Zero Litigation: federal government launches debt renegotiation program

Program provides for debit reductions and payments in up to 12 installments

With the publication of PGFN/RFB Joint Ordinance No 1/2023 on January 12, the Brazilian federal government launched the Program for Reduction of Tax Litigation (“Programa de Redução de Litigiosidade Fiscal” - PRLF) or “Zero Litigation” (“Litígio Zero”) for short. The measure is part of the new efforts by the Ministry of Economy aimed at curbing the federal budget deficit.

The program benefits both companies and individuals by setting conditions for the renegotiation of tax debts under litigation at the administrative level and even of those already registered as overdue federal tax liabilities.

Check out below the benefits and conditions:

Debts eligible for renegotiation

Pursuant to the ordinance, it will be possible to renegotiate debts under discussion with the Federal Revenue Judgment Offices (DRJ) or with the Administrative Council of Tax Appeals (CARF) as well as small claims under administrative litigation or registered as overdue federal tax liabilities.

Settlement types

The program establishes two types of debt settlement:

1) Settlement of tax credits under administrative litigation; and

2) Settlement of tax credits under small claims litigation.

1) Settlement of tax credits under administrative litigation

This debt settlement type involves the renegotiation of tax debts with an appeal pending before the DRJs or the CARF. Benefits apply to both individuals and companies of all sizes, and debts can be settled with or without down payment:

• Settlement without a down payment: in this case, outcomes will differ depending on how the Federal Revenue Service perceives the likelihood of recovering its tax credits. Per the program’s rules, debts under discussion for more than 10 years are deemed irrecoverable.

Classification of tax credit	Reduction on interest and fines	Reduction cap	Cash payment	Cash payment installment plan	Payment of the remainder
Irrecoverable or difficult to recover	Up to 100%	Up to 65% on the total amount of each negotiated credit	30% of the debit balance	Up to 9 successive monthly installments	Possibility of using credits from tax loss and CSLL negative calculation base determined up to December 31, 2021
High or medium prospect of recoverability	-	-	48% of the consolidated total of credits under negotiation

• Settlement with no down payment: the degree of recoverability of the tax credits is irrelevant, but the rules establish more favorable conditions for renegotiations involving the following subjects:

- individuals,

- small businesses,

- Holy Houses of Mercy (institutions for hospital care),

- Cooperative organizations and other civil society associations provided for under Law No. 13.019/2014,

- Educational institutions.

Down payment required	Reduction on interest and fines	Reduction cap
4% of the consolidated total of credits under negotiation (in up to 4 successive monthly installments)	Up to 100%	Up to 65% on the total amount of each negotiated credit, in up to 2 successive monthly installments   Obs.: up to 70% for transactions involving the subjects listed above	Up to 50% on the total amount of each negotiated credit, in up to 8 installments   Obs.: up to 55% for transactions involving the subjects listed above

2) Settlement of credits under small claims litigation

This debt settlement type only applies to individuals and small businesses that wish to renegotiate debts of up to 60 minimum wages, while allowing for the renegotiation of debts already recorded as overdue federal tax liabilities for over one year.

Total debit	Taxpayer	Down payment required	Payment of the remainder
Up to 60 minimum wages	Individuals and small businesses	4% of the consolidated total (to be paid in up to 4 successive monthly installments)	In up to 2 months, with a 50% reduction on interest, fines and the principal amount	In up to 8 months, with a 40% reduction on interest, fines and the principal amount

Deadline for application

Applications must be made from February 1, 2023 (8 a.m.) to March 31, 2023 (19 p.m). It is worth mentioning that the program does not apply to the renegotiation of tax debts incurred under the Simplified Taxation System (“Simples Nacional”), pursuant to Complementary Law No. 123/2006.