Brazil oil export tax spat may have a political solution

The legal dispute between the Brazilian government and oil companies concerning the increase in taxation on crude oil exports may have a political solution, according to lawyers consulted by BNamericas. 

Last week, finance minister Fernando Haddad announced the measure as compensation for the limited resumption of federal taxation on gasoline and ethanol and the maintenance of tax exemptions for diesel, biodiesel and cooking gas (LPG) until the end of this year. 

The decision provoked immediate reactions in the industry, which claims that the tax could impact the country's competitiveness in the medium and long term, in addition to affecting legal stability.

Several oil companies and two political parties filed lawsuits claiming that the increase in tax on crude exports had a solely revenue-raising motive to compensate for reductions in other federal taxes. 

“It is unconstitutional, according to the parties and the oil companies, because the export tax must have an extra fiscal and regulatory nature,” Raphael Caropreso, tax partner at Veirano Advogados, told BNamericas, meaning such a tax must be aimed at encouraging or discouraging behavior. 

Among the companies that have filed lawsuits are PRIO (formerly PetroRio) as well as Equinor, Petrogal, Repsol, Shell and TotalEnergies – the latter five through a class legal action. 

On Wednesday evening, the federal court of Rio de Janeiro state rejected the appeal filed by the group of five international oil firms. 

In the decision, which was seen by BNamericas, judge Wilney Magno de Azevedo Silva said the extra-fiscal character of the export tax does not annul its tax collection function, "as a technique of state intervention that should aim at a balanced and socially just development."

Silva said the federal government has the right to raise taxation on commodity exports to promote growth of the economy. 

“As a customs tax, the export tax, endowed with extra fiscality, can have its rates altered in view of the conjectures of foreign trade,” he said. 

Now the case will be reviewed by the supreme court as a result of two lawsuits claiming unconstitutionality filed by the Novo and Liberal (PL) parties. 

“The supreme court may also follow a more political line, understanding that this [increasing oil export taxes] is within the extra-fiscal nature, which is an option of the government, which can increase the tax as it sees fit,” Caropreso said. 

Horácio Veiga de Almeida Neto, partner of Trench Rossi Watanabe's tax area, said the lawsuits claiming unconstitutionality have greater legal weight than the individual or group actions proposed by the oil companies.

“Because it originates from the political class, the expectation of the sector, besides a possible injunction suspending the tax collection, is that the government may want to seek a political solution to the issue,” he told BNamericas.