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Brazilian Internal Revenue Service clarifies the procedure for excluding VAT tax from the PIS/COFINS calculation basis

30/11/2018

The Brazilian Internal Revenue Service (“IRS”) recently published the Internal Rule No. 13/2018 to clarify the procedures to exclude  VAT tax from the calculation basis of PIS/COFINS, according to the decision issued by Brazilian Supreme Court in Extraordinary Appeal No. 574.706/PR.

The Internal Rule briefly addresses and resolves three key issues:

i. The value of the VAT tax debit collected monthly by the taxpayer after the reconciliation of accounts between debits and credits established in the tax accounting records, can be deducted from the PIS/COFINS calculation basis. If there is VAT tax credit at the end of each calculation period, there is nothing to be excluded;

ii. The exclusion of VAT tax will be calculated based on the proportion between the revenues by Tax Situation Codes, or “TSC”. The taxpayer will apply the percentage between the gross revenue of each TSC of the contribution and the monthly gross revenue;

iii. In order to calculate the VAT tax to be collected, one should consider the amounts recorded in the system EFD-ICMS/IPI (“EFD”). Being exempt from tax record keeing in the EFD during any period covered by the final decision, the taxpayer may prove the VAT to be collected based on the collection form or other means of statement the amounts collected.

The guidelines adopted by IRS in Internal Rule may reduce the amount of VAT tax to be excluded from the PIS/COFINS calculation basis, in comparison with the exclusion of the VAT tax highlighted in the invoice,  and also increase the complexity of social contributions calculation.

However, there are good arguments to defend that the VAT tax to be deducted from the PIS/COFINS calculation basis is the one highlighted in the respective invoice, in accordance with the conducting vote of Judge of the Supreme Court, Carmem Lucia in the Extraordinary Appeal No. 574.706/PR.

Although this Internal Rule only obliges the Public Administration and does not overlap with the judicial decision obtained by the taxpayer in any specific case, the Internal Rule may motivate further administrative and judicial discussions on the matter, which has been going on for more than twenty years without a final and secure definition for the taxpayers.

It is worth mentioning that some entities have already obtained in court authorization to not follow the IRS guidelines about the exclusion of VAT tax from calculation basis of PIS/COFINS, making direct reference to SCI.

Candido Martins is following the matter closely and is available to provide any clarification.