ICMS (Brazilian state sales tax) can be removed from the PIS/COFINS tax base.

The trial of the most anticipated case in recent years, which discusses the exclusion of ICMS (a Brazilian state sales tax) from the calculation base of PIS and COFINS (federal social security contributions), began last Thursday, March 9th, but was not concluded. The President of the Supreme Federal Court (STF), Minister Carmen Lúcia, decided to continue the trial at the next session, which will take place on March 15th, 2017.

The appeal being considered by the Court is RExt 574.706, under the general repercussion system. So far, 8 votes have been cast, 5 of them in favor of the taxpayers, that is, for the exclusion of ICMS from the calculation base of PIS and COFINS.

The rapporteur of the case, Minister Cármen Lúcia, understands that the value received as ICMS passed on to the consumer cannot be considered revenue and, therefore, should not be included in the calculation base of PIS and COFINS. The rapporteur’s vote was supported by Ministers Marco Aurélio, Ricardo Lewandowski, Luiz Fux, and Minister Rosa Weber.

Justice Cármen Lúcia maintained her understanding of the issue, which had already been expressed in plenary session when the Supreme Court considered the matter in 2014, but the appeal judged at that time did not have recognized general repercussion.

The dissenting votes were cast by Justices Edson Fachin, Luís Roberto Barroso, and Dias Toffoli, the latter of whom participated in the drafting of the Direct Action of Unconstitutionality on the subject (ADC 18) when he held the position of Attorney General.

The conclusion of the judgment will be awaited with considerable anxiety by companies and the Federal Government, as the issue affects the vast majority of companies and involves amounts of around R$ 250 billion (estimated tax revenue loss if the judgment is favorable to taxpayers). Another highly anticipated point is the possibility of modulating the effects of the decision so that it only affects taxpayers who have already filed a lawsuit to discuss the issue before the conclusion of the judgment by the Supreme Court.