Prior Deposit Requirement Unconstitutional. By a 9 to 1 vote, the Brazilian Supreme Court has finally deemed unconstitutional a legal requirement whereby any taxpayer would have to post a cash deposit equivalent to 30% of any tax assessment in order for its claim against the assessment to be accepted at an appeal level.

The socalled “prior deposit” represented an unacceptable obstacle to the detriment of taxpayers’ rights to due process in the tax administration level.

The Court’s decision rendered unconstitutional paragraphs 1 and 2 of article 126 of Law 8.213/91, as amended by Law 9.639/98.

Consequences of the Decision:

A first consequence: the Government may no longer claim that the legal requirement for such prior deposits remains valid.

A second consequence is in the effects of this Court’s decision on all those cases where the taxpayer timed filed his, hers or its appeal against an administrative decision sustaining the tax assessment, but did not make the prior deposit for the appeal to be accepted.

In view of the fact that the taxpayer may have filed a timely appeal to the tax administration,  any claim by the Government that it would have a lawful tax credit against the taxpayer could and can be disputed as the case arises.

Suits filed by the Government to collect such “tax credits” against the taxpayer may be confronted on the grounds that the intended credit is not a valid tax credit because of violation of due process at the administration level.

In all actions taken on behalf of its clients, Prado Garcia Advogados has always sustained that the prior deposit requirement could not be accepted under the Brazilian Constitution which expressly adopts the  due process of law principle as a constitutional guarantee.

Brazilian exporters are legally entitled to use or to transfer the State ICMS tax which is excluded from their exports to foreign countries. This right is granted by Complementary Law 87/96, known as Law Kandir.

The amounts corresponding to the ICMS tax exclusion may be assigned to other ICMS taxpayers and may also be used as currency for payment to suppliers.  

The purpose of the law is to relieve exports from local taxes and help Brazilian exporters to compete abroad.

However, Brazilian exporters may end up with more ICMS tax credits than they may use internally in offsetting their ICMS tax debts deriving from sales in the local Brazilian market.

As these credits are equivalent to cash, they would be entitled to assign and transfer their credit rights to other ICMS taxpayers. However, some State Governments raise obstacles to the use or to the assignment and transfer of such ICMS tax credits. One of such obstacles is the imposition of a time schedule for the use of the credits rather than accepting its immediate use.  

As Law Kandir is in a higher constitutional level as compared to an ordinary law, the State laws restricting the implementation of the tax credit use or transfer are not valid.

This is why Prado Garcia Advogados recommends its clients to seek the judicial remedies in order to overcome such illegal restrictions. Mere pleas to the State administration would be useless under such circumstances.

By a vote of 6 to 4 of its eleven judges, the Supreme Court in Brasilia ruled to confirm a previous 2004 decision of a now retired member of the Court against the Federal Government. The Government had asked the Court to overule a Superior Court of Justice judgement which recognized a tax exemption that the Government sustains to have been revoked.

The tax exemption was granted by Complementary Law 70/91 involving the federal tax named COFINS for professional service companies.

This confirmation represents a defeat to the Government in its attempts to overule the Superior Court of Justice decisions on the matter, and it will represent an additional burden for the Government in its efforts to submit the issue to the Supreme Court from a constitutional angle.

The Government sustains that the tax exemption granted by Complementary Law 70/91 was revoked by the Ordinary Law 9.430/96, on the grounds that the former one was materially an ordinary law.   

Prado Garcia Advogados – Lawyers and Consultants point our, however, that an option made by the Brazilian Congress to adopt a Complementary Law where an ordinary would suffice is a political decision protected by the checks and balances principles under the Brazilian Constitution, among other grounds.

A Federal Judge in the Federal Regional Court for the First Region (TRF- 1ª Região) in Brasilia issued an order by request of a company headquartered in the State of Minas Gerais, allowing it not to include a state tax (ICMS) on the tax basis of two federal taxes, namely COFINS and PIS. The merits of the case shall be addressed by the other members of the same group of federal judges in the Court.

As informed by the TRF-1 press section, the company (in the textile business) filed a suit requesting a preliminary decision in order to avoid paying COFINS and PIS taxes on the amounts of the State tax. The  trial judge denied the request, thereby motivating a recourse to the Federal Court, where its plea was then granted.

The Court judge, Maria do Carmo Cardoso, who granted the order, stated that the case demanded an urgent decision in view of the fact that the operational activities of the company would be impaired if it had to go on paying the federal taxes as they have been assessed. The order would, in addition, prevent the company from being submitted to the legal penalties.

A similar case is pending in the Supreme Court in Brasilia, on the grounds that the inclusion of the State tax (ICMS) on the tax basis of PIS and COFINS is a violation of Article 195, I of the Brazilian Constitution. These two federal taxes would have constitutional permission to charge solely the amount of the sales of merchandise and services invoiced by the taxpayer, but not a tax value which represents a State revenue. 

