“MATTER: INTERNAL CONSISTENCY OF THE TAX ASSESSMENT NOTICE. IMPOSSIBILITY OF MAIN- TAINING TWO TAX ASSESSMENTS THAT OPPOSE EACH OTHER.

The tax assessment notice is to maintain an internal coherence. If the Tax Authorities defend the effec- tive inexistence of corporate reorganization acts and find it is impossible to generate tax effects, this very argument should be the basis of the impossibility to calculate the capital gain in the operations considered to be inexistent. It is not possible to maintain two tax claims (amortization of the premium and capital gain) based on antagonistic grounds, in which the confirmation of one tax claim (inexistence of transactions for the generation of premium) necessarily implies the impossibility of the other claim prevailing (calculation of capital gain on the premium at the sale). The facts stated in the Tax Assessment Notice are incompatible between them.”

The decision in question deals with Tax Assessment Notices issued for the collection of tax credits of the Corporate Income Tax (“IRPJ”), the Social Contribution on the Net Income (“CSLL”), punitive ex-officio fine, and single fine for failure to recognize monthly estimates, under the argument that the Taxpayer had amortized inexistent premium expenses arising from the allegedly simulated corporate restructuring. Fur- thermore, the Tax Authorities also rejected the tax losses and the negative CSLL tax basis used by the legal entity selling the ownership interest at a premium (succeeded by the Taxpayer) in the deduction of the capital gain ascertained in this sale, since such offsetting was allegedly carried out in a proportion above the legal limit.

In fact, briefly speaking, the Tax Auditor verified that two merged legal entities had never had any earnings, any employees, had never been in operation, and had been created less than six months prior to the takeover, and that its sole purpose was to transfer the premium to its acquiring company. The Tax Auditor added this to the verification that the premium was generated between companies of the same eco- nomic group and that there had been no effective payment for the ownership interest, thus concluding that there was simulation, formalizing the assessment at issue.

Against this assessment, the Taxpayer then claimed the inexistence of simulation, based on evaluation reports prepared by a specialized company, which would allegedly legitimize the transactions and the generated premium. In complement, the Taxpayer claimed that the rejection of the premium would imply the cancelation of the assessment on the capital gain earned by the company that had sold the ownership in- terest at a premium (succeeded by the Taxpayer). The reason is that, if on the one hand the Tax Authorities had disregarded the premium generated by the transaction, viewing it as inexistent, on the other hand and, in contradiction, it issued the assessment on the earned capital gain as a result of the premium generated by the sale of the ownership interest.

The Federal Revenue Judgment Office of Brazil (“DRJ”) found the Opposition to be partially valid only in order to disregard the fine, since it found that there was no willful intent, fraud, or simulation in that case. The appellate decision was then subject of a Voluntary Appeal by the Taxpayer, which defended the possi- bility of deducting the premium and the need to cancel the assessment due to the existence of antagonistic violations.

In examining such arguments, the CARF found that the entire ascertained premium could not be deducted by the Taxpayer, as this would be “premium in itself”, that is, there would not have been the disbursement of funds nor the change of share control that would justify the amortization of the recorded premium.

However, when analyzing the claims relative to the nullity of the assessment notice deriving from two contradictory assessments, the Councilors found that the Taxpayer was right. According to the Reporting Councilor: “The tax assessment notice is to maintain an internal coherence. If the Tax Authorities defend the effective inexistence of corporate reorganization acts and find it is impossible to generate tax effects, this very argument should be the basis of the impossibility to calculate the capital gain in the operations considered to be inexistent”.

He continued: “It is not possible to maintain two tax claims (amortization of the premium and capital gain) based on antagonistic grounds, in which the confirmation of one tax claim (inexistence of transactions for the generation of premium) necessarily implies the impossibility of the other claim prevailing (calculation of capital gain on the premium at the sale). The facts stated in the Tax Assessment Notice are incompatible between them”.

Therefore, the Councilors concluded that, since the corporate transactions were inexistent, the entire tax result should be null, that is, there could be no tax effects. As a result, neither amortization of the premium nor the capital gain earned in the transactions considered to be inexistent would be accepted.

Due to such, the CARF, by majority opinion, partially granted the Voluntary Appeal in order to cancel the assessment relative to the rejection of tax losses and CSLL negative tax basis used in the ascertainment of the capital gain earned at the sale of ownership interest.