Court excludes tax benefit from PIS and Cofins calculation

The judge ruled that profits obtained from the Port Activities Development Fund (Fundap) of Espírito Santo do not constitute company revenue.

A company in Espírito Santo obtained a court order to remove from the calculation base of PIS and Cofins (federal social security contributions) amounts related to an ICMS (state sales tax) tax incentive – early settlement, with a discount, of financing for the state tax itself. The injunction was issued by the 2nd Federal Civil Court of Vitória, which overturned the Federal Revenue Service's interpretation that these are financial revenues.

The taxpayer filed a writ of mandamus against a decision by the Regional Office of the Federal Revenue Service in Vitória. He argued that the inclusion of earnings obtained from the Port Activities Development Fund (Fundap), a tax benefit granted by the state government, in the calculation of social security contributions was improper.

Fundap was created by State Law No. 2,508 of 1970. The fund's resources are intended to promote the increase of imports and exports through the Port of Vitória.

The State, in addition to deferring the ICMS-Importation tax until the moment the goods leave the country and extending the deadline for tax collection until the 26th day of the month following the month in which the transactions occurred, grants companies authorized to operate in the system a "financing" amounting to 8% of the transactions involving the sale of goods.

In this case, the company enters into a contract to "finance" the ICMS (Brazilian state sales tax) on the transaction and can subsequently settle it with a 90% discount. Because of this transaction, it ends up having to recognize a "gain".

According to the Brazilian Federal Revenue Service, the Fundap regime was not designed as an ICMS tax benefit, but as a financial incentive, albeit with the same type of purpose. According to the tax authorities, it is precisely the advance payment with a discount that constitutes the differentiating element of Fundap and characterizes it as a financial incentive and not a tax benefit.

In the preliminary ruling, substitute federal judge Aylton Bonomo Junior, of the 2nd Federal Civil Court of Vitória, states that not all income or accounting entries constitute revenue. “ICMS tax incentives, even though they may prevent a greater decrease in assets, do not constitute revenue because they do not represent an actual inflow of cash into the company's assets. In other words, they do not create new wealth,” he states (case no. 5029699-53.2021.4.02.5001).

The judge cites in the decision that the issue of including presumed ICMS credits arising from tax incentives in the calculation basis of PIS and Cofins is awaiting judgment by the Supreme Federal Court (STF). Six ministers voted that the measure is unconstitutional, but the judgment will be restarted after a request for a separate hearing.

According to Aylton Bonomo Junior, this understanding also applies to other types of state tax incentives that do not constitute the granting of presumed ICMS (Value-Added Tax) credits. He says that the discount resulting from the early settlement of Fundap (Fund for the Development of the State of Rio Grande do Sul) financing represents a tax benefit that cannot be included in the calculation base for PIS (Social Integration Program) and Cofins (Contribution to Social Security Financing).

"ICMS tax benefits or incentives do not generate an increase in assets, nor do they produce revenue or profit, insofar as they operate, indirectly, to reduce the tax burden. Therefore, since they do not represent an increase of any kind, they do not constitute taxable revenue," states the magistrate.

One of the lawyers representing the company, Flavio Tudisco, from the law firm Tudisco e Rodrigues Advogados, says that the judge also took into consideration a ruling by the Superior Court of Justice (STJ) that analyzed presumed ICMS credit, which is a type of benefit, and agreed that the reasoning applied to Fundap, which is an ICMS deferral with subsidized interest rates and sale of the asset at a discount. "The judge had to agree that Fundap is a benefit like any other," he states.

Source: Valor Econômico