Tax disputes in Brazil take place in the administrative sphere or judicial sphere.
Litigating in the administrative sphere is optional and not binding on taxpayers, meaning that taxpayers can opt to litigate directly within the judicial sphere, and an unfavourable final decision in the administrative sphere can still be challenged in the judicial sphere. However, if taxpayers choose to bring a tax dispute directly before the judicial sphere, bypassing the administrative sphere, this is legally deemed as a waiver of the right to an administrative dispute.
Litigation in the administrative sphere is usually simpler, quicker and less burdensome, because the structure of the proceeding is less complex and there is no need to present a guarantee during the proceeding. The law grants the suspension of the enforceability of the debt during the entire administrative dispute.
An administrative tax dispute usually begins with the presentation of a taxpayer's opposition against a tax assessment, or against an administrative decision denying a request for refund or offset of undue paid taxes.
The administrative procedure system is well regulated, especially by the federal and state governments, and allows taxpayers to present their initial opposition, appeal or counter arguments and, occasionally, a special or extraordinary appeal, this latter usually being conditioned on the existence of a precedent in conflict with the appealed decision.
Most of the administrative ruling authorities are skilled in specific technical tax features; as such, a taxpayer's opposition or appeal generally has a good chance of success in correcting miscalculations or mistakes in tax assessments.
It is also possible for a taxpayer to start an administrative procedure to consult with the tax authorities regarding the application of the tax law in a concrete situation whenever there is an objective doubt concerning the interpretation of the law. The administrative answer (ruling) to the consultation will be binding for both the tax authorities and taxpayers in the administrative sphere, but taxpayers can challenge within the judicial sphere in cases of disagreement.
From a judicial perspective, litigation may start in various ways.
If an administrative dispute results in an unfavourable decision for the taxpayer, or if the taxpayer chose to bypass the administrative sphere, it can litigate before the judiciary by adopting a proactive or retroactive approach.
The proactive approach means that the taxpayer can begin the judicial dispute by filing a lawsuit against a tax assessment, an unfavourable administrative decision, or both. The law provides that the full charged amount must be court deposited. However, judicial precedents temper this requirement, in the sense that the taxpayer can file the lawsuit without the deposit, but will not obtain a suspension of the enforceability of the debt. In some specific cases, the suspension of the enforceability can be granted by the court with the presentation of other types of guarantees or, exceptionally, without any guarantee.
Taxpayers may also file a judicial lawsuit to discuss a given tax burden that is deemed undue, or to recover undue paid taxes based on factual, legal or constitutional aspects.
In the retroactive approach, taxpayers will wait for the public attorney (federal, state or municipal) to file a tax foreclosure in order to present their opposition. In this case, taxpayers must present a guarantee within five days, and then plus 30 days, to file their motion to stay foreclosure.
The suspension of the enforceability of a debt or guarantee accepted by the court legally grants a tax good standing certificate, a document deemed necessary for many legal acts in the course of taxpayers' operations, such as to provide proof of commercial health, to receive payments from public entities, to transfer real estate and to be entitled to tax benefits. However, the mere existence of a guarantee does not grant the suspension of the enforceability of a debt, it being necessary that the taxpayer demonstrate good grounds for its plea and the risks that have to be obviated by the court order.
Without the suspension of the enforceability of the debt, the public attorney can request seizures or other procedures of property expropriation.
The law lists, in a preference scale format, the possible guarantees, with a cash deposit being preferred. Bank letter guarantees and insurance bonds are deemed equivalent guarantees by the law. The list also contemplates public bonds, precious stones or metals, real estate, ships, aircraft, cars, stocks and rights.
Under both the proactive and retroactive approaches, a taxpayer's plea petition should contain a written document of all the factual, legal, constitutional or other grounds relied on.