Owing to the complexity of the Brazilian tax legislation, and the large volume of new rules issued daily at the federal, state and municipal levels,2 it is quite common for taxpayers to resolve issues involving taxes through litigation, either in the administrative or judicial sphere.

In addition, at the federal level, Brazil has always had one of the world's most efficient information-monitoring and cross-referencing systems, along with a remarkable organisational policy. On many occasions the Brazilian Internal Revenue Service (RFB) has launched tax compliance probes by electing specific topics that may have repercussions in several industries. This is known as 'audit waves', as has already happened with several other subjects that remained unexplored by the tax authorities for decades. These characteristics make the amounts collected by the Treasury through ex officio assessments grow exponentially each year.

According to figures from the National Council of Justice, in 2019 alone, 396,595 tax claims were filed with the federal courts and 1,145,180 with the state courts. In addition, the current number of cases pending judgment by the Administrative Council of Tax Appeals (CARF), the country's main administrative court, is 122,371 cases, totalling 603.77 billion reais in tax liability.3

Due to the large number of cases mentioned above, the resolution of a claim takes, on average, from two to seven years in the administrative sphere and from five to 10 years in the judicial sphere. Nevertheless, there are specific cases that have been going on in the judiciary for over 20 years.4

In order to address this environment in the most effective way, companies must have a multidisciplinary overview of the cases, combining financial, mathematical, statistical and reputational aspects, attorney's fees, costs projection, other legal analysis, etc. For example, sometimes the biggest asset of a litigation involving tax and competition law is an intangible gain to the company's brand image, the value of which can be greater than the amount under dispute, while in other cases the reputational risk in a dispute involving a Nasdaq company could be a real issue. We have also discovered cases being treated as 'tax cases' for 10 years while they could have been settled through a civil proceeding in three months. Firms and companies should broaden their horizons when addressing a possible tax issue.


Tax disputes may be initiated by taxpayers or tax authorities and held in the administrative or judicial sphere. Litigation could involve federal and state courts in legal cases, while the administrative ones could involve federal, state and municipal courts, depending on the nature of the tax under dispute.

As a rule, the tax authorities have five years to check on the regular compliance with the main and accessory obligations by the taxpayer.5 Should any non-compliance with tax obligations be verified, the tax authority will issue a tax deficiency notice, which may be challenged either at the administrative or judicial level, if the taxpayer does not agree with the tenor of such notice.

i Disputes in the administrative sphere

The discussion of the matter in the administrative sphere begins with the filing, usually within 30 days,6 of an appeal against the notice of violation or against the decision that did not approve any offsetting made by the taxpayer. At the federal, state levels and in some municipalities, the examination of the administrative appeal in the first instance is performed by specific groups formed by tax authorities.

In the event the assessment or the decision that did not approve the offsetting is upheld, the taxpayer may file a new appeal. At the federal, state levels, and in some municipalities, the judgment on such an appeal in the second instance is conducted by joint collegiate bodies composed of tax authorities and taxpayers' representatives appointed by trade associations. Usually, in case of a tie, the decision favours the tax authority.

In addition, at the federal, state levels, and in a few municipalities, there is a third appellate degree that, for the most part, is dedicated to the unification of positions adopted by the judging entities through the opinions expressed by the same or different chambers or panels of judges, depending on the structure of the administrative body concerned. In such cases, the taxpayer or the tax authority must submit proof of divergence between the opinions contained in the decision rendered in the specific case and another decision concerning the same matter.

In the event of a final decision favourable to the taxpayer, the tax authority, as a rule, is not allowed to appeal to the judiciary. On the other hand, in the event of a final decision favourable to the tax authority, the taxpayer may petition for a review of the matter in court.

Taxpayers may also, at the administrative level, initiate a consultation process for the purpose of clearing up doubts about the application of the tax legislation to their specific case. The answer to such consultation is binding on the tax authorities and the taxpayer, and the latter may appeal to the judiciary in case of disagreement with its content.

ii Disputes in the judicial sphere

A tax dispute may be initiated in the judicial sphere in the event that: (1) the taxpayer chooses not to refer the matter to an administrative court; (2) an unfavourable administrative decision to the taxpayer is rendered; or (3) in the case of an execution proceeding for enforcement of a tax liability.

In the first instance court, the cases are tried by a single judge. Appeals against decisions of first instance are heard by a collegiate body composed of three judges.

Nevertheless, there is still a third level of review to which the parties may resort in certain situations and if specific requirements are met.

