Federal Revenue: MP corrects distortion in benefit of ICMS – 09/01/2023 – Market

The government of Luiz Inácio Lula da Silva (PT) wants to close loopholes in the law used by around 5,000 companies to pay less federal taxes, deducting from the calculation base the tax benefits obtained in the state ICMS unrelated to productive investments.

Seen by the Executive as a “tax tortoise”, the practice has harmed not only the collection of the Union, but also that of states and municipalities.

Under the current interpretation of companies and tax specialists, for every BRL 1,000 of ICMS incentives, the federal government ends up giving up another BRL 432.50, without deciding whether or not to agree with the benefit.

For the government, it’s as if the states gave an incentive with someone else’s hat. In addition, part of this loss is turned against the regional entities themselves, since the tax collection would be shared with them.

“This money is drained from the federal treasury, from other states and from other municipalities in a very perverse way. Where does this money go? In many cases, it goes straight into the pocket of the company’s partner. There are clear cases in which the company receives this benefit and increases profit”, said the special secretary of the Federal Revenue, Robinson Barreirinhas, in a press conference this Friday morning (1st).

“I dare say that the most affected are the small municipalities, due to the system. For them, the impact is very great”, he stated.

The government expects to recover R$ 35.3 billion next year with the correction of this gap. Part of the value should irrigate the coffers of states and municipalities, which today suffer losses of R$ 6 billion to R$ 9 billion in transfers that are no longer made by the Union, according to Revenue estimates.

In April, the government won a victory at the STJ (Superior Court of Justice), which ruled that companies can only deduct subsidies related to investments from the IRPJ and CSLL calculation base, with a purpose expressly defined in state laws. Even so, the controversy continued.

To correct this “distortion” and regulate the decision of the STJ, the government edited on Thursday (31) an MP (provisional measure) that establishes new rules for the taxation of these tax incentives.

The benefits in question involve reduction of the calculation base, presumed credit (to deduct the amount due), rate cut, exemption, deferral or tax immunity. They can be used for funding, to reduce the burden of operating expenses for companies, or for investments, such as the construction or expansion of a factory plant.

From the taxpayer’s perspective, the granting of a tax benefit increases its revenues and increases the company’s profit. This additional should be taxed by the Federal Revenue in case of funding subsidy.

But the interpretation given by companies to the legislation is broader and results in the deduction of these amounts from the IRPJ and CSLL calculation base even when it is a costing incentive. The benefit ends up also affecting the collection of PIS/Cofins.

“I’m not underestimating the litigation. I’m recognizing the litigation that exists because the law is horrible, I’m the first to recognize that. Because it was being amended, it’s jabuti here, jabuti there, when you go to read it, it’s confusing really,” said Barreirinhas.

One of the main measures of the MP is the change in the model itself. Instead of deducting ICMS incentives from the federal tax calculation base, the Revenue will grant a financial credit of 25% on the subsidy amount, provided it is related to investments.

According to Barreirinhas, the measure will provide greater transparency on which companies are contemplated with the benefit. The government’s intention is to make this information available on a public panel, similar to what has been done with other federal government tax expenditures.

The secretary also illustrated with examples the impasse existing today and how the charge would look after the MP rules, which will be valid from January 1, 2024.

A company that receives an incentive of R$ 1,000 and buys a machine also for R$ 1,000 can use the amount paid to obtain a discount on the IR (Income Tax), but in installments, over the years. In the example, the expense with the so-called depreciation would be R$ 100 per year.

In the current situation, the figure would be deducted from the IRPJ and CSLL calculation base (whose combined rates are 34%), freeing the company from a charge equivalent to R$ 34.

The company would not pay PIS/Cofins (9.25%) either, but would still get full credit for the purchase of the machine, being able to deduct R$ 92.50 from other taxes.

The total benefit for the company is R$ 126.50 with the investment subsidy.

With the proposed change in the MP, companies that receive funding subsidies will no longer be able to deduct the R$ 100 from the calculation base. Thus, they will pay R$9.25 of PIS/Cofins, although they can still get full credit on the full value of the equipment (R$92.50) in the first year —a difference in the company’s favor of R$83.25.

As for IRPJ and CSLL, companies will pay taxes on profit, but will be able to count on the credit of 25% of the amount discounted as depreciation in that year (R$ 25).

The total benefit will be BRL 108.25 — BRL 18.25 less than in the current model.

The government, however, has shown openness to dialogue about the 25% rate that defines the financial credit to be granted, precisely to prevent companies that actually invest from suffering some type of encumbrance.

In the case of funding incentives, the Executive’s objective is to completely close the existing gap, ending any doubt about federal taxation on these incentives.

According to Barreirinhas, the states have autonomy to decide on these benefits, but it is not fair that the federal government needs, by default, to give up its resources.

In the example of the government, in the current situation, a company that receives an incentive of R$ 1,000 also incurs a costing expense of R$ 1,000 and, with that, obtains a credit of R$ 92.50 from PIS/Cofins.

However, when deducting the R$ 1,000 from the federal tax calculation base, the company does not actually pay the R$ 92.50 that generate the PIS/Cofins credit. Nor does the 34% IRPJ and CSLL apply — that is, the company fails to collect BRL 340.

The total effect is a waiver of R$432.50 in federal taxes, according to the Revenue.

With the MP, companies that receive funding subsidies will no longer be able to deduct the R$ 1,000 from the calculation base. Thus, they will pay the R$ 92.50 of PIS/Cofins, but will be entitled to credit in the same amount, which generates a “neutral effect”, said the secretary.

There will also be no deduction of values ​​for IRPJ and CSLL, that is, the company will need to pay 34% on the profit derived from the tax incentive obtained.

In practice, the government recovers the R$ 432.50 currently pocketed by the companies, according to the Revenue.

According to the executive secretary of the Ministry of Finance, Dario Durigan, who was next to Barreirinhas in the interview with journalists, the economic team is proposing a correction to a model that did not work.

“The federal government improves the system, the investment is recognized, and financial credit is given. Our expectation is that litigation will decrease, because this is even being tested in other parts of the world in a global dynamic”, he said.