The most anticipated trial in the tax field is scheduled for this Wednesday (05/05). After being postponed again – the trial was scheduled to begin in the session on 04/29 – the Supreme Federal Court (STF) should finally give a conclusion to the decision that excluded ICMS from the calculation basis of PIS and COFINS, within the scope of RE 574.706.

The declaration of opposition, filed by the Federal Government, seeks to clarify the criteria for calculating the portion of ICMS to be excluded from the PIS/COFINS calculation base. The debate revolves around the tax that should be withdrawn, whether the ICMS highlighted on the invoice or the tax actually paid by the taxpayer.

Although until then the issue remained uncontroversial in the records, that the ICMS to be excluded is the one highlighted on the invoice – which in fact makes more sense -, if the STF clarifies that in fact the tax to be withdrawn is the one actually paid, there will be a considerable reduction in the portion of the ICMS to be excluded from the PIS and COFINS calculation basis.

In addition to the calculation criteria, the Union also requests that the decision be modulated by the STF, so that its effects are not retroactive and only come into effect from the date of the judgment of the embargoes. If the modulation is not applied, it is estimated that the impact on public coffers should be around R$250 billion.

Although it is more likely that the STF will adopt the so-called “forward modeling”, as requested by the Union, the practical effects may not be so different from “backward modulation”. This is because there is an expectation that the Supreme Court will exempt from the effects of the modulation companies that have ongoing lawsuits discussing the matter, which would be eligible to receive the amounts unduly collected in the last five years.