The Crocs Case and the Tax Battle: Why Doing Business in Brazil is Not for Amateurs?

What is the difference between a slipper, a rubber sandal, and a waterproof shoe? The question might seem simple, but in the complex Brazilian tax scenario, the answer cost the famous brand Crocs assessments and fines exceeding BRL 33 million.

The clash involving footwear imported from China became the perfect example of what experts call a "tax pandemonium." And it brings an urgent warning to your company: a simple error in the Fiscal Classification (NCM) can trigger million-dollar liabilities and litigation that drag on for decades.

The Fiscal Classification (NCM) Trap

It all started with the Mercosur Common Nomenclature (NCM). Crocs needed to define which code its products fit into:

• NCM 6.402 (Rubber sandals): Subject to a heavy anti-dumping duty of USD 13.85 per pair.

• NCM 6.401 (Waterproof shoes): Category free from this charge.

Initially, the company used the sandal code. However, after goods were retained at the Port of Santos, a customs tax auditor advised the brand to change the classification to waterproof shoes. Seeking more certainty, the importer approached the Chamber of Foreign Trade (CAMEX), which issued a technical note confirming the exemption from the anti-dumping duty.

With the endorsement of a government body, the company amended its declarations. What seemed resolved turned into a nightmare: sometime later, a new inspection retained the goods, stating that the position was wrong, since an open shoe with holes could not be "waterproof." The Tax Authority accused the brand of trying to circumvent anti-dumping measures and applied massive retroactive fines.

The Plot Twist at CARF and Legal Uncertainty

The dispute went to the Administrative Council of Tax Appeals (CARF). Crocs even won in the first instance, under the strong argument that the tax authorities themselves had induced them into error. However, in October 2023, the Superior Chamber of CARF (the highest instance) unanimously reversed the decision, imposing a defeat on the brand.

The final understanding of the board was harsh: the exclusive competence to define tax classifications belongs to the Federal Revenue Service (Receita Federal), not CAMEX. If the company had doubts, it should have formalized a strict Consultation process with the Federal Revenue, which would guarantee legal certainty.

The Cost of the "Brazil Cost" (Custo Brasil)

The Crocs case perfectly illustrates an alarming fact raised by the Federal Court of Accounts (TCU): Brazil has one of the most complex tax systems in the world, requiring companies to spend an average of 1,958 hours per year just to comply with tax obligations (tax compliance).

When a conflict arises, the scenario is even worse. A tax litigation process that goes through all instances in Brazil takes an average of 6,807 days (over 18 years) to be concluded. It becomes clear that staying in compliance is not merely a bureaucratic issue, but one of financial survival.

Furthermore, the incorrect classification of products subjects the taxpayer to an immediate fine of 1% on the customs value, in addition to the retroactive collection of tax differences, interest, and ex officio fines.

The Tax Reform Will Increase the Weight of the NCM

If the current scenario already severely punishes mistakes, the Tax Reform (Complementary Law 214/2025) has made NCM accuracy even more decisive. The code of your product is what will determine whether it falls under the zero rate of the National Basic Basket, whether it will have a 60% reduction, or whether it will pay the full standard rate (estimated between 26.5% and 28.5%) of the new IBS and CBS taxes.

How Can FIRLAN Advogados Protect Your Business?

Doing business in Brazil, definitely, is not for amateurs. Strategic decisions on import, taxation, and classification cannot rely on intuition or informal guidance.

At FIRLAN Advogados, we have a team of experts dedicated to transforming the "tax pandemonium" into security and competitive advantage for your company. We act with:

• Preventive Tax Planning and Customs Review: We analyze the framework of your products to optimize costs in a fully legal manner.

• Formal Consultations with the Federal Revenue (COSIT): We draft robust technical consultations to ensure that your operations are legally shielded against future assessments.

• Administrative and Judicial Litigation: Combative and strategic defense in tax assessments, including before CARF and higher courts.

Do not wait for customs retention or a million-dollar assessment to discover that your product is classified incorrectly. Contact the FIRLAN Advogados team and guarantee the legal certainty your assets deserve.