São Paulo companies lose battle over tax collection

A final court of appeal decided that the São Paulo state government can validate tax assessments and nullify goods and services tax (ICMS) credits on purchases in the Manaus Duty-Free Zone. The decision was announced this Thursday by Brazil’s highest Court of Taxes and Fees (TIT), the last administrative stop for taxpayer appeals. 

With a narrow margin of votes, 9-7 in favor of the state, it was decided that tax credits can be annulled if goods were manufactured with a tax benefit granted by the state of Amazonas but without authorization from other state governments.

The decision will greatly impact automakers and electronics, soft drinks, and cosmetics industries.

By law, credits for benefits granted by states can be canceled without authorization from the National Council for Fiscal Policy (Confaz). However, the same rule expressly states that the measure should not apply to industries installed or to be installed in the Manaus Duty-Free Zone.

TIT found that the exception allowed to the Manaus Duty-Free Zone predates Brazil’s 1988 Constitution and furthermore does not take in consideration ICMS tax credit rules created since.

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