In the event of a decision that incorrectly applies or interprets a treaty or federal law, the parties may file a special appeal with the Superior Court of Justice (STJ). The decisions of this court are final and unappealable, except in the event that there is still a constitutional issue to be considered.

In the event that the decision incorrectly applies or interprets a constitutional provision and there is imminent social interest in the discussion, the parties may file an extraordinary appeal with the Federal Supreme Court (STF). The decisions of the Supreme Court are final and unappealable.

As a rule, it will be necessary to make a deposit or provide guarantees as a prerequisite to bringing a tax dispute in the judicial sphere and securing the issuance of a tax clearance certificate. However, there are exceptional cases in which a taxpayer may be allowed to continue with the legal proceeding without lodging a security for costs and be entitled to obtain the certificate mentioned above.

Finally, at the end of a legal case, the court may order the losing party to reimburse the prevailing party for the court costs and to pay attorney's fees that may reach up to 20 per cent of the amount in dispute, except in some situations as the matters discussed in a writ of mandamus.


Brazil has several administrative and judicial courts having different rules and levels of jurisdiction (i.e., federal, state and municipal). In the paragraphs below, we describe in detail the most relevant ones in terms of amounts under dispute and leading cases.

i Administrative Council of Tax Appeals (CARF) and Superior Chamber of Tax Appeals (CSRF)

CARF is the most relevant administrative body for judging disputes of a tax nature in Brazil and is responsible for analysing disputes involving federal taxes, including income taxes, corporate taxes, tax treaties, transfer pricing, etc. Before going to trial in CARF, cases are heard at administrative federal level by a court named DRJ, which focuses more on formal issues of the assessments and is composed solely of members of the RFB.

CARF is composed of three sections, with authority to consider issues involving different taxes, subdivided into four chambers of judgment formed by eight judges.

Depending on certain factors, as the lack of uniformity in the decisions issued by CARF, the federal government and taxpayers may appeal to a second instance court pertaining to CARF locally known as CSRF. Such second level instance is subdivided into three chambers made up of 10 judges, responsible for unifying the prevailing opinions of the chambers. The positions of judges of each chamber and of the CSRF are filled equally by members appointed by the tax authorities and by representatives appointed by trade associations. The tax authorities have the prerogative to appoint the president for those chambers, who has the deciding vote in the event of a tie.

In theory, the CARF and the CSRF have always been recognised for the technical quality of their members and for their ability to analyse complex issues, given that the corresponding judges usually have a solid education and track record in tax matters (contrary to judicial courts where judges may have different specialties and deal with a high number of different issues). For this reason, it is quite common for matters involving sensitive, complex issues or large amounts (e.g., tax planning) to be discussed firstly at administrative level before taking the subject to courts of law.

ii Superior Court of Justice (STJ)

The STJ is responsible for unifying case law as to the interpretation and application of federal laws, including treaties. It is composed of 33 judges, chosen and appointed by the President of the Republic, from a three-name shortlist. One-third of the court should be composed of second-instance judges at state level, one-third by second-instance judges at federal level and one-third by public prosecutors and attorneys (equally divided). The nominee also goes through oral examination by the Federal Senate and must also be approved by the house to be finally appointed.

Currently, the STJ is divided into:

  1. the Plenary, composed of all judges and responsible for judging administrative issues inherent to the court itself;
  2. special court, composed of the 15 senior judges of the court and adjudicating criminal actions against state governors and other authorities. The court is also responsible for hearing appeals when there is divergent interpretation between the specialised panels of the court; and
  3. three specialised sections, subdivided into two specialised panels composed of five judges. Both panels of the first judgment section are responsible for deciding cases involving tax matters.

Due to the large volume of appeals received and to implement the principles of celerity in the processing of reviews, the equality of treatment to the parties and the firm legal basis, the system of 'repetitive appeals'7 was established, consisting of choosing a case that represents a relevant and highly frequent controversy for judgment, with the result being applied to others involving identical facts or matter. Note that the decisions rendered under the system of repetitive appeals are binding and must be enforced by other courts immediately.

With the exception of decisions involving constitutional issues, the decisions of the STJ are final.

iii Federal Supreme Court (STF)

The STF is responsible for the unification of case law regarding the interpretation of the Federal Constitution and has original jurisdiction over certain cases involving the constitutionality of legal provisions. The STF is composed of 11 justices appointed by the President of the Republic after approval by the Federal Senate, and is divided into: (1) the Plenary, composed of all justices and (2) two judgment panels, composed of five members each.8

Considering that the entire Brazilian tax system is outlined in the Federal Constitution, it is quite common for tax claims to be analysed by the STF, but this often caused long delays in resolving the merits of certain issues.

