Meaning of Tax Credit (What it is, Concept and Definition)

Tax credit is the amount a taxpayer owes to the state as payment of a tax or monetary penalty. It is the obligation of a payment on the part of the taxpayer or debtor.

A tax credit due, depending on the origin of the obligation, can be paid to different entities that are part of the State: Federal Government, states, Federal District or municipalities.

In relation to credit, the State is the active subject (will receive the credit) and the taxpayer is the taxable person (must pay the credit due).

How is a tax credit constituted?

According to the definition of art. 142 of the National Tax Code (CTN), the tax credit is constituted by an administrative authority, which must compulsorily make its launch.

The entry is the procedure that determines and verifies the existence of the obligation, in addition to determining the exact amount to be paid.

Tax credit posting

Posting a tax credit goes through the following steps:

1. verification of the occurrence of the triggering event (fact that gives rise to the payment obligation),
2. determination of what should be taxed,
3. calculation of the amount due for payment,
4. identification of the taxable person (who has the obligation to pay the tax credit),
5. determination of penalty that should be applied in case of non-payment.

Suspension of tax credit

The suspension of the tax credit means that the obligation to make payment is suspended. It is postponed for another time, until the situation that suspended it is resolved or comes to an end.

The cases of suspension of a tax credit are provided for in art. 151 of the CTN and may occur in the following situations:

• Moratorium: is the granting of a longer period for the tax credit to be paid.
• Total amount deposit: the credit amount is deposited as a guarantee so that the obligation can be discussed in court or administrative terms.
• Complaints and Appeals: the payment obligation is suspended until the taxpayer's appeal is analyzed and decided.
• Granting of an injunction in a writ of mandamus: the obligation to pay the credit is suspended until the writ of mandamus action is judged.
• Granting of preliminary injunction or interlocutory relief (in other lawsuits): payment is suspended until the final decision of the lawsuit that was filed by the debtor.
• Installment: it is the granting of an installment for the taxpayer to make the settlement (full payment) of the credit.

Extinction of tax credit

In the case of extinction, the obligation to pay the tax credit no longer exists, that is, the taxable person is released from the obligation to make the payment. The law establishes that the extinction of credit can occur in two ways: total or partial extinction (all amount or part of the amount).

The extinction of a tax credit, provided for in art. 156 of the CTN, it can happen in these cases:

• Payment: occurs when the debtor pays the full amount of the tax credit.
• Compensation: there is compensation when the taxpayer has amounts to pay and amounts to receive. In this situation, a settlement of accounts relating to these amounts is made.
• Transaction: happens through an agreement that determines the extinction of the credit (the law allows the transaction in some cases).
• Remission: is the extinction (partial or total) of the amount owed. It can occur in situations provided for by law, such as proof of the debtor's unfavorable economic situation.
• Prescription and Decay: the statute of limitations occurs when the collection period ends and the State loses the right to demand payment of the credit. Upon expiration, the payment obligation ceases to exist because the entry of the tax credit was not made within the due period.
• Converting deposit to income: happens when the amount owed is deposited as collateral during the legal process that discusses the credit. The extinction occurs if the action is unfounded and the amount is converted to the Public Treasury.
• Advance payment and approval of the release: occurs when the taxpayer makes the payment in advance, this payment being approved by the responsible agency.
• Consignment in payment: the credit is terminated when there is a judicial deposit, in two situations: if the Public Treasury does not receive the amount that the taxpayer wants to pay or if there is uncertainty about which entity should receive the amount of the tribute.
• Unreformable administrative decision: occurs when a (definitive) decision given in an administrative proceeding defines that there is no obligation to pay.
• Court decision passed in res judicata: extinction happens when a court decision that cannot be appealed understands that the tax credit should be extinguished.
• Damage in payment in real estate: it occurs when the value of the tax credit is paid for real estate offered by the taxpayer.

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