Initial Lawsuits Over Tax Reform Indicate Lower Financial Stakes

Early legal actions regarding Brazil's tax reform show a shift toward disputes focused on specific sectors rather than the broad, multi billion dollar legal theories that previously affected most large companies. According to data from the jurisprudential analysis platform Turivius, current discussions are concentrated on areas such as delivery platforms, health cooperatives, foreign trade operations, and free trade zones. This trend suggests a reduction in the overall value in dispute and a lower impact on government revenue.

Companies are currently attempting to apply certain new reform rules to existing taxes to reduce penalties and costs, citing the principle of beneficial retroactivity. One example includes a CARF decision to eliminate a 1 percent regulatory fine for fiscal classification errors. However, other attempts have failed, such as delivery platforms trying to exclude app fees from certain tax bases and a company in the free trade zones of Macapá and Santana seeking retroactivity on PIS/Cofins exemptions.

A 2023 study by Insper's Taxation Research Center estimated that the new system could resolve at least 95 percent of disputes involving consumption taxes. Researchers noted that while the reform eliminates many broad disputes, the creation of various differentiated treatments by Congress is likely to generate new, albeit smaller, sectoral litigations. Danilo Limoeiro, CEO of Turivius, noted that while the current trend is positive, it is too early to determine if judicialization will drop to OECD levels, where litigation typically stays below 1 percent of GDP compared to Brazil's nearly 75 percent. The study also highlighted a trend toward the federalization of lawsuits due to the centralization of federal, state, and municipal tax rules into a single piece of legislation.