In this context, and to reduce the backlog of appeals to be heard, to delimit the jurisdiction of the STF to constitutional issues with social, political, economic or legal importance and to standardise the interpretation of constitutional provisions, the system of 'general repercussion' was introduced. Based on this system, an appeal representing a particular and relevant controversy is chosen for judgment by the Plenary, the outcome of which will be applied, in a binding and automatic manner, to all other proceedings dealing with the same matter.

STF decisions involving tax issues may go beyond purely legal arguments, especially in cases where the disputes involve large sums. In fact, justices may use other grounds beyond the legal ones (e.g., economical) when analysing certain issues. For example, in a few cases the STF has imposed a limitation on the effects of a decision in favour of the taxpayer to protect the public coffers.


Payment of overdue federal taxes is subject to a late payment penalty of up to 20 per cent.9

At the federal level, usually a tax deficiency notice for non-payment of taxes includes a 75 per cent fine. However, an aggravated fine of 150 per cent may be applied in case of wilful misconduct, fraud or simulation. In addition, in the case of non-approval of the tax credit offsetting claimed by the taxpayer, isolated fines varying from 50 per cent to 150 per cent10 may be imposed upon the occurrence of fraud.

There are also federal penalties for non-compliance with ancillary obligations. Fines can range from a small fixed amount or a percentage of the sales revenue or of the amount of a given transaction.

In the event of a tax deficiency notice, the taxpayer may challenge the notice at administrative level, or pay the tax liability within 30 days at a discount of 50 per cent of the fine.

Federal tax liabilities are subject to interest calculated based on the SELIC rate (a benchmark rate) established by the Central Bank of Brazil, which is currently 4.5 per cent per year.

However, fines for non-compliance with state and local tax obligations may vary depending on the nature of such non-compliance and the location. Likewise, states and municipalities may provide for interest on tax liabilities.

In addition, in the case of verified fraud, wilful misconduct or simulation, the issuing of a deficiency notice may cause the tax authorities to file a criminal action. To this end, the tax authorities must communicate the Prosecution Office through a tax complaint for criminal purposes whenever the occurrence of facts that may constitute a crime is verified. We note, however, that the Supreme Court has already expressed its opinion that the filing of a criminal action can only occur after the confirmation of the tax liability by an unappealable and final decision in the administrative sphere.


i Recovering overpaid tax

The taxpayer may, within five years of the payment, request the refund or offsetting of taxes overpaid or wrongly paid through administrative or legal proceedings.

Refund or offset at administrative level

The procedures for refund and offsetting at the administrative level are provided for in RFB Normative Instruction 1,717/2017 and may be initiated by the taxpayer who has made an overpayment or undue payment of taxes.

Regarding the refund claim, once it is accepted, the amount of overpayment or undue payment is deposited in a bank account informed by the taxpayer. There is no deadline for analysis and acceptance by the tax authorities and no penalty for non-acceptance.

Offsetting, on the other hand, is a useful tool for those taxpayers who have current debts, as it makes a new payment unnecessary and allows the immediate use of a tax credit due to overpayment or undue payment. The tax authorities have five years to analyse the taxpayer's request, and after the expiry of this period without the response from them, the offsetting claimed will be deemed to have been implicitly approved. On the other hand, it is noteworthy that the non-approval of the claimed offsetting will result in the requirement to pay the offset tax plus a late payment penalty of up to 20 per cent, other fines ranging from 50 per cent to 150 per cent and interest calculated based on the SELIC Rate.

Refund or offset in the judicial sphere

Taxpayers may file a lawsuit claiming recognition of their right to obtain a refund or offset of overpaid or unduly paid taxes.

In the event that an action claiming the refund of taxes is granted, the taxpayer will receive the amounts by means of court payment orders (i.e., a kind of payment order of a certain amount issued as a result of a court decision against the Public Treasury). There is a history of long delays in the payment of court orders issued against certain state and local governments.

On the other hand, in the event that any action seeking the recognition of offsetting of overpaid or unduly paid taxes should be decided in favour of the taxpayer, the taxpayer must submit a request through administrative channels to recognise the exact amount of the tax credit and enforce the offsetting, as there are several precedents in the sense that the judiciary does not have the power to offset tax credits.

