Specialists believe that improving criminal tax law will help reduce litigation
In the discussions surrounding the tax reform proposals that are before Congress, people are beginning to reflect on necessary adaptations to tax administration to serve the new system. Among other things, this will involve criminal tax law, which is responsible for penalizing perpetrators of tax crimes. The current system’s complexity is one reason for the large amount of litigation in the area. This was the subject of a meeting titled “Challenges in Criminal Tax Law and Future Litigation Involving the Proposed Goods and Services Tax,” held by the Nucleus for Fiscal Studies at the FGV´s Sao Paulo Law School on August 16, to mark the nucleus’ 10th anniversary.
One objective that the three tax reform bills all have in common is simplification of rules and a consequent reduction in tax-related conflicts. Entrepreneurs and business leaders have long been calling for the system to be simplified. Reinaldo Pamponet, founding partner of ItsNoon, a creative economy marketplace and one of the 50 most innovative firms in the Brazilian digital world, according to Proxxima Magazine, said that it is practically impossible to set up a company based in Brazil that will interact with the whole world.
“Many lawyers have advised us to set up offices outside Brazil, but that isn’t a reasonable solution to create an environment of innovation on a global scale. We need to simplify the system in Brazil,” Pamponet said.
In response to these arguments, Fernanda Vilares, a legislative advisor at the Justice Ministry and attorney at the National Treasury, said that some basic challenges will need to be overcome in order to rethink the way criminal tax law works in Brazil. For example, it will be necessary to fill some gaps in legislation caused by recent changes in people’s behavior, tackle abusive tax planning, make the rules clearer to improve punishment, and speed up processes by modifying Precedent 24, which authorizes the use of criminal law only when administrative procedures have been exhausted.
“Tax reform can help reduce the possibility of improper tax planning and legal uncertainty. The rules of the game need to be clearer and punishment should be more severe to deter crime,” Vilares said.
According to Luiz Roberto Peroba, the chairman of the Brazilian Bar Association’s Litigation Commission, a simpler and clearer tax regime, combined with harsher punishment, could help to reduce tax litigation by shaping business people’s behavior.
“I am concerned about the difficulty in distinguishing between criminal and administrative action. Because of the present system’s complexity, public officials investigate everyone the same way, whether it is a business person who acted in good faith or one who committed an infraction. A more rational and simpler tax system could contribute to a reduction in the application of penalties and therefore legal challenges,” Peroba said.