Brazil affirms tax benefit for sales to the free trade zone of Manaus
Brazil has affirmed that sales to the Amazonian free trade zone of Manaus must be equal to export transactions. Machado Associados' Ricardo Debatin da Silveira and Rogério Gaspari Coelho discuss the implications for exporters over the last five years.
Brazil’s Superior Court of Justice (STJ), which has the power to deliver final decisions regarding legality (constitutional matters are addressed by the Brazilian Supreme Court – STF), has reaffirmed that sales to the free trade zone of Manaus (FTZM) – which is in the state of Amazonas – must be equal to export transactions. Companies that have sold inputs or merchandise to the FTZM can therefore recover tax credits to foster exports, under the Special Regime for Reintegrating Tax Values for Exporting Companies (REINTEGRA).
The free trade zone of Manaus was established in 1967 to promote the development of Brazil’s inner Amazon region by establishing an industrial, commercial and agricultural hub.
Decree-Law 288/67 set up the FTZM by granting significant tax exemptions and incentives. It set forth that the sale of domestic goods to the FTZM for consumption or manufacturing processes must be equal to foreign trade transactions, for tax purposes. It is important to note that in general, exports from Brazil are exempt from taxes.
The REINTEGRA, originally established by Law 12546/11, grants exporters deemed credits related to the social contributions on gross revenues (PIS and COFINS), which are connected with the sales of products pointed out in Decree 8415/2015. Such PIS and COFINS credits, which range from 0.1% to 3% depending on the type of good and period considered, can be offset with other federal taxes or refunded to taxpayers.
The Federal Revenue Service has historically prevented refunding those credits, and this is largely due to the fact that the National Tax Code notes that exemptions and similar tax reliefs should be literal rather than “indirect exemptions”. The legislation that instituted the tax benefit used the expressions “direct sales to abroad” and “sales to a trading company aiming specifically at exportation”, and this would ultimately not comprise sales to the FTZM.
As a result, taxpayers considered that they had grounds to challenge that stance, and filed lawsuits. The STJ had precedents noting that transactions with the FTZM were equivalent to exports. Recently, the First Panel of the First Section of the STJ reinforced its position in favour of taxpayers by ruling in Special Appeal 1679681-SC (by three votes to two) that the PIS and COFINS deemed credits granted by the REINTEGRA are applicable when sales to the FTZM are performed.
Despite the STJ’s interpretation, the precedents related to this matter are only binding for the parties in the lawsuits, and the Brazilian Federal Revenue Service may still deny the credits in this situation.
Nonetheless, taxpayers can request in court their right to use PIS and COFINS deemed credits in courts regarding their sales for the FTZM in accordance to the REINTEGRA, and to also recover (with interest) such credits related to the past five-years.
Ricardo M. Debatin da Silveira
Rogério Gaspari Coelho