Following settlement agreements with some of the biggest financial institutions in the nation, Brazil’s National Treasury Attorney General’s Office (PGFN) has secured approximately 2.4 billion reais ($458 million) in tax payments in recent weeks, providing a substantial boost to federal revenues at the beginning of the year.
The agreements, which were reached with lenders like Itau, Santander Brasil, and Citibank, put a stop to protracted legal disputes that required significant resources from both parties.
PGFN officials claim that the payments show net amounts following an average 21% reduction in fines, interest, and penalties.
The settlements show the government’s attempt to lower litigation risk while increasing income inflows, according to Mariana Lellis, chief negotiation coordinator for the PGFN.
Integral settlement program drives negotiations
The most recent deals were reached under Brazil’s Integral Settlement Program (PTI), a program aimed at encouraging businesses to settle complicated tax issues out of court.
Although the program’s submission deadline ended in December, scores of proposals are still being reviewed.
About 70 settlement petitions from businesses are still being considered, according to PGFN, which implies that the total amount collected may increase even more in the upcoming months.
Depending on the possibility of debt recovery, the stage and length of litigation, and the government’s prospects of winning in court, the scheme granted discounts ranging from 10% to 30%.
In reference to cases that are still awaiting evaluation, Lellis stated, “There is a much larger universe of financial institutions and a much larger stock of debt.”
She pointed out that a substantial portion of high-value tax issues in Brazil are related to the financial industry.
CPMF disputes and legacy taxes
Disputes related to the now-defunct CPMF, a financial transactions tax that was abolished in 2007 but continued to generate litigation for years, accounted for a significant portion of the recent settlements.
According to PGFN data, Santander Brasil paid about 1 billion reais after discounts to resolve CPMF cases, while Citi paid around 400 million reais to settle similar claims.
Because of their complexity and differing interpretations of the tax’s applicability, these matters had remained unresolved.
By reaching settlements, both sides avoided the risk of unfavourable court rulings and further delays.
In contrast, taxes on financial income under the PIS and Cofins regimes were the main focus of Itau’s negotiations.
PGFN opted to pursue negotiated settlements rather than litigation due to uncertainty over the application of the ruling’s effects, despite the federal government’s eventual victory on the core issue at Brazil’s Supreme Court.
Itau’s agreement also covered income tax and CSLL liabilities, which amounted to a total of about 1 billion reais.
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