New chapters for ICMS on intermediate materials

New chapters for ICMS on intermediate materials

It would be important for our higher courts to align their positions to resolve this imbroglio, adopting, as taxpayers hope, the criterion of essentiality

By Marcos Correia Piqueira Maia

One of the most controversial topics in tax matters, since the promulgation of the 1988 Constitution, is the delimitation of the scope of the ICMS credit right on the acquisition of so-called “intermediate materials”. The difficulty has always been to distinguish them from goods for mere “use and consumption”, whose own Complementary Law No. 87/96 prohibits crediting.

Over time, there has been much debate about the criteria for a certain material to be classified as “intermediate”. Those that prevailed in the jurisprudence of the Federal Supreme Court (STF) – and which, for a long time, were replicated by the Superior Court of Justice (STJ) – can be summarized as follows: (i) the material must be physically integrated into the final product and (ii) its immediate and complete consumption must occur during the production process. Otherwise, it would be of a “use and consumption” nature.

This restrictive position historically adopted by the STF is no longer followed by the STJ, whose most recent rulings follow a diametrically opposite line, in the sense that it is enough to apply the asset in an essential way in the taxpayer's core activity (called the “essentiality criterion”) for the right to ICMS credit to be guaranteed, as an intermediate product (as decided in EAREsp 1,775,781).

In other words, the STJ started to adopt a completely different rationale, which starts from another premise (simpler and more appropriate to the principle of non-cumulativeness), in which it does not matter whether the good is consumed immediately or not or whether it has any physical contact with the final product. This is indifferent. The focus is on its essentiality for achieving the taxpayer's core activity. If so, the credit right will be legitimate.

This understanding has been consolidated in the 1st Section of the STJ since the judgment of REsp 1,221,170 in 2018, which dealt with a similar topic, but from the perspective of the Social Integration Program (PIS) and the Contribution to the Financing of Social Security (Cofins).

In any case, the fact is that there is currently a notable divergence between the criteria adopted by our Superior Courts to define whether or not a given good generates the right to ICMS credit.

Taxpayers hope that the STF, given the current jurisprudence of the STJ, reviews its historical position so that the essentiality criterion prevails. And such an event may occur within the scope of RE 1.424.015/SC, arising from the judgment of the Repetitive Demand Resolution Incident (IRDR) nº 10 by the Court of Justice of Santa Catarina (TJSC), in which it was stated, in the restrictive line adopted by the STF, that the “classification of the good as an intermediate material presupposes its immediate and complete consumption in the production process and its physical integration into the final product”. The case reached the Supreme Court in mid-2024 and the rapporteur is Minister Nunes Marques.

It is expected, in view of these circumstances, that the Supreme Court will allocate RE 1.424.015/SC to the general repercussion system and, thus, provide a definitive solution to the issue (the allocation has not yet occurred, however, it may be decided at any time by the Supreme Court).

There is, however, a new fact that could generate conceptual confusion in the essentiality criterion that has been very well constructed, namely: the Precedents Management Committee of the STJ itself indicated Controversy No. 711 as a topic subject to judgment by the repetitive appeals system. It turns out that the object of the controversy was described as follows: “Possibility of obtaining ICMS credit, in the system of Complementary Law nº 87/1996, relating to inputs defined as for the establishment's own use or consumption, used in the production process, but which are not part of the final product or their consumption is not immediate and integral in the production process”.

The delimitation of the contours of Controversy No. 711, as seen, was not the best, considering the current stage of jurisprudence. After all, the STJ may end up coming to the conclusion that the various items that are used directly in the production process, but which are not part of the final product and are not consumed immediately and in full, must be classified as “use and consumption” goods. This interpretation will conflict with the rationale inherent to the aforementioned essentiality criterion, which has been prevailing in the Court to recognize the right to ICMS credit on intermediate products.

There are numerous ongoing lawsuits and infraction notices pending judgment on this issue which, in respect for the principle of non-cumulative activity, should have been resolved a long time ago. After all, all goods applied directly to the taxpayer's core activity (as the STJ has defined), as they represent the cost of production or provision of services, must generate credit rights, under penalty of having an inevitable “cascading” incidence of tax. This means that the tax will be applied to itself within the circulation chain, which will generate several negative economic impacts.

It would be important for our higher courts to align their positions to resolve this imbroglio, adopting, as taxpayers hope, the criterion of essentiality to give greater effectiveness to the principle of non-cumulativeness, which is one of the pillars of our tax reform.

Marcos Correia Piqueira Maia is a partner at Maneira Advogados.

https://valor.globo.com/legislacao/coluna/novos-capitulos-para-o-icms-sobre-materiais-intermediarios.ghtml