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Brazil: Full ICMS credit for sugar, ethanol mills (São Paulo)

Brazil: ICMS credit sugar, ethanol mills (São Paulo)

A tribunal in São Paulo recognized a taxpayer’s right to a full tax credit with regard to ICMS / ST imposed on fuel acquisitions relating to the production process of sugar and ethanol plants.


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ICMS—Imposto sobre Circulação de Mercadorias e Serviços—is a state-level sales tax imposed on the physical movement of merchandise. ICMS / ST refers to the ICMS collected by refineries with regard to fuels during the initial phase of the production chain.

The tribunal (Tribunal de Justiça de São Paulo) found that a provision of the ICMS regulations of the State of São Paulo was unconstitutional. The plant (taxpayer) in this case was subject to the payment of ICMS on the output of its products (sugar and ethanol) and for its production purposes, the plant acquired large quantities of diesel oil that was used in its machinery. The regulatory provision at issue only allowed a partial credit for ICMS with regard to amounts paid to a diesel oil refinery by the taxpayer.

The tribunal found that the rules in the São Paulo regulations violated a constitutional principle of “non-cumulativeness”—one that would in turn allow ICMS taxpayers the right to offset the ICMS with respect to their operations with the amount charged in previous operations (that is, in the supply chain). Here, the taxpayer (plant) used diesel oil in its production process and ended up bearing all the cost—including the tax burden.

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The tribunal’s decision may provide ICMS refund opportunities for other similarly situated taxpayers.

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