Economic officials are
concerned with the changes made by Deputy Manuel Júnior (Brazilian
Democratic Movement Party, PMDB, of Paraíba) in the bill that
regularizes funds Brazilians illegally sent abroad. The congressman, who
is the bill's sponsor in the Chamber of Deputies, reduced the income
tax rate and the fine to be applied to the regularized assets and
eliminated the destination of proceeds to the fund that would cover
losses some states will have with the reform of the Tax on Circulation
of Goods and Services (ICMS). But there are serious legal problems in
the original bill that the government sent to Congress that can render
it unfeasible, former Federal Revenue secretary Everardo Maciel warned
in an interview with Valor.
To Mr. Maciel, the reduction to 17.5% in the income tax rate to be levied on the assets to be regularized would only reach future generating facts. Since the bill is about practices conducted in the past, it would be therefore moot. Mr. Maciel argued that the bill could only reduce the tax rate if the case is of remission, that is, of waiver of the principal of the due tax.
The Brazilian Constitution says, in article 150, paragraph 6th, that the remission of taxes or contributions can only be granted by specific law, be it federal, state or municipal, which regulates the matter exclusively. “Admitting, by a generous interpretation, that the bill is about a remission, it continues with a problem, because a specific law would be necessary,” he said.
The former secretary also finds it odd that the waiver would be made by a rate reduction and not by a percentage of what it is to be waived. “The normal would be for the waiver to reach, for example, 30%, 40% or 50% of the debt, and not be made by reduction of the rate,” he said. “It seems the rate reduction was made to introduce the fine,” he reckoned. The bill sets that the interested party will pay a “regularization fine,” made up, cumulatively, of 17.5% of the value of the due tax and of the value related to its adjustment by the currency variation between December 31 of 2014 and the date of the enrollment in the program.
Another difficulty of the bill comes up at this point, Mr. Maciel said. The 17.5% fine is presented in the text as an “administrative fine” that, Mr. Maciel said, is an element not provided for in the Constitution, in the national tax code or in any legislation. “I know of no legal basis for an administrative fine in this case,” he said. “If it is to regularize a tax, it is a tax fine.”
As a tax fine, Mr. Maciel said, it is part of the tax. “A fine of the income tax is income tax, as well as a fine of Cofins is Cofins,” he pointed out. “The accessory accompanies the principal, because it is not possible to separate the tax from the fine.”
Therefore, the revenue obtained with the 17.5% of the fine, as well as the collection of the 17.5% of income tax, will be part of the pool of funds divided between federal, state and municipal governments. Of the total income tax revenue, 49% are allocated to the States Participation Fund (FPE), to the Municipalities Participation Fund (FPM) and to investment in financing programs to the productive sector in the North, Northeast and Central-West regions.
The bill alters this, since it sets that the amount collected with the “regularization fine” is earmarked for two funds, created by provisional measure (MP) 683, still not approved by Congress. One fund will compensate states for loss of revenue due to the ICMS reform and another will finance regional development.
Mr. Maciel criticizes the fact that the FPE and FPM funds are being reduced, not only for the cut in the income tax rate that will be used in the asset regularization and for the misappropriation of funds because of the fine. “Actually, the asset regularization is being made with loss of revenue by states and municipalities,” he said.
The earmarking of proceeds from the “regularization fine” is another impropriety of the bill, in Mr. Maciel’s analysis. He says article 167, item IV, of the Constitution forbids earmarking tax revenue to agency, fund or expenditure, except those set in the Constitution itself. The two funds created by MP 685 are obviously not among those exceptions.
Finally, Mr. Maciel criticizes the use of the fine proceeds to cover losses from the ICMS reform, because the government would be using funds that will enter its coffers only once. “If the losses with the ICMS reform continue over the years, how will the compensations to states be made? How will it be paid?” he questions.
“We have already seen this, because it will be equal to the Kandir law,” he said, in a reference to the law that cut the ICMS levied on exports of basic and semi-finished products. States still complain they were not properly compensated by the federal government, author of the proposal. “They are making an unconstitutional allocation to a fund that will compensate a loss impossible to be calculated, which is permanent, having as basis an eventual and uncertain revenue,” he said.
The errors in the bill text pointed out by Mr. Maciel seem to result from the government’s urgency to obtain the necessary funds for its fiscal adjustment and to make the ICMS reform. The two goals are laudable, but it is necessary to take care not to render the proposal unfeasible.
