The REPETRO is a special customs regime that aims to foster
the development of the oil & gas industry in Brazil. It is
governed by the Brazilian Federal Revenue Service (FRS)
Normative Instruction 1415/13 and State VAT (ICMS) Agreement
130/07. The main benefits of REPETRO are:
full suspension of federal taxes on the temporary import of
goods, ICMS exemption or its levy at an effective tax rate of
1.5% if goods are to be employed during Research Phase, or ICMS
levy at an effective tax rate of 3% (not recoverable) or 7.5%
(recoverable) if the use occurs during production phase.
'pro-forma export’ that, for tax purposes, deems
the sales to foreign entities as an effective export, even if
the goods never leave Brazil, meaning that the ownership is
transferred to an entity abroad but the final goods remain in
Brazil to be employed by a REPETRO beneficiary. Exports in
Brazil are exempt from federal and state taxes.
possibility to import under the drawback special regime and to
terminate it with a pro-forma export. Under such regime, a
Brazilian company may acquire raw materials with suspension of
the taxes levied on the manufacturing of products to be
exported, and the tax suspension is converted into tax
exemption upon the export of the manufactured products (actual
export or pro-forma).
In 2008, the state of Rio de Janeiro passed ICMS Agreement
130/07 by the enactment of State Decree 41142, thus granting,
at state level, the following benefits:
Reduction of the ICMS taxable basis for goods that will be
imported under the REPETRO temporary admission regime, and used
during the production phase, comprising an effective tax rate
of 3% (not recoverable) or 7.5% (recoverable).
ICMS exemption for goods imported under the REPETRO temporary
admission regime to be used in the research phase
(alternatively, the state could charge a 1.5% rate, not
entitling the company to credits).
ICMS exemption regarding previous transactions with goods that
will be subject to a pro-forma export and, subsequently,
imported under the REPETRO temporary admission regime.
Amid the severe economic crisis that is affecting the State
of Rio de Janeiro, the State Legislative Assembly decided to
suspend the effects of State Decree 41142 by enacting
Legislative Decree 2/2016. Hence, since its publication on
December 15 2016, the above benefits have ceased to be valid in
the state of Rio de Janeiro.
However, from a practical standpoint, the suspension of the
REPETRO benefits will most likely disrupt Brazilian
manufacturers, who use pro-forma exports to terminate their
Drawback licenses, but might not affect service providers, who
usually import vessels or other equipment under the REPETRO
temporary admission regime for the local rendering of
This is because, as we mentioned in a
previous article, the Brazilian Federal Supreme Court (STF)
issued a ruling (Extraordinary Appeal #540.829) in September
2014, asserting that the triggering event of the ICMS levied on
imports will only occur if the goods’ ownership is
transferred to the Brazilian party and, even though such ruling
regards the import of aeronautic equipment under a leasing
agreement, it has an erga omnes effect (that is,
general repercussion), meaning that such STF ruling is a
leading case binding similar decisions of the lower courts
Hence, based on such ruling, most companies performing
temporary imports with no transfer of ownership have filed
lawsuits and obtained a preliminary injunction to stay the ICMS
collection on temporary imports under the REPETRO.
Consequently, service providers should continue to benefit from
the ICMS exemption, as it will remain valid after the
suspension brought by State Decree 41142.
Conversely, local manufacturers will be targeted, as they
use the pro-forma export to sell to foreign companies with ICMS
exemption – which might be questioned as the goods
never actually physically leave Brazil – and duly
terminate their drawback concessions.
Furthermore, henceforth, if the goods imported under the
REPETRO temporary admission regime are subject to interstate
transactions that involve the state of Rio de Janeiro, the
companies may also be questioned by the state of Rio de
Janeiro’s tax authorities. This is because
paragraph 3 of clause 7 of ICMS Agreement 130/07 establishes
that goods benefited by REPETRO will be subject to the ICMS
only once (on the import), even if the goods are subject to
interstate transactions. Hence, with the suspension brought by
State Decree 41142, the applicability of the rules of the ICMS
Agreement 130/07 may be put into question by Rio de
In conclusion, although the intention of the Rio de Janeiro
Legislative Assembly is to increase its tax collection, the
decision to suspend the REPETRO benefits may have the opposite
result, as manufacturers located in the State of Rio de Janeiro
might consider the possibility of moving to other states that
respect the validity of the REPETRO benefits, thus leading to
higher unemployment rates and worsening the effects of the
crisis in Rio de Janeiro.
Júlio M de Oliveira (firstname.lastname@example.org
) and Fernando Telles da Silva (email@example.com
), are members of Machado Associados’s
indirect tax team.