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Brazil’s new policy on ICMS and VAT benefits


There is a new federal programme which promises a fresh landscape for tax benefits in Brazil.

Instead of local, state-level negotiations for benefits, Provisional Measure 599/12 (PM 599/12) establishes a federal financial assistance programme for the states, the Federal District, and municipalities, to compensate for revenue lost as a result of tax rate reductions made on interstate transactions in the context of ICMS /VAT.

One of the conditions for such implementation would be the regressive reduction of ICMS/VAT rates applicable to interstate transactions.

Furthermore, through PM 599/12, the regional development fund (RDF) was created as a local incentive to mitigate the effects of the fiscal war. The RDF is administered by the Ministry of Finance and its purpose is to finance investment projects with potential multiplier effects on specific regions.

Pursuant to PM 599/12, in addition to allowing for the offset of losses, the federal government will support state programmes intended to encourage investments having a potential multiplier effect.

Access to RDF resources will be prohibited if the granting, extension or maintenance of any kind of tax or financial benefit in violation of the law is identified by the federal government (or any political subdivision) where such agreement has not been subject to approval by all of the states.

Furthermore, for purposes of such financial assistance, the states and the Federal District are required to provide the Ministry of Finance with information regarding tax or financial benefits already granted to its taxpayers. Among other requirements, the following conditions must be fulfilled:

· Submission of a report with complete identification of benefits that were not submitted to the National Finance Policy Council;

· Execution of an agreement between the states and the Federal District by no later than December 31 2013, whereby the effects of tax and financial benefits are regulated, including related tax credits; and

· Enactment of the Senate Resolution regarding the ICMS/VAT rates reduction, applicable to interstate transactions that fulfil specific regressive rates.

These regressive rates do not apply to interstate transactions originating in the Manaus Free Trade Zone, or to interstate transactions involving natural gas that are taxed at a rate of 12%. They arenot applicable to interstate transactions involving imported products and merchandise, which remain governed by Senate Resolution 13/2012.

The new measures promise an end to the local tax benefits that we have seen over the past few decades and give space to a new environment where state tax benefits will no longer be decided by states, but by the federal government.

By principal Tax Disputes correspondent for Brazil, Renata Correia Cubas ( of Mattos Filho.

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