On March 15, the Full Bench of the Brazilian Federal Supreme
Court (STF) ruled that the inclusion of the
state VAT (ICMS) on the social contributions on gross revenue
(PIS and COFINS) taxable basis is unconstitutional
(Extraordinary Appeal No. 574706).
The main argument to grant the taxpayer’s
appeal to not include the ICMS on the PIS/COFINS taxable basis
was that, in summary, even though the ICMS amounts are charged
by the seller as part of the product’s price, such
amounts will be transferred to the state treasury department.
Therefore, they will not be added to the company’s
assets and will not fall within the concept of gross-revenue,
which is the taxable basis for the PIS/COFINS.
Regarding the issue of establishing a date for the STF
ruling to take effect, despite the request made by the Attorney
of the National Treasury in the oral arguments,
STF’s Justice Rapporteur Carmen Lucia found that
there was no claim in this regard in the court documents.
Therefore, this matter was not subject to trial. However, the
Attorney General of the National Treasury might file a Motion
to Clarify this issue in court.
Given the uncertainty of the effective date of the ruling,
it would be best to have a lawsuit filed on the matter. This
would allow the taxpayer to reclaim the PIS/COFINS paid in
excess (the ICMS amounts included in the sales price) in the
five years before the date of the claim. This is because, even
if the STF rules in favour of establishing a date for the
decision to take effect – which in practical terms
generally, prevents the recovery of overpaid taxes –
based on its case law, the STF tends to protect the taxpayers
that have already claimed their rights by filing a lawsuit. It
should be noted that the five years is the statute of
limitation period according to Brazilian tax legislation.
Furthermore, taxpayers may henceforth exclude the ICMS from
the PIS/COFINS taxable basis. If companies adopt a conservative
approach, they should obtain a ruling that allows the
suspension of the payments and, thus, inform said suspension in
the federal debts and credits accessory obligation form (DCTF).
However, companies may decide to suspend payments immediately
based only on the STF ruling. In this case, the possibility of
the Federal Revenue assessing the companies, based on the
legislation that was deemed unconstitutional but is still in
force, should not be ruled out.
Additionally, the government, to mitigate the decrease in
tax collection and absorb the impact arising from the refund
regarding the past five years, may increase the PIS/COFINS tax
rate. This increase would be aligned with the previous
government decision to increase the PIS/COFINS rate levied on
the import of good, when the STF (in Extraordinary Appeal 55937) decided to
exclude the ICMS and the PIS/COFINS from the
goods’ import taxable basis. The increase of the
PIS/COFINS may be performed in the same fiscal year. However, a
period of 90 days must be respected before it is
Finally, based on the content of the STF ruling, a case law
was established that may increase the taxpayers’
chances of favourable outcomes regarding the following pending
The exclusion of the municipal tax service (ISS) from the
PIS/COFINS taxable basis; and The exclusion of ISS and
ICMS from the social security contributions (INSS) calculated
- The exclusion of the municipal tax service (ISS) from the
PIS/COFINS taxable basis; and
- The exclusion of ISS and ICMS from the social security
contributions (INSS) calculated on gross-revenues.
In such cases, a similar understanding to the ruling on the
Extraordinary Appeal 574706 could be reached, as the ISS and
ICMS amounts will be transferred to, respectively, the
municipal and state treasury departments and would, therefore,
not fall within the concept of "gross-revenues".
In summary, although there are several questions about the
future impacts and developments of the STF ruling on the
Extraordinary Appeal 574706, taxpayers should be alert and
adopt the proper measures and counselling to reap benefits from
By Júlio M de Oliveira and
Fernando Telles da Silva, members of
Machado Associados’s indirect tax team in