Brazilian Tax Code (CTN)

The Brazilian tax code (CTN, short for Código Tributário Nacional in Portuguese), Law 5,172/1966, is a domestic law published on October 25th, 1966 and organized into two parts.

The first part has six titles and the second has four titles. It is the basic rule for all taxes created in Brazil. Generally speaking, no tax rule is allowed to contradict this code. It describes how the Brazilian system works, situations where a tax may or may not be created, and many other important tax subjects.

Part 1: Local Tax System

• I – General rules: describes what is considered a tax.
• II – Tax competence: federal, state and municipal authorities have the right to collect taxes, but there are some tax restrictions on collecting taxes on some types of institution or activity; for instance, it is not allowed to create any tax imposed on religious organizations.
• III – Taxes: organizes the taxes into taxes on importation and exportation, taxes on income and property, taxes on manufactured products and distribution of goods, and special taxes.
  • Taxes on importation and exportation.
  • Taxes on income and property: tax on rural property, tax on urban property, tax on transferring property ownership, and income tax.
  • Taxes on manufactured products and distribution of goods: tax on manufactured products, state tax on distribution of goods and services, municipal tax on distribution of goods and services, tax on financial and insurance transactions, tax on freight and communication services, and tax on services.
  • Special taxes: fuel tax, electricity and mineral tax, and extraordinary tax.
• IV – Fees: fees are charged whenever authorities make a service available to taxpayers or there is an activity regulated by any government agency.
• V – Improvement contributions: it is charged whenever an improvement made by government authorities generates real estate appreciation for the taxpayers.
• VI – Distribution of taxes: this topic describes the distribution rules of a portion of federal tax revenues to states and cities and the distribution of a portion of state tax revenues to cities.

Part 2: General tax rules

• I – Tax rules: Tax rules are divided into laws, tax treaties, decrees and supplementary laws. This title also states when a law should be followed, general principles and interpretation of laws.
• II – Tax obligation: The taxpayer has two obligations upon incurring a tax: file the tax return and pay the tax. The taxpayer is the one who created the taxable condition, as the recipient of income, but government can require a third party, as a payer, to withhold or deduct the tax from the payment or the recipient.
• III – Tax Credit: In this sense, the tax credit is the amount owed by taxpayers. Either the authorities or the taxpayer can constitute the tax entry officially. If the taxpayer does not report correctly or in a timely manner, the tax can be imposed on taxpayers by authorities.  Authorities usually have up to five years to charge the tax payers, except for fraud or malice. The taxpayer also has up to five years to claim any overpaid tax.
• IV – Tax administration: Some types of companies, such as banks, are required to provide information about third parties to tax authorities. Taxpayers have the right to receive a debt clearance certificate from tax authorities.

Written by Thiago M. Silveira