On May 13th, the STF finally decided that ICMS highlighted in the invoice can be excluded from PIS and COFINS calculation basis and that such decision is valid as per March 15, 2017.
Since the early 2000’s, when the non-cumulative regime for PIS and COFINS was established, one of the main discussions around tax issues in Brazil was the so-called “Thesis of the Century”, that challenged the inclusion of State VAT (ICMS) in the calculation basis of the gross revenue contributions (PIS and COFINS).
In 2017, the Brazilian Supreme Court (STF), decided for the unconstitutionality of the inclusion of ICMS in the calculation basis of PIS and COFINS, however the STF did not decide which amounts would be excluded (ICMS highlighted in the invoice or the ICMS effectively paid, considering credits); and the time effects of the decision (if the decision was going to affect past periods or if should only be valid for the future).
The effects of this recent decision are summarized in the chart below:
|- Lawsuit filed until March 15, 2017 - the taxpayer will be able to recognize credits from past periods and can exclude ICMS from the calculation basis of current PIS/COFINS calculation basis.|
|- Lawsuit filed after March 15, 2017 – the taxpayer will be able to recognize PIS/COFINS credits for the periods after March 15, 2017 and can exclude ICMS from the calculation basis of current PIS/COFINS|
|- No lawsuits filed - the taxpayer may start to exclude the highlighted ICMS from the PIS and COFINS calculation basis for March 15, 2017 onwards. The recovery of the credit from that date on will depend on the edition of a specific tax ruling (Súmula Vinculante) or act of the Executive Power.|
In addition, the STF decision clarified that the ICMS to be considered is the ICMS highlighted in the invoice, regardless the amount of ICMS paid.
This a relevant victory for Brazilian taxpayers however is important to highlight that the impacts of this decision should be analyzed on a case-by-case basis. Aspects such as the possibility to recover PIS/COFINS amounts already paid; effects on offset pleas (PERD/COMPs) filled; compliance with ancillary obligations, among others, should be carefully considered.
Looking forward to having a formal opinion from the Brazilian Federal Revenue in the coming days about the decision.
For more information, contact a tax professional with KPMG Brazil:
Marcus Vinicius Slemenian
Head of Tax | KPMG in Brazil and South America
Maria Isabel Ferreira