Unconstitutional reduction of tax incentives

BY DONOVAN MAZZA AND MARCOS MAIA

As already reported by the media, the National Council for Financial Policy (Confaz) published Agreement No. 42/2016 to authorize States to reduce by 10% (at least) existing tax and financial incentives, as well as special regimes, which imply a reduction in ICMS payable.

This is an initiative by the States themselves to try to minimize the situation of financial calamity in which they find themselves, due to successive disastrous administrations.

The reduction in benefits can occur in two different ways: 1) through a change in the state normative act that granted the incentive (for example, a law that provided for a 50% reduction in the tax rate is modified by a new law, which now establishes a 40% reduction), or, 2) through the requirement of a monthly deposit of part of the ICMS value that was no longer collected, directed to a development and fiscal balance fund to be created for this purpose (this is, as can be seen, an “indirect reduction” of benefits, very different from the previous hypothesis).

As expected, the provisions of Agreement No. 42/2016 do not have the force of law, that is, they need to be internalized by the Legislative Branch of each State, which will opt for directly changing the act that contemplates the benefit or for the creation of the fiscal balance fund, which will be made up of the monthly deposits of the benefiting taxpayers.

Several state entities have already internalized the provisions of Agreement No. 42/2016, with a preference for establishing a fiscal balance fund, as happened in Rio de Janeiro, Ceará, Acre, Piauí, Alagoas, Pernambuco, Paraíba, etc.

It is important to remember that, although legislation talks about deposits into the fiscal balance fund, what we actually have is the requirement for a tax: the ICMS. And it couldn't be any different, because, if it is concluded that the required amount has another nature, then the States would lack competence to demand it, since only the Federal Union has authorization to create new taxes (residual competence, art. 154, I, of the CF).

Exaction cannot be confused with compulsory loan (due to the fact that some States provide mechanisms for extending the validity period of the benefit as a way of reimbursing taxpayers for the cost of depositing in the fund), as, in this tax type, the refund must be made in cash and the competence is also exclusive to the Union.

Regarding the validity of the requirement for these deposits, numerous arguments have already been raised, the most common being the following: i) it contravenes article 167, item IV, of the Federal Constitution, which prohibits the linking of any tax (such as ICMS) to a body, fund or expense; ii) contravenes the principle of anteriority, provided for in art. 150 of the CF, as the deposit reduces the tax benefit and, consequently, increases the tax burden; iii) in cases where the deposit is required in relation to tax benefits granted over a fixed term and under certain conditions, there is a violation of art. 178 of the CTN, which prohibits such conduct.

There is news of recent injunctions favorable to taxpayers within the State of Rio de Janeiro. In fact, against Rio de Janeiro's legislation, a direct action of unconstitutionality (STF, ADI 5635) was recently proposed by the National Confederation of Industry, which addresses, among others, the points indicated above.

There is, however, a point that has been little explored by taxpayers, but which has the potential to throw a spanner in the works on the requirement for monthly deposits, namely: violation of the principle of non-cumulativeness provided for in article 155, §2, item I, of the Federal Constitution.

Now, state laws, when they create the funds and impose monthly deposits that are no more than ICMS, as we have already said, do not authorize taxpayers to transfer in an invoice, by highlighting, this new portion of the tax that started to record their operations.

In the context of the State of Rio de Janeiro, for example, this becomes very clear when verifying that the deposit must be made based on the difference, determined at the end of the month, between the value of ICMS that was actually paid and the amount that should have been collected if the tax benefits did not exist (Law No. 7,428/16 Decree No. 45,810/16). Evidently, if the calculation of the amount to be deposited in the fund is only done after accounting for all the outflows made by the taxpayer in the month, there is no doubt that the taxpayer cannot include the referred amount (rectius, ICMS) in their invoices.

And there is a logic to this procedure, as the deposit requirement without the corresponding highlight on the invoice prevents the purchaser of the product or service from writing the respective credits, a fact that would mitigate the revenue potential of the new measure.

By proceeding in this way, the States are violating the principle of non-cumulative activity, the pillar of which is precisely the exemption of the seller of the goods and the service provider, insofar as the tax burden must fall entirely on the end consumer.

In summary, although we recognize the seriousness of the fiscal situation of the States, and that there is a need to adopt urgent measures, it is certainly not through disrespect for constitutional and infra-constitutional rules in tax matters that the solution must be found. On the contrary, maintaining the collection of the fund will only generate, in the future, greater burdens on the States, which will have to return to taxpayers (with interest and surcharges) the resources that may be collected.

By: Donovan Mazza Lessa and Marcos C. Piqueira Maia

Source: Valor Econômico