One day after the president signed the complementary law that defined a list of goods and services as essential, the ministers of the Supreme Federal Court formed a majority to declare the unconstitutionality of laws of the state of Santa Catarina and the Federal District that instituted an ICMS rate on electricity and telecommunications above the rate practiced on operations in general. The vote in a virtual plenary ended on the evening of last Friday (24/6) and was 11 to 0 to overturn the laws of SC and the DF (ADIs 7117 and 7123).
The ministers modulated the decision so that it will come into effect from 2024, except for actions filed up to February 5, 2021. In practice, from 2024, the ICMS rate on these services in Santa Catarina cannot be higher than 17% and, in the Federal District, it cannot exceed 18%, since these are the rates practiced by these federation units on operations in general.
The majority of the justices followed the vote of the rapporteur, Dias Toffoli, in the sense of deeming the actions filed by the Attorney General's Office (PGR) admissible. For the magistrate, the laws of Santa Catarina and the Federal District “were unconstitutional, by providing for ICMS rates on electricity and communication services that were higher than those applicable to operations in general”.
Toffoli applied the understanding established by the STF in the judgment of RE 714139 (Topic 745 of general repercussion), through which the STF ruled unconstitutional the institution of an increased ICMS rate on these services. In this judgment, by majority, the ministers concluded that energy and telecommunications are essential goods and that, therefore, the application of the increased ICMS rate on these services violates the principle of selectivity. According to this principle, a federated entity can differentiate the rate for a product according to its essentiality.
At the time, the ministers approved the same modulation proposed now, that is, for the decision to take effect from 2024, except for actions filed up to February 5, 2021, when the judgment on the merits of RE 714139 began. This means that taxpayers who went to court up to that date will be entitled to pay a lower rate from the filing of the action, as well as to refund amounts unduly paid in the five years prior to that filing.
In the Federal District, the provisions declared unconstitutional are article 18, section II, item "a", item 13, item "b" and item "f" (expression "for communication service"), of District Law 1,254/96. In Santa Catarina, the contested provisions are article 19, section II, items "a" and "c", of State Law 10,297/96.
So far, the rapporteur has been supported by Justices Alexandre de Moraes, Ricardo Lewandowski, Rosa Weber, Edson Fachin, Nunes Marques, Gilmar Mendes, Luís Roberto Barroso and Luiz Fux. Justices Nunes Marques and André Mendonça are yet to vote. The deadline for submitting votes is 11:59 p.m. this Friday (6/24). Until then, any justice may request a review or a highlight. In the latter case, the trial would be taken to the physical plenary, and the vote count would restart.
In addition to these two actions, the STF will judge another 24 ADIs filed by the PGR, questioning one by one state laws that establish increased rates on energy and telecommunications.
States must go to the Supreme Court against new law that limits ICMS on essential goods
The judges formed a majority to overturn the laws of Santa Catarina and the Federal District that institute increased ICMS rates on electricity and telecommunications one day after President Jair Bolsonaro sanctioned Complementary Law 194/22.
As a result of PLP 18/22, the law now considers fuel, electricity, communications and public transportation as essential goods and services. With this, the law limits the collection of ICMS, in the states and in the Federal District, to the rate applied by these entities of the federation to operations in general. In practice, this general rate varies from 17% to 18%. Click here to check out JOTA's survey on the rates in each state.
However, the states informed JOTA that they should file a lawsuit with the Supreme Court on Monday (27/6) to question the constitutionality of this supplementary law. For the states, the National Congress could not, through a supplementary law, define which goods and services should be considered essential, which would violate the autonomy of the states.
There are even questions about whether this change could be made through a proposed amendment to the Constitution (PEC), since the federative principle is considered a constitutional clause, by force of article 60, paragraph four, item I, of the Federal Constitution. According to this provision, the proposed amendment to the Constitution “aimed at abolishing the federative form of State” will not be subject to deliberation.
Another issue raised by the states is the fact that the supplementary law came into effect on the date of its publication, that is, this Thursday. If the text is taken literally, the states and the Federal District would have to immediately reduce the ICMS rate on these goods and services. In practice, at least in relation to energy and telecommunications, this would violate the decision of the STF, which modulated its decisions so that the reduction would come into effect from 2024.
“These issues need to be addressed because they seriously affect the states’ finances. Furthermore, the question is whether a supplementary law could harm the states’ autonomy to define which goods and services are essential,” says the president of the National College of Attorneys General of the States and the Federal District (Conpeg) and attorney general of the state of Maranhão, Rodrigo Maia.
Modulation defined by the STF must prevail, say tax experts
Tax experts interviewed by JOTA state that, even with the approval of the supplementary law, what should prevail is the modulation of effects approved by the STF. In other words, at least regarding energy and telecommunications, states will be required to reduce the ICMS rate only from 2024 onwards. Compliance with this deadline would guarantee the legal certainty of the STF's decision.
“I think the STF’s decision should prevail. The Supreme Court decided that the higher tax rate is unconstitutional, but guaranteed its survival until the end of 2023,” says tax lawyer Igor Mauler Santiago, from the Mauler Advogados law firm.
For tax specialist Giuseppe Pecorari Melotti, from Bichara Advogados, the modulation defined by the STF should prevail, especially because there are no rules in the states defining the new rates.
“The complementary law provided that the rate cannot be higher on these goods and services, but there are still no rules in the states providing for the new rates,” says Melotti.