In recent times, Federal, State and Municipal governments have been frequently launching incentivized debt installment payment programs. Those programs offer attractive benefits to taxpayers that abandon administrative and legal proceedings. In exchange, they obtain significant reductions in interest and fine for payment of tax debts as well as attorney's fees payable for abandonment of the legal proceedings.
However, it is not uncommon, especially where the tax debts are the subject matter of legal actions brought by taxpayers, namely actions for annulment, that the National Treasury demands the payment of attorney fees both in installment payment programs and in legal actions taxpayers are required to abandon in order to join the program.
As a rule, the Treasury's demand is based on the principle of causality that governs the Brazilian procedural law and is provided for in art. 20 of the Code of Civil Procedure. Under said rule, the losing party is required to pay the winning party's legal costs and expenses as well as the fees of the winning party's attorney.
However, for installment payment programs that expressly provide for a reduction in, and even the release from, the payment of attorney fees as a way of encouraging taxpayers to settle their tax debts, it is not reasonable that they be ordered to pay litigation costs and attorney fees in the legal action; in fact, that is in direct contradiction with the own spirit of the programs.
A recent example is the Special ICMS Debts Installment Payment Program ("PEP/ICMS") established by the government of the State of São Paulo by means of Decree no. 58 811/12. According to article 8, item I of said Decree, debts discussed in legal actions will have the attorney fees reduced to 5% of the tax debt.
Despite that compromise - reduction in the applicable attorney-fee percentage in exchange for the settlement of the debts - the National Treasury has been abusively seeking to obtain a new court order against taxpayers seeking that they pay the National Treasury's attorney fees for their abandonment of the proceedings. That represents a double collection for the same debt!
As already mentioned, that claim not only contradicts the spirit of the program, but also entails an undue and unjustified enrichment by the State Treasury, given that the reduction in the fee percentage is provided for in the own legislation enacted by the State Government. Fortunately, that has been the position of the Court of Appeals of the State of São Paulo, which has been systematically dismissing the State Treasury's claims for a court order for taxpayers to pay attorney fees as a result of their abandonment of the proceedings to join the installment payment program. That can be verified in the recent decision on appeal no. 0027143-93.2012.8.26.0114.
Hence, for installment payment programs that also contemplate attorney fees by either reducing or eliminating them, we are of the opinion that taxpayers should not resign themselves to the Treasury's claim and/or a possible adverse decision compelling them to pay attorney fees in the legal proceedings in view of their abandonment of the proceedings. This is particularly true considering that the abandonment is a necessary condition for them to join the installment payment program and is a result of a compromise between the tax administration and the taxpayers.
Luciano Burti Maldonado and Marco Favini are, respectively, partner and attorney at Demarest Advogados's tax practice area.
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