In November 2019, the 1st Panel of the 2nd Chamber of the 1st Section of the Brazilian Administrative Council of Tax Appeals (Conselho Administrativo de Recursos Fiscais – "CARF") confirmed the tax assessment against Brazilian meatpacker JBS, establishing the taxation of bribe payments to public officials.

The tax assessment is an unfolding of admissions made by J&F (JBS' holding entity) and JBS executives under leniency and plea bargaining agreements entered into in 2017. In their settlements, the company and its executives confessed that they had perpetrated several acts of corruption of public officials and agreed to pay a fine of approximately BRL 10.3 billion. 

The Prosecutor General's Office has requested the cancellation of the plea bargaining agreements to the Brazilian Supreme Court, but a definitive Court ruling is still pending.

The tax assessment submitted for CARF's analysis totals BRL 204 million, covering the Corporate Income Tax, Withholding Income Tax and Social Security Contribution on Net Profit on bribes paid by JBS to individuals such as politicians and black market currency operators. 

From a preliminary analysis, this ruling is consistent with CARF precedents in similar cases involving tax assessments following leniency and plea bargaining agreements. In sum, CARF has been deciding in such cases that i) the benefits of voluntary disclosure (article 138 of the Brazilian Tax Code) are set aside, thus maintaining the collection of the penalties; ii) expenses with bribes to public officials cannot be deducted with regard to the calculation of Corporate Income Tax and Social Security Contribution on Net Profit; iii) payment to public officials are understood as unjustified payments with regard to the levy of Withholding Income Tax at the rate of 35%, as per article 61 of Federal Law no. 8,981/1995; and iv) the aggravated penalty of 150% due to the fictitious nature of the expenses is applicable.

The ruling is still subject to appeal to CARF's Superior Chamber. However, it is an important caution about less obvious, although financially significant, repercussions of agreeing to settlement and remediation mechanisms to mitigate potential liability from corrupt practices or other wrongdoing against the public administration, especially if a settlement includes admission of guilt.