Presumed ICMS Tax Credits: STF Ruling on PIS/Cofins May Pave the Way for Exclusion from IRPJ and CSLL Tax Bases

On 7 October, Brazil’s Federal Supreme Court (STF) ruled by a majority that presumed ICMS tax credits granted by Brazilian states should not be included in the calculation bases for PIS and Cofins contributions. The ruling in Theme 843 of the general repercussion system (RE 835.818) represents a victory for companies benefiting from these tax incentives.

The prevailing view was that presumed ICMS tax credits constitute a state tax concession intended to stimulate economic activity, rather than revenue or turnover generated by the company. A reduction in ICMS payable does not constitute income or wealth attributable to the taxpayer for the purposes of these contributions.

The Connection with the STJ Proceedings

The taxation of these same credits under Corporate Income Tax (IRPJ) and the Social Contribution on Net Profit (CSLL) remains pending before Brazil’s Superior Court of Justice (STJ), which will examine the matter under Theme 1,416, through the repetitive appeals procedure. The court will determine whether the benefit may be excluded from the tax bases for periods both before and after Law No. 14,789/2023, which came into force in 2024.

The key connection lies in the nature of the tax benefit. Recognising presumed ICMS tax credits as a state tax concession may strengthen the argument that the federal government should not undermine the incentive through federal taxation. This interpretation supports the position that such credits should also be excluded from the IRPJ and CSLL tax bases, including after the enactment of Law No. 14,789/2023.

Who May Benefit

The issue is relevant to companies subject to the actual profit taxation regime (lucro real) that pay tax on presumed ICMS credits, as well as companies under the presumed profit taxation regime (lucro presumido) that include the benefit in their tax bases as “other revenue”.

A favourable outcome could allow these companies to reduce their future tax burden and recover amounts paid within the applicable limitation period, whether before or after Law No. 14,789/2023 came into force.

Key Considerations

The STF ruling may still be subject to motions for clarification, and the terms of the written judgment will be important in determining its scope. Before the STJ, in addition to the substantive merits, there may also be debate over whether the effects of the ruling should be limited prospectively or otherwise restricted.

As tax recovery claims are subject to a five-year limitation period, companies should consider reviewing their tax payments and assessing whether judicial action would be appropriate. This assessment should also take into account the nature of the tax incentive actually received and any use of the tax credit provided for under Law No. 14,789/2023.

BVA’s Tax team is available to discuss the implications of these developments and the measures applicable to each company.