On April 10, 2025, the First Panel of the Superior Court of Justice (STJ) issued a unanimous decision with significant impact on Brazilian industry, affirming the right to maintain IPI (Tax on Industrialized Products) credits related to taxed inputs, even when such inputs are used in the manufacture of final products that are not subject to taxation due to immunity or a zero tax rate.
Understanding the Case
The dispute centered around the interpretation of the non-cumulativity principle set forth in Article 153, §3, II of the Brazilian Federal Constitution. This principle ensures that IPI should only apply to the value added at each successive stage of production. In this context, companies that purchase taxed inputs are entitled to credit the tax paid, offsetting it against the IPI due in subsequent stages of the production chain.
However, the Federal Revenue Service had been arguing that such credits could not be maintained when the final product was tax-exempt or subject to a zero rate, claiming that the absence of IPI liability at the final stage meant there was no tax to offset—thus, in their view, creating an undue tax benefit.
Taxpayers, on the other hand, supported by constitutional jurisprudence and the underlying rationale of non-cumulativity, argued that denying these credits undermines the tax system, leading to cascading taxation and reduced competitiveness for domestic companies.
STJ’s Ruling
The court unanimously sided with the taxpayers, stating:
“Disallowing IPI credits in such cases undermines the logic of the non-cumulativity principle, resulting in a tax burden not authorized by the Constitution.”
The ruling confirmed that IPI credits on the acquisition of inputs may be maintained even when those inputs are used to manufacture final products that are not subject to IPI, such as items from the basic food basket, certain medications, or incentivized goods.
Practical Implications for Businesses
This decision creates a more favorable environment for industrial companies by:
- Confirming the right to IPI credits on operations involving tax-exempt, immune, or zero-rated final products;
- Effectively reducing the overall tax burden, with a direct impact on pricing strategies and profit margins;
- Allowing for the recovery of disallowed or unused credits, subject to the five-year statute of limitations for refunds or offsets;
- Providing greater legal certainty and fiscal predictability in production planning and industrial operations.
Recommendations for Taxpayers
Companies that deal with non-taxed final products should:
- Reassess their IPI credit calculation and bookkeeping procedures;
- Check for unused credits eligible for refund or offset;
- Consider administrative or judicial measures to recover such amounts, if applicable;
- Monitor the potential filing of an extraordinary appeal to the Federal Supreme Court (STF), although the STJ’s unanimous decision signals strong stability in the current interpretation.