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E-commerce companies may not have interstate VAT liability in Brazil

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E-commerce has seen significant growth rates

Paulo Victor Vieira da Rocha and Murilo Jakuk Ferreira Lopes of VRMA Advogados discuss a potential series of disputes concerning a new legal statute (LC 190) which will be of interest to e-commerce companies

While numerous sectors of the economy were seriously impacted by COVID-19, other sectors experienced positive transformations. In particular, the potential of gathering consumers and sellers, by distance, was the main factor that boosted sales. This is the case of e-commerce, which in 2020 and 2021 had significant growth rates, at least 70% and 30%, respectively, compared to previous years.

This economic movement, on the one hand, added to pitfalls in the public budget, on the other, drove the debate on consumption taxes in Brazil. 

On January 4 2022, Complementary Law No. 190/2022 was published and it regulates the interstate rate VAT (ICMS-DIFAL) assignment in B2C transactions, of which the e-commerce is the main example. 

The tax, which is generally charged at a 18% rate, is to be shared in such cases. The origin-state has the constitutional assignment to impose a 7% or 12% rate (depending on which is the destination-state) and the destination-state can charge the difference between its internal rate for the specific product (generally 18%) and the rate charged at origin (usually 7% or 12%). This is why it is called the interstate rate’s tax (diferencial de alíquota do imposto) or rate’s difference ICMS (ICMS-Difal).

According to some legal experts, the recently regulated ‘difference rate’s tax’ must respect the constitutional principle of prospective application of taxes, and therefore it could not be claimed in the current fiscal year. 

In other words, it is understood that this destination-based part of the tax must be in accordance with both rules that determine (i) the 90-day period for tax collection, from its law publication, and the rule that determines; and (ii) that a tax can only be imposed in the subsequent year after which it was created.


Difficulties began in 2015, when constitutional amendment 87 was approved. It regulated the tax assignment rules for sharing interstate VAT (ICMS) among the state of origin and the one of destination of goods and services. 

Before this amendment, when a consumer in a state purchased goods over the internet, for example, the state level VAT was entirely allocated with the state of origin of the selling establishment.

This represented a serious political problem as it indirectly encouraged the concentration of already consolidated economic poles, weakening local economies. 

In general, the geographic and economic distribution of Brazil’s points to a high concentration of companies in the Southeast (with higher tax collection), but a more incipient economy in the North, West-Central and Northeast states (which ended up without parts of this consumption tax).

Constitutional amendment 87 regulated this federal apportionment, not only for e-commerce, but for all interstate sales. It defined that a portion of the state level VAT should be assigned to the state of origin of the transaction and part to the state of destination of the goods and services. This second part is the so-called interstate VAT (ICMS-DIFAL).

Following the constitutional text, the states, in 2015, ruled the matter through ‘Convênio Confaz 93/15’ (an agreement between state-level tax authorities) and began to share the state level VAT. Nonetheless taxpayers pointed a legal flaw in the legislative process, as this new framework for the ICMS was being regulated and practiced without its Complementary law.

The matter reached the Brazilian Supreme Court (STF), which was urged to decide through leading cases (ADI 5,469 and RE 1,287,019). In February 2021, the court recognised that the taxpayers were correct, declaring the need for a Complementary Law statute for such imposition.

However, once again, the issue was not completely solved. Through the ‘prospective overruling’ technique, the court allowed its decision to produce its effects only from the year of 2022. In order to protect tax collection, the Brazilian Congress was allowed to create the missing Complementary Law Act, to amend the matter.

Brazilian Congress approved Law Project 32/21 in December 2021 and sent it for presidential sanction. In the meantime, on December 27 2021 the states approved the ‘Confaz Convention 236/21’ ruling the issue. However, Law Project 32/21’s presidential sanction occurred on January 4 2022, when the project turned into Complementary Law 190/2022, and published a day later. It was already 2022.

Current scenario

Taking the taxpayers' side, it is argued that this Complementary Law will only produce its effects in 2023, which is the year after it was published, as determined by Brazilian Constitution. 

Therefore, it will not be possible to impose the interstate rate tax in 2022. So there would only be origin taxation (7% or 12% and 4% in case of imported goods).

On the public administration side, there are severe concerns on the financial aspects, as it seems that states will not have this valuable source of revenue during 2022. 

Some argue that Article 3 of the Complementary Law Statute determines that its effects would start 90 days after its publication, which would be correct if the act had been sanctioned in 2021. As it only happened in 2022 this logic may not be so simply applicable anymore.

Although the issue is very recent, it is already possible to find first level preliminary injunctions, at some courts of the State of Sao Paulo of the Federal District, for instance, dealing with the matter. The reasonings of both sides are being taken into account, with preliminary positions in both directions.

What can be said by now is actions should be filed, for two reasons: (i) there are good chances of a resolution in favour of taxpayers; (ii) the Supreme Court has increasingly decided such cases with only prospective effects, except for taxpayers who have already filed their actions.


Paulo Victor Vieira da RochaPartner, VRMA AdvogadosE:  

Murilo Jakuk Ferreira LopesAssociate, VRMA AdvogadosE:  

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