TIT’s (Court of Taxes and Fees) Higher Chamber legitimizes the use of ICMS’s credits in operations involving suppliers from Duty-Free Zone from Manaus

On March 24th, the High Chamber of São Paulo Administrative Court (‘Tribunal de Impostos e Taxas – TIT’) decided to authorize the disallowance of ICMS’s credits in acquisitions from companies in Manaus Free Trade Zone.

The decision was taken in line with the understanding of the Federal Supreme Court (STF) in the trial of Extraordinary Appeal n°628.075/RS (Theme 490 of General Repercussion cases), where the Court ruled that “the proportional reversal of ICMS credit made by the State of destination, due to a presumed tax credit granted by the State of origin without authorization from the National Council for Finance Policy (CONFAZ), does not violate the constitutional principle of non-cumulativity“.

Therefore, the Administrative Court accepted the tax authorities’ argumentation that the ICMS credit to be used by its recipient in São Paulo must be equivalent to the amount of tax effectively paid by the supplier in the state of origin. This means that the ICMS amount related to tax benefits related to Manaus’ Free Trade Zone should be disregarded.

During the trial it was discussed whether Complementary Law n°24/1975- which requires previous interstate agreements for granting tax advantages of ICMS – should apply to on industries of the Free Trade Zone, given that there is an express exception on article 15 of said Complementary Law.

However, the majority of the judges of the Superior Chamber of the TIT adopted the understanding that article 15 of LC 24/75 must be interpreted in line with the Federal Constitution, and that the allowance of ICMS credits by São Paulo taxpayers would represent a violation of the federative pact, transferring the costs of tax benefits granted unilaterally, and without support in the Agreement, from one State to another.

The matter is still pending consideration by the STF, due to the Direct Action of Unconstitutionality No. 4832, filed by the State of São Paulo to question the constitutionality of the Legislation enacted by the State of Amazonas for the regulation of tax benefits. We are available to discuss in more details the case.