The State of Rio de Janeiro has enacted Law 7,988, effective from June 14, 2018, in order to grant powers to its state tax auditors to reject operations or transactions performed by taxpayers who are suspects of intending to disguise tax-triggering events or the features of the tax liabilities during the course of tax audits.
Law 7,988/2018 was enacted to regulate the sole paragraph of Section 116 of the Brazilian National Tax Code which Brazilian courts have declared by decisions not self-applicable.
The most relevant taxes entitled to be collected by states in Brazil are VAT (the so-called ICMS) and the Tax on Inheritance and Donation of any property or right (ITCMD).
Law 7,988/2018 sets forth requirements that shall be fulfilled by state tax auditors to reject operations or transactions performed by taxpayers:
- the disregard must be written and justified by the state tax auditors and
- the taxpayer shall be notified to present clarifications and information within 30 days regarding the facts, causes, reasons and circumstances that support the operations and transactions accused of being disguised.
If the state tax auditors decide to disregard operations or transactions performed by taxpayers, they must (i) detail the elements considered as performed by the taxpayers with the intent to disguise tax-triggering events or the features of the tax liabilities and (ii) describe the acts and transactions to be taxed, citing applicable legislation.
Moreover, the state tax auditors shall present the impacts of the disguised tax triggering events or the features of the tax liabilities with the specification of taxes to be levied, calculation basis, applicable rates and legal accruals.
Taxpayers will have the right to present defenses and appeals against a tax assessment notice issued by the state tax auditors.
Law 7,988/2018 entered into force on June 15, 2018.
The issuance of Law 7,988/2018 strengthens the need for technical support to address tax audits, in order to highlight the business purposes of operations and transactions and to ensure that taxpayer rights are respected by the tax authority.
For more information please contact the author
Renato Lopes da Rocha
T +55 11 3077 3593
M +55 11 97269 2831
M +55 21 99610 1172
Av. Presidente Juscelino Kubitschek, 360 – 10º andar
Vila Nova Conceição – São Paulo, SP – Brasil 04543-000