By: Guilherme Martins and Camila Dal Poz

On July 13, the 1st Panel of the Superior Chamber of the Administrative Council of Tax Appeals removed the 30% limit for the use of tax losses and the negative CSLL calculation basis in the fiscal year in which the legal entity is dissolved by incorporation. This is the first favorable decision for taxpayers within the scope of CARF, indicating the tendency to change the understanding previously prevalent before the aforementioned body.

The 30% limit, known as the “30% lock”, was the subject of heated discussions in Brazil’s higher courts. The STF, in the judgment of Extraordinary Appeals No. 344,944 and 591,340, ruled on the constitutionality of the 30%, and the understanding was followed by the STJ in the judgment of Special Appeals No. 1,805,925 and 1,925,025.

At CARF, however, the understanding of Counselor Alexandre Evaristo Pinto, the rapporteur of the case, prevailed. According to the Counselor, the limitation presupposes the continuity of the company, which allows the use of subsequent tax losses. Therefore, the restriction could not be applied to companies extinguished by incorporation. Furthermore, it was highlighted that even though the STF had ruled that the restriction was constitutional, several ministers made reservations stating that they were not referring to the application of the limit at the time of the incorporation of the legal entity by another company. This position was supported by Counselor Carlos Henrique de Oliveira, president of CARF, whose vote was of utmost importance for the judgment.

In this way, the decision, in addition to reinforcing the change in jurisprudence in the Administrative Council, may represent the restart of the discussion on the legality and constitutionality of the 30% blockade, as it decides contrary to the understandings previously issued by the STJ and the STF.

With collaboration from Davi Lima Matos.