Minister Gilmar Mendes, of the STF (Supreme Federal Court), voted in favor of the possibility of charging Difal (Differential Rate) of ICMS (Tax on Circulation of Goods and Services) from April 2022.
The magistrate followed Dias Toffoli’s understanding. So far, there are another 5 votes for the amount to be collected only from 2023. This understanding, which has the most votes, is in favor of companies and tax payers.
Difal seeks to balance the collection of ICMS by the States. It is an instrument for the tax to be distributed both to the States where certain products and services are made and to those that are the destination of purchases.
The judgment decides from when the collection of Difal is valid. States want it to be in effect now, to reinforce tax collection. The private sector, especially retail, wants to postpone this charge. The STF jointly judges 3 ADIs (Direct Actions of Unconstitutionality) that deal with the subject (read more below about the actions).
The case is being analyzed in the virtual plenary of the Supreme Court. The session lasts a week: it reopened this Friday (Dec.9, 2022) and will close at 11:59 pm on the next Friday (Dec.16). In format, there is no debate. Ministers cast their votes in the Court’s electronic system.
Gilmar was responsible for paralyzing the virtual session that analyzed the case, on November 11. He had placed an order for a view (more time for analysis).
The current that is winning the trial was opened by Minister Edson Fachin. He opened the divergence with the understanding of the charge from 2023. Fachin was followed by ministers Ricardo Lewandowski, André Mendonça, Cármen Lúcia and Rosa Weber.
The rapporteur, Minister Alexandre de Moraes, voted for the collection of Difal from January 2022.
Here is a summary of how the judging score stands:
- collection from January 2022: Alexandre de Moraes;
- collection from April 2022: Dias Toffoli and Gilmar Mendes;
- collection from 2023: Edson Fachin, Ricardo Lewandowski, André Mendonça, Cármen Lúcia and Rosa Weber.
The votes of ministers Roberto Barroso, Luiz Fux and Nunes Marques are still missing.
WISHES
Fachin followed the argument presented by Toffoli that the nonagesimal principle should apply, which only authorizes States to charge tribute 90 days after a law comes into force. That is, the charge would be valid regularly from the beginning of April this year.
However, Fachin considers that the nonagesimal rule is inseparable from the principle of annual precedence. Therefore, Difal could only be charged in the year following the publication of the law that regulated the tax. Here’s the full (82 KB) of the minister’s vote.
A 1st attempt to analyze the case began on September 23rd. On the occasion, Moraes voted for regular collection from the effectiveness of the Complementary Law (LC) 190, of 2022, on January 5 of this year. Then, Toffolli asked for a review (more time for analysis), suspending the trial.
The creation of effects only after 90 days is also included in the LC itself. For Moraes, however, the norm did not change the tax burden borne by tax payers, it only changed the destination of the collection.
Toffoli, on the other hand, defended the nonagesimal principle stating that the legislator can establish, in favor of tax payers, a “reasonable time” for the Difal charge to become effective.
In his vote, Moraes said he understood that the LC does not institute the tribute and, therefore, should not meet the nonagesimal precedents.
The rapporteur argued that the LC does not modify the tax burden, changing only the destination of the collection, since the law only determines the transfer of part of the collection to the State of destination of the merchandise. Here’s the full of Moraes’ vote (151 KB).
UNDERSTAND THE DISCUSSION
The Difal mechanism began in 2015, through the Constitutional Amendment 87/2015 It’s from ICMS Agreement 93/2015🇧🇷 The reason was the increase in online purchases by individuals. Before 2015, only the State of origin of the product or service collected. After the change, the destination states started to receive a part of the rate.
In 2021, the STF considered unconstitutional sections of the 2015 agreement that deals with Difal and determined that the subject be regulated through an LC.
The problem is that the law on the matter (LC 190/2022) was only published on January 5, 2022. As a result, an impasse was created: sectors of commerce and industry claim that laws involving taxes only take effect in the financial year following their publication. This is the principle of annual precedence. That is, as the LC is from 2022, the collection of Difal would only be allowed from 2023.
