Leonardo Manzan, a tax law specialist, notes that discussing intertemporal law in the context of the tax reform—and how to deal with past taxable events—has become essential for companies and tax professionals, especially as Brazil undergoes the most significant fiscal restructuring in decades. With the replacement of various taxes by a national VAT, questions arise about how to handle situations that occurred before the new rules take effect but still have ongoing consequences.
This concern is not only technical but also practical: it involves cash flow, accumulated tax credits, ongoing contracts, and legal certainty for businesses that need to plan their finances.
Intertemporal Law in the Tax Reform: How to Address Past Taxable Events?
According to Dr. Leonardo Manzan, intertemporal law refers to the rules that determine which legislation should apply to facts that occurred in the past but still have legal or economic effects today. In tax matters, this is particularly sensitive due to the principles of legal certainty, non-retroactivity of tax laws, and the legitimate expectation of taxpayers.
In addition, there is the issue of accumulated tax credits under the current regime, such as those related to PIS, Cofins, ICMS, or ISS. Companies are eager to know whether they will be able to offset or recover these credits under the new system—or whether there will be limitations that could result in significant financial losses.
Ongoing Contracts and Multi-Year Taxable Events
Manzan also emphasizes that many companies have long-term contracts whose pricing or obligations were based on the current tax burden. Changes in the tax regime may drastically impact the profitability of these contracts, opening the door to potential litigation.
A common example involves contracts for continuous supply of goods or services, signed before the reform but still producing effects during the transition to the new system. In such cases, the key question arises: which law applies—the old or the new? The answer is far from simple and will largely depend on the approved intertemporal regulations.
Tax Credits and Risk of Financial Losses
From this perspective, Manzan highlights another concern: the accumulated tax credits held by companies, especially those in low-margin sectors or operating under special tax regimes. There is widespread concern that transitioning to the new system could invalidate legitimate past credits, threatening cash flow and even the solvency of certain businesses.
However, there is also hope that the reform’s legal framework will include clear transitional rules, allowing for the compensation of existing credits or, at the very least, mechanisms for reimbursement that preserve the legal certainty of taxpayers.
Best Practices for Companies
Given this context, Manzan recommends that companies conduct a detailed audit of their accumulated tax credits, identify long-term contracts in effect, and simulate impact scenarios in light of possible legislative changes. Maintaining well-organized reports, updated legal opinions, and accurate accounting records can make a difference when defending the company’s interests in potential intertemporal law disputes.
Moreover, staying informed on legislative developments, participating in public hearings, and monitoring regulatory updates will be crucial for adjusting strategies in a timely manner.
Challenges and Possible Paths
Manzan concludes that the main challenge of the tax reform is to balance the goal of simplifying the tax system with the need to respect acquired rights and ongoing contracts. Any gaps in intertemporal legislation could lead to prolonged judicial disputes, legal uncertainty, and high costs for both businesses and the State.
Understanding intertemporal law in the context of tax reform and how to address past taxable events has become critical for anyone looking to operate safely and strategically within Brazil’s evolving tax environment. The best approach is to be proactive: study the topic thoroughly, map out the risks, and prepare for a transition period that will demand heightened attention.
Author: Halabeth Gallavan
