TAX PLANNING IN BRAZIL: LEGAL REASONING AND CONSTITUTIONAL PROCESS IN BRAZILIAN SUPREME COURT

As in many countries around the world, the debate about tax planning concerns its limits, and there is a clash between two perspectives on the subject. On the one hand, there is a traditional perspective, whose advocates argue for the need to preserve the legal security of the taxpayer and the use of a more formalist interception method of tax rules. On the other side is the contemporary perspective, which seeks to balance the need to protect the taxpayer against abuse of tax authorities, but without neglecting the fact that the taxpayer sometimes practices abusive tax planning. At the center of this debate is the Federal Supreme Court (STF), a Brazilian constitutional court, which will examine the constitutionality of the sole paragraph of Article 116 of the National Tax Code, which for some academics is considered the Brazilian GAAR. The present paper aims to introduce and analyze some landmark points of the debate in Brazil, highlighting the legal reasoning deployed in this debate and the challenges for de constitutional process.

the tax authorities to tackle, at least, the abusive forms of tax planning.
In general, anti-avoidance rules rely on the possibility of the administrative and judicial authorities' inquiry into the substance and purpose of the taxpayer's activities, setting aside the legal form adopted. It is recognized that without the power to proceed with this inquiry the GAARs may become fall ineffective, frustrating the social expectation to tackle activities considered abusive albeit legal. Nonetheless, the introduction of a GAAR must be performed within an adequate legal framework that ensures predictability and impartiality, as well having proper taxpayer safeguards against the tax authorities' abuses.
This concern is particularly relevant in developing countries, where tax administration cannot always manage the level of discretion that a GAAR demands. In this process, the judiciary branch assumes a fundamental role once the judicial response will confirm or not of the legality of that inquiry.
In order to contribute to this debate, this paper intends to outline the Brazilian position concerning tax planning. It is not our intention to cover all the issues, since the complexity of the Brazilian tax system is an inexhaustible source of controversy. Our purpose is to show some landmark points of the debate in Brazil and demonstrate how it is developing, highlighting the academic debate and the legislative, administrative and judicial response concerning tax avoidance.

A BRIEFLY RETROSPECTIVE OF BRAZILIAN ACADEMIC TAX PLANNING DEBATE
In general, Brazilian academic authors highlight that the tax planning is the act of the taxpayer (business or individual) planning their economic activity to avoid or postpone Revista Eletrônica de Direito Processual -REDP. Rio de Janeiro. Ano 13. Volume 20. Número 1. Janeiro a Abril de 2019 Periódico Quadrimestral da Pós-Graduação Stricto Sensu em Direito Processual da UERJ Patrono: José Carlos Barbosa Moreira (in mem.). ISSN 1982-7636. pp. 362-383 www.redp.uerj.br 365 the occurrence of a taxable event or to reduce the tax liability. 2 The controversy lies on the limits between legitimate tax arrangements, aggressive tax planning or even tax evasion.
Like other parts of the world, there is no consensus of what effectively distinguishes one from the other. The traditional criterion of legality 3 is necessary but not sufficient to remove all doubts, especially concerning aggressive tax planning. In the same way, the standard of chronology 4 , added by some authors, 5 is not enough for adequate classification.
The debate about tax planning is embedded in a broader one, concerning how the various constitutional principles of taxation interact to define the very limits of tax liability. In contrast to common law jurisdiction, in Brazil there is no judicial decision issued by high courts (Supreme Federal Court and Superior Court of Justice) recognizing expressly the taxpayer's right to organize their business to reduce their taxation. However, in general, the authors recognize that tax planning is a constitutional right based on two sets of constitutional principles. The first is the general principle of economic freedom and autonomy of will, aspects of individual liberty that ensure a person's right to organize their economic life more efficiently. 6 The second concerns the principle of the legality of the 2 For instance, Heleno Taveira Tôrres note that tax planning is "the technique of preventive organization of business, aiming at the licit tribute economy" (Direito tributário e direito privado: autonomia privada, simulação e elusão tributária, v.1, 1ª ed., São Paulo: RT, 2003, p. 175); Marcus Abraham defines tax planning as 'the set of acts carried out by the taxpayer, individual or legal entity, which may be of an economic, accounting, legal or merely operational nature, in order to reduce in a licit and legitimate manner, totally or partially, the payment of taxes' (Curso de Direito Tributário Brasileiro, 1ª ed., Rio de Janeiro: Forense, 2018, p. 166). 3 The traditional criteria that we refer are evidenced in recurrent definitions very similar to by those one given by Black's Law Dictionary. According to Black's Law Dictionary, tax avoidance is "the act of taking advantage of legally available tax-planning opportunities in order to minimize one's tax liability" and tax evasion is "the willful attempt to defeat or circumvent the tax law in order to illegally reduce one's tax liability". 4 According to this standard, if the act that avoid, reduce or deferred the taxable fact is prior to the occurrence of the taxable activity, it is tax avoidance and legal; however, if the act is after the taxable activity, will be tax avoidance and, therefore, illegal. taxation, which protect the taxpayers against imposition without statute and makes legal certainty and non-retroactivity of taxation recognized as taxpayers' fundamental rights.
