Criminalization of the non-payment of value-added tax on sales and services (ICMS)

Last Thursday (12/12/19), the Federal Supreme Court, by 6 votes to 3, formed majority to consider a crime when ICMS is regularly declared to the tax authorities and not payed.

The case refers to a complaint filed by the Public Prosecutors of Santa Catarina, charging for tax misappropriation the conduct of the owners of a clothing store who did not collect the ICMS amount declared to the tax authorities.

Tax misappropriation is the conduct of “failing to collect, within the legal timeframe, tax or social contribution amounts, discounted or collected, as a person who has the legal obligation to collect it to the treasury”.

The prevailing understanding until now considered that the terms “discounted or charged” referred to those situations in which the debtor “by right” was not the same as the debtor “in practice”, such as when there is tax substitution.

However, on August 31, 2018, in the case of Santa Catarina, the Superior Court of Justice (STJ) reviewed its jurisprudence to consider that the non-payment of ICMS on account for the company’s own operations, constitutes the crime of tax misappropriation, even if the ICMS was correctly recorded and declared to the tax authorities.

The Court used the theory of the economic repercussion of indirect taxation, according to which the costumer bears the financial burden of the tax. Also, the Justices eliminated the “fraud” requirement to configure a crime but stressed, on the other hand,  that it is essential to demonstrate that the offense was committed intentionally, that is, the agent deliberately didn’t pass on the taxes to the authorities. Absent the intent, this shall be considered a tax offense, not a criminal one.

The case has reached the Federal Supreme Court which, seemingly, will also adopt this new understanding.

It should be noted the news is being received with lots of criticism. For many criminal and tributary specialists, the Supreme Court surrendered to moral and economic rather than legal arguments. In short, specialists say that if the taxpayer recognizes the debt to the tax authorities but fails to repay it, there is a mere default, not a crime. Many consider that the new jurisprudence uses criminal law as an instrument of state coercion in tax collection.

According to Fampesc projections, in Santa Catarina and São Paulo alone, 200,000 may be affected by the new jurisprudence. Across Brazil, it is estimated that the decision will impact 1 million defaulting taxpayers.