BRAZILIAN TAX REVIEW – April 2017

Brazilian Supreme Court Holds that the Inclusion of State VAT ("ICMS") in the Calculation Basis of Social Contributions on Gross Revenues ("PIS/COFINS") Is Unconstitutional

After more than a decade of discussions, the Brazilian Supreme Court has held that taxpayers should exclude the ICMS amount from their gross revenues in order to calculate the PIS/COFINS levied on it.

Although the decision was issued in a case that benefits all taxpayers, the Court's position regarding the precise effects of this decision is still pending and might be issued with the analysis of the motion for clarification the federal government will file.

This is because it is possible that Supreme Court will hold that the exclusion is mandatory solely for taxpayers who have already filed lawsuits regarding this matter in Court, limiting the decision's enforcement to the post-final decision period for those who are not litigating regarding this matter. In the worst-case scenario, the Supreme Court could decide that the effects of the decision should be enforced from a future date for all taxpayers (including those with pending lawsuits) because the decision will result in a major revenue loss for the Brazilian government.

The Supreme Court Decides that Social Contributions on Payroll are Levied on Employee's Usual Payments

The Brazilian Supreme Court has held that all usual payments made to employees should be subject to the Social Contribution on Payroll, dismissing taxpayers' main argument that some amounts should be considered compensation and not remuneration for work.

Some examples of such payments are the Christmas bonus, hazardous duty pay, one-third extra payment for vacation time, etc.

According to the court, all these payments are usual and, for this reason, should be considered in the payroll. As a consequence, the Social Contribution on Payroll should be levied on them.

Brazilian Federal Revenue Consolidates its Positions Regarding the Calculation of Corporate Income Tax, CSLL, PIS and COFINS taxes

Brazilian Federal Revenue ("BFR") issued Normative Ruling 1,700/17, which consolidates its positions related to the calculation of the corporate income tax, CSSL, PIS and COFINS taxes, especially in view of the relatively recent changes introduced by Law 12,973/2014.

Previously, BFR's positions regarding the calculation of these taxes were scattered among several other normative rulings. BFR now consolidates its positions in this new rule, bringing more clarity...