Recently, the Federal Supreme Court (STF) made an important decision that changes the application of punitive fines, covering cases of tax evasion, fraud or collusion. Before, the Federal Revenue, States, Federal District and Municipality charged exorbitant fines, many of them calculated on the value of operations, exceeding 150% on the value of the tax debt, which was often criticized for its confiscatory effect.
With the new decision, the limit for these fines was set at 100% of the amount of the tax required, and the increase to 150% is allowed only in cases of recurrence.
What is punitive fines?
The punitive or craft fine is a penalty applied by the federal, state, district or municipal tax authorities to individuals or legal entities that voluntarily or involuntarily violate the rules that require them to collect taxes.
These cases are treated rigorously by Brazilian tax legislation, with fines that until then were calculated on several bases, far exceeding the percentage of 1050% of the amount of tax due.
This severe penalty generated many debates in the Judiciary, since, in many cases, the amount exceeded the amount of the original debt, which was confiscation prohibited by the Federal Constitution.
In October 2024, the Supreme Court unanimously decided that punitive fines should be limited to 100% of the value of the tax debt. The exception occurs only in cases of recidivism, in which the penalty may reach 150%. The decision is based on the constitutional principle that taxes, including fines, can not be confiscatory (art. 150, IV, of the Constitution).
For example, a company was fined 150% of a tax debt of R$ 100,000. Before the decision, the fine amounted to R$ 150,000. With the new rule, this fine will now be limited to R$ 100,000.
This amendment ensures that tax penalties are proportionate and do not impose an excessive burden on the taxpayer, respecting the principles of reasonableness and proportionality.
Who can apply for a refund?
One of the most immediate consequences of this decision is the possibility of refunding the amounts paid in excess. Taxpayers who were fined in percentages greater than 100% between December 2023 and October 2024, before the STF decision, may request the return of the excess amount.
If a small trading company with a debit of R$ 50,000 has been fined R$ 75,000 (150%), the fine will now be reduced to R$ 50,000. This allows the company to continue operating and investing in its business without the weight of an exorbitant penalty.
How does the decision interfere with tax penalties in the future?
The STF decision establishes a new parameter for tax fines, creating greater predictability for taxpayers. By limiting the fine to 100% and raising to 150% only in cases of recidivism, the STF ensures that the sanction remains an effective mechanism against default, without, however, disproportionately compromising the taxpayers' assets.
If a company has already been fined previously, and after a new violation faces a fine of 150% on an amount of R$ 120,000, the new penalty will be R$ 180,000. Although the recurrence still leads to severe penalties, there is now a clear criterion for its application.
With this new decision, do fines and the effects of confiscation cease to exist?
The main criticism of the fine of 150% was its confiscatory effect.When the amount of the fine exceeded twice the original tax debt, this generated an extremely high financial burden for companies and individuals fined, often making the debt unpayable.
This disproportionate penalty could make the operation of many companies, especially smaller ones, unfeasible, as well as demotivating the voluntary payment of taxes.
With the decision of the STF, the problem of the confiscatory effect of fines for tax evasion is annulled. The new rule ensures that fines have a punitive character, but within the limits of proportionality, encouraging compliance with tax legislation without overpenalizing taxpayers.
What changes should be made from the new decision?
Given these changes, it is essential that companies and taxpayers adopt tax compliance strategies to avoid fines and severe penalties.
This includes the correct calculation of taxes, the provision of accurate information to the IRS and the adoption of accounting and tax practices that comply with the legislation.
The reduction of fines to 100% of the amount due makes it even more advantageous for companies to keep up with their tax obligations, since the cost of a possible penalty will be more predictable and less costly.
Conclusion
The decision of the Supreme Court to limit the fine for tax evasion to 100% represents an important advance in the defense of taxpayers' rights.By ensuring that the penalties are proportionate and do not exceed the reasonable limit, the Supreme Court reinforces respect for the principle of prohibition of confiscation.
In addition, the possibility of restitution for those who were fined beyond this limit between December 2023 and October 2024 offers an opportunity for financial relief and correction of excessive penalties.
*Tatiana Vikanis is a partner of Vikanis & Ricca Advogados and a specialist in Tax Law at IBET. She has a practice focused on administrative and judicial tax litigation related to direct and indirect taxes, as well as providing tax consulting and acting in the Social Security Law segment.
** Eduardo Ricca is a tax officer and partner at Vikanis & Ricca Advogados. He specializes in Tax Law at IBDT and has a focus on administrative and judicial litigation related to direct and indirect taxes, in addition to the social security area
