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

Harmonisation of Brazilian interstate VAT rates involving imported goods

taxessmall.jpg

Federal Resolution 13, published on April 26 2012 and in force as of January 1 2013, unifies the Brazilian State VAT (ICMS) interstate rate applicable for imported goods, when those goods are part of interstate transactions, reports Elson Bueno of KPMG.

At the moment, there are various rates applicable on interstate transactions:

  • 7% applicable on sales made by business based in the south or south-east regions to customers in the north, north-east and mid-west regions, as well as to Espírito Santo state.

  • 12% applicable on:

    • Sales from any region to the customers in south or south-east regions; and

    • Sales from north, north-east, mid-west regions and Espírito Santo State to customers in north, north-east, mid-west regions and Espírito Santo state.

Under Federal Resolution 13, these rates were unified into one single rate of 4% for interstate transactions involving imported goods, regardless of the origin and destination in Brazil.

However the unified 4% ICMS rate will be applicable only in the following situations:

  • If the imported goods are not subject to any kind of industrial process after customs clearance; and

  • If the manufactured product resulting from the assembling or manufacturing process has more than 40% of imported good or raw materials. This 40% ratio of imported content should be verified by the tax authorities, according to specific procedures to be further regulated by the National Council of Fiscal Policy (CONFAZ).

The unified ICMS rate will not be applicable to transactions involving:

  • Imported goods with no national equivalent, according to guidance to be provided by the Council of Foreign Commerce Representatives (CAMEX);

  • Imported goods purchased by companies located and benefiting from the Manaus Free Trade Zone regional tax incentives (Basic Productive Process);

  • Goods covered by other listed tax incentives (for example digital TV manufacturing, electronics and IT); and

  • Natural gas originated from foreign sources.

The aim of this new rule is to reduce or tackle the harmful tax competition among Brazilian states, known as the tax war of ports. Because some Brazilian states, such as Espírito Santo and Santa Catarina, granted ICMS tax incentive on imports, the effective ICMS rate on imports sometimes reached 3 to 4%, despite ICMS interstate rates (of 7% or 12%) and the mandatory CONFAZ pre-approval necessary for state incentives. Moreover, this measure intends to create a more competitive price for domestic products against imported products.

Considering this tax environment, many Brazilian ICMS taxpayers structured their operations and supply chains to take advantage of ICMS reductions on imports. This involved channeling imports into Brazil through trading companies located in states where ICMS benefits were granted.

Even though the legality and constitutionally of such ICMS import incentives have been discussed by Brazilian judicial courts for many years, the unified ICMS rate of 4% will harmonise the harmful situation of tax competition.

Elson Bueno

KPMG in Brazil

Tel: +55 1121833281

Email: ebueno@kpmg.com.br

more across site & bottom lb ros

More from across our site

A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.
With marked economic disruption matched by a frenetic rate of regulatory upheaval, ITR partnered with Asia’s leading legal minds to navigate the continent’s growing complexity.
Lawmakers seem more reticent than ever to make ambitious tax proposals since the disastrous ‘mini-budget’ last September, but the country needs serious change.
The panel, the only one dedicated to tax at the World Economic Forum, comprised government ministers and other officials.
Colombian Finance Minister José Antonio Ocampo announced preparations for a Latin American tax summit, while the potentially ‘dangerous’ Inflation Reduction Act has come under fire.
The OECD’s two-pillar solution may increase global tax revenue gains by more than $200 billion a year, but pillar one is the key to such gains due to its fundamental changes to taxing rights.