On another hand, more recently, some authors highlight the social interest concerning the integrity of taxation. The integrity is sought by raising taxes from those who can pay and by tackling abusive tax planning and tax evasion, ensuring the realization of the fundamental duty of paying taxes, with equal constitutional dignity. 7 Specifically, the debate focuses on how those principles interact with each other in order to protect individual liberty and, at the same time, to providing revenue for financing public expenditure. It is impossible to draw a complete and hard distinction between the distinct views adopted by Brazilian academics concerning tax planning. However, might be useful to distinguish two main views: traditional and contemporary views. 8 The traditional view 9 was predominant in Brazil during the second half twentieth century and has its philosophical foundations in the formal positivism and in the jurisprudence of concepts. It has a deep distrust of public tax authorities, whose powers must be limited and should be granted only what is strictly necessary for the exercise of its attributions, removing any margin of discretion in the application of the tax law to the facts. 10 According to this perspective, the principle of legality prescribes not only prior authorization 7 Marcus Abraham points out that the "fundamental duty to pay taxes is constituted by the realization of the principles of contributory capacity [ability to pay], human dignity and solidarity, as constitutional expressions of a public fiscal ethic" (Curso de Direito Tributário Brasileiro, 1ª ed., Rio de Janeiro: Forense, 2018, p. 53). According to Brazilian Constitution, the principle of human dignity is fundamental principles that Brazilian society is grounded (art. 1, III). The solidarity is a constitutional objective Brazilian society (art. 3, I, 'The fundamental objectives of the Federative Republic of Brazil are… to build a free, just and solidary society'). The ability to pay principle also has specific tax constitutional provision (art. 145, § 1º, 'Whenever possible, taxes shall have an individual character and shall be graded according to the economic capacity of the taxpayer'). All these constitutional principles have inspired Brazilian tax policies creating duties that, besides not expressly written in a constitutional rules binding on all members of society, among them, the fundamental duty of pay tax. As Marcus Abraham concludes, according to Brazilian constitutional law, 'there is no way to refute the conclusion that in order to pragmatically support the social pact and the fundamental right to the freedom and dignity of the human person, there will also be a burden […] such price would is the fundamental legal duty to pay taxes'. 8 We use this classification has the only descriptive purpose, to further the understanding of the Brazilian debate, and considers the criterion of moment of appearance of currents of thought (traditional, first in time; contemporary, after that). There is no evaluation about whether one is better or worse than the other one. 9 The main authors that defends this perspective are Alberto Xavier ( in the statute to raises taxes but also that this statute must bring an accurate and rigid description of the event which affects the tax liability of a person. In other words, the description of a taxable event in the legal norm must be detailed and expressed in a clear and specific way, and not just broad descriptions of economic activities. The traditional methodology is based on the concept of tipos tributários fechados (strict taxable event construction) from which is found the princípio do tipo fechado (literally, principle of closed tax type, quite similar to the common law principle of strict construction of taxing statutes). Traditional academics introduced an analogy between the description of the taxable event in the statute and the description of the criminal offence in the penal law. Thus, in the same fashion as the penal law, in which a person cannot be prosecuted on the basis of extensive interpretation of the penal statutes, the taxation statutes cannot be extensibly interpreted to recognize tax liability. In this case, taxpayers are not subject to tax unless they fall in the literal words of the statute. 11 Moreover, for legitimate levying taxes, not only must the taxable event description ('type') be detailed, clear and certain ('closed') but so must the facts that supposedly create the tax liability be. The tax law statutory interpretation would be an activity that requires a formal syllogism where clear legal provisions are applied equally clear facts. As a consequence, an event is not taxable if it does not fit as literally described in the statutes, though it could constitute evidence of wealth compatible with the spirit of the legal rule. Accordingly, in this last case, the solution cannot be found in fitting such a case into the existing taxable event description. Parliament must enact another law, allowing a levy tax in this case, bridging the loophole or updating the obsolete legislation. The taxpayer cannot be responsible because of the delay of a legislator or by the fact that the law is incompatible with the new economic realities. Due to the prevalence of the traditional view in the last decades of the twentieth century, the Brazilian response to abusive tax planning was performed through punctual corrections of legislation.
