International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil’s Superior Court of Justice restricts taxpayer access to social security tax credits

Sponsored by

Sao Paulo - Large

Brazil's highest court has challenged the attorney's office, shutting down an attempt to restrict taxpayers from accessing social security tax credits

The first panel of Brazil’s Superior Court of Justice (STJ) unanimously voted to dismiss standing by the Attorney’s Office of the National Treasury in Special Appeal number 1,221,170/PR. This brought an end to the Attorney’s plan to restrict the rights of taxpayers to tax credits for contributions to the Social Integration Plan (PIS) and Social Security Financing (COFINS) agenda, right before the country’s Independence Day (Proclamation of the Republic).

The STJ, in its decision on Special Appeal number 1,221,170/PR, clarified the concept of inputs for the purposes of PIS and COFINS tax credits, noting that:

"The concept of inputs must be checked in light of the criteria of essentiality or relevance, taking into account the indispensability or importance of a given item – whether a good or service – for the development of the economic activity undertaken by the taxpayer."

Given the concept of inputs, the STJ deemed that the restrictive environment established by Normative Instructions 247/2002 and 404/2004 by Brazil’s Federal Revenue Office (SRF) were illegal. The instructions had restricted the right to tax credits, similar to the rules applicable to the credits for tax on Manufactured Products (IPI); inputs added to the final product, or those that wear out through physical contact with the final product or service.

The ruling - registered under number 779 in the STJ’s system of repeated appeals - noted the following:

"The credit rationale in the SRF’s Normative Instructions 247/2002 and 404/2004 is illegal in that it compromises the efficacy of the non-cumulative system of PIS and COFINS contributions, as defined by Laws 10,637/2002 and 10,833/2003.

The concept of inputs must be checked in light of the criteria of essentiality or relevance, taking into account the indispensability or importance of a given item – whether a good or service – for the development of the economic activity undertaken by the taxpayer.”

Due to this decision, on September 26 2018, the National Treasury’s (PGFN) Attorney General issued Notice 63/2018, making public its interpretation of the ruling proffered by the STJ in order to guide both its own agencies as well as those of the Federal Revenue Office. The notice chose to use the “subtraction test” as one of the tools to define the concept of inputs, even though the PGFN itself expressly recognizes that this method is nowhere to be found in the STJ’s decision.

The “subtraction test” consists of the hypothetical elimination of the good or service from the economic activity undertaken. If the absence of the item results in the product or service becoming impossible, useless, or seeing a significant loss in quality to the extent that the company’s activity becomes unfeasible, such an item can be considered to be an input.

Applying the subtraction test used by the PGFN restricts and distorts the interpretation adopted by the STJ. As mentioned above, the STJ’s decision, which has been issued on the basis of repeat appeals, has by law the power to bind both the government as well as the decisions made in the Administrative Council of Tax Appeals (CARF).

Thus, the government as a whole – taken to be the Auditors of the SRF, Attorney’s Office of the National Treasury, and Councilors of CARF - must adhere to the understanding determined by the STJ.

CARF’s Higher Chamber of Tax Appeals has respected the legal decision - as shown by ruling number 9303-007,512 - which was passed last October and upheld the understanding of the STJ.

We can subsequently see that the matter was already resolved by the STJ.

This article was written by João Marcos Colussi and Luana Maluf da Silva Robles of Mattos Filho.

João Marcos

João Marcos Colussi


Luana Maluf

Luana Maluf da Silva Robles

more across site & bottom lb ros

More from across our site

ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.
Karl Berlin talks to Josh White about meeting the Fair Tax standard, the changing burden of country-by-country reporting, and how windfall taxes may hit renewable energy.
Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.