Incident for the Resolution of Repetitive Claims: on the possibility of redirecting tax enforcement proceedings

In a recent decision, the Federal Regional Court of the 3rd Region ruled on an Incident for the Resolution of Repetitive Claims whose subject matter is limited to the possibility of redirecting the enforcement of a tax credit from the legal entity to its partners or to another legal entity within the same group.

Once the tax credit has been established and all administrative stages have been exhausted without extinguishing that tax credit, it is incumbent upon the National Treasury to record this credit as outstanding tax debt (“CDA”) and commence its enforcement.

In the case under review, at the federal level, the National Treasury, by means of a petition in the records, sought to redirect the enforcement to the partners, based on the irregular dissolution of the legal entity, considering that, at that stage of the enforcement, it had been ascertained that the primary taxpayer no longer had assets and could not be located at its registered address.

Requests for redirection of tax enforcement based on the irregular dissolution of the debtor company increased to such an extent that the Superior Court of Justice (“STJ”) issued Precedent No. 435/2010, establishing a presumption of irregularity for dissolutions carried out without notice to the competent authorities:

Precedent 435 – A company that ceases to operate at its registered tax domicile without notifying the competent authorities is presumed to have been irregularly dissolved, thereby justifying the redirection of the tax enforcement to the managing partner. (Precedent 435, FIRST PANEL, adjudicated on 04/14/2010, Official Gazette of 05/13/2010)

If, by applying the thesis of irregular dissolution, the National Treasury is successful, the situation becomes more complex for the taxpayer, since, in order to defend itself by filing a motion to stay execution (embargos à execução), it must provide security to request the suspension of the enforcement, which, depending on the amount of the debt, is not always feasible.

Although the doctrine of disregard of legal personality (piercing the corporate veil) was already recognized in our legal system, the Brazilian Code of Civil Procedure of 2015 created a specific procedure for the Disregard of Legal Personality, through a procedural incident, an instrument that began to be used in some cases in which the redirection of tax enforcement was sought.

However, in the federal courts there was no uniformity regarding the adoption of this incident, and in several situations the redirection occurred by mere filing of a petition in the records, which gave rise to the Incident for the Resolution of Repetitive Claims, in which the following statement was issued by the Reporting Appellate Judge, Justice Baptista Pereira, in his vote admitting the assignment (Case No. 0017610-97.2016.4.03.0000) regarding the admissibility requirements:

“(...) On the other hand, the second requirement is also met, whether due to the risk to legal certainty, in view of the gravity of the effects of redirecting tax enforcement to the managing partners, established in an environment of legal instability stemming from procedural ambiguity, which affects the parties and also third parties, such as, for example, purchasers of their assets; or due to the risk of violation of equality, insofar as security for the judgment would be required for the defense, by means of a motion to stay execution, only from those parties in whose case the initiation of the incident was waived, whereas defense with evidentiary production (Art. 135 of the CPC), without security for the judgment, would be ensured to the parties in the incident for disregard of legal personality. (...)”

The underlying issue concerns whether it is appropriate to apply, on a subsidiary basis, the provisions of the Code of Civil Procedure regarding the Incident for Disregard of Legal Personality for the purpose of redirecting tax enforcement.

Thus, the Federal Regional Court of the 3rd Region had pending judgment, through an Incident for the Resolution of Repetitive Claims (IRDR), the issue of redirecting enforcement of a tax credit from the legal entity to its partners, specifically whether this should occur in the enforcement proceedings themselves or through an incident for disregard of legal personality, according to the procedure assigned on 02/14/2017, when the processing of all Incidents for Disregard of Legal Personality in tax matters was stayed.

The Special Panel of the Federal Regional Court of the 3rd Region began the judgment in 2019 and concluded it in February 2020, deciding in favor of the admissibility of the Incident for Disregard of Legal Personality in the enforcement of tax debt.

It is important to note that such a measure suspends the enforcement, opening the litigation to an evidentiary procedure without the need to provide security in the case, thereby ensuring legal certainty as well as the rights to adversarial proceedings and full defense for the managing partners or the company within the group against whom redirection of enforcement is sought.

This procedure is applicable to cases of redirection requested by the National Treasury on the grounds of irregular dissolution, commingling of assets, economic group, as well as in situations listed in Articles 124 and 135 of the National Tax Code, that is, common interest and participation in the taxable event, acts carried out in excess of authority or in violation of law, articles of association or bylaws.

With the consolidation of the understanding regarding the applicability of the Incident for Disregard of Legal Personality in tax matters, the possibility is opened to all for adversarial proceedings and full defense in the face of a request for redirection of tax enforcement, without the need to provide security in the case.

It should be emphasized that if the managing partner’s name appears in the CDA, this instrument will not be applicable, since anyone whose name appears in the CDA is already deemed a debtor.