In the 1970s the contemporary view emerged, which comprises many theories of tax legal reasoning critical to legal formalism. Inspired by the jurisprudence of values, 12 all these theories have in common a reappraisal of the traditional assumption that tax law interpretation is a matter of formal syllogism and that the legal tax terms can have only one meaning. 13 Besides, this perspective claims that the facts concerning tax liability must be considered not only in their legal form but also regarding their purpose and economic result.
Proponents of the contemporary view argue that the traditional framework went too far in its theoretical model, conferring the same or even more prominent level of constitutional protection reserved for the freedom to property rights. 14 They argue that the interpretation of the tax law and its underlying facts has a degree of uncertainty, especially when considering complex economic realities such as immaterial richness (e.g. intellectual property in biotechnology) and new forms of creation and circulation of values (e.g. ecommerce and digital economy). According to this view, the new and complex scenario claims new ways to interpret tax provisions and facts. In this new scenario, a broader approach to address the issue of tax avoidance was adopted, raising questions about the limits of the administrative tax authorities in the interpretation of the tax statutes and facts. 15 The contemporary view does not deny that the tax law needs to ensure legal certainty. However, it claims that the legal terms deployed in tax rules (e.g. business, income and so on) are necessarily elastic and polysemic, representing 'the average or the normality The overview allows us to observe two significant facts. The traditional perspective creates a legal environment favourable to tax planning, especially the aggressive one. At the same time that this view confers full freedom to the person to handle legal forms to avoid taxation, it constrains administrative and judicial authorities power to tackle abusive tax planning. Only through a particular provision in the statute can the particular loopholes or unattended consequences of the legislation be solved. On the other hand, the contemporary perspective gives more room to administrative and judicial authorities and increases its participation in the legal reasoning in defining taxation issues, including the bridging of loopholes and the rapid correction of unattended consequences. As for the legislative branch, it creates a constitutional environment to legitimise the adoption of general rules concerning tax avoidance. Tax Code introduced a general anti-avoidance rule. For these authors, the rule allows legal arrangements to be disregarded when there is an abuse of legal forms or no business purpose, authorizing the levying of tax when the principal purpose of the specific transaction is the reduction of tax. In this context, the efficacy of tax planning against the tax authorities is subject to two conditions: first, it requires a primary negotiation purpose for the operation, in addition to the tax savings purpose; secondly, the operations must have a legal and factual existence, it not being enough that the legal form adopted is lawful. In this sense, the new provision broadens the power of inquiry into the tax arrangements, allowing the tax authority to introduce a new legal qualification called dissimulation.

BRAZILIAN LEGISLATIVE AND ADMINISTRATIVE RESPONSE
According to some academic authors, the rule of article 116, sole paragraph, would not be applicable until another specific law has introduced to discipline the procedure to be adopted by the tax authority. In 2002, an attempt was made to regulate this procedure, The rule provided an obligation to declare operations involving aggressive tax planning. The The Brazilian tax authorities declared that the rule aimed to introduce a closer relationship between the taxpayer and the Brazilian Federal Revenue increases legal certainty and reduces litigation. Still, according to them, the rule sought to align the Brazilian legal framework with the method of tax planning oversight preconized by the OCDE in the Action 12 of program BEPS (Base Erosion and Profit Shifting). Indeed, it is well known that the one approach adopted by legislators around the world is to address the increasing activity of tax avoidance is the introduction of mandatory disclosure rules. 25 However, the method and concepts adopted by Provisional Measure n. 685 raised concerns about the rule. The council does not explicitly recognize this influence. However, it is evident in the council's legal reasoning, whose premises are very similar to those adopted by Judge  According to the claimant, the challenged rule gives to the administrative tax authority the power to assess the tax event, with a focus not on legally issued documents evidencing the operation, but on the operations that it is supposed may be covered up (disguised or feigned) by a legal entity to reduce the tax liability. Therefore, the provision allows the tax authority to disregard the legal form adopted by the taxpayer, even though it was done in compliance with the rules. As a result, the claimant argues, the rule forbids the tax planning. It also argues that the taxpayers have the right to manage their business as economically as possible, including to save taxes throughout tax planning, realized in the 'field of lawful, legal, permitted, taking advantage of 'loopholes' of the law.'

