Taxation on consumption in March: what the higher courts have been discussing

STF maintains ICMS sanctions

Brazilian Supreme Court upholds tax sanctions against habitual ICMS debtor in São Paulo

The Brazilian Supreme Court (STF) concluded its judgment and declared constitutional provisions of São Paulo state legislation establishing a special inspection regime and restrictive measures applicable to taxpayers classified as habitual ICMS debtors. In broad terms, the Court upheld mechanisms aimed at addressing repeated default in payment of the tax.

Under the system reviewed, the regime applies, among other situations, to taxpayers with declared and unpaid debts in multiple tax calculation periods over the previous 12 months, as well as companies with significant tax liabilities enrolled in active debt collection. Possible measures include stricter tax monitoring, restrictions on the enjoyment of tax benefits, and additional requirements for the appropriation of ICMS credits.

The prevailing understanding was that such mechanisms do not constitute an unlawful political sanction when aimed at combating repeated, systematic, or habitual non-payment, especially in contexts in which ordinary judicial collection proves insufficient. As a result, the STF reinforced the constitutional legitimacy of differentiated inspection regimes intended to preserve tax equality and free competition, although the direct effects of the decision, in this case, remain limited to the State of São Paulo.

STF validates taxation on reimportation

Brazilian Supreme Court upholds levy of Import Tax on reimported domestic goods

The STF unanimously decided that domestic or nationalized goods exported on a definitive basis are deemed foreign when they return to Brazil, becoming subject to Import Tax. The Court upheld the constitutionality of the decree-law provision that treats domestic or nationalized goods exported and returned to the country as foreign, rejecting the argument that only goods manufactured abroad could be reached by the tax.

The prevailing understanding was that the relevant criterion is not the physical origin of the goods, but their economic integration, such that definitive export breaks the link with the domestic market and the return constitutes a new entry under the legal framework applicable to imports.

The Court also highlighted the distinction from temporary export transactions, in which there is no tax incidence upon return, and emphasized the extrafiscal function of the Import Tax, including as an instrument of economic and environmental protection. Accordingly, the action was dismissed, consolidating the understanding that goods definitively exported, upon return to the country, may be lawfully taxed.

STF analyzes ICMS benefits

ICMS benefits conditioned on the origin of the product are challenged before the Brazilian Supreme Court

The Solidariedade political party filed a direct action of unconstitutionality before the STF challenging rules of the State of Espírito Santo that grant ICMS tax benefits to locally produced food products. The legislation reduces the tax base in internal transactions involving items such as pasta, bread, biscuits, and meats, provided that they originate in the state itself, and also favors industrial establishments located in Espírito Santo. According to the party, the measure creates an undue competitive advantage and violates the constitutional provision that prohibits tax differentiation based on the origin of goods.

The action argues that the STF has settled case law prohibiting this type of interstate discrimination. Given the relevance of the matter, the reporting Justice, Justice Cristiano Zanin, determined that the case be heard directly by the Full Court, setting aside analysis of any interim relief in the virtual environment. The discussion should therefore result in a final definition as to whether such tax benefits are compatible with the Constitution.

STF reevaluates ICMS additional charge

Brazilian Supreme Court revisits validity of additional ICMS charge on telecommunications

The STF is discussing the constitutionality of a law of the State of Sergipe establishing an additional ICMS charge on telecommunications services allocated to the Fund for Combating and Eradicating Poverty. In the case, telecommunications operators argue that Complementary Law No. 194/2022 prohibited classification of such activities as non-essential, which would prevent the application of increased rates to the sector.

In recent precedents, the Full Court has already decided that similar state laws lost effectiveness with enactment of that Complementary Law, but modulated the effects of the decision so that they only take effect as from January 1, 2027. In the specific case, the reporting Justice followed that understanding, and the judgment remains ongoing in the virtual plenary, with completion expected by April 8, 2026.

STF resumes analysis of ICMS

Brazilian Supreme Court to resume review of revocation of ICMS benefit for Free Trade Areas

The STF will resume, in an in-person plenary session, the judgment on the constitutionality of a rule of the State of São Paulo that established a final term for the ICMS exemption on transactions destined for the Free Trade Areas (ALCs), following a request for in-person consideration by Justice Luiz Fux, which reset the vote count that had until then favored partial unconstitutionality of the decree. In the actions, the states argue that unilateral revocation of the benefit violates the framework established in the specific Complementary Law, which requires joint deliberation within Confaz both for granting and for withdrawing ICMS tax incentives.

So far, the reporting Justice, Justice Cármen Lúcia, had prevailed with the understanding that unilateral revocation of a benefit granted on the basis of an interstate agreement is incompatible with the constitutional model of the tax, because it dispenses with the requirement of a collegiate decision among the states. Dissent was opened by Justice Nunes Marques, who defended the autonomy of federative entities to suppress tax benefits based on considerations of convenience and expediency.

The judgment will restart in the in-person plenary, with no date yet set for resumption.

