Author: Clóvis Panzarini *

Source: The State of S. Paulo - SP - 05/09/2009

The recurring federal clashes in tax matters lead to the belief that value-added taxes, such as the Tax on the Circulation of Goods and Services (ICMS), are inappropriate to be included in subnational tax jurisdiction. The legal uncertainty arising from disputes between States and the offense to the principles of equality and efficiency have been pointed out as the main reasons for tax reform.

Often, a movement of goods circulation that involves more than one state leaves the taxpayer with no alternative: whatever his interpretation of the legislation, he will dislike one of the parties and will end up being the victim of fiscal action resulting from these conflicts. The example of importing natural gas from Bolivia is eloquent: the tax authorities of Mato Grosso do Sul understand that the ICMS on this import belongs to them because the gas pipeline - and therefore the merchandise - enters Brazil through its border. Consuming states, on the other hand, understand that, since the establishment to which the goods are located is located in their territories, the tax belongs to them, as determined by the Federal Constitution (art. 155, §2nd, XII, a). The importing taxpayer, then, either pays the same tax twice or will be fined by one of the parties to the dispute: by the State Tax Authority of the physical entry of the goods (MS) or by the State Taxi of the destination country.

This problem is not uncommon for imports of goods cleared in one state and destined for establishments located in another. It implies enormous insecurity, legal costs and, in some cases, aggression to the principle of non-cumulative, which weakens the competitiveness of companies that depend on these operations.

Another focus of legal uncertainty stems from the fiscal war. Although the national legislation governing the granting of ICMS benefits (Complementary Law - LC - nº 24/75, instituted to regulate ICM tax benefits, then ICMS) is clear and provides for harsh penalties for noncompliance, all States ignores it solemnly. This law establishes that any ICMS benefit must be approved by the unanimity of the States, members of the National Council for Farm Policy (Confaz), and failure to comply with this rule results in the nullity of the concessive act of the benefit and ineffectiveness of the tax credit attributed to the establishment receiving the tax. merchandise. In other words, if the supplier of goods, because he has an irregular benefit, has not collected the tax, the State Treasury will demand it from his client, with the legal additions, to neutralize the effects of the spurious benefit and rebalance the competition.

Understandably, no state requires replacement of ICMS on purchases of goods from a local supplier when the supplier is also illegally subsidized. Nobody punishes their own sin! The cruel logic of the LC 24/75 to inhibit the fiscal war is to embarrass its beneficiaries by punishing - or exterminating - their customers: the State Tax Authorities receiving the subsidized goods "shoot" against their own taxpayer, hoping that the "bullet" (the auto offense) ricochet off the stubborn interstate supplier.

There arises enormous legal uncertainty for all those who, consciously or not, purchase goods at prices supposedly contaminated by tax benefits granted in the context of the fiscal war. In this context, ICMS taxpayers have been punished by millionaire tax assessment notices, which challenge credits related to the acquisition of goods in interstate transactions, and the administrative courts - which uphold judges of the constitutionality of those credits - have deemed them valid. It is not unlikely that the judicial courts will also do this. The fiscal war then attacks, firstly, healthy competition and, later, the legal security of those who have nothing to do with the taxation areas. While tax reform does not come, taxpayers, due to these conflicts, live with obscure rules, indecision - or weird decisions - from the courts and, often, truculence of the Tax Authorities. But any reform proposal that calls for the transfer of ICMS competence to the Union will still be dead, as States, of course, will not accept the loss of their main tax, even if the federalized tax revenue is fully passed on to them.

* Clóvis Panzarini, economist, managing partner of CP Consultores Associados, was tax coordinator of the São Paulo State Finance Department.

Website: www.cpconsultores.com.br