Although the refund or offsetting procedure may take longer in the judicial sphere, whether because of the longer processing of any lawsuit, payment by court orders or the need for subsequent filing of an administrative request, a lawsuit may be more advisable in the event of disputed interpretation of the law or unconstitutionality of a given rule, as the administrative judge usually does not consider himself or herself able to rule out the application of a norm whose legality or constitutionality has not yet been definitively established by the superior courts.

ii Challenging administrative decisions

In theory, according to Brazilian Tax Code and Law No. 13,655/18, previous decisions issued by tax authorities in administrative proceedings or even previous and repeated conduct adopted by them could be considered as complementary source of law and should be binding at federal, state and municipal levels, including the disputes held at courts of law.

Having said that, all decisions issued by tax administrative authorities could be challenged by taxpayers in courts of law. There are a few options of actions available to taxpayers in such cases to have some specific right declared, certain debts cancelled, to challenge the action or omission of an authority, etc. Nevertheless, whenever possible, our recommendation is to file an action for a writ of mandamus, a sort of legal action having a few prerequisites and limitations (e.g., in this sort of action it is not possible to discuss evidence but just the law), since it is a much faster proceeding, has lower court fees and the losing party is not required to pay attorney's fees that may reach up to 20 per cent.

Regardless of the sort of the judicial action chosen, usually all aspects involving a tax assessment could be challenged, such as formal aspects, debt quantification, interpretation of law, correct application of penalties and interest, etc.

iii Claimants

Claimants entitled to bring a tax claim are taxpayers or individuals having a connection with the tax collection or obligations.11 In some actions and situations certain individuals and entities could join the proceeding as amicus curiae.

As a rule, decisions issued at administrative and judicial levels are not binding upon all taxpayers, but a few exceptions may apply, as certain rulings issued by the RFB and relevant leading cases deciced by the Superior and Supreme Courts.


At the administrative level there are no costs or fees associated with the filing of remedies and appeals.

On the other hand, in the judicial sphere, it is necessary to pay court costs usually calculated based on the amount of the claim. As an example, for disputes involving federal taxes, court fees amount to 1 per cent of the value of the claim capped to reasonable limits (current limit is 1,915 reais).

In addition, the losing party in a legal action must reimburse the costs and attorney fees of up to 20 per cent of the value of the claim initially borne by the prevailing party, except if the judicial measure involved is a writ of mandamus. The stipulation of said amounts may also be subject of dispute in courts, as the judge in charge of the case has discretion to freely establish the limit as previously mentioned.

Local legislation does not provide for any sort of reimbursement of fees paid by taxpayers, but deductions of costs and fees paid may be allowed by tax authorities in some circumstances.


Until recently, Brazilian law did not provide for alternative mechanisms for resolving tax disputes. In 2019, Provisional Act No. 899/2019 (MP 899) was published for the purpose of regulating alternative means of litigation involving federal taxes. According to this rule, the Attorney General's Office may propose agreements to taxpayers whenever these satisfy the public interest and social welfare. The agreements may deal with overdue taxes, disputes in tax litigation involving an important and widespread legal controversy or small amounts, and also allow the payment in installments and discounts on interest and fines.

The agreements cannot deal with the refund or offsetting of overpayments or undue payments, fines imposed as a result of wilful misconduct, fraud or simulation or the granting of a discount on the principal amount in dispute.

In addition, the federal, state and municipal governments issue, from time to time, installment programmes with discounts in fine and interest amounts.


In 2001, a new paragraph was added to Article 116 of the National Tax Code (CTN), creating the basis for the tax authorities to disregard, at domestic or international level, legal acts or transactions done with the intention of disguising the occurrence of the taxable event or to change certain elements of the tax liability. However, there is a controversy on whether this rule is self-enforceable and it also depends on regulation by ordinary law that, to date, has not occurred.

Still, tax authorities have been using concepts of civil law, such as simulation or abuse of form, to apply the concept of essence over form, which has no legal basis, or to disregard legal transactions or acts that allegedly resulted in tax savings based on the lack of business purpose argument.

However, Brazil, although not yet a member of the Organisation for Economic Co-operation and Development (OECD), is considered a collaborative country of the organisation and has repeatedly expressed its interest in joining it. In addition to indicating the interest in adopting base erosion and profit shifting (BEPS) measures, in recent years Brazil:

  1. has introduced measures such as country-by-country reporting, mandatory disclosure of ultimate beneficiary of corporate structures, and automatic exchange of information on answers to tax ruling requests; and
  2. has entered into agreements with the United States (Foreign Account Tax Compliance Act – FATCA) and the Global Forum on Transparency and Tax Information Exchange (CRS).

