Zona Franca: PGR claims that São Paulo cannot block ICMS

regional economy

Tax incentives are fundamental in stimulating regional economic development

The Attorney General of the Republic, Augusto Aras, sent an opinion to the Federal Supreme Court (STF) in response to the Arguição de Descumprimento de Preceito Fundamental (ADPF) 1.004/SP, filed by the governor of Amazonas, which questions the performance of the São Paulo tax authorities and the decisions of the Court of Taxes and Fees of the State of São Paulo (TIT/SP) in relation to the tax incentives of the Tax on Circulation of Goods and Services (ICMS) applied to products of the Free Zone of Manaus (ZFM).

In the opinion, the attorney general defends that the states apply the ZFM tax incentives even in the absence of an agreement approved by the National Council of Treasury Policy (Confaz), which is responsible for regulating such benefits. Aras explains that TIT/SP’s decisions were based on a misinterpretation of Complementary Law (LC) 24/1975, which deals with agreements for granting ICMS exemptions.

According to the attorney general, by removing the rule of article 15 of LC 24/1975, which excludes from the application of the complementary law the industries installed or that come to be installed in the Free Zone of Manaus, the São Paulo institutions “emptied the normative content of the article 40 of the ADCT (Transitional Constitutional Provisions Act)”, which received the legal framework that underlies the functioning of the ZFM. This action maintained the tax benefits provided for in Decree-Law 288/1967, which created the ZFM with the objective of stimulating the economic development of the Amazon region.

The attorney general argues that, although the requirement of an interstate agreement for the granting of ICMS tax benefits aims to preserve the federative pact and avoid the so-called “tax war” between the states, the special protection regime of the ZFM is of order equally constitutional and justifies the acceptance by the Federal Constitution of 1988 of article 15 of LC 24/1975. This occurs, according to Aras, because the development of the region is in the interest of the federation as a whole and is in line with the principle of reducing social and regional inequalities.

Thus, the Attorney General opines as to the merits of the action, requesting that the São Paulo Tax Authorities and the São Paulo State Tax and Fees Court no longer determine the disallowance of ICMS credits arising from the acquisition of products from the Manaus Free Trade Zone by lack of agreement approved within the scope of Confaz. He points out that the STF has already decided on several occasions about the “very special” treatment given to the Manaus sub-region, and that such treatment needs to be observed so as not to mischaracterize the ZFM.

The STF’s decision on this issue will have a significant impact on the economic scenario, especially for the Amazon region and the industry installed in the Manaus Free Trade Zone. Tax incentives play a key role in stimulating regional economic development and attracting investment, making this an issue of great interest to both the government and the productive sector. The outcome of this action could have repercussions throughout the country, given the relevance of the ZFM in the context of the Brazilian economy.

*With information from Accounting

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