On September 29, 2015, the First Panel of the Brazilian Supreme Court ("STF") issued a ruling in Extraordinary Appeal No. 776.273/DF holding that penalties that exceed the amount of taxes owing are unconstitutional.

The decision denied the Regimental Appeal filed by the Federal District against the decision rendered by Supreme Court Justice Ricardo Lewandowski, which held that the constitutional prohibition against confiscatory taxation should also apply to tax fines.

It is important to highlight that the Supreme Court has used the amount of the tax owing—instead of the transaction's value—as the basis to determine the confiscatory nature of the fine charged, which is in contrast with how the Supreme Court has treated it in the past.

Taxpayers that have been penalized by tax fines that exceeded their taxes owed can now seek a court ruling recognizing the unconstitutionality of such charges.

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