Significant Tax Decisions In Brazil

Court decisions involving tax issues that are extremely important to taxpayers have recently been announced. In some cases the appellate decisions have not been published yet, thus preventing an in-depth analysis of their terms. However, that is no obstacle to analyzing the merits of the discussion.

This article does not purport to delve into the details of the trials or even to exhaust the alternatives that may be adopted; the intention is to shed light on these discussions so as to underline their importance.

The first of these decisions was rendered by the 1st Section of the Federal Superior Court (STJ) (formed by the First and Second Panels), which, when deciding on the Appeal Against a Divergent Decision in Special Appeals 1411749, 1384179, 1393102, 1398721, 1400759, ruled out - by a majority vote - the obligation to pay the Tax on Manufactured Products (IPI) on the exit of imported products from importers' establishments.

Even though said Court did not disclose the full content of the appellate decision, according to news reports and to the only opinion disclosed, the decision was, in short, that the IPI tax should be due on the manufacturing process, and not on resales of foreign products in the domestic market, given that the IPI is not levied on profit margins. Furthermore, there would be no point in establishing equality parameters - with national operations - to such situations.

Despite the unquestionable importance of this decision, it is also important to note that companies should analyze this precedent very carefully, as its application may have undesirable consequences, such as preventing products from being imported or even preventing customers from realizing credits from purchased inputs.

The second significant decision is that rendered by the Federal Supreme Court (STF) on an Extraordinary Appeal with recognized widespread repercussion, wherein the STF found for the unconstitutionality of preventing the deduction of unconditional discounts from the IPI tax calculation base, as the ordinary law could not provide for such limitation, given the constitutional character associated with Supplementary Laws.

Said decision results in commercial benefits for companies, as, should this understanding by adopted, they may expressly record on their invoices the unconditional discount that is being given. Should the Federal Government's understanding prevail, said discount would have to be considered as a part of the IPI tax...