Brazil: Surety Bond Insurance And The Undue 30% Increase In Tax Executions

Currently, the Brazilian legal system has several mechanisms in effect for the debtor to offer guarantees that will enable it to dispute debts with the respective creditor within either the legal or the administrative spheres.

In the tax area, Law nr. 6.830/80 initially provided for the possibility of tax debts being secured by a cash deposit, letter of bank guarantee, real and personal properties, among others. Over the time, based on the abovementioned Tax Execution Law, other types of credits or rights have become accepted, especially at the federal level, as a form of guarantee for the tax debts litigated in Court. One of those types is the surety bond insurance.

Law nr. 11.382/2006, which included paragraph 2 in article 656 of the Code of Civil Procedure, provides for the possibility of the levy being replaced by a bank letter of guarantee or a surety bond insurance, provided that for an amount not below the debt informed in the complaint plus thirty percent (30%).

It is worth pointing out that the requirement for said additional thirty percent (30%) for obtaining the surety bond insurance (and for the letter of and guarantee as well) established by the Code of Civil Procedure should not be applied in regard to federal tax debts (and to state and municipal tax debts as well). This is so because the tax execution proceeding is governed by a specific legislation, namely, Law nr. 6.830/80, whereas the Code of Civil Procedure provisions apply to it on a subsidiary basis only.

However, under the Administrative Ruling nr. 1.153/2009 of the National Treasury Attorney's Office (PGFN) (article 2, item I), PGFN demands said thirty-percent (30%) accrual on the amount of the debt entered in the list of outstanding tax debts for the taxpayer to obtain the surety insurance bond, as a prerequisite for it to dispute the debts through a motion for stay of execution. In our view, this accrual is inappropriate, so much so that taxpayers have been disputing the matter in Court. Although we lack information on any case law established by our Courts in this regard, at least within the federal sphere, most judges have been dismissing that requirement both in tax execution proceedings brought by the Federal Government and in actions for injunctive relief brought by companies as a guarantee in future tax collections.

Despite the provision in article 656, paragraph 2, of the Code of Civil Procedure, included by Law nr. 11.382/2006, the specific legislation and rules governing tax execution procedures (tax debts), and especially Law nr. 6.830/80 have not been revoked.

This is evidenced by the fact that the own preamble of Law nr. 11.382/2006, item 13, "m", expressly acknowledges such by stating that: "(...) m) in regard to the Treasury, the proposals will be the object of another bill to the same extent that the tax execution will be the object of a separate bill, given that it also requires an update."

In this regard, we clarify that the requirement for the thirty-percent (30%) accrual mentioned in article 656, paragraph 2, of the Code of Civil Procedure is intended for civil debts (and not tax debts). According to the excerpt transcribed above, it is possible to state that the lawmaker's purpose in establishing that accrual for taxpayers to obtain the surety bond insurance (or the letter of bank guarantee) was to secure the payment, on the one hand, of the debt itself, and, on the other, of Court costs and expenses of the adverse party arising from a debt collection action pending at a Civil Court, and the respective attorney's fees.

Nonetheless, that does not apply to tax debts collected by means of tax execution proceedings. In debt collections of federal taxes by means of tax execution proceedings, for instance, said amount is already included upon the issuance of the outstanding federal tax debt certificate (called "CDA"). According to Decree-Law nr. 1.025/69, the CDA already includes both the amounts related to the tax execution legal charges and the fees of the Federal Government's attorneys.

Based on these brief clarifications, it is possible to conclude for the inappropriateness of the thirty-percent (30%) accrual for taxpayers to obtain the surety bond insurance (and the letter of bank guarantee) in order to dispute any tax debts, especially within the federal sphere; as a consequence, the provisions to this effect in the Code of Civil Procedure and in Administrative Ruling nr. 1.153/2009 do not apply to these cases. Said issue can and has been disputed by taxpayers and the arguments are being well accepted by the Brazilian Courts, what has been enabling them to have a cost reduction at the time they obtain the surety bond insurance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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