At a plenary session of the Brazilian Federal Supreme Court (STF) held on March 20, 2013, the decision on Extraordinary Appeal nr. 559.937 was concluded, declaring the unconstitutionality of paragraph I of article 7 of Law nr. 10.865/2004. This law had determined the inclusion of the ICMS (value-added tax on sales and services) and its social welfare contributions in the calculation bases for the PIS (Contribution to the Social Integration Plan) and COFINS (Contribution for Social Security Financing) where the tax relates to the importation of goods (i.e. imposition of taxes over taxes). As the court had recognized the general repercussion of the abovementioned case, the decisions taken on the matter by lower courts will be reopened and will necessarily observe the understanding of the STF.

Justice Ellen Gracie reported on Extraordinary Appeal nr. 559.937, having previously declared herself to be against the inclusion of the tax in question in the calculation bases for PIS and COFINS importation at a vote rendered in October, 2010. Upon returning the mentioned extraordinary appeal for decision, Justice Dias Toffoli (whose vote was cast on the date cited above), as well as the other Justices, participated in the vote on the report in question, confirming the decision previously rendered by the Regional Federal Court of the 4th Region, to the effect that the inclusion of the ICMS, and the PIS and COFINS, in the calculation bases of the contributions on importation did not obey the Federal Constitution, which established the customs value as the calculation base for contributions, as defined in the GATT.

It should be mentioned that, despite the request made by the Federal Treasury for an alteration of the effects of the decision due to the sums involved (according to the Treasury, the object of the current legal debate is the sum of R$ 33.8 billion [US$ 16.8 billion]), the STF plenary hearing felt that the mentioned effect would require the evaluation of definite data concerning the sums, such which may be carried out when any possible clarifying motions requesting clarification of the decision are analyzed.

The STF's decision may presuppose an increased cash flow for importers who will be subject to fewer disbursements upon payment of PIS and COFINS due on customs clearance (Import Declaration [DI] registration). As the Brazilian Federal Treasury will probably not push this decision through very quickly, whilst it is still not adopting the understanding of the Supreme Court as an ordinary internal proceeding, those importers wishing to pay the PIS/COFINS importation duty solely on the customs value, should file a writ to obtain an injunction for application of the taxpayer-favorable decision.

Furthermore, in view of the fact that the PIS/COFINS importation duty forms part of the ICMS calculation base on importation, for taxpayers who accumulate an ICMS credit balance, this decision may also reduce the accumulation of these credits, since the ICMS will be reduced proportionally.

Finally, the precedent decision in question strengthens the case for the non-inclusion of the ISS (Tax on Services) and the PIS/COFINS importation duty on the price of services, in order to investigate the calculation base of these contributions due on the remittance on the price of services to the non-resident service supplier.

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.