Judgment of ICMS credits postponed

Request for review suspends Brazilian Supreme Court judgment on ICMS credits in fuel transactions

The STF suspended, following a request for review by Justice Cristiano Zanin, the judgment discussing the possibility of maintaining ICMS credits in internal transactions preceding the interstate shipment of petroleum-derived fuels. So far, the vote stands at 3–1 against the taxpayer. The reporting Justice, Justice Dias Toffoli, voted in favor of maintaining the credits, on the ground that their exclusion would generate double taxation, with incidence of the tax both in the state of origin and in the state of destination.

Dissent was opened by Justice Alexandre de Moraes, who understood that the case falls within the constitutional exceptions to non-cumulativity, implying a prohibition on crediting and cancellation of prior credits. According to the proposed thesis, maintenance of the credits would only be possible if there is express legal authorization. Justices Flávio Dino and Cármen Lúcia followed this understanding, and the judgment remains suspended, with no date set for its resumption.

STJ rules on PIS/Cofins on bonuses

Brazilian Superior Court of Justice to address divergence on PIS/Cofins taxation of trade discounts and bonuses

The 1st Section of the Superior Court of Justice (STJ) submitted to the repetitive appeals system the controversy regarding inclusion of trade discounts and bonuses granted by suppliers to retailers in the PIS and Cofins calculation base. The central issue is to define whether such amounts constitute taxable revenue or merely represent a reduction in the transaction price, without the ability to form part of the contribution base.

In submitting the matter to the repetitive procedure, the reporting Justice highlighted the divergence existing between the Court’s public law panels. On one side, there are precedents ruling out taxation on the basis that discounts and bonuses, even if conditional, remain merely an economic price adjustment; on the other side, there are decisions recognizing the levy of the contributions when such commercial advantages are linked to reciprocal obligations and assume the nature of revenue.

Until final judgment, suspension was ordered of cases on the matter in which a special appeal or interlocutory appeal in special appeal remains pending. No hearing date has yet been set.

CARF decides on fuel credit

CARF rules that anhydrous ethanol added to Type A gasoline does not generate PIS/Cofins credits for distributors

The Administrative Council of Tax Appeals (CARF), by casting vote, decided to maintain the disallowance of PIS and Cofins credits claimed by a fuel distributor arising from the acquisition of anhydrous ethanol to be blended with Type A gasoline in order to obtain Type C gasoline. The central controversy involved the attempt to characterize anhydrous ethanol as an input for credit purposes under PIS/Cofins legislation.

It should be noted, however, that the decision was not unanimous, and there were dissenting votes in the CARF judgment recognizing the possibility of crediting based on the essentiality of anhydrous ethanol for the production of Type C gasoline.

The decision was grounded on the single-phase taxation regime applicable to fuels, which establishes a zero rate for distributors and prohibits crediting on the acquisition of petroleum derivatives for resale. The Panel also considered that blending Type A gasoline with anhydrous ethanol to obtain Type C gasoline is not equivalent to fuel production.

The central argument for rejecting characterization of anhydrous ethanol as an input was that the mandatory addition of this product to Type A gasoline, as required by the National Agency of Petroleum (ANP), does not constitute a production process, but rather mere resale. Type C gasoline remains under the same tax classification as Type A gasoline and does not constitute a new product. In addition, it was also noted that, if the distributor were considered a manufacturer, it should have been subject to the concentrated rates of the single-phase regime, which did not occur.

It is worth noting that the same issue was decided in the opposite direction by the STJ. In summary, the 1st Panel of the STJ unanimously held that anhydrous ethanol is an indispensable input for formulation of Type C gasoline, thereby allowing PIS/Cofins credits. Thus, while CARF denies the credits for not recognizing a production process in fuel blending, the STJ expressly recognizes the nature of anhydrous ethanol as an input and the distributors’ right to the credit.

Real estate reorganization validated by the TRF-4

Federal Regional Court of the 4th Region sets aside tax assessment based on alleged absence of business purpose in reorganization involving transfer of real estate

The Federal Regional Court of the 4th Region (TRF-4) set aside a tax assessment issued as a result of a corporate reorganization involving partial spin-offs, formation of a real estate company, and the subsequent sale, by that new company, of the real estate transferred to it. According to the Federal Revenue Service, the structure had been created solely to reduce the tax burden, which led the tax authorities to disregard the interposed company and tax the transactions as if the sales had been carried out by the original company. The Court, however, upheld the judgment favorable to the taxpayer and concluded that the assessment could not stand.

According to the appellate decision, disregard of legal acts and transactions for tax purposes requires evidence of willful misconduct, fraud, or sham, and it is not permissible to invalidate transactions merely because they resulted in tax savings or because the tax inspection considered a supposed extra-tax business purpose to be absent.

The decision also emphasized that, in the absence of a specific legal prohibition, the taxpayer may organize its assets and activities in the most efficient manner, including from a tax perspective, without this authorizing the tax administration to replace the chosen structure with another that is more burdensome.

This material is for informational purposes only. Our Consumption Tax team is available to provide specific legal advice.