The 1st Section of the Superior Court of Justice (STJ) will judge Special Appeals 1,896,678/RS and 1,958,265/SP, under the Repetitive Appeals system, which discuss the possibility of excluding the Tax on Circulation of Goods and Services due under the substitution tax system (ICMS-ST) from the calculation basis for contributions to the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (Cofins) owed by the substituted taxpayer. The controversy is represented in Theme No. 1,125, whose decision will be replicated by other courts throughout Brazil in similar cases.

Under the tax substitution regime, a taxpayer is elected to be responsible for collecting all ICMS levied in the consumption chain, a useful tool for optimizing inspection, especially in highly fragmented sectors. However, given that ICMS-ST is included in the final price of the goods, substituted taxpayers claim that the tax is improperly included in the turnover and gross revenue, which are the calculation bases for PIS and COFINS.

The discussion about the possibility of exclusion arises from the understanding adopted in 2017 by the Federal Supreme Court (STF) in Theme No. 69 of General Repercussion, in which it was decided that “ICMS does not form part of the calculation basis for the purposes of levying PIS and COFINS”, as it does not constitute own revenue or revenue resulting from the companies' activity. However, the discussion regarding ICMS-ST will be judged by the STJ given the understanding that the issue has an infra-constitutional nature, as pointed out by Minister Gurgel de Faria in the allocation of REsp 1.896.678/RS to the Repetitive Appeals system.

Our team has been monitoring the evolution of this topic and is available for any clarifications.