Paramount Brazilian Supreme Court decision on the calculation basis of PIS/COFINS

2021 May.18

On May 13th, 2021, the Brazilian Supreme Court (STF) confirmed its understanding, through a Motion for Clarification, that output State value-added tax (ICMS) cannot be included in the calculation bases of Federal Social Contributions (PIS and COFINS).

The Motion for Clarification was filed by the Brazilian Revenue Service since, according to it, the initial ruling issued in 2017 by the Supreme Court had not specified if the monetary amount to be excluded from the PIS/COFINS taxable bases should be (i) the output ICMS indicated on sales invoices, or (ii) the net ICMS collected by the taxpayer (output ICMS minus input ICMS). The rationale supported by the Brazilian Revenue Service was that the second option should prevail, and therefore the tax reimbursements filed by taxpayers would significantly decrease.

 The Court, by a majority vote (8 x 3), approved the rationale that the output ICMS indicated in the sales invoice should be excluded from the PIS/COFINS taxable basis. However, due to the major economic hit to the Brazilian coffers, the Court granted prospective effects to its ruling, limiting its applicability as from March 15th, 2017 (date of the initial ruling). Such prospective effects, nevertheless, do not apply to taxpayers that had administrative or judicial procedures before said date.

Several discussions on the practical implementation of this ruling are expected in the future. However, this is an opportunity for companies to recover unduly collected taxes, thus reducing the overall (high) tax burden imposed upon the Brazilian company.

Related attorneys: Luis Felipe de Campos /