Zero Litigation: Q&A about tax compliance program

In January of this year, the Brazilian federal government launched the Program for Reduction of Tax Litigation (PRLF), also known as “Zero Litigation”. The effort benefits individuals as well as companies, and sets conditions for the negotiation of tax debts under litigation at the administrative level and even of those already registered as overdue federal tax liabilities.

Clear up your doubts about the program with the following Q&A, as published by the Federal Revenue Service.

Q&A | Zero Litigation

1) What is the Zero Litigation Program (PRLF)?

It is a special program that provides for the regularization of tax liabilities by means of enabling the settlement of debts under discussion with the Federal Revenue Judgement 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.

2) What are the program’s goals?

I – to allow, through concessions from both parties involved, the settlement of tax-related disputes;

II – to save businesses from insolvency, thus preserving the workers’ jobs and income sources;

III – to ensure that tax credits under administrative litigation are collected in such a way as the Federal Revenue’s expectation on their recoverability conforms to the taxpayers' capacity to honor their debts; and

IV – to enforce the constitutional principle of speed and accuracy in proceedings within the scope of the Federal Tax Administration.

3) How is the recoverability of credits rated in terms of a taxpayer’s capacity to honor his or her debts?

Credits are classified in descending order of recoverability, according to the following rank:

I – Type A: credits with high prospect of recoverability;

II – Type B: credits with medium prospect of recoverability;

III – Type C: credits whose recoverability is deemed difficult; or

IV – Type D: credits deemed irrecoverable.

4) What are the criteria for considering tax credits irrecoverable?

Tax credits under administrative litigation, governed by Decree No. 70,235/1972, for more than 10 years are considered unrecoverable. Additionally, as per Chapter II of PGFN Ordinance No. 6,757/2022, tax credits are deemed unrecoverable if they meet one of the following conditions:

I – The corresponding debit has been registered as an overdue tax liability for more than 15 years and is not backed by collateral or its enforceability has not been suspended.

II – The enforceability of the claim has been suspended by a court order for more than 10 years, as per article 151, item IV or V, of Law No. 5,172/1966 - Brazilian Tax Code;

III – The legal entity or person indebted went into:

a) bankruptcy;

b) in-court or out-of-court reorganization;

c) compulsory liquidation; or

d) extrajudicial restructuring or intervention.

IV – The indebted company’s Corporate Taxpayer ID Number (CNPJ) has its status listed as:

a) cancelled due to non-compliance;

b) cancelled due to de facto non-existence of the company;

c) cancelled due to failure to submit accounting reports;

d) cancelled due to termination of bankruptcy;

e) cancelled due to termination of compulsory liquidation;

f) cancelled due to termination of restructuring;

g) unfit due to unknown location;

h) unfit due to de facto non-existence of the company;

i) unfit due to omission and default;

j) unfit due to failure to submit accounting reports;

k) unfit due to failure to report information; or

l) suspended due to de facto non-existence of the company;

V – the individual indebted is presumed dead; or

VI – the corresponding process for the collection of the tax-related liability has been shelved for more than 3 years, pursuant to article 40 of Law No. 6,830/1980.

5) When are applications due?

Applications should be made between February 1 (8 a.m.) and March 31, 2023 (7 p.m.), Brasilia time.

6) How do I join the program?

- To join the program, you must file a digital request through the Virtual Services Portal (e-CAC), available at: https://gov.br/receitafederal.

- Select “Transação Tributária” (Tax debt settlement) option, in the “Área de Concentração de Serviço” (Service Area) field. Then, select “Transação por Adesão no Programa de Redução de Litigiosidade Fiscal – PRLF" (Settlement by Joining the Program for Reduction of Tax Litigation).

Applications should be accompanied by the following documents:

I – Application request, made by filling in the form available on the e-CAC Portal;

II – Proof of initial payment; and

III – If applicable, certification issued by an accountant registered with the Regional Accounting Council confirming that credits arising from tax loss and CSLL egative calculation base declared to the Federal Revenue Service of Brazil are lawful and in good standing as per accounting standards, and their availability can be reported by filling out the form on the e-CAC Portal.

- Taxpayers must register their Electronic Tax Address (DTE) and keep their registration updated for as long as the tax settlement procedure is ongoing.

7) Is there a minimum installment amount?

