Brazil: Constitutionality of ICMS rate differential in 2022

There is continued uncertainty regarding the collection of DIFAL in 2022

There is continued uncertainty regarding the collection of DIFAL in 2022

The Federal Supreme Court (Supremo Tribunal Federal) in February 2021 addressed the collection of ICMS (Imposto sobre Circulação de Mercadorias e Serviços)—a state-level sales tax imposed on the physical movement of merchandise—when an interstate transaction involves goods intended for non-tax paying consumers.

Specifically, the decision addresses the ICMS rate differential (DIFAL) as regulated by ICMS Agreement 93/2015, and concludes that the DIFAL was unconstitutional. The high court found that the matter had to be addressed by a “complementary law,” with the result that ICMS collection would be effective from 2022 if the complementary law were not published in 2021.

At the time of the court’s decision, it was concluded that the holding would be effective from 2022—thereby giving the Brazilian Congress an opportunity to act on a complementary law on the matter.

Complementary Law No. 190/2022 (Lei Complementar nº 190/2022), published 5 January 2022, concerns the collection of the ICMS tax differential (DIFAL) related to interstate transactions and services intended for the final consumer. Read TaxNewsFlash

Since the publication of Law No. 190/2022 in early January 2022, there have been questions posed by certain Brazilian states. Some states—such as São Paulo and Bahia, for example—revised their laws to institute ICMS measures to reflect the requirements contained in Law No. 190/2022. Other states—such as Rio Grande do Norte and Ceará—only issued cautionary statements about the legislative change. In general, a consensus among the states appears to be that the collection of DIFAL must still take place in 2022.

Accordingly, there is continued uncertainty regarding the collection of DIFAL in 2022.

Read a January 2022 report (Portuguese) prepared by the KPMG member firm in Brazil


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