On June, 12st the full content of the decision issued in the trial of the Special Appeal No. 1.945.110 (Theme No. 1.182) was published by the Superior Court of Justice (STJ).

The discussion refers to the exclusion of State VAT (ICMS) tax benefits from the calculation base of Federal Income Tax (IRPJ) and Contribution on Net Profit (CSLL), and whether there would be a differentiation between the types of benefits granted by the states. Such a decision has binding effects on other ongoing cases.


We highlight the following points:

The first positive aspect of the decision is the reaffirmation of the Court’s understanding that presumed ICMS tax credits should not be included in the calculation basis of IRPJ and CSLL, following the previous precedent judged by the STJ on that matter (EREsp 1.517.492/PR).

In that case, the Ministers decided that such taxation violates the Federative Pact, as it would correspond to taxation by the Federal Government upon the States’ revenues.

On the other hand, the Ministers stated that this understanding does not apply to other types of ICMS benefits (reduction of the calculation basis, reduction of the tax rate, exemption, immunity, etc.).

Minister Benedito Gonçalves, reporting Minister of this case, stated that since 2017, the 1st and 2nd Panels of the STJ have been granting taxpayers’ requests, but with different grounds, as follows:

In his vote, the reporting minister followed the second Panel’s understanding, which states that the other types of tax benefits do not represent an actual transfer of patrimony of the States to taxpayers, as they are somehow captured subsequently by the non-cumulative regime. Therefore, there would be no amounts to be excluded from the IRPJ/CSLL basis, and there would be no undue taxation on the State’s patrimony by the Federal Government. This position was followed by all the other Ministers.

On the other hand, the judgment emphasizes that, since the amendments introduced by Complementary Law No. 160/2017 in the Law no. 12.973/2014, it would be possible to exclude such benefits from the IRPJ/CSLL basis, following some conditions, including primarily the allocation of the correspondent amount of the incentive to a reserve account (profit reserve), which must be used exclusively to absorb tax losses or increase the company’s capital.

The second positive aspect extracted from the judgment is that, after Complementary Law 160/2017, all ICMS tax benefits must be understood as investment subsidies and can benefit from this non-taxation possibility through the creation of a reserve.

This point is relevant because the position of the Brazilian Federal Revenue Service is that only benefits that have been granted to stimulate the implementation or expansion of economic enterprises would be eligible for such a possibility.

On the other hand, the STJ confirmed that, despite this, the benefits must be used to enable the economic venture (i.e., they cannot be used for other purposes, such as payment of dividends or reduction of capital to shareholders) and must be allocated to the incentive reserve account.


Next steps:

Following the line of the judgment, companies that have not met the requirements of Complementary Law No. 160/2017 or Law No. 12,973/2014 may be subject to inspection by the Brazilian Federal Revenue Service if they have excluded ICMS tax benefits from the calculation basis of IRPJ and CSLL.

It is also worth noting that a similar issue is under analysis by the Federal Supreme Court (Theme 843 – “Possibility of excluding from the calculation basis of PIS and COFINS the amounts corresponding to presumed ICMS credits resulting from tax incentives granted by states and the Federal District“), which may influence the application of this new judgment by the STJ.

Furthermore, taxpayers that already have final judicial decisions that allowed the non-taxation of the other ICMS benefits would not, in principle, be immediately affected by this new precedent, but an evaluation of the reflexes and future risks is advisable, depending on each individual situation.

KLA’s Tax Area is available to clarify any doubts and assist in the analysis of potential issues to be discussed.

>> The informative was written by: Felipe Omori, Matheus Barreto and André Koscak.

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


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