The Superior Court of Justice (STJ) has referred Issue No. 1,416 for binding review under its repetitive appeals framework to determine whether presumed ICMS credits may continue to be excluded from the tax bases for Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), both under the prior legal framework and under Law No. 14,789/2023.

The ruling could directly affect tax disputes, tax contingency assessments, and the tax treatment adopted by companies benefiting from state tax incentives.

The STJ’s First Section, with Justice Regina Helena Costa serving as reporting justice, selected the controversy for review and ordered the stay of related cases involving the same issue pending before appellate courts or the STJ.

Before Law No. 14,789/2023, the leading precedent was EREsp No. 1,517,492/PR, in which the First Section held that presumed ICMS credits should not be included in the IRPJ and CSLL tax bases. The Court found that federal taxation of state tax incentives would amount to undue interference by the federal government in state tax policy, in breach of the constitutional balance among federal entities.

The STJ later reaffirmed that distinction in its ruling on Issue No. 1,182, preserving the specific treatment historically applied to presumed ICMS credits in relation to other ICMS tax benefits.

Key Legal Implications

Law No. 14,789/2023 reignited the controversy by repealing the prior framework and introducing a new tax treatment for government grants. In broad terms, the new regime taxes grant-related revenue while allowing taxpayers to claim a tax credit if statutory requirements are met. The key question is whether this legislative change is sufficient to displace the STJ’s settled position on presumed ICMS credits.

Recent STJ decisions suggest that this prior position may remain applicable, at least in cases decided on their specific facts. The Court has indicated that the legislative change alone does not automatically override the understanding that federal taxation of presumed ICMS credits undermines the incentive granted by the states.

Issue No. 1,416 will determine, with binding effect, whether presumed ICMS credits remain subject to a distinct precedent-based framework grounded in the prohibition against federal interference with state tax incentives, or whether they now fall within the new regime introduced by Law No. 14,789/2023.

The Brazilian Federal Revenue Service, however, has argued that the new law removed the legal basis for excluding revenues related to state tax incentives from the IRPJ and CSLL tax bases, increasing uncertainty for taxpayers until the STJ issues its final ruling.

Recommended Next Steps

Companies benefiting from state tax incentives should:

• Review tax positions involving presumed ICMS credits
• Reassess ongoing judicial and administrative tax disputes
• Evaluate potential contingency exposure under Law No. 14,789/2023
• Monitor the final ruling on Issue No. 1,416

In a landscape marked by increasing restrictions on tax benefits and increased tax collection efforts, the STJ’s ruling is set to play a central role in defining the scope of federal taxation of presumed ICMS credits.