On December 30, 2015, the Official Gazette of the Rio de Janeiro published Law # 7,183/2015 providing for the State VAT (ICMS) levy on the E&P activities within the State.
The Law includes in the definition of the ICMS taxpayers, the oil extractor, apart from the seller, the manufacturer and the producer, being it the operator of the oil field or not.
The ICMS in the oil extraction will be levied as of March 29, 2016, at a 18% rate, upon the movement of the oil through the Production Measuring Point, as defined in the development plan of each oilfield.
The ICMS basis, in this case, will be the oil reference price, understood as the highest between: (i) weighted average of the sales price practiced by the operator, in usual market conditions, or (ii) the oil minimum price as defined by the Oil National Agency (Agência Nacional de Petróleo - ANP).
Note that Law # 7,183/15 revoked Law # 4,117/03 ("Lei Noel"), with very similar wording and which constitutionality is being analyzed by the Brazilian Supreme Court, still pending of judgment. The Lei Noel, however, has not been applied in view of the Rio de Janeiro Decree # 34,783/04, which suspended the effects of its relevant regulation enacted by the State Government in 2004.
We understand that the constitutionality of Law # 7,183/15 with respect to the ICMS on the oil extraction can be challenged, to the extent that the oil extraction does not imply in the legal/economic or physical circulation of the oil, but on the original acquisition by the operators.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.