New VAT split for interstate transactions in Brazil
In April 2015 Constitutional Amendment No 87/2015 (the Amendment) was introduced, providing a new taxation regime for state-level VAT on interstate sales performed remotely. This week, part of the expected regulation was enacted.
The regime essentially covers interstate sales carried out without the physical presence of the acquirer, which clearly encompasses, but is not limited to, e-commerce.
As of 2016, under the new system, the ICMS (state tax) levied on the remittance of goods to a final consumer located in a different state will no longer collected only by the state in which the shipper is domiciled.
With the enactment of the Amendment, which becomes mandatory as of 2016, ICMS will be split with part going to the state of shipment and part going to the destination state.
Agreement 93/2015 (Convênio CONFAZ nº 93/2015 – the Agreement), which was approved this week, seeks uniformity in terms of tax collection and audit/inspection procedures.
Under the existing regime, shippers proceed according to the legislation of the state in which they are domiciled, provided that is the only one collecting taxes.
However, the Agreement provides that the shipper shall comply with the requirements provided by the state tax legislation of the destination, which gives rise to some concerns.
The Agreement provides that shipper shall:
(i) calculate the ICMS levied on the transaction according to the tax rate provided in the destination state;
(ii) be registered, if mandatory by destination legislation, as a taxpayer in such state even in the event there is no facility located therewith; and
(iii) comply with other specific tax reporting duties provided in such legislation.
In addition, tax inspections may be performed by both states involved in the transaction, jointly or separately, which means that the taxpayer will have to comply with specific tax authorities’ requests depending on the area in which the transaction takes place.
Despite not, in our opinion, bringing sufficient procedural rules, the Agreement implies that taxpayers shall observe the legislation of the destination state, which leads to a burden to be carried out by the taxpayer, which will have to improve its transaction-tracking infrastructure as well as change the methods for complying with tax reporting obligations.
It is worth mentioning that the Agreement also refers to the enactment of another statute (Ajuste SINIEF) by the technical committee of CONFAZ providing more details concerning the tax reporting obligations, which may introduce a single method to be imposed by all the states in order to avoid the difficulties described above. Regardless, not only does the short period of time to implement everything present a challenge for taxpayers, but the effects on possible tax credit disputes that may arise from this split are also cause for concern for ICMS taxpayers.
Renata Correia Cubas and Marcel Alcades Theodoro, Mattos Filho, Veiga Filho, Marrey jr e Quiroga, International Tax Review correspondents.