Administrative tax process.
Challenge, voluntary appeal and special appeal — before the courts.

Nature, foundations and principles

The PAF as an administrative dispute

The administrative tax process is the administrative avenue for disputing a tax assessment. It differs from court proceedings: it is conducted by Tax Administration officials, with a scope of review limited to the legality of the assessment. It does not rule on the abstract constitutionality of a rule — only on whether the assessment was made in accordance with the law in force.

Legal basis

• Federal Constitution, art. 5, LV — adversarial proceedings and full defense in administrative proceedings
• Decree 70.235/1972 — the main regime of the federal PAF
• National Tax Code, art. 151, III — the challenge suspends the enforceability of the tax credit
• Law 9.784/1999 — general rules of administrative procedure (applied subsidiarily)

Applicable principles

• Due process of law — the right to information and defense before any harmful act
• Adversarial proceedings and full defense — all of the Treasury’s allegations may be rebutted, with the production of evidence
• Material truth — the adjudicator seeks the reality of the facts, and may order inquiries ex officio
• Officiality — the procedure is driven by the Administration; the taxpayer bears the burden of proving its allegations
• Informality in favor of the taxpayer — procedural defects do not prejudice the taxpayer if they do not compromise the defense

The three instances of the federal PAF

1st instance — DRJ (Federal Revenue Adjudication Office)

The DRJ is the single-judge/panel body of the first administrative instance. It is composed of Federal Revenue Tax Auditors designated for adjudication. It examines challenges filed by taxpayers against notices of infraction and notices of assessment.

Characteristics:

• Adjudication by collegiate panels as a rule (with a president + reporting member + reviewer)
• Full scope of review over facts and law, within the limits of the assessment
• Admits the production of evidence (documentary, expert, occasionally testimonial)
• A reasoned ruling — the DRJ decision
• A decision favorable to the taxpayer: subject to an ex-officio appeal to CARF when it exceeds the legal threshold (currently BRL 15 million — Ministry of Finance Ordinance 63/2017)
• An unfavorable decision: the taxpayer has 30 days to file a Voluntary Appeal to CARF

2nd instance — CARF (Administrative Council of Tax Appeals)

CARF is a federal parity court — 50% members from the Treasury + 50% representatives of taxpayers (nominated by trade associations). It is organized into specialized chambers (PIS/COFINS, IRPJ/CSLL, IPI, social security contributions, ITR).

Characteristics:

• Parity composition — guarantees a technical vote from both sides
• Admits oral argument by the defender in an in-person or virtual session (15 minutes)
• The possibility of submitting new documents when they rebut a fact arising after the challenge
• A decision favorable to the taxpayer by unanimity: final in the administrative sphere (no special appeal lies)
• A decision by majority or tie: opens the possibility of a Special Appeal by the parties (the Treasury or the taxpayer)

3rd instance — CSRF (Higher Chamber of Tax Appeals)

The CSRF is the final administrative instance. It examines Special Appeals where there is a divergence in case law among CARF chambers — the harmonization of interpretation. It does not reopen the analysis of facts; it is restricted to the controversial question of law.

Characteristics:

• Composition is also parity-based
• A final decision in the administrative sphere — administrative res judicata
• A decision favorable to the taxpayer: extinguishes the assessment
• An unfavorable decision: the taxpayer may still appeal to the Judiciary (Federal Constitution, art. 5, XXXV — the inseverability of jurisdiction)

Deadlines and suspension of enforceability

Standard 30-day deadline

In all instances of the federal PAF, the defense/appeal deadline is 30 days:

• Challenge to the DRJ — 30 days from notification of the notice of infraction or notice of assessment (art. 15 of Decree 70.235/1972)
• Voluntary Appeal to CARF — 30 days from notification of the unfavorable DRJ decision (art. 33 of Decree 70.235/1972)
• Special Appeal to the CSRF — 15 days from notification of the CARF decision (art. 67 of CARF’s Internal Rules, Ministry of Finance Ordinance 343/2015)

Suspension of enforceability — National Tax Code, art. 151, III

Filing the challenge suspends the enforceability of the tax credit. Effects:

• A bar on registration in the Active Debt roll
• A bar on filing a tax foreclosure
• The possibility of issuing a Positive Certificate with Negative Effect (CPEN, art. 206 of the National Tax Code)
• Maintenance of tax compliance during the course of the PAF

The suspension is maintained throughout the entire administrative proceeding until the final decision becomes final and unappealable — generally 3-7 years, depending on complexity and docket congestion.

The casting vote and Law 14.689/2023

History of the casting vote at CARF

• Until April 2020 — in a tied vote, the casting vote belonged to the Panel President (always from the Treasury)
• April 2020 to June 2023 — Law 13.988/2020 (art. 28) abolished the casting vote; in a tie, the pro-taxpayer vote prevailed
• After Law 14.689/2023 — the casting vote was restored to the Panel President (it again favors the Treasury in a tie)

The counterpart of Law 14.689/2023

When the decision is favorable to the Treasury by the casting vote, Law 14.689/2023 establishes a counterpart for the taxpayer:

• Payment without an ex-officio penalty and without a legal charge — under specific conditions, the taxpayer may settle the debt with only the original tax + interest
• Court dispute preserving the benefit — should the taxpayer choose to dispute the matter in court, the advantage of payment without a penalty is not lost; if it wins in court, it avoids payment; if it loses, it pays only tax + interest
• No loss-of-suit fees in court in this scenario

Strategic implication

The choice between accepting defeat at CARF by the casting vote (paying tax + interest without a penalty) and going to court has become a financial decision: comparing the cost of immediate payment with the probability × time × cost of court litigation. In cases of a thesis grounded in recent pro-taxpayer STF/STJ precedent, going to court is still worthwhile. In cases with consolidated unfavorable precedent, payment without a penalty can be efficient.

