This content is from: Brazil

Brazilian Superior Court of Justice defines concept of inputs for PIS and COFINS purposes

A decision rendered by the Superior Court of Justice in favour of the taxpayers determines the concept of inputs for calculating and booking PIS and Cofins credits.

Pursuant to Article 3 of Law 10833/2003, combined with Article 3 of Law 10637/2002, from the PIS and Cofins debits ascertained, the legal entity subject to the non-cumulative taxation method may offset credits calculated, among others, on expenses related to goods and services, used as input in the rendering of services and the production or manufacturing of goods or products intended for sale, including fuels and lubricants.

The main discussion regarding such credits rests on the extension of the concept of goods and services used as inputs. This is because, on the one hand, the constitutional rule makes no reference to any restrictions that can prevent the non-cumulative taxation of contributions, while, on the other hand, Normative Instruction 247/2002 of the Brazilian Federal Revenue Service (RFB) accepts the booking of PIS and Cofins credits in accordance with the concepts based on the calculation of excise tax (IPI) credits, which is:

  • When used in the manufacturing of goods intended for sale:
    • the raw materials, intermediary products, packaging material, and any other goods that are altered, as long as they are not included in the company’s fixed assets; and
    • the services provided by a legal entity domiciled in Brazil, applied or consumed in the manufacturing of the product.
  • When used in the rendering of services:
    • the goods applied or consumed in the rendering of services, if they are not included in the company’s fixed assets; and
    • the services provided by a legal entity domiciled in Brazil, applied or consumed in the rendering of the service.
In February 2018, the First Section of the Brazilian Superior Court of Justice (STJ) rendered a binding decision under the ritual of repetitive appeal on the Special Appeal 1221170 about the extension of the concept of inputs for PIS and Cofins credit. Until then, the subject at issue generated different opinions by justices of the STJ and an unstable case law scenario.

Although the decision was not unanimous, it will not only harmonise the STJ case law, but it will also influence the lower judiciary levels and the administrative decisions rendered by the Administrative Council of Tax Appeals (CARF), as such a precedent must be applied by this administrative court, due to the binding force of the decisions rendered under this ritual.

According to the concurrent opinion, for PIS and Cofins credit purposes, companies may consider as input everything that is essential for exercising their corporate purpose. As a result, Normative Instruction SRF 247/2002 has been declared illegal for restricting the concept of input and violating the principle of non-cumulative applied for these social contributions.

The prevailing understanding of the First Section of STJ is that, for booking PIS and Cofins credit, products or services that are "essential or pertinent" to the activity developed by the taxpayer should be considered inputs. The technique used for credit calculation of other taxes subject to the non-cumulative principle, such as IPI, cannot be applied for PIS and Cofins, as these are social contributions levied on revenues earned by legal entities.

As expressed by Justice Mauro Campbell Marques, “inputs are all those goods and services pertinent to, or that enable the production process and the rendering of services, which may be directly or indirectly employed therein and whose subtraction prevents the service rendering or production, that is, whose subtraction prevents the company’s activities, or implies in substantial loss of product or service quality resulting therefrom”.

From analysing this judgment, the prevailing understanding is that the type of input must rely on three guidelines, namely:

  1. The goods or services must have been acquired to be used in providing the service or in the production, or to enable them (relevance of the “making” represented by the production process or service provision);
  2. The production or provision of the service must depend on the acquisition of goods or services (essentiality of the production process, not the product or the service itself). To this effect, the removal of the goods or services render the service provision or the production impossible, that is, that it prevents the company's activity or implies in substantial loss in the quality of products or rendering of services; and
  3. Direct contact of the goods or service provision with the product is not necessary (possibility of indirect use in the “making”, represented by the production process or service provision).
It is important to stress that three justices agreed with the RFB understanding. The dissenting opinion is that only raw material or other products used directly in the industrial process could generate PIS and Cofins credits.

In our opinion, the result of this judgment dispelled the restrictive interpretation of the tax authorities, but it does not give legal certainty to the taxpayers, as it is based on abstract and different concepts for each branch of economic activity. Accordingly, it is necessary to evaluate each specific situation for purposes of defining the expenses incurred by the taxpayer as part of the concept of input for appropriating PIS and Cofins credit.

This article was prepared by Carolina Romanini Miguel (, member of Machado Associados’ indirect tax team.

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