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Harmonisation of Brazilian interstate VAT rates involving imported goods


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


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