The Court decision favors solely the party seeking for Court relief. Any other company interested in pursuing the same rights would have to file its own suit. Claiming tax credits for the past five years is also advisable and a legal right for any taxpayer submitted to illegal or unconstitutional tax levies.

The precedent is the “Agravo de Instrumento 2007.01.00.000928-4”

The IPI tax increase of 30 percentage points adopted by the Brazilian government this September of 2011 for some imported vehicles is utterly unconstitutional.

The IPI tax is based on two principles: selectivity and essentiality. Discrimination is not allowed on the basis of origin of the product.

Importers and their customers in Brazil are therefore entitled to file a writ of mandamus against such tax increase. The judge must issue an order to clear the import from customs if the petitioner shall previously post a deposit corresponding to the amount of the tax increase. The deposit will revert to petioner upon a final and favorable grant of the the writ.

However, if you already have paid the tax increase on any such imports from abroad, you are nonetheless entitled to file a suit for recovery of the tax excess paid.

Dr. Claudia Barmann Bernard

Rechtsanwältin / I.      Introduction

Globalization and international trade as well as Brazils growing economy have increased companies’ activities in the country including the needs to enforce judgments or arbitral decisions awarded in their favor.

Foreign judgments can only be enforced or will have any other effects in Brazil after recognition by the Superior Federal Court (Superior Tribunal de Justiça). This procedure is called “Homologação de sentenças estrangeiras”.

          II.      Recognition of Foreign Judgments

Any kind of foreign judgment is recognized by the STJ, whether the decision is granting affirmative relief, altering a legal relationship or solely declaratory.

The characterization as a judgment is thereby determined according to Brazilian law independent of how a foreign decision is named by the issuing court. Thus, certain administrative or extrajudicial decisions that are rendered in accordance to the law of the country of origin must be recognized by the STJ prior to any enforcement proceedings or any other legal effects for being characterized as judgments by Brazilian legal standards.

On the other hand, any foreign extrajudicial enforceable titles that are equally considered as such by the Brazilian law do not depend on prior recognition to be enforced in Brazil.

Foreign arbitral awards are also subject to recognition by the STJ to be enforceable and to have any other legal effects in Brazil.

Please see under III.) for a detailed description of the requirements and procedures for the recognition of foreign arbitral awards.

The Brazilian Superior Federal Court (Superior Tribunal de Justiça – STJ) has recently decided that the jurisdiction of Brazilian courts can not be excluded in contracts executed in Brazil even if the contract contains a valid choice of venue and forum selection clause.

It should be noted that the Brazilian Supreme Court (Supremo Tribunal Federal – STF) generally recognizes the validity of contractual choice of venue and forum clauses.

According to the STJ’s recent ruling, a contractual choice of venue and forum clause will, however, only be valid if there was no disadvantage or damage to the defending party. In this case, the Court affirmed said disadvantage or damage because the choice of venue clause precluded jurisdiction of Brazilian courts and, consequently denied the Brazilian contracting party access to the Brazilian courts.

The court further ruled payments effected abroad irrelevant as long as the contract is effectively performed and executed in Brazil.

The Court’s decision stands in accordance with Brazilian law. Article 9 of the Introductory Law to the Brazilian Civil Code determines that any contractual choice of venue and forum clause in contracts determining jurisdiction of a foreign court constitute a violation of public policy if the contract is executed in Brazil.  When drafting a contract with Brazilian business partners, choice of venue and choice of forum clauses should be drafted with care to avoid potential problems in the future.

We at Prado Garcia Advogados have extensive experience in drafting national and international contracts. Should you require any further information or have any questions please do not hesitate to contact us at or by phone +55 11 3242 8799.

According to the Supreme Court ruling social security tax debt can only be claimed during a period of five years, not ten years as currently practiced by the administration.

In its Session on June 11, 2008, the Court declared articles 45 and 46 of the law nº 8.212/91 unconstitutional. Articles 45 and 46 established a time line for claiming social security contributions as well as a statutory period of limitation of ten years.

This ruling is binding for all lower courts. As a consequence, social security taxes will follow the standard five-year term.

Regarding the effects of the ruling, the court determined that social security taxes cannot be claimed by the administration using the ten-year term. This effect is valid for all taxpayers whether they filed a refund claim via administrative or judicial proceedings or not. It also applies to possible future claims of social security taxes.

Regarding a refund of social security tax payments assessed under the regulations now declared unconstitutional, the Court determines a more restrictive effect of unconstitutionality.

A refund of such social security taxes will only be granted to those taxpayers who have filed a refund claim through administrative or judicial proceedings no later than June 11, 2008, the date of the Courts decision. All other taxpayers who did not challenge assessed social security contributions or filed a refund claim after June 11, 2008, are not eligible for a refund.

We at Prado Garcia Advogados welcome the Supreme Court decision in favor of the taxpayers. However, it is our opinion that the restitution of unlawful assessed and paid taxes may only be limited under specific circumstances.

