Superior Court of Justice released full text of ruling and votes of judges on Monday
Benedito Gonçalves — Foto: Rafael Luz/STJ
The Ministry of Finance overestimated its victory in the Superior Court of Justice (STJ) on the taxation of ICMS tax incentives and, according to experts, the amount collected is likely to be much lower than the R$70 billion announced by Minister Fernando Haddad on the day of the trial – April 26.
On Monday, the court released the full text of the ruling and the votes of the judges. It is clear from these documents that there is a limit to the collection of business income tax (IRPJ) and Social Contribution over Net Profit (CSLL).
The government’s intention was to exempt only investment grants. These are the cases in which the company provides a counterpart when it receives the benefit from the state (for the construction or expansion of a plant, for example).
This is what the government argued before the STJ, and at the end of the trial, on April 26, it declared that it had been successful. Therefore, from then on, the benefits and incentives granted for costs (without counterpart) – which are the majority in the market – would be taxed.
However, the ruling and votes published on Monday show that the 2017 Supplementary Law No. 160 puts investment grants and financing subsidies in the same basket and sets conditions for companies not to be taxed.
The law states that profits from the incentives must be “recorded as retained earnings.” This means that they can only be used within the company itself or to reduce tax losses. It is not allowed, for example, to distribute it to shareholders as dividends or interest on equity.
In other words, if you meet the requirements, you cannot be taxed; if you do not, you can.
High Court Judge Benedito Gonçalves, who reported the case to the court, makes this clear in his opinion. “Nothing prevents the acceptance of the taxpayer’s claim to provide for the application of Article 10 of Supplementary Law No. 160 of 2017,” he said.
He also emphasizes that “the deduction of tax benefits will be open to taxpayers who meet the requirements established by law.”
High Court Judge Mauro Campbell Marques, who also voted, had defended this understanding in rulings on the subject in the 2nd Panel of the STJ, and repeated it now.
“When Supplementary Law No. 160/2017 equated all tax or financial incentives and benefits of the ICMS (typical cost subsidies or cost recovery) with investment grants, it did so precisely to eliminate the need to prove that they were established as incentives for the implementation or expansion of economic enterprises. Were it not for this, the legal comparison would be innocuous,” he said in the vote published on Monday.
In this case, it is up to the Secretariat of Federal Revenue to inspect and impose fines if it finds that the requirements have not been met by taxpayers.
The taxation of tax incentives has been considered by the economic team as one of the main measures to adjust the public accounts and make the new fiscal framework viable.
The First Section of the Superior Court of Justice has repeatedly ruled, with binding effect for all courts, on whether IRPJ and CSLL can be levied on the profits generated by the incentives granted by the states.
This concerns the amounts that companies do not pay to the states. For example, a company that owed R$100,000 in ICMS, but because it was entitled to the reduction of the base, paid only R$60,000. The discussion in the STJ is whether the difference – R$40,000 – can be considered profit and taxed by the federal government.
There were two discussions on the table. One was about the federal pact. The STJ, in 2017, reached an understanding regarding the presumed credits (a type of ICMS tax incentive). It said that the federal government, by taxing, would be undermining a benefit granted by the states, which is not allowed.
The verdict, this time, would say whether the same understanding – against taxation as a violation of the federal pact – could be applied to other types of incentives granted by the states: reduction of the tax base, reduction of tax rates, exemptions and deferrals, among others.
The answer on April 26 was no. In other words, the federal government would not violate the federal pact by taxing the other types of benefits. It was precisely on this answer that the tax authorities won a victory in the STJ.
However, since the day of the ruling, the lawyers of the government and the companies disagreed on the interpretation of the ruling in relation to the second discussion that was on the table, around the Supplementary Law No. 160 of 2017 – which changed Article 30 of Law No. 12,973 of 2014.
Prior to this change, there was a separation between investment grants, where the company assumes a counterpart when receiving the benefit, and cost subsidies, where there is no counterpart.
The previous version stated that in the case of investment grants, the federal government could not tax. Then, with the amendment, Article 30 of the law now states that “tax or financial incentives and benefits granted by the states and the Federal District shall be considered investment grants.”
Taxpayers understood that there was no longer any difference between ICMS benefits and, therefore, nothing else could be taxed. However, the Secretariat of Federal Revenue insisted that only the incentive to expand the business could not be taxed.
It would then be up to the 1st Section of the STJ to say who was right: the taxpayers or the tax authorities.
As soon as the STJ closed the case on April 26, Minister Fernando Haddad declared victory. He said the judges agreed with the federal government on both arguments: there was no violation of the federal pact and it could not tax benefits with a counterpart.
The lawyers, on the other hand, claimed that the taxpayers had won this argument and that only a minority of taxpayers would be affected.
On Monday, after the verdict was announced, the market celebrated: the government was expecting a bigger victory than it actually got in the STJ.
Finance Minister Fernando Haddad disputed this version. “The sentence is exactly what the court said it would be and is absolutely in line with what we asked for,” he told Valor. “Taxpayers can assess according to what they think, but the ruling guarantees that we can inspect and dispute.”
Mr. Haddad said that the federal government will not appeal the decision and reiterated the estimated R$90 billion in revenue with the thesis.
The Attorney General of the National Treasury (PGFN), Anelize Lenzi Ruas de Almeida, also spoke with Valor yesterday afternoon and said that the federal government won. “Companies cannot use this amount as profit,” she stressed.
The STJ’s decision, she said, gives the Secretariat of Federal Revenue legal certainty to analyze all these cases and say whether the company has complied with the requirements of the law.
This text has been edited to include the government’s responses.
*Por Joice Bacelo — São Paulo
Source: Valor International