Until 2020, tax debts in Brazil could be settled in practice through installment payments or lump-sum payments.
Installment payments could be objectively categorized into two types: ordinary installment payments, where the taxpayer could pay off the debt in installments but without any reduction in the fines and interest that made up the total amount, and exceptional (special) installment payments.
The latter referred to programs exceptionally provided by the federal government, which granted extended deadlines for the payment of tax debts, often with the possibility of reducing the accrued interest and fines (i.e. amnesty programs).
Although the National Tax Code (one of Brazil’s main tax laws) included another method besides lump-sum payments and installment payments, called tax transaction, it was only properly regulated and made available through Provisional Measure 899/2019, later converted into Law 13,988/2020.
It is important to clarify that a transaction is a mechanism that allows for negotiations between the tax authorities and taxpayers for the payment of tax debts, provided that certain limits established in the governing law are respected.
With the regulation in place, transactions only started gaining prominence in Brazil in the last three years, as the federal government began offering taxpayers various ways to regularize debts, thereby increasing federal tax revenue, especially during the pandemic.
According to data released by the Attorney-General’s Office of the National Treasury, since the start of the program, more than BRL 466.6 billion in debts have been negotiated. In 2022 alone, the amount regularized reached BRL 189 billion, underscoring the program’s significance for Brazil.
These negotiations saw a high rate of participation because they allowed for debt regularization by granting benefits such as discounts on interest, fines, and charges, extended installment plans (up to 120 months), and even the possibility of using federal tax credits to settle the debts.
The success of the federal tax transaction programs prompted states and municipalities to view the mechanism differently and to begin writing legislation to facilitate agreements between taxpayers and tax authorities.
An important example of this is the state of São Paulo, which, despite having its tax transaction legislation in effect since 2020, is seeking to enhance the mechanism through new Bill of Law No. 1245/2023, which includes provisions similar to those of the federal tax transaction.
Therefore, if the bill is approved, taxpayers in São Paulo will have the opportunity to negotiate their debts, especially regarding ICMS (a state Value-Added Tax on goods and services), through the granting of discounts, extended installment plans, debt settlement with ICMS (VAT) credits, and ICMS-ST[1] reimbursement, among other benefits.
The modernization and growth of the tax transaction mechanism in Brazil represent significant advances in the economic landscape as, in addition to increasing debt collection, these agreements also enable the continuity of businesses and job creation.
Companies that would not be able to regularize their debts under normal conditions now have the opportunity to negotiate them under special terms tailored to their needs, thus keeping their operations active and their debts in good standing before tax authorities.
[1] ICMS-ST means that the entire tax amount is paid by the manufacturer, and intermediate businesses are neither debited nor credited for ICMS (VAT style tax on goods). The final price paid by the consumer must be predetermined.”