Brazilian Dairy Industry Faces Tax Setback Over ICMS Benefits
The Brazilian dairy industry recently faced a significant tax ruling from the Council for Administrative Tax Appeals (Carf). In a decision by the 2nd Panel of the 1st Chamber of the 1st Section, the council upheld the imposition of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) on a dairy company for the fiscal years 2020 and 2021.
By a casting vote, Carf determined that the exemptions, base reductions, and deferments of the ICMS tax used by the company were of a general nature. Consequently, these could not be classified as investment subsidies and were included in the federal tax bases. This ruling invalidated the exclusion of these benefits from the company's taxable income.
The decision deviated from the Superior Court of Justice's precedent set in Repetitive Theme 1182 and the guidelines of Technical Pronouncement CPC 07. The National Treasury's argument was that only benefits resulting in a positive influx of resources should be excluded from net profit, while exemptions and reductions were deemed 'negative magnitude' benefits, representing amounts not paid rather than revenue.
The Treasury argued that the company recorded non-existent expenses to offset with non-existent revenues to meet the requirements of Theme 1182. It was also argued that CPC 07 pertains to values effectively reflected in company results, not to accounting credits that cancel each other out.
The company's defense claimed compliance with Theme 1182 to exclude ICMS benefits from net profit, arguing that the Superior Court's decision does not mandate proof that incentives were aimed at stimulating economic ventures. However, the majority decision led by counselor Fernando Beltcher da Silva held that unilateral and unrestricted benefits do not constitute investment subsidies, as they do not result in a net asset increase.
Three council members dissented, suggesting the company's accounting met legal requirements and that even with disbursement benefits, incentives could augment assets and qualify as subsidies per Theme 1182 and CPC 07.
The case also addressed the exclusion of presumed ICMS credits granted by Minas Gerais for purchasing raw milk from local farmers. Carf, again by a casting vote, maintained the charges, asserting the company failed to meet all state legislation requirements for such deductions. Although the main charges were upheld, the council rescinded a 50% isolated fine for not collecting monthly tax estimates, decided by a vote of 4 to 2.
