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Brazilian Federal Revenue Service reduces PIS/COFINS credits with questionable opinion

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Companies must exclude the ICMS from the contributions’ credits base

Júlio de Oliveira and Gabriel Caldiron Rezende of Machado Associados discuss the recent manoeuvre of the Federal Revenue Service to reduce the financial impact of the Brazilian Federal Supreme Court decision on the PIS/COFINS taxable base.

As discussed in previous articles, on March 15 2017, the Full Bench of the Brazilian Federal Supreme Court (STF) ruled that the inclusion of the state VAT (ICMS) on the social contributions on gross revenue (PIS/COFINS) taxable base is unconstitutional (Extraordinary Appeal 574706).

To this effect, the STF concluded that, although the ICMS is charged by the seller as part of the sales price, such amounts will be transferred to the state treasury department and, therefore, will not be added to the legal entity’s assets, thus not falling within the legal concept of gross revenue, which is the taxable base for the PIS/COFINS.

On March 13 2021, the STF judged a motion for clarification, establishing that the ICMS that is not included in the PIS/COFINS taxable base is the one levied in each transaction, indicated in the relevant invoice, regardless of the credit and debt netting result.

With the conclusion of said judgment (deemed by many as the tax dispute of the century), taxpayers thought that the dispute was concluded. However, the Brazilian Federal Revenue Service (RFB) did not peacefully accept such an outcome, and issued Normative Opinion 10/2021, in which it states that companies subject to the PIS/COFINS non-cumulative system must exclude the ICMS from the contributions’ credits bases.

We point out that, under the PIS/COFINS non-cumulative system, taxpayers may offset credits calculated on the acquisitions of certain goods and services, such as inputs and goods for resale. For this, the law provides that, as a rule, credits will be calculated by applying a 1.65% PIS rate and 7.6% COFINS rate on the acquisition value.

Nevertheless, RFB states that, based on STF’s decision:

  • As it has been supposedly decided that the ICMS is not part of the sale’s price, it does not fall into the 'acquisition value’ for PIS/COFINS credit purpose; and

  • Considering that the law provides that acquisitions not subject to PIS/COFINS do not generate credits, as the ICMS levied on sales is not subject to PIS/COFINS, such amount also do not generate credits, and thus must be excluded from the acquisition value for credit calculation purpose.

In our opinion, said RFB understanding, aside from distorting the decision issued by STF, lacks legal grounds, and disrespects the literal wordings of the law, especially because:

  • STF did not decide that the ICMS is not part of the sale’s price, but rather that, although it is charged as part of the sale’s price, it does not typify a revenue for the seller, as the relevant amounts collected from the purchaser (as part of the price) shall be passed on to the state treasury department;

  • As determined by the Brazilian Federal Constitution, the ICMS composes its own taxable base, which is the transaction value (i.e. the sales price/acquisition value). To this effect, the ICMS is legally part of the sales price and it burden is passed on to the purchaser; and

  • The fact that law provides that acquisitions not subject to PIS/COFINS do not generate credits does not allow the exclusion of the ICMS from the credit base when the acquisition has been taxed. Also, the taxpayer is not purchasing ICMS, but rather  goods, and the relevant credits are bases is the acquisition value (which includes the ICMS born by the purchaser).

We understand that, if the federal government believes that PIS/COFINS credit calculation must be changed in view of the STF decision, it must do so by means of legislative changes. To this effect, it is unacceptable that the RFB, as part of the executive branch (which is subject to the wordings of the law), construes interpretations that goes against the literality of the law.

Although Normative Opinion 10/2021 is highly questionable, it represents a formal statement of the RFB on its approach towards PIS/COFINS credit calculation, and thus more disputes are awaited.


Júlio de Oliveira

Partner, Machado Associados



Gabriel Caldiron Rezende 

Partner, Machado Associados



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