Relevant tax matters recently settled by the Supreme Court and Superior Federal Court of Brazil

ICMS (STATE VAT) SHALL ONLY BE LEVIED ON THE EFFECTIVE CONSUMPTION OF ELECTRICITY

In general repercussion (binding precedent), the Supreme Court (“STF”) understood that tariff charges, such as “blackout insurance”, are not related to the operation of circulation or transfer of electricity to the final consumer and, therefore, should not be included in the ICMS calculation basis. The Court also stated that the ICMS should only be charged in connection with electricity effectively consumed by the taxpayer. The following thesis was adpted (binding precedent – Theme 176): “The contract of demand for electric power is not subject to ICMS, which shall only be levied upon the actual consumption of electricity.”

TAX ON SERVICE (“ISS”) CAN BE LEVIED ON FRANCHISE CONTRACTS

The Supreme Court (“STF”), in general repercussion (binding precedent), understood that the ISS can be levied upon franchise activities, despite their hybrid nature. In such an opportunity, the plenary established the following thesis (Theme 300): “The incidence of Tax on Services (“ISS”) on franchise agreements is constitutional.”

IMPOSSIBILITY OF SOCIAL CONTRIBUTION (“PIS”) CREDITS UPON TRANSACTIONS WITH LEGAL ENTITIES DOMICILED ABROAD
The Supreme Court (“STF”) decided for the constitutionality of the prohibition of crediting social contribution on revenues (“PIS”) in connection with transactions involving legal entities domiciled abroad. The Full Panel of the Court established the following thesis (Theme 707): “The Section 3, § 3, items I and II, of the Law No. 10.637 / 2003 is constitutional, which prohibits the credit of the contribution to the Social Integration Program (“PIS”) in the non-cumulative regime, in relation to transactions with companies domiciled abroad.”

INTERPRETATION OF THE LIST OF SERVICES SUBJECT TO THE ISS
The Supreme Court (“STF”) also ruled that the Tax on Service (“ISS”) can only be levied upon the services listed by law, allowing, however, a broad interpretation of the such list for purposes of definition of the nature of the service. Thus, the following thesis was established (Theme 296): “The list of services subject to Tax on Service (“ISS”) referred to in art. 156, III, of the Federal Constitution is numerus clausus, admitting, however, the incidence of the tax on the activities inherent to the services listed in law based on their extensive interpretation.”

UNCONSTITUTIONALITY OF THE TIME LIMIT FOR THE USE OF SOCIAL CONTRIBUTIONS (“PIS AND COFINS”) CREDITS
The Supreme Court (“STF”) found the prohibition on the use of Social Contributions (“PIS/COFINS”) credits, related to the fixed assets acquired until 04/30/2004, to be unconstitutional, considering that such limitation would offend to the principles of non-cumulativity and isonomy. The following thesis was adopted (Theme 244): “It appears unconstitutional, due to an offense to the principles of non-cumulativity and isonomy, the Section 31, of Law No. 10,865 / 2004, which prohibited the credit of the Social Contributions (“PIS and COFINS”) on fixed assets acquired up to April 30, 2004.”

ICMS UNDER SUBSTITUTION METHOD: POSSIBILITY OF SOCIAL CONTRIBUTIONS CREDITS IN CASE OF RESALE
The 1st Panel of the Superior Court of Justice (“STJ”)  ruled for the possibility of crediting of Social Contributions (“PIS / COFINS”) upon the amounts collected as ICMS under the substitution method (“ICMS-ST”) in the previous transaction, considering that these amounts are included in the cost of the goods for resale and are embedded in the purchase price of the product by the reseller (and highlighted in the invoices) and is not recoverable by the company at the time of resale. This decision was not issued in the Repetitive Appeals system and does not have a binding effect.

For further information, please contact:
Henrique Lopes
Victor Polizelli
Álvaro Lucasechi
José Flávio Pacheco
Luís Flávio Neto
Felipe Omori
Juliana Nunes

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