ICMS credit granted to ethanol producers and distributors and risk of taxation by the Federal Tax Authorities

According to Decree No. 67,121/2022, ethanol producers and distributors will be able to take advantage of ICMS tax credits between August and December 2022 in an amount released monthly by the tax authorities.

On September 28th, Resolution No. 60/2022 was published setting the percentage of 1.26% on the added value resulting from intrastate transactions with hydrated ethanol fuel to be used by ethanol producers and distributors in relation to the months August and September 2022. Thus, it became possible to book the ICMS tax credit granted.

Nonetheless, for the Federal Tax Authorities (“RFB”), the ICMS tax credit granted is an ICMS tax benefit and, therefore, must be considered as taxpayer revenue and subject to taxation. For this reason, it is likely that taxpayers who do not pay IRPJ, CSLL and PIS/COFINS on the credits granted will be assessed by the RFB. However, we understand that the RFB's interpretation can be questioned. This is because the Superior Court of Justice (“STJ”) decided, in the judgment of the Embargos of Divergencia nº 1,517,492, that the tax benefits cannot be considered as taxpayer revenue, but as a waiver of revenue by the States, so that their taxation would be prohibited due to the federative pact.

In addition, it is also possible to classify the tax credit granted as an "subvenção para investimento", which would exclude taxation of the value of the tax credits granted, provided that it is recorded in a profit reserve and used to absorb losses or increase capital, according to article 30 of Law No. 12,973/2014. Although the RFB understands that, in this case, it would be necessary to invest the amount received in the “implementation or expansion of an economic enterprise” as a condition to benefit from the exemption, we understand that this requirement is no longer a condition based on Complementary Law No. 160/2017, and according administrative and judicial precedents.

In light of the foregoing, we recommend filing a lawsuit to ensure the right of ethanol producers and distributors not to be required to pay IRPJ, CSLL and PIS/COFINS on the credit granted by the State of São Paulo under the terms described.


By Henrique Erbolato

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