Supreme efficiency: The tax issues judged by the STF during the pandemic

2020 is a strange year. The coronavirus pandemic took over the planet and all international and national means of communication. The financial and economic crisis is still plaguing Brazil. The desire is to see 2021 quickly so that we can turn the page on this story, maintaining the expectation of resuming normal activities that eagerly await the arrival of the savior vaccine.

However, even in the expectation of cheering the arrival of 2021, we cannot consider 2020 to be a lost year.

In the legal area, the Brazilian Supreme Court (STF) has been playing a prominent role since the beginning of the year in the conduct of constitutional and political affairs in the country.

In a recent survey carried out in relation to the management of Minister Dias Toffoli as the STF President, until the beginning of the second semester, there was a reduction in 70% of the cases that awaited judgment by all members of the court, leaving only 369 cases compared to the more than 1,200 cases accumulated since the beginning of his tenancy as President.

The role of the Virtual Court – adopted as a result of the pandemic – collaborated greatly with this mission. Technological innovations and improvements allowed that during this year of social distance the STF could maintain its goal, achieving a reduction of 30% of its lawsuits – the lowest in the last 24 months!

And never before have so many tax decisions been judged in such a short period of time. The pandemic ended up bringing agility in the analysis of tax processes. The virtual sessions have been registered and have worked well – despite the demands for the participation of the attorneys in real time during the trials, which have not yet been answered – since social isolation started and public offices and forums and courts closed their doors.

Considering that the tax law finds its entire basis in the Federal Constitution, the final word on its interpretation is always of the STF, guiding the other courts and administrative bodies in the conduct of tax matters.

However, despite the agility, the long-awaited “final” definition of “martyrdom” regarding the exclusion of ICMS (tax on the circulation of goods) from the PIS / COFINS (taxes on revenue) calculation basis has not been resolved. On the other matters judged, the STF brought many good and bad surprises to taxpayers.

Check out and stay tuned for the general repercussion thesis already judged by the STF during this year of 2020 – remembering that the year is not over and there is still more to come! – because there are not only opportunities for credit recovery or tax planning, but also warnings for precaution and care when dealing with tax issues:

MattersFavourable to taxpayer
Matter 1,099 (ICMS – Transfer of goods): “ICMS does not apply to the transfer of goods from one establishment to another of the same taxpayer located in different states, since there is no transfer of ownership or the performance of an act of trade.”👍
Matter 1.094 (ICMS Import PF): “I – After Constitutional Amendment 33/2001, the ICMS levy on import operations carried out by individuals or legal entities, who are not usually engaged in trade or services, is constitutional, such taxation should be provided for in a complementary federal law. II – The state laws edited after EC 33/2001 and before the entry into force of Complementary Law 114/2002, with the purpose of imposing the ICMS on the referred operation, are valid, but they only take effect as of the validity of the LC 114/2002.”n/a
Matter 1,052 (Credit ICMS Exit Free Lease): “Observing the basis of Complementary Law No. 87/1996, the constitution of the Tax on Operations related to the Circulation of Goods – ICMS charged at the entrance, by a mobile telephone service provider, considered a cell phone subsequently assigned, by lending.👍
Matter 1,047 (Additional 1% COFINS-Import): “I- The additional tax rate of Cofins Import is constitutional provided for in § 21 of article 8 of Law 10.865 / 2004. II- The prohibition on taking advantage of the credit arising from the additional rate, provided for in article 15, paragraph 1-A, of Law No. 10,865 / 2004, as amended by Law 13,137 / 2015, respects the constitutional principle of non-cumulativity .” 👎
Matter 1,042 (Customs clearance payment of taxes): “It is constitutional to link the customs clearance to the collection of tax differences determined through arbitration by the tax authority.👍
Matter 1,014 (PIS / COFINS – Card Administration Fee): The inclusion of amounts retained by card administrators in the calculation basis of contributions to PIS and COFINS due by a company that receives payments through credit and debit cards is constitutional.👎
Matter 985 (INSS – 1/3 Vacations): “The incidence of social contribution on the amount satisfied as a constitutional third of vacations is legitimate.👎
Matter 906 (IPI Resale): “The incidence of the Tax on Industrialized Products – IPI is constitutional in the customs clearance of industrialized goods and when the importing establishment leaves for sale on the domestic market.👎
Matter 874 (Compensation of official debts not paid in installments or without guarantee): “It is unconstitutional, due to art. 146, III, b, of the CF, the expression “or in installments without guarantee”, contained in the sole paragraph of art. 73, of Law No. 9,430 / 96, included by Law No. 12,844 / 13, insofar as it removes the effects of the suspension of the tax credit requirement provided for in CTN.👍
Matter 846 (Additional FGTS): “The social contribution provided for in article 1 of Complementary Law No. 110, of June 29, 2001, is constitutional, in view of the persistence of the object for which it was instituted.👎
Matter 796 (ITBI paying-in): “Immunity in relation to ITBI, provided for in item I of § 2 of art. 156 of the Federal Constitution, does not reach the value of the assets that exceed the limit of the capital stock to be paid in.”👎
Matter 723 (Funrural Individuals): “It is constitutional, formally and materially, the social contribution of the special insured provided for in art. 25 of Law 8,212 / 1991.”👎
Matter 508 (Mixed Economy Companies Immunity): “Mixed economy company, whose shareholding is traded on Stock Exchanges, and which, unequivocally, is aimed at remunerating the capital of its controllers or shareholders, is not covered by the tax immunity rule provided for in art. 150, VI, ‘a’, of the Constitution, solely because of the activities performed.”👎
Matter 490 (Tax War – ICMS Credit): “The proportional reversal of ICMS credit carried out by the State of destination, due to the presumed tax credit granted by the State of origin without authorization from the National Council for Farm Policy (CONFAZ), does not violate the constitutional principle of non-cumulativity.”👎
Matter 482 (INSS – Absenteeism): There is no general repercussion, prevailing the STJ’s decision to exclude the amount paid to the employee in the first fifteen days of sickness / accident assistance (REsp No. 1,230,957 / RS).👍
Matter 475 (ICMS Export Extension): “The immunity referred to in art. 155, § 2º, X, “a”, of the CF does not reach operations or installments prior to the export operation.”👎
Matter 379 (ICMS x ISS – Manipulation pharmacy): “With regard to manipulation pharmacies, the ISS is levied on operations involving the preparation and supply of medicines ordered for subsequent delivery to customers, on a personal basis, for consumption; the ICMS is levied on the shelf medicines produced by them, offered to the consuming public.”n/a
Matter 325 (SEBRAE): “The contributions due to SEBRAE, APEX and ABDI based on Law 8.029 / 1990 were received by EC 33/2001.”👎
Matter 244 (Temporary limitation of fixed PIS / COFINS credit): “It appears unconstitutional, due to an offense to the principles of non-cumulativeness and isonomy, Article 31, head, of Law 10.865 / 2004, in which it prohibited the crediting of the contribution to PIS and COFINS, for fixed assets acquired up to April 30, 2004.”👍
Matter 179 (PIS / COFINS Credit – regime change): “In relation to contributions to PIS / COFINS, the non-cumulative principle does not violate the impossibility of crediting expenses incurred in the cumulative system, as credits are assumed and the right to discount only arises with expenses incurred after the non-cumulative regime comes into force.”👎
Matter 72 (INSS – Maternity Salary): “The incidence of the social security contribution borne by the employer on the maternity salary is unconstitutional.”👍

