Will this be the end of the history of taxation of ICMS tax incentives?

We recently wrote an article entitled “The never-ending story of the taxation of ICMS tax benefits”, published in various media.

In that, we pointed out that the Federal Revenue Service of Brazil, in the Consultation Solution of DISIT/SRRF01 No. 1009/2020, analyzing the incidence or not of IRPJ and CSLL on tax or financial-fiscal incentives and benefits related to ICMS, restricted the scope of the changes promoted by the legislator, when publishing Complementary Law 160/17, which added paragraphs 4 and 5 in art. 30 of Law No. 12.973/14.

This rule clearly established that the incentives and tax or financial-fiscal benefits related to ICMS are considered investment subsidies, and the requirement of other requirements or conditions not provided for in the law is prohibited. In addition, it determined that this would apply to incentives instituted in disagreement with the Federal Constitution and also to administrative and judicial proceedings not yet definitively judged.

It is worth remembering that on 11.8.1017, the National Congress overturned the President of the Republic’s veto to the aforementioned articles 9 and 10 of LC 160/17, so that, twice, the parliament had the opportunity to analyze the issue and repeat on two occasions, it was understood that such provisions were inserted to provide legal certainty to taxpayers and put an end to the discussion on the legal classification of ICMS benefits for the purpose of levying or not IRPJ and CSLL (investment grants X grants for costing).

In the same line of taxation or not of ICMS tax incentives, however, analyzing the issue from the standpoint of ICMS presumed credits, whether or not they should be part of the PIS and COFINS calculation basis, in a recent decision of the Federal Supreme Court, in the records of Extraordinary Appeal No. 835,818, it formed a majority in a judgment with general repercussion, in the sense that the inclusion of presumed ICMS credits (incentive/benefit) in the PIS and COFINS calculation basis is unconstitutional. Although it has not yet ended, as there is a request for a review by one of the ministers, the thesis is already pacified in favor of the taxpayer, of course.

In the winning vote, the rapporteur understood that the presumed credits (which arise from ICMS tax incentives or benefits) are in fact a tax waiver with the reduction of the tax due, and there is no need to talk about “acquisition of availability to signal contributory capacity ”.

Further on, and with a clear aim, the rapporteur states “the taxpayer does not invoice tax and, secondly, that the State cannot give it with one hand and take it with the other”.

Well, in our view, the recent judgment of the STF, despite having analyzed the issue of taxation of ICMS tax incentives under the PIS and COFINS focus, should also be used as a counterpoint to the understanding of the federal tax authorities in wanting to tax tax incentive under IRPJ and CSLL.

In fact, whether it is up to the Member State to grant or not tax incentives for taxes within its competence, the Union cannot wish to tax such incentive, whether for PIS and COFINS purposes, or for IRPJ and CSLL purposes, as the Minister says. Marco Aurélio would be giving with one hand and withdrawing with the other, in addition to a clear invasion of tax jurisdiction and an affront to the federative principle.

Therefore, we hope that the combination of the normative framework, with the recent judgment of the STF in general repercussion, added to what Professor André Franco Montoro[1] called the “principle of good sense”, which should guide the tax-taxpayer relations, constitutes a real shovel of lime in the repeated attempts of the federal tax authorities in wanting to tax the ICMS tax incentives, and that this story ends for good.

By Luiz Silveira and Caio Cesar Braga Ruotolo

[1] Federalism and the strengthening of Local Power in Brazil and Germany. Konrad Adenauer Foundation Debate Collection: Rio de Janeiro, 2002. P. 59