New ICMS tax war brings legal uncertainty to agribusiness

The issue involving ICMS debits and credits (Tax on Operations relating to the Circulation of Goods and on the Provision of Interstate and Intermunicipal Transport and Communication Services) is a major, long-standing concern for large taxpayers who operate in agribusiness and who have branches in several states of the Federation, especially since the Kandir Law came into force (LC 87/1996).

With the increase in demands in the judiciary questioning the legality of ICMS taxation on interstate transfer operations, the STJ tried to pacify the issue in 1996 and declared that there was no tax on transfer operations between establishments located in other states and the same holder, editing Precedent 166. However, nothing dealt with the impact of tax crediting on this same operation, that is, the judiciary's guidance ended up restricted to the tax “debit” (not highlighted).

Since then, given the states' strong resistance to complying with Precedent 166 (not requiring the inclusion of ICMS in interstate transfers), companies linked to agribusiness had to resort to the judiciary, as they continued to not know which decision to follow. All this legal instability (judicial and administrative) required the expenditure of hours and a high cost in the construction of adequate tax planning, since each state has its own rules, both for debit, granting numerous incentives, and for ICMS credit. , which in most cases is conditioned on effective taxation of the previous chain. Here is the most sensitive point for agribusiness which, historically, has received special treatment in most states, through the granting of various exemptions, from rural production to agroindustry activity.

Such legal instability ended up in the STF in 2017, through the filing of Declaratory Constitutionality Action (ADC) 49, by the State of Rio Grande do Norte, which aimed to declare constitutionality regarding the incidence of ICMS in merchandise transfer operations. During that period, the state maintained that establishments, even if owned by the same taxpayer, are considered autonomous, which would justify the incidence of ICMS on transfers, including interstate operations, and opened the discussion regarding the destination of the credit determined in that same operation (previous operation ).

In 2021, the Federal Supreme Court (STF) unanimously ruled that the request made in ADC 49 was unfounded, declaring the unconstitutionality of articles 11, §3, II, 12, I, in the section “even if for another establishment owned by the same owner” , modulating the effects of this decision until 31/12/2023, with the National Congress remaining delegated, the issuance of a Complementary Law capable of regulating these effects, both of debit and credit.

In short, ADC49 brought to the STF's table, after 27 years of the Kandir Law, the need for a decision on the balance between the credit and benefits granted in the acquisitions of this transferring taxpayer, and a transfer without highlighting the tax to another state.

Anticipating this movement, the National Council for Financial Policy (Confaz) took the lead and published in November last year Agreement 174/23, which was born with numerous criticisms due to conflicting points with ADC 49. The Agreement established, from of 1/01/2024, the obligation to post the ICMS debit and transfer the credit from the previous operation to the state of destination of the merchandise, in addition to the provision for the maintenance of benefits granted by the state of origin.

In the face of criticism, through Declaratory Act 44/2023, Confaz published the full rejection of Agreement 174/23, motivated by the breach of the agreement by some states, initiated by Rio de Janeiro. Agreement 174/2023 was later replaced by Agreement 178/2023 (1/12/2023), which maintained the previous predictions via Confaz and definitively inaugurated a new ICMS tax war. This time the discussion is about where the credit due in remittances in interstate transfers should be maintained, how it should be calculated, and especially, reinforcing the doubt about possible side effects, such as the obligation to reverse benefits granted by the state of origin.

As agribusiness operates directly with interstate investments and operations, this insecurity caused by Confaz mobilized the sector and other professional entities in such a way that the matter had an accelerated outcome in Brasília, resulting in the sanction by President Lula of Complementary Law 204 on 28.12.23. .116 (originating from Complementary Bill 23/XNUMX), on the eve of the legislative recess.

With this, the Kandir Law was finally updated by LC 204/23 and began to provide that from 1/01/2024, in addition to the non-levy of ICMS on transfers of goods between establishments of the same taxpayer, the maintenance of the credit relating to previous operations and payments in favor of the taxpayer, including in cases of interstate transfers in which the credits will be assured (i) by the destination state, through credit transfer, limited to the percentages established for interstate rates, (ii) by the state of origin, in case of a positive difference between the credits relevant to previous operations and services and the object of transfer.

It turns out that some states, such as São Paulo, began internalizing Agreement 178/23 before the publication of LC 120/23, generating uncertainty regarding regulations involving credit. While other states began internalization more recently, such as Paraná (via Decree 4.709/2024), however, disregarding the predictions of LC 204/23 and bringing doubtful points regarding the calculation of credit, impacts on ICMS ST and issuance of the invoice .

For this reason, in the final stretch of 2023, Confaz urgently published Agreements 225/2023 and 228/2023, in addition to Guidance Note 01/2024, all to calm taxpayers and guide them to maintain taxation and issuance of tax documents in accordance with practices adopted in 2023, until more precise regulations come into force, with a deadline of April 2024.

For agribusiness, there remains an extremely worrying legal uncertainty, as countless cooperatives and agribusinesses have made significant investments and strong business expansion in recent years, through the opening of branches in other states, all of this considering the importance of ICMS in transfers and without the concern of side effects on previous exemptions granted by the states where they have headquarters and where the goods produced come from.

The fear lies in the risk of some states feeling harmed (possible drop in ICMS collection or migration of business to other states) and adopting arbitrary practices, through the opening of inspections or charges against the country's large agro-industries and cooperatives, due to the calculation of the credit that will be transferred to the destination states, the commitments previously signed under special regimes, the application of conditional deferral and other incentives provided for in regulations.

A major example is concentrated in the states of Tocantins, Piauí and Maranhão, which are prominent in the production and flow of grains throughout Brazil.

Faced with this impasse, it is important that class entities act strongly in Brasília, whether within the scope of the National Congress, which is focused on issuing the Complementary Laws responsible for the transition rules and the new tax burden subject to the Tax Reform approved in 2023, which includes the future extinction of ICMS, as well as effective participation in the current debate and alignment in Confaz, an entity whose mission is to balance interests between all 26 states and DF and to create efficient regulation of this new institute (transfer of credits from interstate transfer operations to the destination state).

The fact is that this new institute could unfortunately represent an increase in the state tax burden, increased costs with tax adjustments, with new judicial and administrative disputes and, also, a social setback in the face of states with low agro-industrial activity.

However, depending on the type of merchandise and states involved, the end of the ICMS emphasis and the beginning of the credit remittance to the destination state, may also represent a beneficial harmonization in the state tax burden of the segment, hence the importance of an immediate revisit of the tax planning adopted by the company (past and future).

In this sense, it is essential that companies have adequate legal and tax advice, as the year 2024 should be marked by the multiplication of legal disputes, which requires great caution with “what” will be sued in the judiciary and “against which state demand”, under penalty of technical precariousness in judicial decisions and the anticipation of problems in the administrative sphere (arbitrary supervision and taxation) with several states.

The only certainty that we have so far is that the issue is far from being pacified, because, even after the extinction of the ICMS as a result of the tax reform, we will have many discussions involving accumulated tax credits and we have until April this year to check the solution adopted by the states, via Confaz, in compliance with the STF decision in ADC 49.

By Leila Pereira, Martinelli Advogados