By Camila Friaça

On 12/18/2018, the Federal Revenue Service published the Normative Opinion of the General Coordination of Taxation (COSIT) No. 5, of 2018, which provides a restrictive interpretation of the concept of inputs in comparison to the understanding adopted by the Ministers of the Superior Court of Justice in Repetitive Special Appeal No. 1,221,170/PR judged by the 1st Panel.

The decision on the aforementioned appeal was published on April 24, 2018 and defined input for PIS and COFINS credit purposes as the good or service for the production of goods intended for sale or for the provision of services by the legal entity, which is essential and relevant for the exercise of the economic activity of the companies. Furthermore, the 1st Panel considered the Federal Revenue's Normative Instructions No. 247/2002 and 404/2004 on the subject to be illegal, understanding that the interpretative limits provided for in the two provisions unduly restricted the concept of input, and also compromised the effectiveness of the non-cumulative system of PIS and COFINS.  

Throughout the Opinion, guidelines were outlined to be followed by Tax Auditors in a binding manner that should guide future inspections on the subject:

1. There is a right to PIS and COFINS credit:

a-) Inputs used “in the production or manufacture of goods or products intended for sale” covering both industrialization activities in stricto sensu (according to the legislation on the Tax on Industrialized Products;

b-) The “input of the input” admits credits as it constitutes a structural and inseparable element if the production process or provision of the service as a whole is analyzed;

c-) Goods and services used by legal imposition generate the right to credit, if used in the process of producing goods or providing services, such as product quality tests required by law, treatment of effluents from the production process, livestock vaccinations required by law;

d-) Goods and services whose acquisition cost must be incorporated into fixed assets through depreciation or as inputs of goods subject to exhaustion;

e-) Goods and services acquired and used in the maintenance of fixed assets that participate in any stage of the goods production process with the intention of sale and provision of services;

f-) Cleaning, disinfection and pest control materials and services for assets used by the legal entity in the production of goods or provision of services may be considered inputs generating contribution credits;

g-) Payments for outsourcing of labor, provided that the services are related to the concept of input;

h-) Inputs generating contribution credits are fuels and lubricants consumed in machines, equipment or vehicles responsible for any stage of the process of producing goods or providing services, including the production of inputs that are actually used in the production of the final good or service;

i-) Expenses with quality tests applied to raw materials or intermediate products, products in process, materials supplied by the service provider to the customer and products that have already completed their industrial assembly or production, provided that this is prior to commercialization.

1. There is no right to PIS and COFINS credit:

a-) Inputs related to solely commercial activities, such as: fuels, lubricants, transportation of goods between own distribution centers, among others;

b-) Future expenses for the completion of the production process, such as freight of finished products between the legal entity's establishments;

c-) Expenditure on “research” does not generate the right to contribution credits. On the other hand, there are situations in which the registration of credits on expenditure on “development” is permitted.

d-) Expenses to make the labor activity viable, such as clothing, food, education, health, life insurance, transportation, among others.

It is noted that in comparison to the ruling issued by the 1st Panel of the STJ on the subject, the Federal Revenue imposes a restrictive interpretation on the definition of inputs.

The Mazzucco e Mello Advogados tax team is available to provide any clarification on these topics.