On December 29, 2023, the President of the Republic sanctioned Law No. 14,789/2023, created based on the final text of Provisional Measure No. 1,185/2023. The aim is to alter the taxation method of ICMS (a VAT-style state tax) fiscal benefits granted by federal entities.
In simpler terms, the new law seeks to change the taxation system for these benefits. Instead of being directly excluded from the calculation bases of IRPJ, CSLL, PIS, and COFINS (corporate income tax, social contribution on net profit and social contributions on gross income), they will now be eligible for tax credits, calculated specifically on the subsidy amounts allocated to investment.
This law completely repealed Article 30 of Law No. 12,973/2014, impacting the applicability of Complementary Law No. 160/2017, which equated investment and operating subsidies for non-incidence of IRPJ and CSLL. Additionally, it revoked item X, paragraph 3, of Law No. 10,833/02 and Law No. 10,637/03, now taxing these benefits, including PIS and COFINS.
Until December 2023, any fiscal benefit granted by a state could be excluded from IRPJ, CSLL, PIS, and COFINS calculations, as long as an incentive reservation was made, even if not specifically granted for the implementation or expansion of a venture.
From 2024 onwards, a taxpayer receiving a benefit from any state, including through presumptive credit, must follow a new procedure: undergoing a prior registration with the Federal Revenue Service, and only after demonstrating compliance with the conditions imposed by the State Entity the taxpayer will receive a 25% tax credit on subsidy values. This credit can be offset against other federal taxes or refunded within 24 months. However, subsidy revenues must be related to expenses for amortization, depreciation, exhaustion, leasing, or renting, and there must be taxation regarding IRPJ and CSLL.
This change poses a significant setback for taxpayers benefiting from state fiscal incentives, with Agribusiness being one of the most affected sectors.
Nevertheless, several points protected by the National Tax System were overlooked in the enactment of this law. For instance, Article 43 of the National Tax Code stipulates that subsidies are (patrimonial) transfers of resources from the state to companies, thus not falling under the concept of “income” or “earnings of any kind” for IRPJ and CSLL purposes.
Similarly, the Principle of Taxing Capacity was disregarded, as the amendment now demands taxation on IRPJ, CSLL, PIS, and COFINS for values that should not be considered as a manifestation of wealth by the taxpayer. These are merely transfers of resources without the company earning new income.
Regarding presumptive ICMS credit, this law also violates the Federal Pact, outlined in Article 150, VI, “a”, of the Federal Constitution, and the position of the Superior Court of Justice (STJ), which, since 2017, has held that presumptive ICMS credits do not integrate the calculation bases of IRPJ and CSLL, aligning with this principle.
Thus, Articles 143, III, and 195, I, “b” and “c”, of the Constitution were also violated, as presumptive ICMS credits cannot be considered as revenue/turnover for IRPJ and CSLL and PIS and COFINS taxation.
Lastly, the law also violates Article 146, I, of the Federal Constitution, as it dealt, through a Provisional Measure, with matters reserved for Complementary Law, going directly against the Principle of Legality.
Faced with the evident illegalities imposed, many taxpayers have filed lawsuits seeking to avoid the taxation of these fiscal benefits, and there are already several favorable judicial decisions. Additionally, the Liberal Party (PL) filed a Direct Action for the Declaration of Unconstitutionality (ADI 7551) against the Provisional Measure that led to the new law, which awaits judgment by the Supreme Federal Court.
In this sense, it is expected that taxpayers will increasingly resort to the judiciary to challenge the taxation of granted subsidies due to the presented irregularities and the clear financial impact suffered because of the legislative change.