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 Service, States, Federal District and Municipality were charging exorbitant fines, many of them calculated based on the value of the operations, exceeding 150% of the amount of the tax debt, what 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, allowing the increase to 150% only in cases of recurrence.
What is punitive damages
The punitive or official fine is a penalty imposed by the tax authorities, federal, state, district or municipal to individuals or legal entities that fail to comply, voluntarily or involuntarily, the rules that require them to collect taxes
These cases are treated with rigor by Brazilian tax legislation, with fines that until then were calculated on various bases, overcoming, in a lot, the percentage of 1050% of the amount of the tax owed.
This severe penalty generated many debates in the Judiciary, once that, in many cases, the amount exceeded the original debt amount, what constituted confiscation — prohibited by the Federal Constitution.
In October 2024, the STF decided, by unanimous decision, that punitive fines should be limited to 100% of the amount 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, they 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 fine totaled 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 refunding the amounts paid in excess. Taxpayers who were fined at rates exceeding 100% between December 2023 and October 2024, before the STF decision, may request the 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 the decision affects future tax penalties
The STF's decision establishes a new standard for tax fines, creating greater predictability for taxpayers. By limiting the fine to 100% and raising it to 150% only in cases of recurrence, the STF ensures that the sanction remains an effective mechanism against default,without, however, disproportionately compromise the assets of taxpayers.
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, now there is a clear criterion for its application.
With this new decision, the fines and the effects of confiscation cease to exist?
The main criticism of the 150% fine was its confiscatory effect. When the amount of the fine exceeded double the original tax debt, this generated an extremely high financial burden for companies and individuals fined, becoming, many times, unpayable debt.
This disproportionate penalty could make the operation of many companies unfeasible, mainly the smaller ones, in addition to discouraging the voluntary payment of taxes.
With the decision of the Supreme Court, the problem of the confiscatory effect of fines for tax evasion is nullified. The new rule ensures that fines have a punitive character, but within the limits of proportionality, encouraging compliance with tax legislation without excessively penalizing taxpayers.
What changes should be adopted from the new decision
In light of these changes, it is essential that companies and taxpayers adopt tax compliance strategies to avoid severe fines and penalties.
This includes the correct assessment of taxes, the provision of accurate information to the Federal Revenue and the adoption of 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, since the cost of a possible penalty will be more predictable and less burdensome.
Conclusion
The STF's decision 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 proportional and do not exceed the limit of reasonableness, the STF reinforces respect for the principle of the 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 Lawyers and a specialist in Tax Law from IBET. Has a focus on administrative and judicial tax litigation related to direct and indirect taxes, in addition to providing tax consulting and working in the field of Social Security Law
Eduardo Ricca is a tax lawyer and partner at Vikanis & Ricca Attorneys. He is specialized in Tax Law by IBDT and has a focus on administrative and judicial litigation related to direct and indirect taxes, in addition to the social security area
