“Income Tax on Individuals – IRPF

Fiscal Year: 2002

ADMINISTRATIVE TAX PROCEEDING. LITIGATION DELIMITATION. The litigation phase initiates upon the objection to the demand. If there is no specific refutation of a given issue in the objection, then there is no controversy. In the objection, the taxpayer expressly agreed to part of the assessment.

IRPF. BANK DEPOSITS OF NON-VERIFIED ORIGIN. ‘BEACON HILL’ OPERATION. APPELLANT IS STATED AS THE BENEFICIARY OF FUNDS IN A BANK ACCOUNT ABROAD. It is up to the Audit to prove unequivocally the ownership of the account abroad, in which deposits considered as omitted earnings were deposited. An event in which there is no evidence of the connection between the appellant with the bank account abroad.

PERCENTAGE OF EX-OFFICIO FINE. ANALYSIS OF THE CONSTITUTIONALITY OF THE LAW.The CARF does not have jurisdiction to rule over the unconstitutionality of tax laws. Application of CARF Prec- edent no. 2.

LATE PAYMENT INTEREST. SELIC RATE. APPLICABILITY. Since April 1, 1995, late payment interest charged on tax debts administered by the Federal Revenue Office are due, within the default period, at the reference rate of the Special System for Settlement and Custody - SELIC for federal securities. Ap- plication of CARF Precedent no. 4.”

The decision in question deals with a Tax Assessment Notice issued for the collection of the Income Tax on Individuals (“IRPF”), under the claim that the Taxpayer had allegedly omitted earnings credited into a bank account abroad of which he was supposedly the holder, during the calendar year of 2002.

From an investigation conducted by the Federal Police, the Tax Auditors had access to magnetic files and documents that allegedly proved that the Taxpayer would be the holder of such bank account held abroad and, consequently, the beneficiary of the amount transferred to the account.

In an objection, the Taxpayer affirmed that the magnetic files, through which the Audit based the assess- ment, are not documents capable of demonstrating whether he is the beneficiary of the earnings, and not even the holder of that account, thus concluding that the conduct attributed to the Taxpayer was never practiced, seeking the nullity of the Tax Assessment Notice given the lack of irrefutable evidence proving the assessment issued by the Auditors.

After the Objection was examined by the Federal Revenue Office of Judgment (“DRJ”), the DRJ found that it lacked grounds, since it viewed that although there was no specific document proving the remittance of the allegedly omitted funds, the documents obtained through the Federal Police Operation –object of an expert report prepared by the National Criminalist Institute, which had demonstrated what had been claimed by the Audit– had credibility and public faith.

Therefore, due to the rejection of the DRJ, the Taxpayer then filed a Voluntary Appeal with the Administra- tive Council of Tax Appeals (“CARF”), which decided to grant the Taxpayer’s Appeal.

In its decision, the CARF viewed that the presence of a document that only relates the name of the Taxpayer with an account abroad, as well as the submitted report, do not constitute sufficient evidence to prove that the Taxpayer is the holder of the account attributed to him by the Tax Auditors.

Likewise, the need to submit more consistent evidence was declared, such as the registration form with the signature in the bank records or receipts proving that the Taxpayer had effectively moved the funds from the account.

Thus, it was determined that the Tax Auditors had failed to provide undisputed evidence that the Taxpayer is the holder of the bank account associated to him.

Based on this position, the Council granted the Taxpayer’s appeal in order to cancel the assessment arising from the alleged omission of earnings deriving from deposit in a bank account abroad.