Taxation: Statute of Limitations and Lapse Period, Extinction of Debt After the Limitation Period, and the (Im)possibility of Extrajudicial Collection

This article aims to analyze the effects of the passage of time on tax obligations and the courts’ understanding of the matter, as well as to verify the (im)possibility of debtors being charged extrajudicially in relation to time-barred tax debts, such as through protest, registration with credit protection services, and public debtor registries.

This topic is highly relevant for taxpayers, as they are often surprised by asset freezes and constraints due to tax debts that could no longer be judicially enforced, as they have already become time-barred. There are also situations in which taxpayers are compelled, through extrajudicial collection mechanisms, to regularize tax debts that are no longer enforceable due to the statute of limitations.

Thus, the purpose is to demonstrate the legal grounds supporting the conclusion that judicial and/or extrajudicial collection of time-barred tax debts is illegal and abusive, as well as to present the alternatives available to taxpayers who have paid such debts.

Pursuant to Article 3 of the Brazilian National Tax Code (“CTN”), a tax is any compulsory monetary payment, in currency or whose value can be expressed therein, that does not constitute a penalty for an unlawful act, established by law and collected through fully bound administrative activity.

The duty to pay a tax is assigned to the person who performs the factual event described by law as triggering the tax (taxable event¹) and is referred to as the principal tax obligation, as provided in §1 of Article 113 of the CTN². Taking the Motor Vehicle Property Tax (IPVA) as an example, whose taxable event is the ownership of a motor vehicle, the vehicle owner is responsible for paying the tax to the respective State.

The occurrence of the taxable event gives rise to the taxpayer’s obligation to pay the tax; however, by itself, it is not sufficient to authorize the competent public authority to collect it. For that purpose, the tax assessment is essential, understood as the administrative procedure aimed at verifying the occurrence of the taxable event, determining the taxable matter, calculating the amount due, identifying the taxpayer, and, if applicable, proposing the appropriate penalty (Article 142, CTN).

The assessment is relevant because it constitutes the tax credit and enables its collection. The existence or absence of a constituted tax credit determines whether the passage of time will give rise to lapse (decadence) or statute of limitations. Both institutes result in the extinction of the tax credit but follow different initial terms and legal frameworks.

Once the tax credit is constituted, it becomes possible to collect it. However, such collection must occur in a timely manner; otherwise, the credit will be extinguished by the statute of limitations.

Under Article 174 of the CTN, the Public Treasury has a period of five (5) years to file a lawsuit to collect the tax credit, under penalty of extinction of this right by limitation. The starting point of this period varies according to the type of tax assessment.

Regarding taxes subject to ex officio assessment, such as IPVA and IPTU, the Superior Court of Justice (“STJ”), in the judgments of Repetitive Theme No. 980 (Leading Cases REsp 1.658.517/PA and REsp 1.641.011/PA) and Repetitive Theme No. 903 (Leading Case REsp 1.320.825/RJ), settled the understanding that the five-year limitation period for judicial collection begins after the deadline established by local law for voluntary payment by the taxpayer.

Most taxes are subject to assessment by homologation, characterized by the prior payment by the taxpayer and subsequent express or tacit approval by the Public Treasury, pursuant to Article 150 of the CTN. In the judgment of Repetitive Theme No. 383 (Leading Case REsp 1.120.295/SP), the STJ established that, for such taxes where there is a prior declaration by the taxpayer (via DCTF, GIA, etc.), the limitation period is counted from the due date for payment of the declared obligation.

On the other hand, in cases where the taxpayer is required to assess the tax but fails to do so, the tax authority must carry out an ex officio assessment within the lapse period. In such cases, a Notice of Infraction/Assessment Notification will be issued to constitute the tax credit, and the taxpayer will be notified to present a defense. If no objection is filed, or if the defense is rejected, the tax credit will be definitively constituted, and the limitation period for its collection will begin.

Thus, the limitation period starts from these milestones and may be interrupted by any of the causes set forth in the sole paragraph of Article 174 of the CTN³. Interruption resets the limitation period.

Once the payment deadline has passed without payment, the Public Treasury will register the credit as active debt and initiate judicial collection through tax enforcement proceedings. The court order determining the service of process on the taxpayer interrupts the limitation period and, as a rule, produces retroactive effects to the date the lawsuit was filed, pursuant to §1 of Article 240 of the Code of Civil Procedure.

Judicial practice shows that tax enforcement actions are often filed and remain pending for years before the interruptive order is issued. Even in such cases, the service order interrupts the limitation period retroactively, in accordance with STJ Precedent No. 106, which states that delays in service attributable to the judicial system do not justify the recognition of limitation or lapse.

