Brazil: Interpretation on ICMS exclusion of PIS/COFINS tax basis

published on October 29, 2018 / reading time approx. 2 minutes

Brazilian Federal Revenue Service enacts Ruling comprising procedures regarding the Supreme Court’s decision that excluded ICMS from PIS/COFINS tax basis. After almost ten years on stand-by, on March 15, 2017 the Supreme Court of Justice (STF) on the Extraordinary Appeal (RE) # 574.706 (with recognition of general repercussion over the subject) decided that ICMS (State VAT) should not be included on the tax basis of contributions PIS and COFINS (Gross revenue contributions) due over the enterprises’ revenue. The decision was published on October 2017.

In this context, on October 23, 2018, the Brazilian Federal Revenue Service (RFB) Office stated its position on the interpretation and application for the decision enforcement for taxpayers (final decisions according to RFB understanding) that discussed the removal of ICMS from PIS/COFINS tax basis, by means of an Inquiry from the General Coordination of Administrative and Judicial Procedures (COCAJ), resulting on the Internal Ruling of the General Tax Coordination (COSIT) # 13 (hereinafter SC 13/2018).

Currently, it is still pending the analysis of a plea (“Amendment to Judgement”, or Embargos de Declaração in Portuguese) from the Treasury General Attorney’s Office, in which was pledged in short (a) modulation of effects of the mentioned decision, motivated by the potential impact to Public Treasury; and (b) which amount of ICMS to be excluded from PIS/COFINS tax basis. In this sense, an eventual change to the positon adopted by the Supreme Court could imply on adjustment of RFB understanding of SC 13/2018.

In general, SC 13/2018 discusses three topics:

Which ICMS should be excluded from PIS/COFINS tax basis – ICMS due (composed by the balance of debits and credits determined by the taxpayers throughout the month on its activities) or ICMS over sales (Amount mentioned in the invoices);
Application of percentage relation between gross revenue subject to several tax treatments for PIS/COFINS purposes (i.e. segregation of tax situations through Tax Situation Codes – CST) and total gross revenue, to apply the mentioned ICMS exclusion on the appropriate way and ratio; and
Reliable documentation for gathering ICMS due amounts.

The great discussion of SC 13/2018 relates to the interpretation of the amount to be excluded from monthly tax basis, indicating that the tax due would be the amount effectively due to by taxpayers (in other words, ICMS due, with balance of tax debits and credits) instead of the amount mentioned in the sales invoices (Total ICMS).

Such interpretation can lead to a restrained and targeted application of the decision at first sight and, in practical terms, would raise the amount of PIS/COFINS due, since ICMS due would be lower than total ICMS.

It is worth mentioning that RFB interpretation leaves room for discussions, and bearing in mind the complexity of the subject, a thorough analysis of each case is recommended to avoid that adopting certain positions today lead to future queries from tax authorities. For this purpose, our Tax Consulting team is prepared to help you with these questions.