The General-Coordination of Taxation (“COSIT”), through its Internal Consultation Solution No. 13, dated as of October 18, 2018 (“SC COSIT 13/18”), clarified matters raised by the General Coordination of Administrative and Judicial, both branches of the Brazilian Internal Revenue Service (“RFB”), regarding the correct procedure for excluding ICMS from the PIS and COFINS taxable calculation basis.

Despite the decision rendered by the Supreme Federal Court (STF) on March 15, 2017, determining that the ICMS should not be included in the calculation base of PIS and COFINS, there were still some gaps that should be clearly assessed by the Court, particularly regarding to the practical application of such decision.

In order to resolve the shortcomings, the National Treasury Attorney General´s (PGFN) filed motion to clarify, on October 19, of 2017, once it understood that the STF´s decision had contradictions, obscurity, material mistakes and omission, requesting also the modulation of its effects.

The main issue argued was which amount of ICMS should be deducted from the PIS and COFINS calculation basis: the amount of ICMS levied and charged on revenues or solely the ICMS balance to be paid (resulting from the comparison between debits and credits of said tax)?

It is worth mentioning that, despite the obscurity raised by the PGFN, the vote of Minister Carmen Lúcia determined that “although not all of the ICMS amount is immediately collected by the taxpayer positioned in the middle of the chain (distributor and merchant), that is, part of the value of the ICMS highlighted in the “invoice” is used by the taxpayer to compensate with the amount of ICMS generated in the previous operation, at some point, although not exactly the same, it will be collected and does not constitute taxpayer’s income, even if, is not related to the constitutional definition of billing for purposes of calculating the taxable basis of such contributions“.

The Minister understood that all ICMS is at some point collected from the National Treasury, and it is possible to deduce that the ICMS to be excluded from the taxable basis of PIS and COFINS is related to the one highlighted in the taxpayer´s tax receipts.

For RFB, based on SC COSIT 13/18, the ICMS to be excluded from the PIS and COFINS taxable calculation basis is the one calculated from time to time, after the comparison between the debits and credits of the tax, that is, the balance to be collected, not the one highlighted in the taxpayers’ tax receipts.

The divergence of understanding regarding the interpretation adopted by taxpayers and tax authorities tends to generate material effects in the calculation of the amount to be collected as PIS and COFINS, a situation that is aggravated when the final transactions generate ICMS credits, such as case of exporting companies.

Finally, it is important to emphasize that taxpayers who have favorable judicial decisions to exclude ICMS from the PIS and COFINS calculation base must reexamine their exact scope vis-à-vis the understanding expressed by the RFB.

Please, if necessary, contact us for further clarifications:

zaslaw@zaslaw.com.br