On April 25th, 2023, the Brazilian Superior Court of Justice (STJ) reached a unanimous decision on Theme 1182, which concerned the exclusion of ICMS tax benefits from the calculation of the Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL). The decision determined that ICMS tax benefits, including reductions, exemptions, or deferment of ICMS, can be excluded from the calculation basis of IRPJ and CSLL, providing that such tax incentives shall be treated as non-taxable government grants.
However, in order to enjoy this tax treatment, taxpayers must allocate the corresponding amounts (i.e. the amount excluded from the corporate income tax calculation) in special profit reserves and use them exclusively for absorbing losses or increasing capital (i.e. not to pay dividends).
This decision is significant as it removes more restrictive requirements that had previously been established by the Federal Revenue Service. For instance, there is no longer a need to show synchrony between the ICMS reduction and investments made, investments in fixed assets and so on. This can be considered a victory for taxpayers, even though the taxation has not been eliminated unconditionally, as in previous decisions.
It's worth noting that there may still be further developments regarding this decision as the Supreme Court Justice André Mendonça, had previously determined the suspension of the hearing. Additionally, it is expected that the parties will present clarifying embargoes to resolve any doubts raised during the trial itself.
It's crucial to analyze the possible impacts of this decision on a case-by-case basis for legal entities that have state tax benefits.
