How the Internal Revenue Service's decision affects Simples Nacional companies by disregarding international treaties to avoid double taxation.
Recently, the Federal Revenue Service drafted Consultation Solutions No. 219 and 220, in which it prevented the application of the Double Taxation Avoidance Conventions, taking into account the hierarchy of laws.[1] The Federal Revenue Service believes that the double taxation treaties have been internalised below the Federal Constitution as ordinary law.
For the Federal Revenue Service, as the treaties to avoid double taxation were internalised below the Federal Constitution as an ordinary law, their provisions cannot prevail over the Complementary Law that regulated Simples Nacional (Complementary Law 123/2006).
These Federal Revenue Service Consultation Solutions infringe not only the National Tax Code, but also the Federal Constitution itself, impacting several nomadic taxpayers and Brazilians living abroad who own companies under Simples Nacional.
First of all, it's worth explaining what the hierarchy of laws is so that we can then go into the violations themselves.
What is the hierarchy of laws?
The hierarchy of laws is nothing more than a descending order of types of laws and their force on the Brazilian legal system, which serves as a pillar for legal certainty.
Let's take a look at the hierarchical pyramid of laws:
As we can analyse in the pyramid, the rule at the top of the hierarchy is the Federal Constitution. Keep this information.
Violation of article 98 of the National Tax Code
The National Tax Code (CTN) - Law No. 5.172/66 - is the norm that regulates the general rules of tax law in Brazil.
The National Tax Code dates from 1966, before the advent of the current Federal Constitution of 1988. At the time it was approved, the National Tax Code was an ordinary law under the terms of the Constitution in force in 1966 (the 1946 Constitution).
However, the National Tax Code was accepted by the 1988 Federal Constitution as a Complementary Law. Therefore, the CTN is currently a Complementary Law. In other words, it is in the same hierarchy as the law that regulates Simples Nacional.
The National Tax Code (CTN) regulates the issue of International Treaties and Conventions, which it expressly states in its Article 98:
‘Art. 98. International treaties and conventions revoke or modify internal tax legislation, and shall be observed by that which may supervene upon them.’
In other words: international treaties and conventions are rules of a higher hierarchy than the country's domestic laws.
If both laws are in the same hierarchy and one speaks specifically about international treaties and conventions, which one applies? The National Tax Code.
As we will see in the next topic, these Consultation Solutions not only violate the CTN, but also the Federal Constitution.
Violation of art. 5, § 2 of the Federal Constitution
Among the constitutional violations, the most obvious is §2 of art. 5. I'll focus on this specific violation in this article so as not to make it too long.
Paragraph 2 of Article 5 reads as follows:
‘Paragraph 2 The rights and guarantees expressed in this Constitution do not exclude others arising from the regime and principles adopted by it, or from international treaties to which the Federative Republic of Brazil is a party.’
The International Conventions for the Avoidance of Double Taxation are a guarantee given to taxpayers that their income will not be double-taxed.
Consultation Solutions 129 and 220 infringe on the right of taxpayers registered with Simples Nacional to request the application of the Conventions to income earned abroad.
What's the solution?
For those who are harmed by the application of these Consultation Solutions, there is only one way: legalisation. It is through judicialisation that it will be possible to request the annulment of these Consultation Solutions with the appropriate legal arguments.
Therefore, those who run the risk of being harmed can (and should) seek qualified legal advice.
If you are interested in hiring professional legal services related to legal advice, we are a law firm specialising in the subject. To do so, please contact us by e-mail: contato@trpuppioadvocacia.com.br
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