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.