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PIS/COFINS-Imports legislation modified

On 19 June 2015, Provisional Measure 668 was converted into Law 13,137. The Law ratifies the increase in the general PIS/COFINS-Imports rates in certain situations (from 1,65% to 2,1% for PIS and from 7,6% to 9,65% for COFINS) made by PM 668, and confirms that taxpayers cannot record credits for the additional 1% in the COFINS-Imports rate imposed by the Provisional Measure, but it makes provides other changes to the PIS/COFINS rules, and revokes certain provisions that were included in the Provisional Measure.

Some of the changes are: (i) a reduction in the PIS/COFINS-Import rate on rubber tires and inner tubes from 2,88% and 13,68% to 2,68% and 12,35%, respectively, (ii) an increase in the PIS/COFINS-Import rate on autoparts, from 2,62% and 12,57% to 3,12% and 14,37% respectively, (iii) for the dairy farming sector, the possibility of obtaining claiming reimbursement of presumed PIS/COFINS credits, or setting those credits off against other federal taxes, as long as certain requirements are met, and (iv) changes to the minimum amounts of the Tax on Industrialized Products – IPI, PIS/Pasep, COFINS, and PIS/COFINS-Imports contained in Annex I to Law 13,097/2015.

CARF publishes its new Internal Regulations

Directive (Portaria) 343 was published on 9 June 2015, approving the new Internal Regulations for the Administrative Tax Appeals Council, CARF (Conselho Administrativo de Recursos Fiscais). The new regulations are based on the government’s proposal, with modifications after public consultation.

Some of the highlights of the regulations are:

(i) there will be two Ordinary Panels in each of the four Chambers in each of CARF’s Sections, and each Chamber will have eight councillors, equally divided between representatives of the government and the taxpayers;

(ii) the President of the Panel will continue to have the casting vote, and the President will always be a representative of the Treasury, as is now the case;

(iii) petitions for clarification can be dismissed without need for the Panel to consider the merits of the petition;

(iv) councillors who are taxpayer representatives may not practice law while serving on CARF;

(v) councillors’ term of office is reduced to two years;

(vi) spouses, companions, and relatives to the third degree of current or former councillors may

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not be appointed as councillors, and relatives by blood or affinity to the second degree of serving councillors may not practice law;

(vii) the Minister of the Treasury may remove a councillor from office if the councillor repeatedly fails to meet productivity targets or repeatedly fails to issue a decision on petitions for clarification within 60 days; and

(viii) there will be a new Councillor Monitoring, Evaluation and Selection Committee that will be responsible for initiating the selection process, assisting in nominating the Section and Chamber Presidents, and monitoring disciplinary proceedings. The Committee will be made up of representatives from the Brazilian Bar Association – OAB, the National Treasury, the Treasury’s Prosecution Service, the Confederations and the public at large.

STJ holds that ISS must be included in the tax basis of PIS and COFINS

On 10 June 2015, the 1st Section of the Superior Court of Justice (STJ – Superior Tribunal de Justiça, Brazil’s highest non-constitutional court) held by majority decision that the amount of municipal service tax, ISS, may be included in calculating federal gross revenues contributions PIS and COFINS. The decision is binding on lower courts in cases dealing with the same issue, but the decision has not yet been published and will probably be appealed to the STF.

The case involves an issue similar to a question examined by the full panel of the STF in 2014: whether the Constitution allows ISS to be included in the value of services when calculating ICMS. In 2014, the STF concluded that including ISS in computing ICMS was unconstitutional. Both questions are waiting for the final word from Brazil’s highest court.

The recent decision by the STJ’s 1st Section is an unfavorable precedent for taxpayers and seems to contradict the STF’s conclusion, but the STJ was considering whether inclusion of ISS is permitted under the country’s law, while in the 2014 STF case, the question was whether the Constitution permits ISS to be included. The question should now be resolved by the STF in a decision binding on all lower courts and government authorities.

STF’s decision on ISS on toll manufacturing will be universally binding

The STF decided, in a judgment published on 12 June 2015, that its decision in Appeal RE 882.461 will be binding on all lower courts and government authorities. The questions at issue in the appeal are (i) whether the municipalities are entitled, under the constitution, to apply the ISS service tax to toll manufacturing arrangements where the customer supplies the materials, as contemplated in item 14.05 of Complementary Law 116/2003, if the transaction is an intermediate stage in the productive process of the merchandise, and (ii) whether the late-payment fine of 30% of the tax is

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confiscatory in nature.

The taxpayer argues that ISS does not apply, since the goods produced under the toll manufacturing agreement will be subject to IPI and ICMS, and the manufacturing is simply an intermediate step in the production chain. As the STF itself pointed out in its judgment, the issue is similar to the question in Constitutional Challenge ADI 4389, which deals with the application of ISS to packaging produced under toll manufacturing agreements for use in producing or marketing goods. In that case, a temporary injunction was granted to suspend the application of ISS until judgment on the merits.

As for the late-payment fine, the STF pointed out that a number of similar cases have been decided by the court, and it has consistently held that a 20% fine is not confiscatory. The question of whether a 30% fine is confiscatory remains open.