Recently, Brazil’s Supreme Federal Tribunal (STF), the country’s Supreme Court, finally decided a long-standing question about the exclusion of state sales tax (ICMS) from the calculations for two federal taxes: the Program of Social Integration (PIS) and the Contribution for the Financing of Social Security (COFINS).
In a judgment on the merits that was generally regarded as favorable to taxpayers, the STF had already ruled back in 2017 that ICMS was excluded from the PIS/COFINS taxable basis. However, there were still questions about how the ICMS amount itself should be defined for purposes of exclusion. The Office of the General Counsel for the Federal Treasury (PGFN) argued that companies could exclude only the ICMS that they actually paid, after credits for the purchase of goods and services needed for production (ICMS is in itself VAT-like in allowing such credits). Taxpayers argued that the ICMS to be excluded from PIS/COFINS was simply the total amount if ICMS indicated on sales invoices.
The STF came down on the side of the taxpayers, ruling on May 13 in RE #574.706 that “the ICMS indicated at the invoice” should be excluded from the taxable base of PIS and COFINS, for all taxable transaction as from March 15, 2017. The Tribunal also ruled that all taxpayers with ongoing lawsuits filed prior to this date, in this regard now have the right to eliminate the ICMS from the PIS and COFINS calculation basis, while following specific guidance from their legal advisors.
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Ana Maciel is a tax research manager responsible for new tax content that supports the Vertex Indirect Tax O Series solution in Brazil. Based in São Paulo, she has more than 24 years of experience in Brazilian indirect tax and has worked at Vertex for over 11 years. Previously, she worked as a tax advisor to multinational companies in Big 4 accounting firms. Ana holds a B.S. in law and a B.S. in business administration, as well as a post-graduate degree in international trade from Universidade Paulista.