TCU Removes limits on the use tax

The Brazilian Federal Court of Accounts (“TCU”) has recently revised its position regarding the use of tax loss carryforwards for income taxes purposes (“NOLs”) in federal tax settlement agreements, no longer including such credits within the calculation of the statutory cap of up to 65% reduction applicable to negotiated tax liabilities.

By way of background, Brazilian federal tax settlement legislation authorizes taxpayers to use NOLs as a form of payment in tax settlement agreements, up to the limit of 70% of the remaining outstanding balance, pursuant to Article 11, IV, of Law No. 13,988/2020, as regulated by PGFN Ordinance No. 6,757/2022.

Within the context of tax settlement agreements, the prevailing interpretation shared by taxpayers and the Brazilian National Treasury Attorney’s Office (“PGFN”) was that NOLs merely constitute an alternative payment mechanism, as they do not effectively reduce the principal amount of the tax debt itself.

However, the TCU had ruled that the use of NOLs should be treated as part of the discounts granted under the tax settlement agreement, which are legally capped at 65% of the negotiated debt amount (without reduction of the principal amount), pursuant to Article 11, Paragraph 2, of Law No. 13,988/2020.

In practice, this restrictive interpretation significantly limited – and in some cases entirely prevented – the use of NOLs in tax settlement agreements. While taxpayers and the PGFN understood that the tax authorities could first grant discounts up to the 65% legal threshold and subsequently allow the use of NOLs over the remaining balance, the TCU previously held that the aggregate amount corresponding to both discounts and tax credits could not exceed the overall 65% cap.

Following the appeals filed by the PGFN, the TCU revisited its position in Decision No. 990/2026-Plenary Session, expressly recognizing the legal distinction between: (i) discounts effectively applied to the tax claim itself; and (ii) mechanisms for settling the remaining outstanding balance, which include the use of NOLs.

In other words, the TCU ultimately aligned its understanding with that of taxpayers and the PGFN, acknowledging that NOLs are not subject to the 65% global limitation applicable to discounts, since such credits merely represent a book-entry payment instrument for the negotiated liabilities and do not reduce the debt itself. The practical implications may be illustrated as follows:

Accordingly, tax settlement simulations should now consider: (i) the application of statutory discounts within the legal thresholds (generally up to 65% of the total debt amount, without reduction of principal); and subsequently (ii) the possibility of using NOLs up to 70% of the remaining balance, without being subject to a combined overall cap.

The Tax team at FAS Advogados in cooperation with CMS remains available to provide further clarification regarding the available tax settlement agreements and to assist taxpayers throughout all stages of the regularization of their tax liabilities.