Exclusion of State Sales Tax (ICMS) from the PIS/COFINS tax basis

In a recently concluded trial session, the Brazilian Supreme Court (STF) partially accepted the motion for clarification filed by the National Treasury in the records of Extraordinary Appeal No. 574,706/PR, which, on March 15, 2017, , under general repercussion, the need to exclude ICMS from the PIS/Cofins tax base was recognized.

By majority of votes¹, Justice Carmén Lúcia’s opinion prevailed, through which:

• The Treasury claim to authorize the inclusion of ICMS in the PIS/Cofins base was rejected;
• The National Treasury claim to have only the ‘collected’ ICMS excluded from the PIS/Cofins base was rejected, prevailing the taxpayers’ thesis of having the ICMS “mentioned in the invoice” excluded; and
• The exclusion of the ICMS from the PIS/Cofins base takes effect only as of March 15, 2017, except for the lawsuits and administrative requests filed up to that date.
The decision taken, by majority vote, represents an almost complete rejection of the Treasury claims, although it is necessary to follow up with the formalization of the opinion regarding the trial, without prejudice to the possibility of new motions for clarification being filed by by the parties.

The adopted understanding puts an end to the thesis raised by the tax authorities according to which “the amount to be excluded from the monthly tax basis of the contribution is the monthly amount of ICMS to be paid²” to the States, whose reason not to subsist lies in the finding that the tax base of PIS/Cofins is actually composed of the ICMS “indicated in the invoice”. In this sense, the actual payment of the state tax is irrelevant, not least because it results from the confrontation of ICMS debts and credits, which is usual in its non-cumulative system.

Regarding the modulation of the effects of the declaration of unconstitutionality, the position taken today seems to disregard that, since August 24, 2006, there was already a formed majority (6 to 1) in the STF³ for to the exclusion of ICMS from the PIS/Cofins tax base. The delay in coming to a definition on the issue – in addition to undermining legal certainty – results, above all, from the combative insistence adopted by the tax authorities, which ended up benefiting from the postponement of the effects of the declaration of unconstitutionality.

The Madrona Advogados’ Tax Team is available to provide any clarifications regarding the opinion, as well as to assist in defining the impacts arising from the decision on the specific situation of each taxpayer.

¹ See the table, at the end, about the position adopted by each Justice.
² Along the lines of COSIT Consultation Solution No. 13/2018
³ Extraordinary Appeal No. 240,785 / MG