According to the Court ruling, taxpayers who did not file for a refund until the date of the Court decision, June 11, 2008, are not entitled to a refund.Instead of a refund the taxpayer may be entitled to offsetting against another tax debit balance. He may reduce or pay off debt deducting his credit from the debt.

Refund is the alternative for taxpayers who have a right to a credit and owe no tax debts to offset that amount against. Refund and offsetting are distinct legal figures.

In any case, Ministro Gilmar Mendes who delivered the opinion of the court extended the restrictive effects of unconstitutionality and rejects not only a refund but also the possibility of offsetting for all taxpayers who did not file for a refund until June 11, 2008.

Although the Supreme Court may stipulate restrictions on the effects of unconstitutionality, those restrictions may not violate individual taxpayers’ rights granted by the constitution, especially considering the constitutional legality principle according to which the judiciary may not legislate.

This latest Supreme Court decision shows the importance of challenging any unlawful and unconstitutional taxes and contributions, preserving personal rights and, consequently, enabling a possible refund.

After S&P upgraded Brazil’s credit rating to investment grade on April 30, Fitch Ratings followed on May 29 granting Brazil investment grade status. The upgrades by both agencies recognize the country’s fiscal stability and debt management policies and reflect, amongst other factors, economic growth and the governments control over inflation.

S&P raised the country’s long-term foreign currency sovereign debt rating from BB+ to BBB-, while the long-term local currency sovereign credit was upgraded from BBB to BBB+. In addition, the agency upgraded the rating of ten Brazilian entities. The banks Bradesco, Itau and Itau BBA, already at investment grade, were upgrated from BBB- to BBB. Furthermore, the banks Banco do Brasil, Unibanco, Santander Banespa, BNDES and Banco do Nordeste do Brasil as well as the energy company Eletrobrás were elevated to investment grade, passing from BB+ to BBB-.

Fitch Ratings on the other hand raised the country’s rating from BB+ to BBB-, passing from speculative grade to investment grade.

The upgrade to investment grade status will make Brazil more attractive to investors and result in an increasing capital inflow. A broader range of investors, especially more conservative investors, pensions funds etc, whose statutes require investment grades from one or more rating agencies, will now be able to invest in Brazil.

The investment grade may additionally lower risk premiums and funding costs for investments.

As mentioned above, the upgrade of Brazil’s rating to investment grade shows the country’s sucessful fiscal and economic policies. The economy is expected to maintain its growth rhythm at about 4.5%, following a 5.4% growth in 2007. Foreign direct investments reached 34.6 Billion U$ last year, a number expected to be matched in 2008. In January, Brazil became a net foreign creditor for the first time. For the future, the government has to continue its efforts to control public debt and government spending as well as rising inflation.

The third major rating agency, Moody’s Investors Service, rates Brazil currently at Ba1, one level below investment grade. However, an upgrade to investment grade is expected still for this year.

Our team at Prado Garcia Advogados has been assisting companies and investors for many years. For further information and assistance please do not hesitate to contact us at or by phone at +55 11 3242 8799.

The Brazilian Government has launched a new development program named Productive Development Policy (PDP).

PDP has three purposes: 

1.- To foster investments in 25 strategic sectors and to increase Brazilian  exports

2.- To stimulate development in the informatics and in the biotechnology industries

3.- To consolidate the Brazilian leadership in agribusiness, civil aviation and mining  

PDP points to four targets: 

1.- To yearly increase the investment levels from the present level of 450 billion Real (18% of the GDP) to 620 billion Real (21% of the GDP) until 2010

2.- To increase expenditures in technological research from 12 billion Real to 18.2 billion Real until 2010

3.- To raise the level of Brazilian exports from 1,18% to 1,25% of the world total

4.- To promote a 10% increase in the number of small and medium exporting companies  

PDP implementation is based on 5 instruments in order to reach its goals: 

1.- 210 billion Real in loans from BNDES (The Brazilian Bank for the National Economic and Social Development) to be granted until 2010

 2.- 21 billion Real in tax exemptions

3.- Increased maturity terms in BNDES loans and financing operations

4.- Reduction in labor costs for software exporting companies

 5.- Creation of a Brazilian Sovereign Fund

Private Investments

Despite the fact that the financing of the projects contemplated under PDP shall come from public funds, most of the investments therein foreseen shall be made by private companies and individuals.

Less Taxes and Less Bureaucracy

In addition to reduce tax levies, PDP relieves to some extent the bureaucracy in the exports sector.

 The Brazilian Sovereign Fund 

It is purported to render financial assistance to Brazilian companies going abroad.

The 25 sectors contemplated by PDP: 

The health industrial complex

Technology in the information and communication areas

Nuclear energy Industries devoted to national defense products



Automotive industry

Capital assets

Textile and clothing

Woods and furniture


Parfums and cosmetics

Civil construction

Service areas related to the naval and coastal shipping industries; leather, shoes and handcraft






Natural gas and petrochemical



Steel industry

Paper mills

Beef produces