In an opinion, the Brazilian Federal Revenue Service (RFB) presented an understanding that ICMS should be excluded from the calculation of PIS and COFINS credits taken on acquisitions of inputs and other goods subject to crediting of contributions in the non-cumulative system, which would reduce the value of these credits.

Although not yet published – the opinion was attached to a case underway in the Federal Court of the 3rd Region –, if this understanding prevails within the scope of the Federal Revenue, an increase in inspections, fines and credit disallowances in this regard should be expected, which, ultimately, should increase the already enormous volume of tax litigation in Brazil.

In the view of the IRS, since the STF, when judging the “thesis of the century”, decided that ICMS should not be included in the calculation basis for PIS and COFINS, the same reasoning should be applied for the purpose of excluding ICMS from the calculation basis for contribution credits. The RFB understands that the Supreme Court's decision in RE 574,706 affects the non-cumulative nature of PIS/COFINS, and that not only the amount due on revenues should be reduced, but also the credits obtained on the entry of goods. According to the opinion:

“Therefore, the thesis that, in the calculation of the contribution to PIS/Pasep and the Cofins to be paid, the ICMS is included in the acquisition value of goods that generate the right to credits is completely at odds with the Principle of Reasonableness, since it threatens two of the main sources of financing for social security, undermining the coherence of the constitutional framework created for this purpose. It is worth emphasizing that the Principle of Reasonableness must permeate every administrative act or judicial decision.”.

As already highlighted, the opinion is contained in a specific process[1] and has not yet been published in the Federal Official Gazette. Despite this, there is concern that this position will be widely adopted by the RFB in other cases, which will generate strong legal controversy. This is because, when ruling on the exclusion of ICMS from the PIS/COFINS calculation basis, the STF did not comment on the contribution credits. Therefore, the opinion demonstrates an attempt by the IRS to give an extensive interpretation to what was decided by the Supreme Court, incurring in arbitrariness with which it cannot agree.

From a material point of view, the exclusion of ICMS from the calculation basis of credits contradicts, in our view, what is set forth in art. 3, § 1, of Laws No. 10.637/02 and 10.833/03 and in IN RFB No. 1.911/2019.

Now we just have to wait for the statement from the Attorney General's Office of the National Treasury (PGFN) on the matter. If the PGFN decides to adopt the Federal Revenue's thesis, everything indicates that the next decade will be as contentious as the last in tax matters.

[1] Writ of Mandamus No. 5000538-78.2017.4.03.6110