According to the legislation currently in effect, the base for the calculation of the ICMS levied on sales of goods is the transaction value, that is, the sale price charged.

However, that same legislation establishes that different amounts must be part of the base for the ICMS calculation, such as the amount of the tax itself, whereas the respective identification in the Invoice is a mere indication for purposes of control.

In practice, this is the so-called gross-up, and its formula may be obtained using the following formula:

• Sale of goods with ICMS = Value of the goods without ICMS ÷ (((1 -  ICMS rate) ÷ 100) X 100)

In this regard, below is a practical example:

 a Value of the goods without ICMS example \$ 100 b Rate example 18% c Price with ICMS a / (((1 -  b) / 100) X 100) \$ 121.95 d ICMS c x b \$ 21.95

Thus, in the example above, the goods will be sold for \$ 121,95, and the ICMS will be \$ 21,95, so that the taxpayer will have the amount of \$ 100.00 originally intended.

In the example above, should the legislation have not established the ICMS gross-up, the tax payment would be \$ 18.00 (\$ 100.00 X 18%), in which case the final price would be \$ 118.00 (\$ 100 + \$ 18.00) and not \$ 121.95, if the intent was to obtain an amount without the ICMS of \$ 100.00.

So, we find out that although the nominal rate of the ICMS is 18%, the value of this tax in the final price using the gross up will represent 21.95%% of the tax burden on the sale price and not the 18% provided as rate.

It is evident that the gross-up method provided for in the ICMS legislation comes to generate an increase in that tax collection, as the higher the ICMS rate, the higher the increase to the rate that effectively applies to each transaction, as shown in the comparative table below:

 Applied Rate Effective Rate 4% 4.17% 7% 7.53% 12% 13.64% 18% 21.95% 30% 33.33%

We should also keep in mind that the application of the social contributions to the calculation of the price of the goods increases even more the effective tax burden commented above .

It should be noted that the legislation also requires the inclusion of several amounts in the base for the ICMS calculation, such as:

1. insurance;
2. interest;
3. freight, if the goods are transported by the sender or for its own account and by its order and the transportation is charged separately.

On the other side, the amount corresponding to the Tax on Manufactured Products [Imposto sobre Produtos Industrializados - IPI] is not part of the base for the ICMS calculation whenever the transaction between the taxpayers, and related to goods designed for manufacturing or marketing, is an event that generates both taxes.

Therefore it is of extreme relevance that the ICMS taxpayers consider all aspects above before defining the price of the goods that will be marketed as there may be many resulting impacts.