On June 15, 2018, Rio de Janeiro State published Law No. 7,988/2018 (“Law 7988”), which provides for the procedures to be adopted by Rio de Janeiro State tax auditors in order to disregard transactions carried out with the purpose of concealing taxable events involving state taxes, or modifying tax liability during tax audits.
According to Article 1 of Law 7988, the tax auditor may disregard such transactions, after commencement of the tax audit, provided that it:
- notifies the taxpayer to provide clarifications and information, within 30 days, about the facts, causes, reasons and circumstances that lead to the transaction that contains evidence of dissimulation;
- after analyzing the clarifications and information provided, if there is a decision to disregard the transaction and issue a tax assessment, to:
a) discriminate the elements or facts determining that the transactions were performed with the purpose of concealing taxable events involving state taxes, or modifying the tax liability during tax audits.
b) describe the transactions to be taxed as a result of the disregard decision, explaining the respective regulatory requirements on the taxable events; and
c) indicate the result produced by the taxation of such transactions, with the specification, by tax, of the calculation base, of the tax rate and interest.
Failure to comply with the abovementioned requirements, or the presentation of incomplete information or clarification will lead to the disregard of the transaction that was carried out— a consequence that must be expressly stated in the tax notice.
The right of defense will be exercised in the litigation related to the tax assessment filed in the aforementioned terms.