Brazil: Reduction Of Fines And Interest For Tax Debts Owed To Rio De Janeiro State Government

It is not rare that, in Brazil, federal, state and municipal governments reduce fine and interest of taxes under their taxing power in relation to amounts owed and overdue by their taxpayers, the percentages of which vary according to the interest of each government in collecting their taxes and building up their cash reserve.

Attention is drawn to the fact the Rio de Janeiro state government has recently given discounts to regularize tax (such as ICMS) debts owed by its taxpayers, as explained below.

In fact, the State Law nº 7116/2015 has granted a reduction of the fines and interest concerning ICMS and any tax debts and non-tax debts listed as Overdue Tax Liability that were originally due by October 31, 2015.

In general terms, debts of up to ten million reais (BRL 10,000,000) are authorized to be paid in a lump sum or in installments, as follows:

  1. lump sum payment: reduction of one hundred percent (100%) of default interest and one hundred percent (100%) of fines;
  2. payment in installments: in up to sixty (60) monthly and consecutive installments with a reduction of eighty percent (80%) of the default interest and eighty percent (80%) of the fines. The first installment corresponds to not less than five percent (5%) of the consolidated amount, whereas it should be noted that:
a - each monthly installment cannot be below one hundred and fiftyreais (BRL 150.00) for debts listed as Overdue Tax Liability, whose taxpayer is an individual, and five hundred reais (BRL 500.00) for debts whose taxpayer is a legal entity;

b - payment in installments is immediately canceled if three (3) consecutive or six (6) nonconsecutive installments are defaulted on or if any installment, or installment balance, is unpaid for a period of more than ninety (90) days, even if the remaining installments are paid off.

The aforementioned law also sets forth that the debts dealt with here shall be consolidated on the date it is requested by the taxpayer, with all increments provided for in law, subject to the following rules:

  1. until January 1, 2013, debts shall be consolidated pursuant to the rules effective until such date;
  2. starting January 2, 2013, debts will be accrued by default interest calculated based on the reference rate of the Special System for Settlement and Custody (Sistema Especial de Liquidação e de Custódia - SELIC) index until the last day of the month preceding the request, further to one percent (1%) for the month in which the request is filed.

It is important to note that cancelation of the payment in installments results in the immediate enforcement of the debt admitted and unpaid further to loss of the reductions then granted, and it is established, in relation to the unpaid amount, the increments provided for in law in the remaining balance.

The payment in installments dealt with here will be in effect until December 18, 2015; nevertheless, it might have a one-time extension for up to four (4) months by means of an act by the Executive Branch.

Adhesion to the payment in installments implies an irrevocable and irreversible admission of the debts to which the taxpayer adheres, which constitutes a confession and entails an irreversible relinquishment of any right intended at claims in the future within administrative or judicial spheres to a principal or ancillary amounts concerning the debts, and a waiver of appeals or remedies already filed, while it also makes the requesting party accept fully and irreversibly all conditions under the State Law nº 7116/2015 and regulation thereof.

Therefore, in case of opposition or appeal filed within administrative or judicial spheres, it should be proved, on the date of the request, the express and irreversible relinquishment of the right on which such action is grounded.

Accordingly, it is of utmost importance that ICMS taxpayers owing ICMS debts to the Rio de Janeiro state check how convenient it would be adhering to the program described here, in disputes where the chance of success is remote or in disputes whose progression appears to be economically unfeasible due to the costs involved.

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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