Brazil Supreme Court Rules for Companies in Value Added Tax Dispute

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By Ed Taylor

Oct. 26 — Companies, especially those with long production and delivery cycles, won a supreme court victory in their decade-long battle over Brazilian state value-added tax.

Brazil’s supreme court Oct. 24 ruled that states must return excess tax collected when companies prove their products sold for less than prices the state estimated in setting the VAT (ICMS).

The decision goes further than the court’s previous position that permitted reimbursements only when sales weren’t completed. The court stated that its ruling is binding and applies to the 1,300 lawsuits now before lower courts on this question.

Brazilian states set ICMS taxes for selected sectors on estimated profit margins at the final point of sale set by states rather than having the VAT charged on real prices at every stop along the product chain. The states charge companies VAT on these estimates at the point of manufacture before the final sale price is known leading to complaints that the state sales estimates are unrealistically high and lead to inflated taxes.

The ruling primarily affects sectors with long production and delivery chains such as the auto industry, pharmaceutical and beverage manufacturers, sectors dominated by multinational firms in Brazil. At present only two of Brazil’s 27 states permit the reimbursement of ICMS taxes paid in excess by companies.

“It is difficult for the estimated value to be close to the real value so that in practically all of the operations there will have to be some type of settling of accounts,” Sergio Villanova Vasconcelos of the law firm Peixoto & Cury Advogados told Bloomberg BNA Oct. 26. “We are going to have to see how the state tax officials react to this decision and how they adjust state legislation to the new rules.”

Attorney Douglas Mota of the firm Demarest told Bloomberg BNA Oct. 26 that the decision means “a lot of funds are going to have to be returned,” which he predicted could reduce state tax revenues.

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

To contact the editor responsible for this story: Rita McWilliams at

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