New Provisional Measure 1185: Changes in the Tax Treatment of ICMS Incentives


On August 31, Provisional Measure 1185 was published, altering the tax treatment of ICMS (Tax on Circulation of Goods and Services) incentives. The previous method of deducting these benefits from the base of IRPJ (Corporate Income Tax), CSLL (Social Contribution on Net Income), PIS, and COFINS is replaced by a system where the taxpayer receives a tax credit related to the ICMS incentives. This credit can be reimbursed or offset. These new rules will come into effect from January 2024.

The new measure repeals Article 30, which dealt with subsidies and allowed the deduction of tax benefits. Previously, state ICMS benefits were deducted from the base of IRPJ, CSLL, PIS, and COFINS. MP 1185 replaces this system with a model in which a tax credit is granted to the taxpayer, equivalent to the received ICMS incentives. This credit can later be reimbursed or offset.

Scope of the Change: The change encompasses all types of fiscal benefits, including the presumed credit of ICMS. However, there is controversy over whether this type of credit can be considered a subsidy or merely a waiver of state revenue. The MP also clarifies the rule about deducting ICMS benefits from the PIS/COFINS base, repealing articles from Laws 10.637/02 and 10.833/03.

Percentage of Fiscal Benefits: According to Article 6 of the MP, the percentage of fiscal benefits that can be utilized is based on the subsidy revenues and the IRPJ rate in force during the period when such revenues were recognized.

Objective of the Change: Transforming the reduction of the IRPJ/CSLL calculation base into a tax credit aligns Brazil with OECD standards, by providing more legal security in granting fiscal benefits. The change will also make the incentive fully transparent, allowing the Federal Revenue to disclose individual data of companies.

While the change brings clarity in some areas, many taxpayers see the possibility of future legal disputes, particularly regarding the inclusion of presumed ICMS credits. There are also concerns about the new responsibility of the taxpayer to prove the regularity of credits, reversing the burden of proof that previously fell on the tax authorities.

There is no doubt that the changes brought by MP 1185 in the tax treatment of ICMS incentives aim to consolidate greater transparency and alignment with international standards. However, there is still uncertainty about how this measure aligns with previous decisions of the STJ (Superior Court of Justice), which may lead to difficulties in implementing these changes and their receptivity among taxpayers, who may legally challenge this new model.


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