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The Brazilian Federal Supreme Court issues decision on ICMS-Import tax

Júlio de Oliveira and Gabriel Caldiron Rezende of Machado Associados explain how the Federal Supreme Court, on one hand, has partially settled a long controversy on ICMS-Import tax but, on the other hand, has created more insecurities.

On April 27 2020, the Brazilian Federal Supreme Court (STF) concluded the judgment of ARE 665.134/MG, which discussed to which state would the state VAT levied on the import of goods (ICMS-Import) be paid, partially settling a long-lasting controversy, but leaving out important matters that will remain controversial.

To this effect, Article 155, II, and paragraph 2, IX, (a), of the Brazilian Federal Constitution, provides that the states may impose the ICMS-Import, and the tax is due to the state where the domicile or the place of business of the recipient of the goods is located. However, neither the federal constitution nor any other law clearly defines who the “recipient of the goods” is for the purpose of ICMS levy on imports.

To worsen matters, the Brazilian Federal Constitution establishes that a supplementary law should define the place where the circulation of goods is deemed to be carried out for ICMS payment and liability purposes. To this effect, Supplementary Law No. 89/1996 establishes in its Article 11, I, (d), that the state entitled to charge the ICMS on imports will be the one where the establishment where the imported goods have physically entered is located.

Based on the lack of a clear definition as to where the ICMS should be paid, the states began to interpret such provisions in the most diverse ways to better honour their own tax collection needs in the specific case, being, at times, contradictory, when comparing cases.

For example, there have been understandings over the years that the ICMS-Import would be due to the state where: the customs clearance occurred; the first physical entry of imported goods occurred; the purchaser of the goods imported by the international commercial transaction was located; and, the subject who promoted the customs clearance of imported goods was established, regardless of having participated in the international commercial transaction.

These controversies only worsen on indirect imports (‘to order’ or ‘on behalf of third party’), as the legal inter-position of a trading company could be seen as another element to charge the ICMS-Import in benefit of the state of such entity. This would be an argument for the state where the entity that engaged the trading company was located to charge the ICMS-Import, arguing that such an importer was not the recipient of the international transaction.

To settle the matter, the STF tried ARE 665.134/MG, where the judgment provided a very important guidance on the definition of the state entitled to charge the ICMS-Import.

To this effect, Reporting Justice Edson Fachin based his decision on the premise that the recipient of the goods to which the constitution refers would be the legal recipient of the international transaction resulting in the transfer of ownership of the goods (i.e., the one who acquires ownership of the imported goods in this transaction), regardless of where the customs clearance occurs. To that extent, subsequent transactions (such as resale) would be autonomous businesses unrelated to the import transaction, without interfering with the ICMS-Import levy.

Based on this, the following guidelines were established by the decision:
  • On direct imports, the economic recipient coincides with the legal one, and the importer is the acquirer of the goods in the international transaction; thus, the ICMS-Import is payable to the state where such a party is located;
  • On indirect imports ‘on behalf of third parties’, the trading company is engaged by an entity to provide services to assist in the import of goods. To this effect, the engaging entity is the one who is actually acquiring the goods from abroad; thus, the ICMS-Import is payable to the state where it is located; and
  • On indirect imports ‘to order’, the trading company acquires goods from abroad (with its own resources) to resell them to a pre-determined domestic client. In this case, the legal recipient would be the trading company, and the ICMS-Import would be due to the state where it is located.
Furthermore, considering the constitutional premises used in the decision, Article 11, I, (d), of Federal Supplementary Law No. 87/1996, was declared partially unconstitutional, to cancel the understanding that the place of the transaction – for the purposes of collecting the tax and defining the establishment responsible for the tax – is only and necessarily the place where the goods physically enter. To this effect, it considered the legality of the fictitious circulation of goods emanating from a documentary or symbolic transaction, provided that there is an effective legal business.

Thus, for the purposes of the ICMS-Import levy, the STF relativised the physical entry to accept the fictitious entry, but did not completely discard it. To this effect, despite having ruled out an interpretation as to the application of Article 11, I, (d), of Complementary Law No. 87/1996, the STF failed to state what would be its proper application, that is, when the physical entry would be relevant to determine where the tax will be due.

Beyond that, it also failed to clarify which elements would be necessary for the fictitious entry to be sufficient to define the place of levy of the ICMS-Import.

It is true that the decision in ARE 665.134/MG came as good news, as it established important ICMS-Import guidelines, avoiding controversial interpretations, and offering a certain safety margin for the planning of business activities. On the other hand, the decision left out important details that most likely will generate more controversies,

Thus, starting from a solution to old problems, it is possible to predict the beginning of new problems. 


Júlio de Oliveira 
T: +55 11 3093 4814

Gabriel Caldiron Rezende
T: +55 11 3093 4692


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