New Controversies over ICMS on Interstate Transactions
On a commendable effort to regulate the allocation of State VAT (ICMS) revenue on interstate transactions to end consumers, the National Congress approved, in late 2021, Bill 32/2021. However, the bill was only sanctioned by the President as Supplementary Law 190/2022 on January 2022, creating new controversies over the beginning of the effects of the new rules.
To contextualize the matter, in 2015, Constitutional Amendment 87/2015 was enacted establishing that, in all interstate transactions to end consumers, the ICMS should be split between the States of origin and destination, as follow: (a) to the State of origin, the ICMS calculated with the interstate rate (4%, 7% or 12%); and (b) to the State of destination, the ICMS calculated based on the difference between the interstate rates used in the transaction and the rate applicable to internal transactions in the State of destination (usually from 17% to 19%).
This was a major advance in relation to the sharing of ICMS revenue on interstate transactions as, before such change, on interstate transactions to end consumer the split was only applicable if the acquirer was an ICMS taxpayer; on sales to non-ICMS taxpayer, the tax was fully paid to the State of origin calculated with its internal rate. Thus, with the growth of online commerce, states were losing substantial revenues on sales to non-ICMS taxpayers, since the major sellers were located in a few states, and with no revenue split applicable, the was tax payable only to the state of origin.
Although the ICMS is a State tax, the Brazilian Federal Constitution determines that national guidelines regarding the tax triggering event, taxpayer, and taxable base definition, among other matters, should be established by a national supplementary law.
However, no supplementary law was enacted to regulate the constitutional rules provided by Constitutional Amendment 87/2015; instead, ICMS Agreement 93/2015 was entered into by the states to regulate these matters. Based on such agreement, the states enacted local laws to charge the revenue split when they were the destination.
Due to the lack of a national supplementary law, the matter was taken into court, as taxpayers understood that an ICMS charge without the proper supplementary law regulation is unconstitutional.
In February 2021, the Brazilian Federal Supreme Court (STF) judged Extraordinary Appeal 1.287.019, deciding that, based on the Brazilian Federal Constitution, the ICMS revenue split under Constitutional Amendment 87/2015 requires a supplementary law defining its general guidelines, and an agreement between states cannot suppress such constitutional requirement. As a result, the charge of the ICMS revenue split by the state of destination under the ICMS Agreement was deemed unconstitutional.
To avoid further discussions, the STF adjusted the effects of the decision in time (modulação de efeitos), so that it only produces effects as of January 2022. As a result, the states could continue to charge the revenue split until the end of 2021 (except from taxpayers who filed lawsuits in advance), but could only resume the charge after 2021 if a supplementary law was enacted.
In view of the above, in late 2021 the National Congress approved Bill 32/2021, to establish the required rules. However, the President only approved such bill in January 2022, resulting in the enactment of Supplementary Law 190/2022, which determines that it will become effective 90 days after its publication.
In view of this scenario, new controversies arose in light of the constitutional principle of non-retroactivity, under which a tax cannot be charged in the same fiscal year of its establishment or increase, and not before 90 days from its issuance.
It should be noted that the states already have local law governing the levy of the revenue split, but considering the beginning of the effects of Supplementary Law 190/2022, the revenue split cannot be charged by the state of destination before such date, because until then there is no supplementary law to support it, and any charge will be against the STF’s decision.
Nevertheless, considering that the Federal Constitution provides that no tax increase may be imposed in the same fiscal year as the law that established it, several taxpayers are taking the discussion into courts to avoid the revenue split charge in the state of destination until 2023 because, technically, its regular
imposition was carried out only in 2022.
Also, the Brazilian Association of Machinery and Equipment Industry (ABIMAQ) filed Unconstitutionality Declaratory Action (ADI) 7066 before the STF, requesting that Supplementary Law 190/2022 and the revenue split charge only produces effect as of January 1, 2023.
Although some states have already issued official statements declaring that the revenue split charge will only be enforced 90 days after the publication of the supplementary law, 23 states jointly filed a petition in ADI 7066, requesting their participation in the lawsuit as “amicus curiae”, and that the STF declare
that the imposition of the 90 days vacancy period of the supplementary law is unconstitutional.
Furthermore, the state of Alagoas filed ADI 7070 specifically to challenge the provisions regarding the beginning of the effects of Supplementary Law 190/2022 and the levy of the revenue split.
Although the enactment of Supplementary Law 190/2022 was a necessary measure, its timing could not be worse, because if its legislative approval was made in mid-2021 or, at least, if the presidential approval was made in 2021, probably the discussions above would be significantly reduced or inexistant, as the levy of the revenue split in 2021 was allowed by the STF.
In any case, the outcome of this new controversy on ICMS on interstate transactions remains to be seen. As for the taxpayers, if they do not agree with the levy of the revenue split in 2022, it is recommended that they file their own individual lawsuits because, if the STF ends up deciding in this sense, it is most
likely that it will adjust the effects of the decision in time (modulará os efeitos), to prevent the recovery of overpaid taxes, usually excepting lawsuits filed before the judgment.