Taxpayers from São Paulo have secured an important precedent in the Federal Supreme Court (STF) to limit the effects of a decree from the State of São Paulo that ended the ICMS tax benefit. The 1st Panel, made up of five ministers, decided that the rule, issued at the end of April 2019, could only have come into effect in January of the following year.
The decision benefits a company in the veterinary medicine sector. It will now be able to use approximately R$15T2 million in tax credits that it had been forced to refund due to the rule.
Many companies have challenged the revocation of the tax benefit, which lasted for 19 years, in court. According to the Attorney General's Office of the State of São Paulo (PGE), there are at least 108 ongoing lawsuits.
According to the agency, two arguments are being discussed. Taxpayers dispute the legality of the revocation, which was made by decree and not by law. They also claim that the measure would violate the principles of annual prior notice (validity starting in the financial year following the publication of the rule) and nonagesimal notice (90-day period). As provided for in the Constitution, the rules must be applied together and aim to avoid surprises for taxpayers with the creation or increase of taxes.
The decision of the 1st Panel of the Supreme Court analyzed the validity of the immediate termination of the tax benefit. The ministers analyzed whether the revocation of the incentive constituted an indirect increase in taxes, which would oblige the State to observe the annual and nonagesimal priorities.
“From one day to the next, the State once again demanded the refund of the credits. The consequence of this is that the credit – which could previously have been used to purchase equipment, pay off its own ICMS and pay suppliers – became a cost for the company”, explains tax lawyer Juliana Camargo Amaro, partner at the Finocchio & Ustra Advogados law firm, who defended the company in the Supreme Court (ARE 134737).
According to a survey conducted by the panel, this was the first judgment on the merits of the 1st Panel on this issue. In two previous cases (ARE 1324386 and ARE 1318720), the extraordinary appeals filed by the State of São Paulo were not admitted. In practice, this resulted in decisions by the Court of Justice of São Paulo (TJSP) prevailing, which were favorable to the taxpayers. The 2nd Panel of the Court has not yet analyzed the issue, according to the survey.
The score was close: three votes to two. Justice Roberto Barroso's vote prevailed. He disagreed with the rapporteur of the case, Justice Alexandre de Moraes, who believed that the revocation of a tax benefit would not constitute an increase in taxes. Therefore, there would be no need for the State to postpone the effects of the decree to the year following its publication.
According to Moraes, this understanding would be in line with a precedent from 2008 in ADI 4016. At that time, the Supreme Court ruled that the reduction or elimination of a discount for payment of tax under certain conditions provided for by law, such as advance payment in a single installment, cannot be equated to an increase in tax. Justice Cármen Lúcia agreed with the rapporteur.
For Barroso, however, this precedent has been overcome. According to the minister's vote, the Supreme Court's jurisprudence has been consolidated to recognize the need to respect the annual and ninety-day prior notice in the event of an indirect tax increase, such as the revocation of a tax benefit.
“Tax precedence aims to ensure the predictability of the tax burden, protecting legal certainty, the absence of surprises and legitimate trust. Therefore, it should also be applied to the revocation or alteration of tax benefits, as already recognized by this Court”, states Barroso, who wrote the ruling.
The position was followed by Minister Rosa Weber and Minister Dias Toffoli, who stated that he had joined the majority current in the STF after deciding unfavorably to the taxpayers' thesis.
According to lawyer Alessandro Borges, from the law firm Benício Advogados Associados, on the occasions when it analyzed the dispute, the TJSP ruled in favor of the taxpayer. “The court has applied the most recent position of the STF that the State must comply with the previous decision because the revocation of a tax benefit constitutes an indirect increase in taxes,” he says.
The State Attorney General's Office, in a note to Valor, states that it will not appeal the decision. The discussion about the legality of the decree, on the other hand, is still ongoing. The Attorney General's Office says that the TJSP has understood the possibility of using a decree to regulate the matter, in line with the decision of the STF in the argument of non-compliance with a fundamental precept (ADPF) No. 198.
“Although unlikely, any decisions ruling out the application of the decree due to a violation of the principle of legality will continue to be subject to appeal,” the prosecutor’s office states.