In an unprecedented decision, the Superior Chamber of the CARF ruled out the imposition of a punitive fine of 150% on the debt amount in the case of a company assessed for the undue use of goodwill in corporate transactions.

The case arose from a corporate transaction in which a foreign investor set up a vehicle company only to record the goodwill in Brazil related to the acquisition of ownership interest, and, later, amortize such goodwill from the payment of IRPJ and CSLL.

The 150% fine was imposed by the Federal Revenue based on the understanding that the corporate transaction with the vehicle company could be considered as a simulation, a fraud, and a part of a tax evasion planning. The main factor analyzed by the tax authorities was the absence of a business purpose since the vehicle company was incorporated for the sole purpose of amortizing the goodwill.

However, although the taxpayer lost the argument regarding the legality of the goodwill, it was successful in canceling the qualified fine of 150%, which was reduced to the regular fine of 75%.

The winning understanding was that there was no intention of defrauding the tax authorities. The reporting councilor recalled that at the time of the facts there was oscillating jurisprudence on the legality of the vehicle company to record the goodwill. There was, therefore, a mere divergence in the interpretation of the tax rule. Thus, the CARF took the position that only by demonstrating the lack of business purpose, it would not be possible to characterize the malice of fraud in this case and, therefore, the penalty would not be qualified.