Brazil: Tax Thesis – Social Security Contribution On Gross Income – Exclusion Of Revenues Of Remittances To The Manaus Free Trade Zone And Of Internal Sales Of Goods Within Its Territory

Within the Program "Brasil Maior" (Greater Brazil), Law no. 12,546/2011 created the Social Security Contribution on Gross Income which, until Dec. 31, 2014, and for some economic sectors, will replace the Social Security Contributions provided for in items I and III of article 22 of Law no. 8,212/91, calculated, in turn, on the total remuneration paid, due, or credited to ensured employees, autonomous workers, and individual taxpayers.

In this context, Normative Rule of the Federal Revenue of Brazil (RFB) no. 3, of November 31, 2012, through which the RFB stated that the tax basis of the new Social Security Contribution is to follow the technical concept of "gross revenue" applicable to the PIS and COFINS, understood as the "revenue deriving from the sale of goods in own-account transactions; revenue deriving from the rendering of services in general; and the results earned in "third-party account" transactions

What happens is that, as widely known, sales of products to companies based in the Manaus Free Trade Zone ("ZFM"), as well as transactions practiced within its territory, are classified as exports pursuant to Law-Decree 288/1967 and article 40 of the Act of the Transitory Constitutional Provisions, as well as to a number of court precedents on the matter.

Therefore, there is no doubt that the revenues earned in transactions of that kind enjoy tax immunity/exemption, as per article 149, § 2, item I, of CRFB/88, and in accordance with the express provision in article 9, item II, of Law no. 12,546/2011, all of which rule out the taxation on export revenues.

However, although article 2 of Law no. 10,996/04 has reduced to zero the PIS and COFINS' rate on revenues of remittances to the ZFM, there is no analogous provision for the Social Security Contribution on Gross Revenue, meaning the Tax Authorities should charge taxation on those specific revenues.

Thus, we believe the filing of a judicial measure seeking to ensure the exclusion of revenues of remittances to the ZFM and of internal transactions carried out in its territory from the tax basis of the Social Security Contribution on the Gross Revenue applies to the case, as well as the recovery of amounts unduly paid in that regard since the date the new tax came into force.

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