Author Paulo Victor Vieira da Rocha
The Superior Court of Justice decided that a seller is not liable for ICMS in case of fraud practiced by the acquirer
of goods where the latter declared to be located in a state other than that where the seller is located, in order
to make the interstate tax rate applicable, but in reality never transfers the goods out of the state of origin and
apparently sells the goods in this state. According to the judgment, the seller would only be liable if the Brazilian
tax authorities could prove that the seller was aware of the fraud on the side of the acquirer.
Química Amparo, located in the state of Sao Paulo, sold goods using the Incoterm FOB. As a result, it handed
them over to a transporter contracted by the acquirer of the goods, the latter of which was located in Minas Gerais.
Therefore, Química Amparo applied the ICMS interstate rate (Brazilian states’ level VAT). In that regard, the
general ICMS rate for sales within a state was 18% while the ICMS rate for interstate sales was 12%. However,
the acquirer never transported the goods to Minas Gerais, but, as some evidence showed, it probably resold them
in Sao Paulo. As a result, the Brazilian tax authorities charged the difference between the rates plus penalties from
According to the judgment, the actions described above were considered to be a fraud practiced by the acquirer
and seemed to be proved in this case. There was no evidence that Química Amparo was aware of the fraud by
the acquirer. However, according to the Brazilian tax authorities, it was irrelevant whether Química Amparo
participated intentionally in the fraud or whether the fraud could be assigned to Química Amparo merely for
being negligent in checking its commercial partner’s legal condition. In other words, according to Brazilian
tax authorities, even if the seller was not aware of the fraud and even though it took all the normal precaution
regarding its clients, it would still have an objective liability for the subsequent fraudulent transactions with respect
to the goods it had sold.
The appeal court of the State of Sao Paulo held the same view as the Brazilian tax authorities as pointed out in their
assessment, as did the Second Chamber of the Superior Court of Justice. However, there were some precedents of
the First Chamber of this tribunal in which an opposite view was pointed out, so the taxpayer could file an appeal
called “Embargos de Divergência”, which is a motion for case law uniformization.
Legal background and issue
The Brazilian tax authorities held the view that Art. 136 of the CTN 1966 prescribes a kind of objective liability for tax legislation infringements. In Brazilian legal tradition (as in many other Latin countries) liability is regarded as objective if it does not depend on any ineptitude, recklessness or neglect by the agent. For an objective liability, it is only necessary that there is a link between the conduct of a person and the damage (in this case the breach of tax law). For example, according to such rationale, a taxpayer could never argue that he took all ordinary
precautions to prevent dealing with a fraudulent person. On the opposite, liability is subjective when “intention” at
the side of the agent is required (intention to fraud, malice) or at least it is required that the infringement is due to
recklessness, neglect or ineptitude. This means that there are two kinds of subjective liability, one of which based
on intention and the other one on neglect, recklessness or ineptitude.
There were some judgments from the Second Chamber of the Superior Court of Justice stating that Art. 136 of
the CTN 1966 provides for an objective liability for tax legislation breaches. Besides that, these precedents also
stated that, according to Art. 123 of the CTN 1966, private law relations (i.e. contracts) between parties (in which,
for example, the Incoterm FOB is agreed upon) were valid among the private parties, but did not necessarily hold
legal force for the Brazilian tax authorities, since Art. 123 of the CTN 1966 prescribes that tax law relations and
liabilities cannot be “changed” by private law. The precedents of the First Chamber of the same tribunal, however,
were opposite. According to the judgments of this Chamber, Art. 136 of the CTN 1966 stated that “intention”
only is irrelevant to make someone liable for tax law infringements, but it does not exclude neglect, recklessness
or ineptitude as necessary elements of liability. Therefore, Art. 136 of the CTN 1966 would only be applicable
to someone who had infringed the legislation unintentionally, but was negligent, reckless or inept, or someone
that co-practiced the taxable event (Art. 124 of the CTN 1966). Finally, according to the judgments of the First
Chamber, to make a seller liable for fraud practiced by the acquirer, the burden of proof was on the Brazilian tax
authorities to demonstrate the seller’s co-participation in the fraudulent practices (the most strict type of subjective
liability, which requires intention).
According to the public law section of the Superior Court of Justice, a seller that acts in good faith, presents all the
documents and registers of the operations, and demonstrates that it took all normal precautions for a commercial
transaction cannot be held liable for ICMS due (i.e. the difference of tax due on an internal and on an interstate
transaction) in case the goods were not delivered at the place described in the fiscal documents. The seller does not
have an obligation to audit the acquirer’s travelling route of the goods.
The Superior Court of Justice pointed out that, regardless of the regularity of the documents, if the Brazilian tax
authorities can prove that the seller intentionally took part in the fraud, the conclusion can be different and the
seller may be held liable for the ICMS due.
This judgment is of great importance in a case of a third party being held liable for tax and penalties due by another
taxpayer. Many cases decided by administrative courts are based on the premise that Art. 136 of the CTN 1966
prescribes objective liability for tax legislation infringements. However, as mentioned above, such a provision only
excludes the “intention” of the party as an element of the liability. It does not mean that the agent does not even
need to be guilty for the acts. In order to be liable for third parties’ taxes or infringements, a taxpayer has to be
negligent, inept or reckless. The above premise is what makes it possible for the Brazilian tax authorities to blame
taxpayers for faults or infringements (even if the taxpayer does not have any intention to breach the law).