It is important to note that while tax enforcement proceedings are ongoing, the limitation period does not resume. However, there is another type of limitation that may occur during the course of the proceeding: intercurring limitation.

According to Article 40 of the Tax Enforcement Law and the theses established by the STJ in Repetitive Themes Nos. 566 to 571 (Leading Case REsp No. 1.340.553/RS), intercurring limitation occurs in two stages: (i) if the debtor is not located or no attachable assets are found, the court will notify the Public Treasury, initiating a one-year suspension of the proceeding; (ii) after this period, the case is archived, and a five-year intercurring limitation period begins.

Although it is common for the Public Treasury to repeatedly request additional time or investigative measures in unsuccessful enforcement actions, the STJ has ruled that such requests do not interrupt the intercurring limitation period, which is only interrupted by the effective location of the debtor or attachment of assets.

Therefore, if a total period of six (6) years elapses without locating the debtor or attachable assets, intercurring limitation will be recognized, and the tax enforcement proceeding must be dismissed.

It is important to emphasize that limitation—whether ordinary or intercurring—results in the extinction of the tax credit. Consequently, not only is judicial collection through enforcement proceedings no longer possible, but the Public Treasury is also barred from using extrajudicial collection mechanisms, such as protesting the Certificate of Active Debt or registering the taxpayer in public debtor registries.

Although the collection of time-barred tax credits is not permitted, taxpayers are sometimes misled and end up paying or entering into installment agreements for such debts.

It should be noted that, since limitation extinguishes the tax credit itself, the STJ has established that installment agreements do not reinstate the credit. In fact, the Court understands that “in tax matters, limitation is not subject to waiver by the debtor, as it extinguishes not only the right of action but also the tax credit itself, pursuant to Article 156, V, of the CTN; therefore, this Court’s case law holds that a waiver made for the purpose of entering into an installment plan is ineffective to allow the collection of a tax credit already time-barred” (AgInt no AREsp 312.384/RS, Reporting Justice Gurgel de Faria, First Panel, judged on June 8, 2017, published on August 8, 2017)⁴.

According to Article 165, I, of the CTN, the spontaneous payment of an undue tax grants the taxpayer the right to a full refund. Therefore, taxpayers who have paid time-barred tax debts may seek reimbursement, provided that they file the claim within five (5) years, under penalty of being barred by limitation as well.

CONCLUSION

In light of the foregoing, tax legislation does not allow tax obligations to persist indefinitely over time, establishing a maximum period of five (5) years both for the assessment of the tax and for its judicial and extrajudicial collection.

As demonstrated, the matter is complex, and the mere passage of five (5) years does not necessarily lead to the extinction of the tax credit. It is necessary to verify whether the credit was constituted through assessment and whether a tax enforcement action was filed. Even if lapse or ordinary limitation does not apply, taxpayers may still oppose collections affected by intercurring limitation. In any case, once the tax credit is extinguished, the Public Treasury is prevented from using any means of collection, whether judicial or extrajudicial.

In this context, taxpayers with outstanding tax liabilities should verify possible opportunities for recognition of extinction and/or lapse. Additionally, those who, in the last five (5) years, have paid or entered into installment agreements for potentially time-barred debts should assess the possibility of seeking reimbursement of amounts unduly paid.

The matter involves particularities that make it essential to rely on specialized legal assistance in order to avoid abuses by tax authorities and improper asset constraints.

The team at Fonseca Brasil Serrão Advogados is available to provide the necessary assistance to taxpayers.

NOTES

¹ Brazilian National Tax Code:
Article 114. The taxable event of the principal obligation is the situation defined by law as necessary and sufficient for its occurrence.

² Article 113. A tax obligation may be principal or ancillary.
§1. The principal obligation arises from the occurrence of the taxable event, has as its object the payment of a tax or monetary penalty, and is extinguished together with the tax credit arising therefrom.

³ Brazilian National Tax Code:
Article 174. The action for collection of the tax credit is time-barred after five years, counted from the date of its final constitution.
Sole paragraph. Limitation is interrupted:
I – by the judge’s order for service of process in tax enforcement proceedings;
II - by judicial or extrajudicial protest;
III - by any judicial act that constitutes the debtor in default;
IV - by any unequivocal act, even extrajudicial, that implies acknowledgment of the debt by the debtor.

⁴ REsp No. 1.699.079/RJ, Reporting Justice Herman Benjamin, Second Panel, judged on December 7, 2017, published on December 19, 2017.

AUTHORS

Eduardo Brasil
Vinícius Moraes
Eduarda Borges