The Brazilian litigation system allows the litigation of taxes in two separate spheres of judging bodies: the administrative and the judicial systems.

These litigation systems are seen as two different and subsequent layers of litigation and overlapping discussions cannot take place. When the taxpayer elects to dispute a tax matter in the judicial sphere, such action implies the renunciation of the right to have a due process in the administrative sphere.

In general, taxpayers prefer to exercise their defense rights first in the administrative sphere and later in the judicial sphere, in case the outcome of the administrative process is unfavourable.

With respect to corporate income taxes, the administrative litigation follows a sophisticated system of three levels of judging bodies. The first level consists of a review by the Brazilian Federal Revenue Service Judgment Delegates. If the decision of such body dismisses the presented defense, the taxpayer can appeal to the Administrative Council of Tax Appeals (“Conselho Administrativo de Recursos Fiscais” or CARF) and follow on to a third level court, namely the Superior Chamber of Tax Appeals (“Câmara Superior de Recursos Fiscais” or CSRF), for a review of the second level court in distinguished cases.

Appealing to the CARF and the CSRF has been important to ensure taxpayers' rights, as such bodies are generally more technically prepared to deal with tax matters.

Two important practical aspects of the administrative litigation process are that the taxpayer is not required to post deposits or guarantees of any kind and the tax charges are automatically suspended pending the conclusion of the process.

In contrast, litigation in the judicial sphere does not bring about these advantages. Quite the opposite, in the judicial litigation sphere, a judicial injunction must be obtained or the amounts under discussion must be secured to ensure the suspension of the tax charges. Such suspension is “of the essence” to ensure that taxpayers obtain clearance certificates required for many transactions, such as obtaining funding, registering resolutions regarding corporate reorganizations with the relevant commercial or civil registries, and entering into contracts with governmental entities and even some private companies.

As regards tax foreclosures, the taxpayer must deposit the amounts under dispute or guarantee the payment thereof as provided by the law, to be able to file its defense. Appeals to the competent second instance and higher courts can be filed against the decision regarding the taxpayer’s defense.

In this sense, the litigation in the judicial system can also be pursued up to three levels of courts, with the third level split between:

A court that rules on matters involving sub constitutional matters, namely the Superior Court of Justice (“Superior Tribunal de Justiça” or STJ), which is responsible for the uniform application of laws, tax treaties and regulations in general; and

A court that rules on matters involving constitutional matters, namely the Federal Supreme Court (“Supremo Tribunal Federal” or STF), which is responsible for the uniform application of the Brazilian Constitution.

In view of the great level of tax content expressed in the Brazilian Constitution, it is fairly common that tax cases end up reaching all possible level of litigation (including the STF).

Tax litigation levels are high in Brazil and the time length of administrative and judicial procedures is long, although legislative changes have been passed in the prior years to seek uniformity in the decisions, reduce the number of appeals and expedite such litigation procedures.

Generally, it takes no less than five or six years for taxpayers or tax representatives to obtain a final administrative decision, which may be overruled by Brazilian Courts if unfavorable to the taxpayer.

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