Bill 529/20, which was processed at Alesp, which dealt with measures aimed at fiscal adjustment and the balance of public accounts in the state, was always the object of discussions about its dubious constitutionality/legality.
Presented by the Executive in August 2020, it was based on studies by the Secretariat for Projects, Budget and Management and was urgently processed. In the Sefaz studies it was stated that it was “necessary to make a reduction in the tax benefits related to the ICMS”, as well as that “the proposal equates to a tax benefit, as it has the same effect, setting a rate below 18% (eighteen per cent)”, and finally, mentions “that the Agreement ICMS 42/2016 authorizes the states and the Federal District to create conditions for the enjoyment of incentives and benefits under the ICMS or reduce its amount”.
And so was born the fiscal adjustment that culminated with the conversion into State Law 17,293/20. However, much more than the legal confrontation of the law that authorizes the governor to renew tax benefits; to reduce tax benefits in the form of Agreement nº 42/2016, of Confaz, and equate tax benefit at a rate below 18%, we have to analyze the state decrees that came and assess whether or not they have a legality defect.
It is clear that each sector will be responsible for evaluating the situation that fits in terms of tax benefits for Confaz, whether they are faced with authorizing or taxing agreements.
The constitutional rule determines that it will be incumbent upon the complementary law “to regulate the way in which, upon deliberation of the states and the Federal District, exemptions, tax incentives and tax benefits will be granted and revoked”. And this Complementary Law is nº 24/75. The agreements are signed at meetings within the Confaz scope and the granting of tax benefits depends on the unanimous decision of the states, and their total or partial revocation will depend on the favorable vote of at least four-fifths of the representatives present.
Another point concerns the nature of agreements, whether mandatory or authoritative. Imposing agreements are those that have imperative rules, of course taken at a Confaz meeting and that are binding on all federation units, under the terms of the LC 24/75. They are internalized by an act of the Executive, and such entities cannot modify or suppress in whole or in part, as it will depend on the approval of at least four-fifths of the representatives present at Confaz and not by means of a decree from the head of the state executive power or the federal district .
The Confaz ICMS Agreement 52/91 grants a reduction in the tax base in operations with industrial machinery and equipment and agricultural machinery and implements and imposes a mandatory reduction in the tax base in interstate operations. The Confaz ICMS Agreement No. 100/97 grants a reduction in the calculation basis for interstate departures of agricultural inputs.
These agreements are important for the industry that purchases these capital goods, including agribusiness as a way to encourage the production chain as a whole located in several states. State Decree 65.254/20 rewords articles 9, 10 and 12 of Annex II of the RICMS/SP, in so doing, partially revokes tax benefits that were granted under Confaz (ICMS Agreements 52/91 and 100/97 ), both related to the reduction of the calculation base of interstate transactions and increases the tax burden in these situations, therefore open to questioning, as they are in disagreement with the State Law 17,293/20.
By illegally increasing the tax burden on interstate operations, the Government of the State of São Paulo directly harms the manufacturers of industrial or agricultural machinery, equipment and implements, as well as the manufacturers of agricultural inputs, since it removes their competitiveness in relation to industries established in other States.
We believe this was not the governor’s intention.
The ICMS Agreement 42/16, which serves as a backing for State Law 17,293/20, only authorizes the states and the Federal District to create conditions for the enjoyment of incentives and benefits under the ICMS or reduce its amount in internal operations, never in interstate operations. This is so true that the state law itself, in its article 22, paragraph 1, states that for all purposes, the rate set at a level lower than 18% is equivalent to a tax benefit, that is, they are internal operations!
Thus, State Law 17,293/20, when referring to Agreement 42/16, could only authorize the Executive to deal with reduction of tax incentive or benefit in internal operations, that is, any state decrees that may reduce tax benefits arising from interstate exits are illegal.