Tax Settlement

the Extinguishing Effect on Tax Liability and the Timing of its Incurrence

Abstract

This study seeks to analyze the extinguishing nature of tax settlement (tax transaction), which is provided in Brazilian tax law as one of the causes for the extinction of tax liabilities, under Article 156, item III, of the National Tax Code. The research focuses on the extinguishing effect upon the tax claim and the precise moment at which such effect arises. The prevailing interpretation holds that extinction only occurs upon full payment; however, it is necessary to consider the possibility of partial extinction taking place at the moment the agreement is executed, as a consequence of the reductions granted by the Tax Authority with respect to interest, penalties, and surcharges. Accordingly, the central question is whether the extinction of liability occurs solely upon full settlement, or if it may be deemed to occur partially throughout the performance of the agreement. The conclusion reached is that partial extinction arises at the moment the concessions are granted, and is subsequently renewed with each installment payment, culminating in full extinction only upon the complete discharge of the outstanding liability.