States regulate transactions between establishments of the same taxpayer – Mandatory Credit Transfer – Unconstitutionality

In 2021, the Federal Supreme Court (“STF”) ruled that the collection of ICMS on transactions carried out between establishments of the same taxpayer was unconstitutional, as well as the right to maintain ICMS credits from previous transactions and the taxpayer's right to opt for transfer of ICMS credits (Ação Direta de Inconstitucionalidade [“ADC”] 49).

However, the STF modulated the effects of this decision, allowing the maintenance of ICMS collection on such transactions until 12/31/2023. On the other hand, it was determined that States should rule on the transferring ICMS credits in transactions operations until the same date.

In this context, on 12/1/2023, the National Council for Financial Policy (“CONFAZ”) published ICMS Agreement No. 178/2023 regulating the rules for transferring ICMS credits in transactions between establishments of the same taxpayer. Some States are publishing their internal rules for incorporating the aforementioned Agreement into their legislation, such as, for example, the State of São Paulo (Decree nº 68,243/2023) and the State of Mato Grosso do Sul (Decree nº 16,355/2023).

It turns out that said Agreement and, consequently, the State legislations, made the transfer of ICMS credit mandatory in such transactions, violating the Federal Constitution and the STF decision in ADC 49.

Furthermore, as a result of ADC 49 and to definitively regulate the issue, the National Congress approved Complementary Bill 116/2023, which awaits presidential sanction for its publication. It should be noted that, at least so far, the future Complementary Law covered what was determined in the Federal Constitution and in the decision of the STF, so that the ICMS Agreement No. 178/2023 is clearly unconstitutional in the points of divergence mentioned.

In this context, we recommend analyzing the above scenarios, as well as possible adoption of legal measures both to prevent undue tax payments/debits and to prevent ICMS from being charged on transfers between establishments.

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