and, when necessary, request an expert examination or further investigation.

The technical quality of the challenge is decisive for the success of your defense. A well-grounded challenge, with solid legal arguments, organized documentary evidence, and relevant questions for the expert, is more likely to succeed at each level of review. Any issue not raised in the challenge is barred, meaning it cannot be raised in a later appeal, which makes a complete initial filing a fundamental strategic requirement.

In the judicial arena, you have access to the courts to argue questions of legality and constitutionality, with all the constitutional procedural guarantees.

While the challenge and the administrative appeals are pending, the enforceability of the tax debt is suspended (Article 151, III, of the National Tax Code), which prevents the debt from being registered as outstanding, a tax enforcement action from being filed, and the debt from being entered in the CADIN (Federal Registry of Delinquent Debtors). This suspension is automatic and requires no deposit or security, which is a significant advantage of the administrative route. You keep your tax compliance status throughout the administrative dispute.

Appeals to CARF and the Superior Chamber

If the DRJ denies your challenge, you may file a voluntary appeal with CARF within 30 days. CARF is made up of joint panels, with representatives of the National Treasury and of taxpayers, and it is the second level of the federal administrative tax procedure. Because the decision is made by a panel, the issues in dispute can be examined in greater depth, and the taxpayer or the taxpayer’s representative may present oral arguments.

At CARF, the casting vote (voto de qualidade) applies, and it has been the subject of significant legislative changes. Law 13.988/2020 had established that, in the event of a tie, the decision would favor the taxpayer. However, Law 14.689/2023 partially reinstated the casting vote in favor of the Treasury, on the condition that, when a tie results in a decision unfavorable to the taxpayer, penalties and interest on the disputed tax are excluded, and only the principal must be paid.

The Superior Tax Appeals Chamber (CSRF) is the third and final administrative level, with authority to hear special appeals against conflicting decisions among CARF panels. An appeal to the CSRF is allowed only when the decision under appeal contradicts the position of another CARF panel or of the CSRF itself on the same issue, which makes it a mechanism for unifying administrative case law. The CSRF’s decision is final in the administrative arena and ends the tax dispute at that level.

Lawsuits for Tax Defense

In the judicial arena, you have several procedural tools for tax defense. An action to annul a tax debt seeks to set aside the tax assessment when the assessment is defective or when the demand is unlawful or unconstitutional. A writ of mandamus (mandado de segurança) is appropriate when you have a clear and undisputed right backed by documentary evidence already in hand, with no need for further evidence-gathering. A declaratory action can be used to obtain a judicial determination on whether a tax-law relationship exists.

A tax enforcement action (Law 6.830/1980) is the means by which the Treasury collects in court the debts registered as outstanding. To defend against a tax enforcement action, you may file objections to enforcement (embargos à execução) within 30 days after securing the court’s jurisdiction over the debt (by deposit, attachment of assets, or bank guarantee). The objections allow a full debate on the merits of the debt, including every issue that could be raised in an annulment action, and they are the debtor’s main defense filing.

An objection of pre-enforcement (exceção de pré-executividade) is another important tool, used when the defense rests on issues that need no evidence-gathering, such as the statute of limitations, expiration of the Treasury’s right to assess, payment, invalidity of the enforcement instrument, or lack of standing of the party being sued. The advantage of this objection is that it does not require security, so you can defend yourself without having to offer assets for attachment or provide a bank guarantee. A tax refund action (repetição de indébito) is the proper remedy when you have already paid and want to recover an amount paid in error.

Frequently Asked Questions

What is the deadline to challenge a notice of infraction from the Federal Revenue Service?

The deadline to file an administrative challenge is 30 days from the date you are notified of the notice of infraction or the assessment notice. Notification may be made by personal service, by mail (with return receipt), or electronically (through the Electronic Tax Domicile). If you miss the deadline, the debt becomes final in the administrative arena and is sent to be registered as outstanding and collected in court.

How does a court deposit work in a tax lawsuit?

A full court deposit of the tax debt is an option available to the taxpayer. It suspends the enforceability of the tax debt (Article 151, II, of the CTN), preventing the debt from being registered as outstanding, a tax enforcement action, and entry in the CADIN. The deposit must equal the full amount of the debt (principal, penalties, and interest) and is made at an official financial institution. If you win the case, the amount is returned to you with adjustment for inflation. If you lose, the deposit is converted into revenue for the Treasury.

Can a taxpayer dispute the same debt before CARF and in court at the same time?

No. Filing a lawsuit on the same subject as the administrative proceeding amounts to a waiver of the administrative levels, under Article 38 of Law 6.830/1980. Once you go to court, the administrative proceeding is closed and the debt becomes final in the administrative arena. For that reason, you should weigh strategically which route is better before deciding, because the choice is, as a rule, irreversible.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.