Brazil Rejects Tax Credits for International Freight Costs

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By Ed Taylor

In a clarification of conflicting policies, Brazil’s federal revenue department has ruled that tax credits aren’t generated by international freight costs when companies export goods.

In 2002 and 2003, Brazil’s congress passed laws that eliminated the cumulative impact of the 9.25 percent PIS and Cofins social security contribution taxes. Prior to these laws, the taxes were charged at every stop along a company’s production line, but this was altered to make sure that the taxes were only paid at the final stop.

To guarantee this, companies were allowed to receive credits for the taxes on a list of inputs. Since then, companies have been attempting to expand this list. The basic argument of companies has been that any input or service that is necessary to the production and delivery of finished goods should generate credits.

The revenue department, however, has taken contradictory stands on this question, which was deferred to the department’s Tax System General Coordination Office (Cosit). In its Jan. 24 decision, Cosit stated that a 2001 law exempts the international transportation of freight from the PIS and Cofins taxes and under a 2003 law, the acquisition of services not subject to PIS/Cofins taxation can’t generate credits for the two taxes. This decision now must be followed by all federal tax agents and tax courts.

Exporting Firms

According to attorney Flavio Sanches of Veirano Advogados, the decision is a setback to major exporting firms such as Cargill Inc. and Caterpillar Inc. Sanches said in a Jan. 25 e-mail to Bloomberg BNA that until now, part of the revenue department had “accepted the argument that exporters don’t export freight. Therefore, they did not consider freight to be a service or an input and recognized the right of exporters to PIS and Cofins tax credits.”

For attorney Gabriela Miziara Jarah of the firm Siqueira Castro Advogados, the Cosit decision is consistent with recent revenue agency rulings that aim to restrict PIS/Cofins credits.

“They are creating impediments for the discount of goods and services essential to a determined activity,” she said by e-mail Jan. 25. She added that Brazil’s congress has approved legislation permitting tax credits in cases where goods and services are exempt from the PIS and Cofins taxes or the tax rate has been lowered to zero.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at

To contact the editor responsible for this story: Penny Sukhraj at

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