After the Brazilian Federal Supreme Court ruled in favor of the taxpayers, reducing the tax cost on the import of goods, the Federal Government finds yet another way to reverse this effect and increase tax collection.
- The PIS-Import and COFINS-Import are two federal social contributions levied on the import of goods and services, governed by Law 10865, of April 30, 2004. The contributions are generally calculated at the rates of 1.65% (PIS) and 7.6% (COFINS), which results in a total tax rate of 9.25%. It should be noted that different tax rates apply to imports of pharmaceutical products, perfumery, toiletries and personal hygiene products, some vehicles, tires and inner tubes, some auto parts, and paper for printing books, newspapers and periodicals.
- As we explained in the article "The Outcome of the Controversy Regarding the Taxable Basis of the PIS and COFINS Contributions on Import", published by International Tax Review on November 21, 2014, since the enactment of Law 10865/04, the taxpayers and the federal tax authorities have been debating about the correct taxable basis for such contributions.
- On one side, based on Law 10865/04, the federal tax authorities sustained that the taxable basis would be the customs value used to calculate the Import Duty, adding the State Value-Added Tax (ICMS) and the amount of the PIS-Import and COFINS-Import themselves (gross-up). On the other side, the taxpayers argued that Law 10865/04 was not in accordance with the Brazilian Federal Constitution, which establishes that the taxable basis of these contributions corresponds only to the customs value.
- This matter was taken to the Brazilian Federal Supreme Court (STF), which in a unanimous and very important ruling on Extraordinary Appeal 559.937/SC, defended by Machado Associados, recognized the unconstitutionality of the provision of Law 10865/04 that determined the inclusion of the ICMS and the amount of the contributions themselves in their taxable basis. To this effect, it was settled that the taxable basis of PIS-Import and COFINS-Import should be the customs value of the imported good, without any additions.
- Afterwards, Law 12865, of October 10, 2013 was enacted to redefine the taxable basis of both contributions in accordance to the STF ruling, thus reducing the import costs in Brazil.
- Although this new scenario came as great news for the importers, the federal tax authorities received it with displeasure, because the reduction of the tax burden on import transactions obviously triggered the reduction of the tax collection.
- In order to regain tax collection,
the Federal Government issued Provisional Measure 668, of January
30, 2015, changing the legal provisions of Law 10865/04 regarding
the PIS-Import and COFINS-Import tax rates, increasing them (as of
May 1, 2015) as follows:
- general tax rate on import of goods, from 9.25% to 11.75%;
- pharmaceutical products, from 12% to 15.79%;
- perfumery, toiletries and personal hygiene products, from 12.5% to 20%;
- some vehicles, from 11.6% to 15.19%;
- tires and inner tubes, from 11.5% to 16.56%;
- some auto parts, from 13.1% to 15.19%; and
- paper for printing books, newspapers and periodicals, from 4% to 4.76%.
- This measure is part of the Federal Government's new tax policy, announced by the new Brazilian Minister of Finance, Mr. Joaquim Levy, and its purpose is to increase the federal tax collection to provide wealth for the country, increasing the investors' confidence in the economy and stimulating companies to take risks in Brazil. Supposedly, these are the Brazilian Government' reasons for such significant increase in the tax burden on imports.
- These changes and some others recently announced certainly have come in a very difficult moment for Brazil, a huge market with great potential, but a country with a very complex and burdensome tax system.
This article was first published by International Tax Review in February 2015 on www.internationaltaxreview.com.
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