Whichever payment option is chosen, each installment must be at least BRL 100.00 for individuals, BRL 300.00 for small or very small businesses, and BRL 500.00 for companies in general, in which case the number of installments must be adjusted to the totality of the debt under negotiation.

8) What options are available for negotiating tax credit debts under administrative litigation?

a) Settlement options by level of recoverability and use of Tax Loss (PF) or CSLL Negative Calculation Base (BCN), considering the taxpayer’s capacity to honor his or her debt.

a.1) Tax credits deemed irrecoverable or difficult to recover:

- Up to a 100% reduction on interest and fines (not exceeding 65% of the total tax credits);

- At least 30% of the total debit balance must be paid in cash, in up to 9 successive monthly installments, with the remainder payable using credits from tax loss and CSLL negative calculation base.

a.2) Tax credits of high or medium prospect of recoverability:

- No reduction on interest or fines;

- At least 48% of the total debit balance must be paid in cash, in up to 9 successive monthly installments, with the remainder payable using credits from tax loss and CSLL negative calculation base.

b) Settlement options by the taxpayer’s capacity to honor his or her debts without using credits arising from Tax Loss (PF) or CSLL Negative Calculation Base (BCN):

- Down payment of 4% of the consolidated total (undeducted) in up to 4 monthly installments;

- Up to a 100% reduction on interest and fines (not exceeding 65% of the total tax credits), with the remainder payable in up to 2 monthly installments; or

- Up to a 100% reduction on interest and fines (not exceeding 50% of the total tax credits), with the remainder payable in up to 8 monthly installments.

9) Are there any other special criteria for reductions?

For transactions involving individuals, small and very small businesses, Holy Houses of Mercy (Institutions that provide hospital care to vulnerable groups), cooperative organizations and other civil society associations referred to under Law No. 13,019/2014, or educational institutions, the limits for the reductions provided for under item “b” of the previous question will be 70% and 55%, respectively.

10) What is the basis for the reduction rates?

The reduction rates for each of the settlement options described above take into account the taxpayer's capacity to honor his or her debts.

11) What are the rules for using Tax Loss (PF) and CSLL Negative Calculation Base (BCN)?

- Only PF and BCN determined up to December 31, 2021 can be used;

- Corporate Income Tax (IRPJ) will be levied on the PF at the rates provided for under article 3 of Law No. 9,249/1995;

- Social Contribution on Net Income (CSLL) will be levied on the BCN at the rates provided for under article 3 of Law No. 7,689/1988;

- The Federal Revenue Service of Brazil (RFB) has 5 years to review the credits used.

12) Are credits under small claims litigation subject to negotiation?

Yes. Regardless of the debt’s classification or the taxpayer's capacity to honor its payment, consolidated credits amounting to 60 minimum wages or less may be negotiated under the PRLF, provided that the debtor is an individual or a small-sized company.

This option also applies to credits registered as overdue federal tax liabilities for over one year. Applications can be made through the REGULARIZE web portal, maintained by the National Treasury Attorney General's Office, available at .

13) What are the conditions for settling credits under small claims litigation?

- Down payment of 4% of the consolidated total (undeducted) in up to 4 monthly installments;

- Remainder payable in up to 2 monthly installments with a 50% reduction (principal amount included); or

- Remainder payable in up to 8 monthly installments with a 40% reduction (principal amount included).

14) What situations cause the debt settlement negotiation to be cancelled?

I - non-compliance with the conditions, terms, and requirements set forth in the ordinance;

II - non-payment of 3 successive or alternate installments of the outstanding debt balance under negotiation;

III - the Federal Revenue Service finds evidence of fraudulent conveyance on the part of the debtor, even if such actions have been performed prior to the agreement's entry into force;

IV – the company goes into bankruptcy or liquidation; or

V - failure to comply with any provisions set forth in the Law that governs the debt settlement negotiation.

15) What benefits are in place for taxpayers who acknowledge their debts in accordance with the program’s rules?

Taxpayers who acknowledge and, in the same occasion, pay their tax debts in full by April 2023 will be relieved from late payment penalties and default fines, regadless if the Revenue Service had already taken action to collect the amounts by the date of the Provisional Presidential Decree’s entry into force, or as long as the tax liability had not yet been assessed afterwards.

Source: Federal Revenue Service of Brazil

---

Read more

Zero Litigation: federal government launches debt renegotiation program