IBFD Tax News Service - 15 august

IBDF Tax News Service 15 August 2011Federal Supreme Court decides on retroactivity of statute of limitations rule for tax refunds

The Federal Supreme Court (Supremo Tribunal Federal – STF), in a decision rendered on 4 August

2011, determined that the provisions brought by Complementary Law 118/2005 (CL 118), which

imposed a 5-year limitation period for taxpayers to claim the refund or offsetting of unduly paid taxes,

cannot be applied retroactively. Prior to the publication of CL 118, the common interpretation of the

applicable rules at the time (i.e. Art. 168 of the National Tax Code – Código Tributário Nacional – CTN)

was that the statute of limitations would be 10 years.

The decision was rendered in the case records of Extraordinary Appeal 556,621.

(a) Background. The present discussion involves the impact of Art. 3 of CL 118 on the statute of

limitation for claiming the refund or offsetting of unduly paid taxes. Prior to the publication of this legal

provision, the Superior Court of Justice (Superior Tribunal de Justiça – STJ), when interpreting Art. 168

of the CTN, understood that taxpayers would have a maximum term of 10 years to claim the refund or

offsetting of unduly paid taxes.

Art. 3 of CL 118, however, intended to change this understanding by stating that the statute of

limitations should be interpreted in a way that taxpayers would have only 5 years to claim for a refund

or offsetting of unduly paid taxes. The tax authorities sought to apply Art. 3 of CL 118 retroactively, so

as to reduce the time limit applicable to refund claims previously filed.

This attempt by the tax authorities was grounded on the argument that Art. 3 of CL 118 would be

merely interpretative (i.e. it would provide an interpretation of how Art. 168 of the CTN must be

applied) and, therefore, would result in no actual alteration of the tax system. In Brazil, interpretative

laws may be applicable in a retroactive manner, while laws that amend the tax system are only

applicable to events occurred after their entry into effect.

(b) Decision. The STF rejected the retroactive application of Art. 3 of CL 118 and determined that

any refund claim filed before entry into effect of CL 118 (i.e. 10 June 2005) remains subject to the

10-year statute of limitation, while claims filed after this date shall be subject to the 5-year statute of

limitation.

This decision confirmed the understanding previously upheld by the STJ in another case (Special

Appeal 692,888), where the court concluded that CL 118 provides an actual amendment of the tax

system and not a mere interpretation of existing rules.

Note. This decision is final and binding only on the parties involved, but must be duly observed by

all lower courts when deciding similar cases.

Reference: CTS:BR:1.8.3.; ITS:BR:1.10.3.; CTA:BR:1.11.4.4.; ITA:BR:1.11.4.

Report from our correspondent Bruno Carramaschi, Lobo & de Rizzo Advogados,

São Paulo.