Tatiana Del Giudice Cappa Chiaradia, partner at Candido Martins Advogados  

How to reconcile the IPO with the rights of shareholders who are already in the Company?

Despite the negative impact that the current crisis caused by the Covid-19 pandemic has had on financial markets, the year 2020 remains promising for the capital markets in Brazil. In the third quarter of 2020, the values of Initial Public Offerings (IPOs) and Subsequent Offers (Follow-Ons) of Brazilian companies summed R$ 69.2 billion, an increase in 20.5% in relation to the same period last year, contributing to the total of R$ 236.9 billion registered this year so far.

Since 2007 there has been no such movement in public offerings of shares in the country. In this 13-year period when liquidity for the IPO was lower, the vast majority of national companies sought capital through private investors, such as private equity funds, or strategic investors, through private agreements that provided for shareholders’ rights and obligations, including indemnity clauses for contingencies of the past, specific treatment for contingent assets (the potential receivables that were not included in the valuation), joint selling rights in a future liquidity event, voting rights and governance, as well as guarantees granted to protect the investment.

And what happens to these agreements in an IPO?

That is a good question, and the answer is: it depends! There are shareholders’ agreements that already contain a clause of termination in the event of an IPO, but many do not have such provision. In addition, it is not certain that the investor will divest 100% of the company in the IPO, and may remain a shareholder after the IPO. In this case, should his remaining stake have the same guarantees he received when he invested in a private company?

In fact, not all rights will be preserved, since with the IPO, its assumed that the asset will have much more liquidity and thus some governance or exit issues will become less relevant. The parties will also need to observe the rules imposed by regulatory agents, such as B3 (Stock Exchange), CVM (Brazilian Securities Commission) and ANBIMA (Capita Markets Association), so that not all the aspects agreed prior to the IPO will survive. An example of this is the obligation of companies listed with the Novo Mercado segment of the B3 to only have common shares, thus eliminating any previous capital structure with preferred shares.

However, it is possible to maintain some investors’ rights, such as the right to indemnity in the event of materialization of relevant contingencies of the Company.

That is, the initial relationship between investors and founders does not need to disappear with the IPO, but it is essential that the shareholders, when preparing for the IPO, revisit the terms of their agreements to verify what should prevail and what needs to be changed. Be prepared!

Thalita Igarashi, associate at Candido Maritns Advogados