Exclusion of ICMS from the PIS and Cofins assessment basis: tax opportunity must be on the companies' planning

Opening of tax exclusion processes from the PIS/Cofins assessment basis must be evaluated according to each business

By Luciane Santana

Large companies are already benefiting from the exclusion of ICMS from the PIS and Cofins assessment basis, recovering considerable volumes of credits. This is one of the tax opportunities that deserves the attention of the taxpayer at a time when favorable decisions in favor of exclusion are beginning to be registered.

In this period when businesses are affected by the coronavirus pandemic, with reduced revenues, the recognition of tax credits ends up being one of the possibilities for financial relief.

The income of great companies that are recovering significant amounts that may be used to reduce taxes are already being released in the media. A retail chain obtained recently a favorable court decision to recover BRL 1.3 billion in credits.

As the ICMS is common to businesses of all sizes, it worth evaluating the investment in opening a tax exclusion process from the PIS and Cofins assessment basis.

ICMS

ICMS  is the acronym for Tax on Operations related to the Circulation of Goods and Interstate and Intermunicipal Transport and Communication Services.

This is a state tax and its rate varies with each federal unit, and may correspond to up to 19 % of the value of the goods or services.

The high rate already indicates that the possibility of recovering credits from this tax can move significant amounts , considering the number of operations that the company carries out or involving the payment of ICMS in the last five years, a period that can be included in the assessment.

Legal elements concerning the exclusion of ICMS from the PIS and Cofins assessment basis

For many years, the assessment basis of PIS and COFINS has been a discussion topic in the legal area, and in 2017, the Federal Supreme Court (STF) concluded the judgment concerning the matter, deciding that the ICMS highlighted in invoice should not be included in the assessment basis. The Federal Government has already expressed its opposition to the removal of the state tax from this account.

According to the STF's understanding, the amount collected as ICMS does not become part of the taxpayer's equity and does not constitute gross revenue or revenue (basis for assess contributions). For this reason, ICMS cannot be included in the PIS and Cofins assessment basis.

As Brazilian law still does not translate this definitively, the taxpayer who is interested in excluding the ICMS from the calculation will need to file a lawsuit.

The Attorney General's Office submitted to the STF , in 2019, a favorable opinion on the modulation of the effects of the Amendment of Judgment ( RE n. 574.706):

“The amendments of judgement embargoes can and must be accepted in order to modify its effects. The decision brings with it impact and scope that impose its effectiveness launched into the future, with ex nunc effects . […] The thesis set in general effect - with binding effectiveness and ultra-party effects - produces an important change in the Brazilian tax system, affects a large number of tax operations and can have a serious impact on public accounts.”

It is expected that such Amendment of Judgment on the modulation of the effects of the decision of RE n. 574,706 will be tried in 2020.

In April this year, the Federal Regional Court (TRF) of the 2nd Region, with headquarters in Rio de Janeiro, before the STF's manifestation, released the proceedings hitherto held. As a result, some proceedings in progress in the court could be closed.

With res judicata, taxpayers are able to qualify at the Federal Revenue, via PER/DCOMP, amounts to which they are entitled regarding overpayments in PIS and Cofins, so that such credits can be used to pay taxes.

In this res judicata situation, the portion of the credit related to ICMS effectively collected is used and not the amount stated on the invoice. This is a more conservative position, in line with case law, and the one that has been more adopted.

As the matter still involves legal proceedings, it is recommended that each case be analyzed with the proper tax advice.  

Regulation of PIS and Cofins

In the last year, the Federal Revenue has published the IN 1911/2019 to consolidate and regulate the determination, collection, inspection, collection and administration of the Contribution to PIS/Pasep and Cofins.

According to the rule, "the amount to be excluded from the monthly assessment basis of the contribution is the monthly amount of ICMS to be collected," according to the majority stand signed by the STF.

This normative rule consolidated the Federal Revenue Service's guidelines on the matter, clarifying, among other points, that the amount of ICMS to be excluded is the amount actually collected, and not that highlighted on the invoices.

However, this IN alone has no jurisdiction in the legal system to settle the issue of exclusion of ICMS from the PIS and Cofins tax bases.

One point that remains controversial is: Which ICMS is to be excluded: the paid or the posted one?

 

Although the IN suggests the collected ICMS, if there is an indication in the court decision that it is the seconded party, the latter prevails, since the sentence cannot be breached. 

Moreover, if the STF, when analyzing the opposing declaration embargoes by the Federal Government in the judgment of RE No. 574706, which will still be put on the agenda, has a divergent stand, part of IN RFB No. 1,911 may lose its validity.

Auxiliary measures to check the of tax opportunities

The tax review process is decisive for ensuring the regularity of companies before the authorities. This mapping promotes a thorough analysis of the last five years of tax management, a period in which it is still possible to request the retroactive recovery of credits for the period. This analysis investigates all situations in which the highest tax was collected.

Understand this process: What can tax review do for your company?

This survey confirms the difficulty that companies face when dealing with complex Brazilian tax issues, and it is very common to identify cases in which businesses no longer benefit from the opportunities provided for, such as the exclusion of ICMS from the PIS and Cofins tax basis.

A faster research, only to signal if the investment in the process of request for exclusion of ICMS from the PIS and Cofins calculation basis is valid, can be made from an evaluation of the information contained in the Sped - Public System of Digital Bookkeeping. The totalizer of the company's monthly operations will reveal an approximate value of what could be recovered.

If the business has any tax benefits or particularities in the tax field, this evaluation needs to be more complete.

Armed with this information, the company can make a better decision in this respect. But the continuity and conduct of the process and the analysis of the risk of the process must have legal guidance.

After the lawsuit has been filed and judged, it is necessary to make the actual withdrawal in order to obtain the value of the actual credit, then, from an accurate and precise analysis to start the recovery.

When overpaid credits are identified, recovery must be requested through an administrative process, through the Electronic Request for Restitution, Repayment or Reimbursement and the Settlement Statement (PER/DCOMP).

The amounts recoverable are updated based on the Selic rate.

 

See also:

• Compensation and restitution of federal taxes: crisis scenario expands search for tax opportunities
• Tax credit recovery: a boost to emerge from the crisis

Credit recovery: count on DPC's expertise

Domingues e Pinho Contadores provides an integrated vision, thanks to its multidisciplinary and up-to-date consulting team regarding legislation and best market practices.

The specialists conduct a thorough analysis of the company's tax behavior, identifying opportunities to apply for tax credits, either from a comprehensive permanent tax review or in a timely manner, as required by the company.