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Brazil: São Paulo updates special ICMS rates

The state of São Paulo has recently introduced some important changes on the state VAT (ICMS) legislation.

State Law 16005/2015 reduced the rate of the tax on generic pharmaceuticals and raised the rate on beer and tobacco-related products. In addition, State Law 16006/2016 created additional rates to be charged on transactions with beer- and tobacco-related products, in order to finance measures to combat poverty. Both laws will come into force 90 days after their publication in the Official Gazette of the state of São Paulo, which occurred on November 25 2015.

Firstly, we should point out that State Law 16005/2015, published on November 25, sets forth that, as of February 24 2016, the ICMS rates on transactions with generic drugs within São Paulo state will be reduced from 18% to 12%.

According to Federal Law 6360/1976, a generic pharmaceutical is a medicine similar to, or interchangeable with, a reference product or an innovative product, and is usually produced after the expiration of the patent or the end, by any other means, of the rights of exclusivity of the branded product. After the efficacy, security and quality of the generic drug is tested, it is classified by the relevant authorities under the Brazilian classification or, if there is no correspondence, under the international classification recommended by the World Health Organisation (WHO).

The new law also sets forth updated ICMS rates for transactions with beer and tobacco-related products within the state. To this effect, the 18% rate for transactions with beers will be raised to 20% and the 25% rate for transactions with tobacco-related products will be raised to 30%.

In addition to such tax rate increases, State Law 16006/2015 created the State Fund to Fight and Eradicate Poverty (FECOEP), which aims at providing the state population with decent levels of subsistence. It comprises programmes and actions related to nutrition, habitation, education, health and other actions with important social interest, addressed to improve the quality of life of the population. It also includes actions to protect children and adolescents and promote family agriculture.

Said law sets forth that the main resources of FECOEP will be a portion of the ICMS collected by the state, calculated with an additional 2% rate on transactions with beer and tobacco-related products.

Accordingly, considering the ICMS rate increases established by State Law 16005/2015, transactions with beer and tobacco-related products will be subject to a total ICMS rate of 22% and 32%, respectively, with 2% destined for FECOEP.

Júlio M. de Oliveira (joliveira@machadoassociados.com.br), Rogério Gaspari Coelho (rcoelho@machadoassociados.com.br) and Gabriel Caldiron Rezende (grezende@machadoassociados.com.br) are members of Machado Associados’ Indirect Tax team.

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