The Federal Supreme Court (STF) concluded, on March 17, the judgment of Extraordinary Appeal 796,939/RS (Theme 736 of the General Repercussion) in the virtual plenary. At the time, the Court analyzed the constitutionality of the isolated fine of 50% provided for in article 74, §§ 15 and 17, of Law 9,430/96.

Under the terms of the law, the taxpayer who ascertains a credit related to a tax or contribution administered by the Federal Revenue Service that can be refunded or reimbursed – including credit resulting from a final court decision – may use it to offset their own debts, due or yet to fall due, within five years of the undue payment (article 168 of the National Tax Code – CTN).

This procedure is subject to the analysis and approval of the Federal Revenue Service. If the body does not recognize the credit claim, even partially, it will formalize the rejection of the tax reclaim or the non-approval of the offset made.

In case of non-approval, the amounts subject to offset will be charged, plus interest and a 20% moratorium fine (article 61, paragraph 2, of Law 9,430/96). This decision paves the way for administrative litigation and permits presenting a manifestation of nonconformity with suspensive effect (article 74, paragraph 9, of Law 9,430/96).

In addition, in a separate procedure, the Federal Revenue Service draws up a tax assessment notice to demand the collection of the isolated 50% fine on the credit that originated the unapproved offset request (Law 12,249/10), with interest accrual (article 74, §17, of Law 9,430/96).

The isolated fine is launched indistinctly, when there are no legal grounds for the penalty, and even before the final term of the administrative proceeding in which the legitimacy of the offsetting procedure is discussed.

The tax legislation itself determines that the taxpayer presents an offset request for subsequent approval by the Tax Authority but, at the same time, establishes the imposition of a punitive fine on any debt that may not be approved.

What was discussed, in addition to the creditory right, is that the application of an isolated fine in these situations represents a double penalty for the taxpayer, in breach of the right to full defense and to a fair hearing, as well as the right of petition provided for in article 5, XXXIV, paragraph “a”, of the Federal Constitution.

In that sense, it was argued that the isolated fine represents an undue political sanction that aims to prevent the taxpayer from recovering the amounts unduly collected from the tax authorities, constituting a confiscatory practice by the Public Administration, which is prohibited by the Federal Constitution (article 150, inc. IV, of CF/88) and by Precedents 70, 323 and 547 of the Federal Supreme Court.

The procedure would present an obstacle to the right to recover improperly collected taxes, capable of generating a very high financial risk to the taxpayer who acted in good faith when determining indebtedness before the Federal Revenue Service and proceeding with offsetting such amounts, as provided for in the tax legislation.

Not for any other reason, §17 of the law, in its original wording^[1], determined that the penalty should be applied only to taxpayers who utilized the offsetting request to evade the collection of amounts owed, acting in bad faith, deceit, fraud or simulation.

In many cases, the non-approval of the offset results from the non-recognition by the tax authorities of rectifications in the fiscal bookkeeping (DCTF and SPED Fiscal – ECF and EFD-Contributions) by the taxpayers for mere mistake in the calculation basis.

The isolated fine, therefore, ends up discouraging the rest of the taxpayers who, in good faith, present offsetting requests, exercising the right to recover amounts unduly paid.

Thus, it was neither reasonable nor proportionate to impose the penalty, which, in reality, aims to increase tax collection and punish bad taxpayers rather than discourage them from engaging in improper offsets.

In line with the understanding mentioned above and confirming the Court’s historical position on this matter, in the judgment of RE 796,639/RS, STF dismissed the Union’s Extraordinary Appeal, recognizing as unconstitutional both the previously repealed §15 (Law 13,137/15) – relating to the imposition of an isolated fine on denied restitution requests – and the current §17 of article 74 of Law 9,430/96, as stated in the vote issued by Minister Rapporteur Edson Fachin.

Unanimously, the following judgment thesis was established: “It is unconstitutional for the isolated fine provided for by law to be levied based on the mere non-approval of a tax offset request because it does not consist of an unlawful act capable of automatically triggering a pecuniary penalty”.

As the rapporteur pointed out in his vote, the mere non-approval of the tax offset is not an unlawful act capable of motivating a tax sanction. Thus, there is a clear lack of correlation between the 50% fine and the administrative offsetting request, since this is considered a legitimate exercise of the taxpayer’s right of petition. In addition, the correlation violates due process and good faith.

On the same date, the judgment of the Direct Action of Unconstitutionality 4,905 (ADI 4,905) was also concluded, with Minister Gilmar Mendes serving as the rapporteur. By majority vote, §17 of Law 9,430/96 was declared unconstitutional. It was understood that “the application of an isolated fine for the mere non-approval of an offset request, without being characterized by bad faith, falsehood, intent or fraud, violates the fundamental right of petition and the principle of proportionality”.

Given this outcome, if the taxpayer faces the non-approval of an offset formalized before the Federal Revenue Service, only the moratorium fine of up to 20% provided for in article 61, caput and paragraph 2, of Law 9,430/96 will apply.

Considering that the Supreme Court, so far, has not modulated the effects of the decision, the precedent should be applied to all cases involving the imposition of the fine for non-approval of offsetting requests. The taxpayer may also claim the refund of amounts unduly paid in the last five years under the terms of Law 9,430/96.

^[1] Art. 18. The official release referred to in article 90 of Provisional Measure 2,158-35, of August 24, 2001, shall be limited to the imposition of an isolated fine due to the non-approval of an offset request declared by the taxable person in the cases in which the practice of the offenses provided for in articles is characterized. 71 to 73 of Law 4,502, of November 30, 1964. (Text given by Law 11,051/04)

Art. 18. The official release referred to in Article 90 of Provisional Measure 2,158-35, of August 24, 2001, shall be limited to the imposition of an isolated fine due to non-approval of the offset request when the falsity of the declaration submitted by the taxable person is proved. (Text given by Law 11,488/07)