Voluntary disclosure: reduce the penalty before the audit
Making a mistake in fulfilling a tax obligation is not uncommon. What makes the difference is the timing of the correction: those who act ahead of the audit can, as a rule, avoid the penalty and regularize the situation far more cheaply.
Brazilian tax law recognizes an instrument designed to encourage the voluntary correction of mistakes: voluntary disclosure, provided for in the Codigo Tributario Nacional (CTN, the National Tax Code). The logic is simple and advantageous for both parties: the taxpayer regularizes the debt on its own initiative and, in return, may benefit from the waiver of the punitive penalty.
How voluntary disclosure works
As a rule, voluntary disclosure occurs when the taxpayer acknowledges and regularizes a debt before the start of any audit procedure relating to that infraction. In this scenario, the tax due is paid together with interest, but the ex officio penalty that would apply if the irregularity were discovered by the tax authorities is generally waived.
The essential element is voluntariness: the benefit depends on the initiative coming from the taxpayer before the tax authorities begin verifying that specific point. Once the audit has begun, voluntariness with respect to that fact tends to be lost.
What is usually required
- That the regularization occurs before any tax procedure regarding the infraction.
- That there be payment of the tax due, plus interest.
- That the situation corresponds to a scenario compatible with the institute, as the case may be.
Points that require attention
The application of voluntary disclosure involves nuances. There are well-settled discussions about its scope in certain situations, and not every regularization automatically qualifies for the benefit. Therefore, although the institute is a valuable tool, its suitability for a specific case must be assessed carefully, to avoid undue payments or mistaken expectations regarding the waiver of the penalty.
Why acting early pays off
From a practical standpoint, correcting an outstanding matter voluntarily is usually significantly cheaper than waiting for the assessment. Beyond the financial impact of the ex officio penalty, voluntary regularization preserves the company's tax good standing and reduces the strain of a dispute. Acting ahead of time is, in general, the more prudent stance.
Conclusion
This content is for informational purposes only and does not constitute legal advice. Each case requires individual analysis by a qualified professional.
Frequently asked questions
What is voluntary disclosure?
It is the institute, provided for in the CTN (National Tax Code), that allows the taxpayer to regularize a debt on its own initiative, before any audit procedure, paying the tax with interest and, as a rule, waiving the ex officio penalty.
Can I use voluntary disclosure after the audit has started?
As a rule, no. The benefit depends on voluntariness, that is, on the correction being made before the tax procedure regarding that infraction has begun. Once the audit has started, voluntariness as to that fact tends to be lost.
Does voluntary disclosure waive all charges?
Normally it waives the punitive penalty, but the tax remains due, plus interest. The scope of the benefit depends on the specific situation and deserves an individualized analysis.
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