BRAZILIAN SUPREME COURT RESPONSE
In this sense, the claimant observes that the tax planning occurs in 'spaces left by loopholes in tax law, not filled by the inadvertence of the legislator' and through the use of step transactions, that 'consists in the use of operations or legal transactions that configure situations that lead to pay less tax'. Finally, it argues that the challenged rule allows the tax authority to fill the loopholes in the legislation, acting as legislator, importing violation of the principle of the strict description of taxable events and the principle of separation of powers, as well as allowing the taxation by analogy.
In its response, the government argues that the rule does not become forbid legal tax planning, but only illegal or abusive instances. The government says that the rule aims to make clear the possibility of assessing step transactions and the use of business purpose test, tackling the abuse of legal form, deployed to avoid or reduce tax liability. In this sense, the government refuses the rule interpretation as a means of tackling simulation, which practice was already forbidden in another provision of the Brazilian National Tax Code.
Additionally, it was noted that there is no taxation by analogy applying the rule, because, through the rule, the tax authority reveals the taxable event as described in the tax statute.
There is no creation of a new taxable event by the tax authority.
From both arguments, two questions can be raised. Firstly, is there a principle of strict taxable event description in the constitution? Secondly, does the STF establish the features that distinguish legitimate tax planning from an abusive or unlawful one? Let us move on to the possible answers to those questions. The second question demands the analyses of two elements in the Supreme Court's tax legal reasoning in constitutional process. Firstly, the recognition of the duty of paying taxes as a fundamental one 31 , with the increasing perception that the government must have the power to tackle the taxpayer's misconduct in taxation matters. Secondly, the STF's growing attention to the arguments of policies in the court's legal reasoning. Some cases will illustrate those trends.
In ADI 2.390 the Court ruled on the constitutionality of the tax provision that allows administrative tax authorities the access taxpayer's bank information to identify tax evasion schemes. The constitutional challenge was grounded in the argument that only judicial authorities can order breaking banking secrecy according to the Brazilian Constitution. The STF found the rule constitutional, noting that the payment of taxes is a fundamental duty, and tax must be seen as an indispensable contribution of the person to society. In other words, taxation shall not be considered 'a mere exercise of power by the state, or as a sacrifice for the citizen'. In this context, STF highlights the solidarity nature of the tax, 'which is owing by the citizen by the simple fact of belonging to the society.' Therefore, the fundamental duty to pay taxes is based on the idea of social solidarity whose It is worth highlighting that in the concept of income in the Brazilian Constitution there is no clear reference to where the income is generated. It is a question to be solved by the legislator. Despite this fact, the STF gives predominance to the purpose of the rule (tackling tax avoidance) using the place from which income would come as a parameter to examine the constitutionality of the rule, the facts that show the trend of the court to favouring a policy argument (especially those preferred by the legislator) when the constitutional parameter is unclear.
These two elements of the Brazilian Supreme Court's legal reasoning is a sound signal that the Court will give major deference to the Executive and Legislative to solve the case of tax avoidance. Considering the failed experience with provisional measures nº 66 and 685, that make clear the scale and the complexity of the task to be solved, perhaps the STF should recognize the fact that the solution of tax avoidance scheme must be resolved before the concrete case.

CONCLUSION
The Brazilian tax planning debate, as in other countries of the world, is polarized and it is unclear what the next developments will be. As seen above, among the academic This scenario open space to the Constitutional Court to manage the tax law through the constitutional jurisdiction that requires the use of new forms of legal reasoning to deal with new concepts and unlike questions raised. This fact is not a beacon of dysfunction of the classic principle of division of power or inefficiency of the legislative and executive branches. It is a signal of a necessary evolution of legal reasoning in the constitutional process to handle the increasing complexity of international tax law that changes faster than never.
The changes in the legislative and the executive branch's decision-making process, which interact even more with international regulations and cannot be focused only in national perspectives, must be accompanied of change in the judiciary branch's legal reasoning. It means that the constitutional courts must identify those changes and evaluate them critically and carefully without forgetting the complex scenario in which that they are taken. Inverse to a competition among the branches of state's power, this is a process of constitutional cooperation and dialogue among them.
Naturally, this innovative form of legal reasoning demands a distinct approach to thinking about legal issues, especially concerning international tax law, what demands the opening of new theoretical and empirical research fronts. As the quote attributed to Albert Einstein affirms "you can never fix a problem using the same mindset used when the problem was created." This observation applies to the new challenges in the tax law and constitutional jurisdiction.