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February 16, 2023

Brazilian Supreme Court overrules use of res judicata in cases where such use is against the Supreme Courtís holding

  • The Brazilian Supreme Court has overruled the use of res judicata in cases where such use is against a ruling of the Supreme Court.

  • An appeal is expected as taxpayers take the position that res judicata should only be impacted on a prospective basis.

Almost four decades ago, many taxpayers filed lawsuits against the Brazilian Government claiming the unconstitutionality of the Social Contribution of Profits (CSLL). After many judicial battles, in 2007 the Brazilian Supreme Court (STF) ruled that the collection of CSLL is constitutional. However, many taxpayers held prior res judicata in their favor and accordingly, under the concept of res judicata (their case was already decided), CSLL would not be due.

After 2007, public tax attorneys filed lawsuits against some of the taxpayers holding such res judicata with the specific aim of disputing res judicata in these cases.

Last week, the STF concluded the trial of two such cases addressing the possibility of disputing or changing the res judicata with respect to the CSLL.

The majority of the Justices took the position that taxes declared undue under res judicata, constituting a ruling that is against the STF’s position rendered on an appeal under the general repercussion regime (which is binding and should guide the case law of all other courts) become immediately and retroactively due. Their rationale relies on the fact that having two different judicial rulings on the same matter would trigger harmful competition and an anti-isonomic scenario between taxpayers that are in a same position.

Thus, in general terms, the STF ruled that res judicata loses its effect once the STF holds an opposite position on the same tax matter, provided that such position is held under decisions issued under the general repercussion regime. Because such fact may create a tax for those taxpayers, the STF ruled that the anteriority principle should be observed (i.e., taxes will be levied after a period of 90-days or within the next fiscal year, with the ruling under the repercussion regime as the triggering event).

Albeit involved taxpayers are claiming they will appeal on the grounds that the loss of res judicata should only have prospective effects, the matter raises a flag not only as far as CSLL is concerned, but to all circumstances in which there is res judicata in the opposite sense of the STF’s position on a matter. Relevant cases may include: (i) IPI on resale of imported products; (ii) social security contribution on one-third extra holiday pay; and (iii) exclusion of ICMS of PIS and COFINS calculation bases for taxpayers that filed lawsuits after March, 2017 and have been judicially authorized to recover PIS and COFINS for the past five years (although the STF understood such taxpayers would not be eligible to recover the past, but only to recognize the exclusion of the ICMS for the future).

Therefore, similar cases should be carefully scrutinized, so that potential liabilities or opportunities (should there be a further position of the STF in a more favorable outcome than the res judicata) are assessed.


For additional information with respect to this Alert, please contact the following:

EY Assessoria Empresarial Ltda, São Paulo 

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific


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