Technical challenge strategy

The challenge to the DRJ is the most important defense filing of the PAF — it sets the limits of the dispute for all subsequent instances. Critical points:

1. Technical analysis of the notice of infraction

Before drafting the challenge, a thorough analysis of the notice:

• Formal compliance — all of the requirements of art. 10 of Decree 70.235/1972?
• Correct identification of the taxable person and the tax?
• A clear description of the taxable event?
• An itemized and auditable calculation memorandum?
• Correct imputation of the penalty and interest?

2. Mapping the defensive theses

Identification of ALL the matters that can be raised — procedural (nullities) and material (extinction or unenforceability of the credit). Each thesis grounded in the National Tax Code, the applicable tax legislation and consolidated case law.

3. Evidence strategy

Unlike a writ of mandamus, the challenge to the DRJ admits the production of evidence: documentary, expert, occasionally testimonial. In cases of a calculation discrepancy, an accounting expert examination is frequently decisive. The request for an expert examination must be substantiated in the challenge.

4. Logical articulation of the theses

The order of the matters: first procedural nullities (simpler to have accepted), then lapse and prescription (which extinguish the credit without reaching the merits), and lastly the merits themselves. Each matter with an autonomous foundation — not dependent on one another.

5. Preservation of matters for the higher instances

Any matter not included in the challenge to the DRJ is, as a rule, precluded in the higher instances (CARF and CSRF) — except for matters of public order (lapse, absolute nullity). For this reason the challenge must be exhaustive: raising every thesis, even subsidiary ones.

Oral argument at CARF — a strategic differentiator

CARF admits oral argument in an in-person or virtual session — limited to 15 minutes. In complex cases or those involving a contested thesis, the argument is a material part of the strategy.

What oral argument adds

• New or re-articulated arguments that were not in the written appeal
• Clarifications of the members’ doubts — a direct dialogue
• A demonstration of errors in the decision under appeal by CARF
• A connection with recent precedents (STF, STJ, CARF itself) — especially those subsequent to the filing of the appeal

Why a senior consultant should give the argument

Oral argument is the moment of maximum exposure of the thesis. There are questions from the members — frequently technical, about a calculation or about a fine interpretation of a rule. A senior consultant has the technical depth and the authority to respond on the spot. A junior professional may master the case documentarily but lacks the technical grounding for a free dialogue with the members — frequently perceived by the panel, with an impact on the vote.

Prior preparation

Effective argument requires preparation:

• A study of the decision under appeal — identification of the points to rebut directly
• An analysis of the panel’s composition — the profile of the reporting and reviewing members
• A summary of the 3-5 central points of the defense in order of impact
• Preparation for frequent questions (calculation, precedents, the taxable event)

Integration between the administrative and judicial spheres

An unfavorable administrative decision does not prevent a court dispute. The taxpayer may take the controversy to the Judiciary at any stage — before, during or after the PAF — provided the credit has been constituted.

When to go to court

• Before the challenge — in cases of a thesis with favorable binding STF/STJ precedent, it is worthwhile to file a writ of mandamus immediately, without awaiting the administrative outcome (which may take 3-7 years)
• During the PAF — in urgent cases (a refusal of a tax-clearance certificate, an operational impediment), the court action runs in parallel. Note: the choice of the judicial route may imply a waiver of the administrative one (art. 38, sole paragraph, of Law 6.830/1980 — debatable in current case law)
• After the final administrative decision — defeat at the CSRF does not prevent a court dispute; an annulment action, a declaratory action or a subsequent Defense to Tax Foreclosure is available

Strategic precautions

• Maintaining argumentative congruence between the PAF and the court action — contradictory arguments weaken both proceedings
• Tracking parallel deadlines: 30 administrative days × the 120 days of the writ of mandamus × the 5 years of the National Tax Code
• Verifying the tax and accounting implications (deposit, guarantee, suspension) in each scenario
• Considering a tax settlement in parallel where applicable

How the firm works on a PAF

The TaxUp model in administrative tax proceedings follows five stages:

1. Analysis of the notice of infraction and modeling of theses — a technical diagnosis of the assessment, identification of all the defensible matters (procedural and material), modeling of the probability of success by instance and an estimate of the total timeframe.
2. Technical drafting of the challenge to the DRJ — an exhaustive filing, articulating every thesis, grounded in the National Tax Code, the applicable legislation and consolidated case law. A request for the production of evidence where necessary.
3. Monitoring at the DRJ — submissions on inquiries, counter-evidence, any accounting expert examination. A strategy aimed at obtaining the best possible decision at the first instance — the basis for the higher instances.
4. Voluntary Appeal to CARF — in the event of defeat at the DRJ, a substantiated technical appeal, with a request for oral argument. The argument is given by the senior consultant who conducted the case from the challenge onward — with no rotation of professional.
5. Special Appeal to the CSRF — where there is a divergence in case law and the matter is relevant. In parallel, planning of the judicial phase (a writ of mandamus, an annulment action or a possible settlement offer).

The fee model combines a fixed portion per instance and a variable portion tied to success. In high-value PAFs (≥ BRL 10 million), the model is entirely a success fee in cases of a solid thesis. With no rotation of professional — the senior consultant conducts the case from the first challenge through to any final decision at the STF.