The Czech writer Franz Kafka became famous for telling stories of ordinary citizens getting lost in the corridors of a suffocating and inefficient bureaucracy. Until today, in a way, this is the image that the ordinary citizen has of the public administration: rooms crowded with piles of paper accumulating dust for years.

But it should not be that way. Several digital transformation initiatives that increase efficiency, promote transparency and generate citizens’ trust, are being carried out to streamline procedures and disassociate them from the bureaucratic image of thousands of procedures sleeping in an office.

These initiatives have become even more urgent, especially during the COVID-19 pandemic, a crisis that has affected economic activity and required the provision of virtual services to enable business continuity. In this context, the investments made through the Brazilian Tax Management Support Program (PROFISCO), financed and technically supported by the Inter-American Development Bank (IDB), in the automatization of the tax litigation procedure, which deals with tax disputes between the Treasury and taxpayers, have proven to be essential. A recent study carried out in Brazil indicates that the amounts of tax disputes exceed 75% of GDP and can take up to 19 years for the final resolution of the dispute.^[1]

In Brazil, if the taxpayer is assessed by the tax administration, he has the right to defend himself administratively, without necessarily having to resort to the judiciary. The administrative trial, whose decisions can modify or even annul the notification of the infraction Act[2], complies with the formal procedures and procedural rites practiced by various actors ‒tax officials, administrative officials, judges, representatives of the state, legal representatives of taxpayers, among others. There is always a formal interaction between the TA and the taxpayers, and it necessarily includes a collegial judgment, with representatives of the TA and the taxpayers, at least in its final phase.

The traditional operation of the tax administrative procedure

Until very recently, the tax contentious administrative procedures were fully manual, and that all the documentation was physical, which led to the need for a large volume of staff for the operational work, such as sanitation and the assembly of the procedure, as well as for the more technical activities related to the preparation of reports and advice to support the judgment.

In addition to the large number of tax procedures, each procedure, which is on average 500 pages long, must be printed and filed, often in more than one duplicate. Thus, volumes and volumes of documents were prepared and moved between the different units of the tax administration. Storing so much paper required a lot of physical space: shelves, cupboards, archives, rooms, even entire warehouses – where many important documents could end up being lost. Without forgetting that the summonses were printed and sent by post, taking several days to reach the addressee and delaying the processing of the procedure and its resolution. All this had a direct impact on the result of the collection, since the further the taxable event is, the more difficult it will be to collect the tax.

Archive photo of the tax proceedings of a Ministry of Finance

The taxpayer, for his part, suffered a high cost for his defense since he had to personally present the supporting documents and follow the physical processing of the procedure by the different units of the tax administration. In order for the taxpayer to have access to the entire content of the procedure, the first great challenge was to find out in what dependence the procedure was, since it was often not in the place where the taxable event occurred, nor in the judging body due, for example, to the dispatch by diligence, manifestation or expert opinion. In so many comings and goings of paper, the time of processing of the procedures was delayed many years, which ended, in the case of a decision favorable to the TA, greatly increasing the amount of the tax to be paid, with all the corrections.[3]

Digital transformation in the Brazilian tax administrative procedure

The implementation of PROFISCO has allowed the automatization of administrative litigation, allowing the execution of all procedural acts by the different interveners and participants, both the Treasury and the taxpayer, exclusively electronically.

A computer system was developed, commonly known as Fiscal Administrative Procedure (PAT-E), which allowed the complete management of documents, defining and automatizing the control rules for the creation, maintenance, treatment, and archiving of documents in all its stages.

The solution includes the intelligent, automated and standardized generation of all documents related to the tax credit, from the issuance of the notification of the infringement to the resolution in the final instance and, where appropriate, the certificate of registration in the debt register, including summonses, opinions, expert opinions, trial agendas, votes and sentences.

With this, it is possible to use all available information to increase the quality of the procedures, allowing, for example, to automatically associate a table of offences and penalties with their respective legal classification and calculation of accruals due, reducing errors arising from the procedures that were performed manually. It also allows consultation and monitoring of procedures, ensuring the search and retrieval of documents and information in an integrated manner. To ensure legal validity, the entire workflow is supported by audit trails and digital certification.

On the part of taxpayers, the new system allows greater interactivity with the general public, providing quick access, through the electronic fiscal domicile (DT-e)^[4], safely and with a guarantee of confidentiality, to the data and information related to the PAT-e by the interested party. In addition, it allows the receipt of summonses, the presentation of appeals and evidence, the monitoring of the procedural progress and the completion of the reorganization of the pending cases of its procedure electronically, without the need to travel to the premises and without schedule restrictions.

Essential elements for the automatization of the tax administrative procedure

The experiences of this project in several Brazilian states have demonstrated the importance of ensuring some fundamental requirements for the achievement of results.

• Review of all the corresponding legislation, adapting the essential aspects for the operation and legal validity of the electronic procedure.

• Review of the entire cycle of the administrative tax credit for the transformation of all stages, from the registration of the act of infringement to its closure, into exclusively electronic and integrated documents, with the automatization of the processing and control rules of the procedural acts.

• Technical analysis of existing information systems to define the best solution development strategy: integrating it into existing systems or building a new solution for the entire tax credit cycle.

• Definition of standardized documents, which will be generated by the system, according to the specificity of the accounting and the phase of the procedure, with suggestions of legal capitalization and model texts. The preparation of this documentation by the system increases the productivity and quality of work.

• Implementation of panels for the management of procedures that allow the analysis of quantitative results in order to identify bottlenecks and increase the agility in the processing of procedures. It is also necessary to implement tools for the management, retention and sharing of knowledge to increase the quality of procedures.

• Definition of security systems that effectively guarantee the integrity and conservation of data and the implementation of an audit trail with control and record of maintenance history, uploads, downloads and queries. This requirement is essential since the information of the procedures is confidential and will be accessed by several profiles, with different authorizations, through the Internet.

Part 2

[1] These figures correspond to the administrative and judicial phases. Source: Os Desafios do contencioso tributário no Brasil – ETCO and EY institutes in 2019. https://www.etco.org.br/noticias/contencioso-tributario-brasileiro-ultrapassa-50-do-pib/
[2] The act of infringement is a document issued ex officio by the competent tax auditor when a violation of a certain tax legislation is found.
[3] If the decision is favorable to the administration, the amount of the debt is increased with the fines and interest provided for in the legislation throughout the period.
[4] The Electronic Journal consists of the communication vehicle created by the administrative litigation for the publication and notification of the resolutions issued by the tax and Tax Tribunal – TIT and by the tax judgment offices – DTJs, as well as the acts, orders and notifications, allowing direct access to its content.

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