How Liability Management Can Give Tax Enforcement Proceedings Some Breathing Room?

The situation is as follows: A company with no future, accumulated taxes, and the partners’ assets potentially at risk. What alternatives are available to preserve the separation between the partner’s assets and the company’s assets?

At the outset, it is important to understand that as long as the company has not been closed, in principle, the company’s assets alone are liable for its tax debts.

However, if there is an irregular closure of the company, acts of mismanagement that constitute an abuse of authority or a violation of the law, commingling of assets, misuse of corporate purpose, or failure to pay in the share capital, the partners’ assets—especially those of the administrator—will be at risk.

What measures should be taken to prevent the partner’s assets from being exposed?

1. Never Close the Company Irregularly

It may seem obvious to say this, but the irregular closure of the company causes the legal entity’s debts to be attributed to the individual, through a request to be filed in the Tax Enforcement Proceedings. There is also consolidated case law from the Superior Court of Justice to this effect.

Therefore, the first step is never to close a company. Before doing so, it is possible to change its business activity, its address, and readapt it to the factual situation in which it finds itself, until it can settle or manage its debts.

2. Closely Monitor All Tax Enforcement Proceedings

Even if you have not been served, it is important to have specialized legal support to monitor these Tax Enforcement Proceedings, with periodic access to ensure that there will be no surprises.

Even if formal service has not occurred, service may take place by publication and, if no one is monitoring the case, the company’s accounts—and even the partners’ accounts—may be blocked.

Monitoring is the first step toward understanding the risks and managing any unexpected developments.

3. Analyze Irregularities in the Tax Enforcement Proceedings

Recently, a client of the firm owed more than R$950,000 in property tax (IPTU) on two properties, and the debts had been filed in 13 Tax Enforcement Proceedings. However, there were illegalities that eliminated more than R$700,000, due to an error in identifying the liable party and in issuing the Certificate of Active Debt (CDA), which consequently resulted in the expiration of the limitation period, meaning that debts more than five years old, totaling approximately R$180,000, could no longer be collected, with fines and interest removed.

The analysis of Tax Enforcement Proceedings must consider all tax assessments, the CDAs, and all legal implications of collecting those debts. Once a weakness is identified, it is necessary to act and, depending on the circumstances, file a Pre-Enforcement Objection.

4. Analyze Whether There Is an Intercurrent Limitation Period

The Intercurrent Limitation Period is the period during which Tax Enforcement Proceedings may remain pending without producing results. It is counted from the first attempt to serve the debtor, taking into account the suspension of the proceeding for one year (art. 40 of the Tax Enforcement Proceedings Law), plus the five-year limitation period. Therefore, after six years without locating the debtor, an intercurrent limitation period may have arisen and the debt may no longer be owed.

BE CAREFUL! There are legal interpretations involving certain events that interrupt the limitation period and certain situations in which it cannot arise, such as when the cause of the delay is attributable to the judiciary itself. Therefore, any claim of an intercurrent limitation period must be precise and meticulous.

5. Present Defenses

Whether through Tax Enforcement Embargos or a Pre-Enforcement Objection, it is essential to present these defenses in order to ensure, above all, fairness in the Tax Enforcement Proceedings.

In addition, these defenses cause the proceeding to continue for a longer period.

6. Analyze Tax Settlement

It is also possible to resolve the debts through a Tax Settlement, in which, depending on your Payment Capacity (CAPAG), reductions of up to 100% of fines and interest may be available, as well as special conditions for longer payment plans.

CAPAG is a data point assigned by the Federal Revenue Service of Brazil that establishes a company’s liquidity status. However, it is possible to request a Review of Payment Capacity and change this status to one that provides a greater discount and a longer payment plan.

Liability management is an important ally for taxpayers who find themselves threatened by Tax Enforcement Proceedings. Attention to this management may determine whether the partner’s assets remain financially healthy or not.