Excluding ICMS (Brazilian state sales tax) from PIS/Cofins (Brazilian federal social security contributions) should be on the agenda for the second half of the year.

Brazilian Supreme Court Chief Justice Luiz Fux is considering including in the second half of the year's docket the case with the greatest economic impact for the federal government – the so-called "thesis of the century," which deals with excluding ICMS (a state sales tax) from the calculation of PIS and Cofins (federal social security contributions). R$ 250 billion is at stake in this case.

The statement regarding the trial date was made by the press office of the STF presidency to Valor a few hours after a letter sent by Fux to the regional federal courts surfaced among tax lawyers.

The president of the Supreme Court has asked the judges not to send any more appeals on this matter to the Court. The instruction is for them to remain pending in the second instance until the ministers put an end to this matter.

The outcome depends solely on the judgment of the appeal that Fux is considering scheduling for the second half of the year. The ministers decided to exclude ICMS (a state sales tax) from the calculation of PIS and Cofins (federal social security contributions) in March 2017. In that same year, the Federal Government filed a motion for clarification.

It requests that the result be modified and, if that does not happen, that the so-called modulation of effects be applied - which would make the decision valid only for a period after the judgment of the appeals.

This appeal was released for judgment by the case's rapporteur, Minister Cármen Lúcia, in July 2019. It has been on and off the agenda several times. The last time was on April 1, 2020. Lawyers joke about the date, saying it was the biggest "tax lie" in recent years.

In the official letter sent to the regional courts, Fux speaks of safeguarding "legal certainty." He cites the Union's appeal and emphasizes that there is an opinion from the Attorney General's Office (PGR) in favor of modulating the effects.

This document landed like a bombshell in the legal community. “It’s very serious. The official letter requests that cases no longer go to the Supreme Court. But we know that, in practice, the courts may end up suspending everything because of this,” says lawyer Tiago Conde, partner at the Sacha Calmon law firm.

And in that case, he adds, there would be enormous losses for the companies. With the processes paralyzed, they do not have a final decision on their cases (res judicata). Consequently, they cannot recover what they overpaid in taxes.

The Attorney General's Office for the National Treasury (PGFN) had long requested that Minister Cármen Lúcia suspend, throughout the country, the processing of cases discussing the exclusion of ICMS (a state sales tax). She did not grant the request. Yesterday, when Fux's official letter came to light, some lawyers interpreted it as if he were "overriding" the rapporteur's decisions.

There are currently 9,300 lawsuits on this subject in the Judiciary, and numerous others have already been concluded. In 2020, companies used R$ 63.6 billion in tax credits resulting from legal disputes – 174% more than the previous year. The strong growth, according to the Federal Revenue Service, is related to the final judgments of lawsuits regarding the exclusion of ICMS (a state sales tax) from PIS and Cofins (federal social security contributions).

Of the five regional federal courts in the country, only one, the TRF of the 3rd Region, based in São Paulo, had already suspended the processing of cases before the official letter sent by Fux – holding up appeals to the STF. These are cases, for example, in which the company obtained a favorable decision in the court's panels and the National Treasury appealed, arguing that there is a pending discussion on the matter covered by the motions for clarification.

“The stalling of the process at the lower court [in the second instance] has to be something temporary. It cannot be an instrument for supposedly preserving legal certainty. The merits of this case were decided back in 2017. These appeals have been pending for a long time. Legal certainty means making the decision that needs to be made,” says lawyer Julio Janolio, partner at Vinhas e Redenschi.

Besides the possibility of the processes being stalled, lawyers fear that Fux's official communication is an indication of the modulation of effects. “The Supreme Court is modulating. It modulated when it decided on the taxation of software and on the ICMS tax differential in e-commerce transactions. This could be an indication of 'hold on tight, something's coming up here',” says Edison Fernandes, of FF Advogados.

In a statement, the Supreme Federal Court (STF) affirms that Luiz Fux's request does not, in any way, exceed the competence of the case's rapporteur. "It is solely up to her to decide on requests within the scope of the process. The president of the STF has not made any such determination," it says.

The communication to the regional courts is in compliance with article 1,030 of the Code of Civil Procedure, according to the note. This provision establishes that presidents and vice-presidents of the courts, when faced with appeals to the Supreme Court dealing with repetitive controversies that have not yet been decided, should not refer new cases to the higher court. "This does not mean that they should paralyze the progress of the proceedings, but only that, if they deem it appropriate, they should refrain from sending new appeals to the Supreme Court until the full court resolves the issue," it states.

Source: Economic Value