Court reduces government collection with taxation of tax incentives
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...
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