The central concern of those who wish to regularize their assets abroad, according to several analysts, is precisely to have legal security over the offered solution. The criticism made by Mr. Maciel, a tax expert, raise serious doubts about the law that Congress can pass, paving the way for future challenges in court.
To Mr. Maciel, the reduction to 17.5% in the income tax rate to be levied on the assets to be regularized would only reach future generating facts. Since the bill is about practices conducted in the past, it would be therefore moot. Mr. Maciel argued that the bill could only reduce the tax rate if the case is of remission, that is, of waiver of the principal of the due tax.
The Brazilian Constitution says, in article 150, paragraph 6th, that the remission of taxes or contributions can only be granted by specific law, be it federal, state or municipal, which regulates the matter exclusively. “Admitting, by a generous interpretation, that the bill is about a remission, it continues with a problem, because a specific law would be necessary,” he said.
The former secretary also finds it odd that the waiver would be made by a rate reduction and not by a percentage of what it is to be waived. “The normal would be for the waiver to reach, for example, 30%, 40% or 50% of the debt, and not be made by reduction of the rate,” he said. “It seems the rate reduction was made to introduce the fine,” he reckoned. The bill sets that the interested party will pay a “regularization fine,” made up, cumulatively, of 17.5% of the value of the due tax and of the value related to its adjustment by the currency variation between December 31 of 2014 and the date of the enrollment in the program.
Another difficulty of the bill comes up at this point, Mr. Maciel said. The 17.5% fine is presented in the text as an “administrative fine” that, Mr. Maciel said, is an element not provided for in the Constitution, in the national tax code or in any legislation. “I know of no legal basis for an administrative fine in this case,” he said. “If it is to regularize a tax, it is a tax fine.”
As a tax fine, Mr. Maciel said, it is part of the tax. “A fine of the income tax is income tax, as well as a fine of Cofins is Cofins,” he pointed out. “The accessory accompanies the principal, because it is not possible to separate the tax from the fine.”
Therefore, the revenue obtained with the 17.5% of the fine, as well as the collection of the 17.5% of income tax, will be part of the pool of funds divided between federal, state and municipal governments. Of the total income tax revenue, 49% are allocated to the States Participation Fund (FPE), to the Municipalities Participation Fund (FPM) and to investment in financing programs to the productive sector in the North, Northeast and Central-West regions.
The bill alters this, since it sets that the amount collected with the “regularization fine” is earmarked for two funds, created by provisional measure (MP) 683, still not approved by Congress. One fund will compensate states for loss of revenue due to the ICMS reform and another will finance regional development.
Mr. Maciel criticizes the fact that the FPE and FPM funds are being reduced, not only for the cut in the income tax rate that will be used in the asset regularization and for the misappropriation of funds because of the fine. “Actually, the asset regularization is being made with loss of revenue by states and municipalities,” he said.
The earmarking of proceeds from the “regularization fine” is another impropriety of the bill, in Mr. Maciel’s analysis. He says article 167, item IV, of the Constitution forbids earmarking tax revenue to agency, fund or expenditure, except those set in the Constitution itself. The two funds created by MP 685 are obviously not among those exceptions.
Finally, Mr. Maciel criticizes the use of the fine proceeds to cover losses from the ICMS reform, because the government would be using funds that will enter its coffers only once. “If the losses with the ICMS reform continue over the years, how will the compensations to states be made? How will it be paid?” he questions.
“We have already seen this, because it will be equal to the Kandir law,” he said, in a reference to the law that cut the ICMS levied on exports of basic and semi-finished products. States still complain they were not properly compensated by the federal government, author of the proposal. “They are making an unconstitutional allocation to a fund that will compensate a loss impossible to be calculated, which is permanent, having as basis an eventual and uncertain revenue,” he said.
The errors in the bill text pointed out by Mr. Maciel seem to result from the government’s urgency to obtain the necessary funds for its fiscal adjustment and to make the ICMS reform. The two goals are laudable, but it is necessary to take care not to render the proposal unfeasible.
The central concern of those who wish to regularize their assets abroad, according to several analysts, is precisely to have legal security over the offered solution. The criticism made by Mr. Maciel, a tax expert, raise serious doubts about the law that Congress can pass, paving the way for future challenges in court.
Oct 29 2015
By
Waldemar Jezler
