Recently, the Supreme Federal Court (STF) made an important decision that changes the application of punitive fines, covering cases of tax evasion, fraud, or collusion. Previously, the Federal Revenue Service, States, Federal District, and Municipality charged exorbitant fines, many of which were calculated based on the value of the transactions, exceeding 150% of the tax debt amount, 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 due, with an increase to 150% only in cases of recidivism.
What is a punitive fine?
A punitive or ex officio fine is a penalty applied by federal, state, district or municipal tax authorities to individuals or legal entities that fail to comply, voluntarily or involuntarily, with the rules that require them to collect taxes.
These cases are strictly regulated by Brazilian tax legislation, with fines that until now were calculated on various bases, exceeding, by far, 1050% of the amount of the owed tax.
This severe penalty sparked many debates in the Judiciary, as in many cases, the amount exceeded the original debt, which constituted confiscation — prohibited by the Federal Constitution.
In October 2024, the Supreme Federal Court (STF) unanimously decided that punitive fines should be limited to 100% of the tax debt amount. 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, cannot have a confiscatory nature (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 total fine was R$ 150,000. With the new rule, this fine will now be limited to R$ 100,000.
This change ensures that tax sanctions are proportional and do not impose an excessive burden on the taxpayer, respecting the principles of reasonableness and proportionality.
Who can request a refund?
One of the most immediate consequences of this decision is the possibility of reimbursement for overpaid amounts. Taxpayers who were fined at rates exceeding 100% between December 2023 and October 2024, prior to the STF decision, may request a refund of the excess amount.
If a small trading company with a debt of R$ 50,000 was 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 burden of an exorbitant penalty.
How does the decision affect future tax penalties?
The STF's decision establishes a new benchmark for tax fines, creating greater predictability for taxpayers. By limiting the fine to 100% and raising it to 150% only in cases of recidivism, the Supreme Federal Court ensures that the sanction remains an effective mechanism against default, without, however, disproportionately compromising taxpayers' assets.
If a company has 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 recidivism still leads to severe penalties, there is now a clear criterion for its application.
With this new decision, do fines and confiscation effects cease to exist?
The main criticism of the 150% fine was its confiscatory effect. When the amount of the fine exceeded twice the original tax debt, it created an extremely high financial burden for the fined companies and individuals, often making the debt unpayable.
This disproportionate penalty could make the operation of many companies unfeasible, especially smaller ones, as well as discourage voluntary payment of taxes.
With the STF's decision, the issue of the confiscatory effect of fines for tax evasion is nullified. The new rule ensures that fines have a punitive nature, but within the limits of proportionality, encouraging compliance with tax legislation without excessively penalizing taxpayers.
What changes should be adopted based on the new decision?
In light of these changes, it is essential for companies and taxpayers to adopt fiscal compliance strategies to avoid fines and severe penalties.
This includes the correct calculation of taxes, providing accurate information to the Federal Revenue Service, and adopting accounting and tax practices that comply with the legislation.
The reduction of fines to 100% of the amount owed makes it even more advantageous for companies to stay up to date with their tax obligations, as the cost of an eventual penalty will be more predictable and less burdensome.
Conclusion
The Supreme Federal Court's decision to limit the fine for tax evasion to 100% represents an important advancement in the defense of taxpayers' rights. By ensuring that penalties are proportional and do not exceed reasonable limits, the Supreme Federal Court (STF) reinforces respect for the principle of prohibition of confiscation.
Furthermore, the possibility of reimbursement 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 at Vikanis & Ricca Advogados and a specialist in Tax Law by IBET. It has a focus on administrative and judicial tax litigation related to direct and indirect taxes, as well as providing tax consulting and operating in the Social Security Law segment.
** Eduardo Ricca is a tax specialist and partner at Vikanis & Ricca Advogados. He is specialized in Tax Law by IBDT and focuses his practice on administrative and judicial litigation related to direct and indirect taxes, as well as the social security area.
