Brazil’s consumption tax reform: disputes looming over taxable base

As previously discussed, with the gradual implementation of Brazil’s consumption tax reform, the new contribution on goods and services (CBS) and tax on goods and services (IBS) coexist with the old indirect taxes until 2033. Considering this, since the federal excise tax (IPI) will still be applicable to some products and state VAT (ICMS) and municipal service tax (ISS) will only be phased out by 2033, controversies have arisen regarding the inclusion of CBS and IBS in their taxable bases.

Probably one of the most concerning points is the inclusion of IBS and CBS in the taxable bases of the current indirect taxes during the test phase of 2026.

In this phase, CBS and IBS must be calculated and stated on invoices at a combined rate of 1% (0.9% for CBS and 0.1% for IBS). Nevertheless, if the taxpayer complies with the ancillary tax obligations, the payment of the tax will be waived.

These experimental rates are strictly operational in nature, allowing the tax authorities and taxpayers themselves to validate calculation and bookkeeping systems, simulating the new regime’s dynamics before its effective enforcement from 2027.

In practical terms, CBS and IBS will only be reported in invoices during 2026, and not charged to acquirers as part of the supply price. To this effect, the technical documentation for the invoice layouts has determined that during 2026, CBS and IBS will not form part of the value of the goods and services.

Even though there are strong grounds to argue that, especially in 2026, CBS and IBS should not be included in the taxable bases of the current indirect taxes – as they are not charged as part of the transaction value or service price, and not being charged does not increase taxpayers’ equity as revenue – some controversies have begun to arise.

Firstly, there is no clear legal provision stating such non-inclusion for any period of the transition. Nevertheless, during 2026, non-inclusion would be a logical consequence of CBS and IBS not being charged, even though the possibility of controversies still concerns taxpayers.

Recently, a taxpayer filed a formal enquiry with the State of Pernambuco, requesting a ruling on the matter, especially (but not solely) considering the particularities of 2026. Accordingly, the state issued Ruling 39/2025, which specifies that the ICMS taxable base is transaction value and includes all amounts charged to the purchaser. As IBS and CBS are indirect taxes, they are therefore naturally charged to the purchaser with the sales price and thus should be included in the ICMS taxable base.

It is important to note that the State of Pernambuco did not make any exception regarding 2026, and thus it may be concluded that IBS and CBS must be included in the ICMS taxable base during that year, even though the grounds of the ruling conflict with this conclusion, as these new taxes will not be charged in 2026 but only be reported in invoices.

Another taxpayer filed a formal enquiry with the Federal District on the matter at hand. In this case, even though the tax authorities concluded in Ruling 23/2025 that there are no legal grounds to not include IBS and CBS in the ICMS taxable base, it stated that, especially regarding 2026, the tax obligations related to CBS and IBS are focused exclusively on determining the need for any future adjustments to their rates. Given that the system provides for compensation or even the waiver of their payment in this period, the taxes should not, for logical reasons, be included in the ICMS taxable base during 2026.

Although there are strong grounds for not including IBS and CBS in the ICMS (as well as PIS/COFINS, IPI, and ISS) taxable base during 2026, the lack of clear guidance – aggravated by divergence between states and silence (or at least lack of an official statement) from other states (and municipalities and the federal government) – seriously worries taxpayers, which may lead to unwanted, but necessary, litigation.

Unfortunately, the consumption tax reform’s aim of reducing litigation seems to be far from reality.