They also argue that another principle, that of nonagesimal precedence, prohibits States from collecting taxes before 90 days have elapsed from the date of publication of a law that creates or increases the amount to be collected through a tax.
States, on the other hand, say that the annual precedence is only valid when a new tax is created or when there is an increase in the collection, while the changes in Difal have existed since 2015 and only went through a new regulation through the LC published in 2022 .
Understand the 3 actions that are in the Supreme:
- ADI 7066 – Abimaq (Brazilian Machinery Industry Association) requests the suspension of the effects of the 2022 CL, stating that the principles of annual and nonagesimal precedence prevent collection during 2022. According to the association, the amounts should only be collected from January 1, 2023;
- ADI 7070 – Alagoas asks for the collection of Difal of ICMS starting in 2022, not being necessary to observe the annual and nonagesimal anteriorities;
- ADI 7078 – Ceará requests the collection of the ICMS Difal from the publication of the 2022 LC, that is, from January 5, 2022. It says that the principles of nonagesimal and annual anteriority are only valid when there is the creation or increase of a tax .
ARGUMENTS
Abimaq says that although the Difal charge is prior to the LC published in 2022, the measure created a “new tax legal relationship”which would require the application of the principle of annual precedence.
“In this scenario, since it is a new legal tax relationship, the Federal Constitution, in the command of article 150, III, ‘b’, determines that the founding law must be published in the financial year prior to the requirement of the exaction”, says the association. Here’s the full of the action (1017 KB).
There are 19 requests from associations to act in the case as “Friends of the Court”institutions that request to join the case to contribute with information.
There are other States with an interest in the discussion (requesting immediate collection), and unions, federations and industry associations (requesting collection only from 2023). Fiesp (Federation of Industries of the State of São Paulo) is among the federations that request application only from 2023, as well as CNC (National Confederation of Trade in Goods, Services and Tourism) and Fecomércio (Federation of Trade in Goods, Services and Tourism).
If the associations argue that the LC should not create immediate effects, the States say that the charge in 2023 alone would cause a loss of BRL 10 billion in 2022.
“The temporal element inserted for the production of effects is completely unreasonable, violating the constitutional principle of proportionality, since taxation has been required from taxpayers since 2015”, says the State of Alagoas in its action (ADI 7070). Here’s the full part (1 MB).
The State of Ceará, on the other hand, says that postponing the immediate effects of the LC “prevents the legitimate exercise of state tax jurisdiction and violates the federative pact”, since it would deprive the “subnational entities of their political-administrative and financial autonomy”🇧🇷 Here’s the full of the action (7 MB).
While the Supreme does not give a definition on the subject, there are contrary decisions on Difal. Judges from several states, such as Goiás, Maranhão, Sergipe, Piauí and Santa Catarina, in addition to the Federal District, suspended the charge in 2022, which was overturned by presidents of TJs (Courts of Justice).
DIVISION
With the changes applied from 2015 onwards, the State of destination of the merchandise started to receive part of the ICMS. Prior to 2015, only the state where the items were produced collected the tax, if the buyer was an individual (who does not pay ICMS).
The distribution to the destination States was progressive. In 2015, for example, 80% of ICMS went to the producing State, and only 20% to the destination. In 2016, the correlation changed to 60% and 40% respectively, until, in 2019, 100% of the rate began to be collected for the State of destination of the product.
Read the progression in the table below:
“Illustratively, if a São Paulo e-commerce company sells a piece of hardware to a final consumer in Rondônia, the collection will be made by the São Paulo legal entity, but its amount will be directed to the Rondônia Tax Administration, before the goods are shipped” , explained to Power360 tax lawyer Pedro Barroso.
The Difal is calculated considering the difference between the internal rate of the State of destination of the product and the interstate rate of the State that sends it.
Assuming, for example, that a R$100 product leaves São Paulo for Rio de Janeiro and that the State rates are R$12% and 18% respectively, the receiving State receives R$6.
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