The costs of a litigation worldwide

August 20, 2013

Dear colleagues,

I was wondering if someone would be able to help me with a doubt related to the costs of a litigation worldwide.

In a litigation in your country, all the costs involved are due by the losing party?

More specifically, if we are talking about a tax litigation, would all the costs be assigned to the taxpayer even when he is not the losing party?

Brazilian tax legislation provides for the necessity of a legal bond whenever a taxpayer wishes to discuss a fiscal debt in Judicial Courts. According to such provision, before the filing of an Appeal the taxpayer shall guarantee the total amount of the controverted debt through a letter of guarantee or cash. Such letters of guarantee are provided and supported by banks, through the payment of an annual amount.

For instance, if a taxpayer wishes to discuss an income tax debt which is being charged by Brazilian Tax Authorities in a total amount of R$ 1,000,000.00, this party shall ask for a bank to provide a letter of guarantee in the same value. For this service, banks charge from 2% to 5% of the debt per year. After the final ruling favorable to the taxpayer the letter of guarantee cost will still be supported by the taxpayer and not by IRS.

The doubt is: how this works in your country? In the same situation, would the IRS be compelled to support this letter of guarantee cost after an eventual decision favoring the taxpayer?

Thank you in advance.

Luiz Gustavo A. S.  Bichara/ Mattheus Montenegro