This shows that Brazil has been preparing, to some extent, to adopt stricter anti-avoidance control criteria.


Brazil currently has DTTs with the following countries: Austria, Argentina, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Peru, Philippines, Portugal, Russia, Slovak Republic, South Africa, South Korea, Spain, Sweden, Trinidad and Tobago, Turkey, Ukraine and Venezuela.

Treaties signed by Brazil are only applicable to income taxes and the international and well-known Vienna Convention (turned into law in Brazil through Decree No. 7,030/09) is the major rule used for the interpretation of any international treaty signed by the country, including the ones referring to taxes.

Probably as part of its plan to join the OECD as a formal member, in the last decade Brazil has been trying to minimise conflicts involving treaties. Recent examples of this include:

  1. inclusion of the Social Contribution on Net Profits as a tax covered by treaties after several litigation cases regarding this matter; and
  2. recognition that technical services should be classified as foreign company profit (subject to Article 7) in some specific treaties that did not regulate the matter, as this may grant a waiver of the taxation of certain transactions in Brazil, an item that was also subject to litigation in the past.


In recent years there has been a considerable intensification of enforcement procedures with the clear purpose of increasing revenue in a context of prolonged economic recession. Recent statements by the RFB12 indicate that special attention will be devoted to, among other matters, combating abusive tax planning, goodwill tax amortisation, corporate reorganisations and related parties transactions, and benefits and incentives unduly enjoyed by foreign investors. In addition, RFB has also focused on overseeing the collection of social security contributions and, as a result of recent decisions of the Superior Court and Supreme Court, of contributions to the Social Integration Program and social security financing.

From time to time, the RFB launches tax compliance probes by electing specific topics that may have repercussions in several industries, what we call 'audit waves', as has already happened with several other matters that remained unexplored by the tax authorities for decades.


In the context of companies with a global presence, Brazil is often the country with the highest rate of tax litigation, and in some cases, the number of or the amount involved in the disputes end up exceeding the sum of the numbers of all other places in the world. Moreover, given the characteristics of the RFB mentioned above and the legislative complexity and vastness, this trend is not likely to be reversed soon. In contrast, our lawmakers and some administrative authorities and courts of law are making significant efforts to make the proceedings less bureaucratic and time-consuming, but this scenario could only change significantly if a tax reform is made to simplify the tax environment in Brazil. Bolsonaro's administration has promised to have the tax reform voted on by the end of 2020.

Another aspect that contributes to the obscene litigation rates is the constant launching of installment plans or payment programmes under more advantageous conditions, which encourages taxpayers to postpone the payment of taxes and file several claims to courts.

However, as Bolsonaro's administration has already given signs that such programmes will no longer be launched (and may even be banned by legislative changes), and in view of the increasing number of assessments, companies are advised to undertake a multi-disciplinary analysis as to the cost–benefit ratio – from a financial, reputational, operational and legal perspective – of their litigation management.


1 Alexandre Gleria is a partner and Marcos de Almeida Pinto is a senior associate at ASBZ Advogados.

2 According to the research conducted by the Brazilian Institute of Tax Planning published in 2019, 403,322 tax rules have been issued since the 1988 Federal Constitution came into force.

3 As per the Management Report published by the CARF on 7 February 2019.

4 For example, the matter involving the inclusion of the ICMS (a non-cumulative VAT tax paid on the circulation of goods and on the provision of certain services) in the tax base referring to the Contribution to the Social Integration Progamme and to the Contribution to Social Security Funding.

5 In cases where the occurrence of simulation, fraud or wilful misconduct is verified, the time frame of six years applies. In addition, according to precedents, where the tax is not paid, the same six-year period applies.

6 Different time frames apply according to the sphere and place.

7 We refer to Article 1,036 of the Code of Civil Procedure.

8 The President of the STF may only participate in the Plenary.

9 The voluntary disclosure of a tax liability and payment thereof annuls such penalty.

10 In addition to the late payment penalty of 20 per cent.

11 Entities having the same status of taxpayers or the ones that may be considered jointly liable for such tax collection or obligation may also be entitled to bring tax claims.

12 We refer to the RFB Annual Audit Plan published in 2019.