BRAZIL Trends and Developments Contributed by: Raquel Novais, Marco Behrndt, Daniella Zagari and Clara Gomes, Machado Meyer
Jurisdiction over disputes involving the IBS and CBS A central procedural issue in the next cycle of tax liti - gation concerns the definition of judicial jurisdiction in disputes involving the CBS and IBS, particularly in light of Brazil’s dual judicial system. As a rule, dis - putes involving federal taxes fall within the jurisdic - tion of the Federal Courts, while state and local tax disputes are heard by State Courts. Under the new framework, CBS-related controversies implemented at federal level tend to fall within Federal Court juris - diction. IBS-related disputes, despite the tax’s shared governance structure, may fall within State Court juris - diction. This dual allocation creates a structural risk of fragmentation, particularly because the IBS and CBS are designed to follow harmonised substantive rules. This jurisdictional divide is further complicated by the institutional role of public entities. The Office of the Attorney General of the National Treasury ( Procura- doria - Geral da Fazenda Nacional – PGFN) represents the Federal Government in CBS-related disputes before the Federal Courts, while state and municipal attorneys’ offices act in IBS disputes before State Courts. The coexistence of multiple authorities, with distinct litigation strategies and institutional incen - tives, increases the likelihood of divergent interpreta - tions and inconsistent case law on materially identical issues, including taxable basis, crediting mechanisms, immunities, and special regimes. There are currently multiple legislative proposals aimed at defining jurisdictional boundaries and clari - fying the role and co-ordination of the different public attorneys’ offices. These initiatives seek to reduce fragmentation and enhance legal certainty. The issue, however, remains highly sensitive, as it directly affects the constitutional allocation of powers, the autonomy of federal and subnational entities, and the institu- tional prerogatives of public advocacy bodies. Ensur - ing coherence across jurisdictions, alignment among public authorities, and effective co-ordination between judicial and administrative bodies will be essential to prevent conflicting rulings, reduce legal uncertainty, and avoid a further increase in litigation under the new tax system.
mechanisms will be essential to mitigate uncertainty and prevent a further increase in litigation. Arbitration Arbitration in tax matters has emerged as a relevant topic in Brazil, particularly in light of legislative initia - tives aimed at expanding dispute resolution mecha - nisms. The discussion has gained traction due to the increasing complexity and volume of tax litigation and the need for more efficient and specialised adjudica - tion. Recent bills have sought to introduce or regu - late arbitration in tax disputes, especially in matters involving factual disputes, valuation issues, and highly technical questions. Among them, Bill No 4,257/2019 stands out, proposing the use of arbitration for federal tax controversies after the exhaustion of administra - tive proceedings, subject to specific eligibility criteria and procedural safeguards. Other initiatives, such as Bill No 3,667/2021, also consider arbitration in tax- enforcement contexts, particularly for disputes over guarantees and asset valuation. These proposals generally emphasise that arbitration would be optional and limited in scope, while preserv - ing core tax-law principles such as legality, publicity, and the non-waivability of tax credits. At the same time, they seek to introduce greater efficiency, techni - cal expertise, and predictability into the resolution of complex disputes, particularly those involving large taxpayers and high-value assessments. Key points of debate include the extent to which tax matters are arbitrable under Brazilian law, given the public-law nature of tax obligations, as well as concerns regarding transparency, consistency of decisions, and potential asymmetries between taxpayers. There are also dis - cussions regarding the interaction between arbitration and existing judicial and administrative mechanisms, including the role of precedents and the enforceability of arbitral awards in tax matters. Although arbitration in tax disputes is not yet fully implemented at the federal level, these legislative developments indicate growing openness to alter - native dispute resolution mechanisms. Arbitration is therefore expected to play an increasingly important role if regulatory frameworks evolve in a manner that reconciles efficiency gains with the constitutional prin - ciples governing taxation.
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