O Globo interviews Donovan Lessa about the project that imposes a ceiling on ICMS

Report published today in the newspaper O GLOBO, which heard several experts to evaluate the possibility of states taking legal action against the setting of a 17% ceiling for ICMS on electricity, telecommunications and fuels. The newspaper highlighted Dr. Donovan Mazza Lessa's comment on the topic.

ICMS Ceiling: Why does the measure approved in the Chamber have everything to end up in court? Understand

With no political strength to stop the 17% limit on fuel, energy and telecom, states must resort to the judicial sphere. But they could lose if the STF defines items as essential

By Eliane Oliveira and Marcelo Mota — Brasília and São Paulo

27/05/2022

Faced with the imminent defeat of states in the political sphere, experts interviewed by GLOBO believe that state governments will appeal to the courts against setting a 17% ceiling for ICMS on electricity, telecommunications, fuels and natural gas.

The text was approved by a large majority in the Chamber on Wednesday and there should be no difficulty in passing it through the Senate, as indicated by the President of the House himself, Rodrigo Pacheco (PSD-MG), who called the measure intelligent this Thursday.

Former Federal Revenue Secretary Everardo Maciel highlights that article 155 of the Constitution determines that fuels and lubricants must have a single, single-phase and ad rem rate (charged on the quantity produced). The point is that each state can give whatever discount it wants.

— There is a lack of leadership in tax policy in the country — criticizes Maciel.

Fernando Scaff, professor of Financial Law USP, also believes in the risk of judicialization, if the project is approved in the Senate. He highlighted that, if on the one hand the measure violates the autonomy of the states, on the other hand, Brazilian companies are worried about rising prices.

— The sides, Union and states, do not understand each other, and the Supreme Court will have to decide. A shame — said Scaff, who is also a partner at the firm Silveira, Athias, Soriano de Mello, Bentes, Lobato & Scaff Advogados.

Echoes of the Kandir Law

Daniel Corrêa Szelbracikowski, partner at Advocacia Dias de Souza, says that a legal dispute is the most likely outcome. For tax lawyer Ana Vogado, partner at Malta Advogados, the bill caused dissatisfaction on all sides.

While the states rebel against the possibility of a tax ceiling, the Union demonstrates that it does not want to bear the loss of revenue if this drop exceeds 5%.

— This situation is similar to what happened with the Kandir Law, enacted in 1996, which required the Union to compensate the states for the ICMS not collected from the exemption on exports — compares the tax expert.

Carlos Eduardo Navarro, postgraduate professor in Tax Law at the São Paulo School of Law and partner at Galvão Villani, Navarro, Zangiácomo and Bardella Advogados, recalls that the Kandir Law generated disputes between the Union and states. However, the decisions made were constructed with dialogue and consensual solutions.

For the lawyer, the project violates the autonomy of state governments provided for in the Constitution:

— I have no doubt that this project is an affront to the federative pact. If approved by the Senate, I believe that the Federal Supreme Court (STF) should declare the law unconstitutional.

Losses in SP could reach R$8.6 billion

In São Paulo, the loss of revenue with the terms proposed in the approved project should be around R$8.6 billion per year, in the accounts of the State Finance Department. For Secretary Felipe Salto, this money is unlikely to be returned if it depends on the credit system proposed in the project.

— It will become a new Kandir Law — Salto told journalists yesterday.

The secretary criticized the text approved in the Chamber, saying that it is not even clear whether, for the states, the credits will be deducted from the stock of debt maintained with the Union or from their flow of payments.

In addition to the difficulty that all states will have in receiving the credits from the tax collected predicted by Salto, he assesses that the effect of the measure proposed by the federal government will not make a difference in the price of fuel.

Regarding gasoline, in the São Paulo Treasury accounts, the ICMS limitation should cause a reduction of R$0.10 to R$0.12 in the price charged at the pump. A value that, he estimates, will be quickly eroded with the continued rise in fuel prices.

According to Felipe Salto, São Paulo's strategy to reverse the situation outlined in the project has not yet been defined. For now, he prefers to support the Senate not to approve the text that came out of the Chamber. If the text passes in its current condition, the secretary believes there are arguments to challenge it in court, an alternative he prefers to avoid:

– If the (federal) government wants, it can make an extraordinary credit and distribute this dividend money — proposed Salto, in reference to the portion of Petrobras' profits that goes to the Treasury due to the fact that the Union is the company's majority shareholder.

There is a chance that the STF will validate the project's argument

Donovan Mazza Lessa, partner at Maneira Advogados and member of the Brazilian Association of Financial Law (ABDF), agrees that states will claim that their competence to set tax rates has been invaded. But he recalled that the Constitution provides for the principle of selectivity — which means that the ICMS must be graded according to the essentiality of the good or service.

Partner at Lippert Advogados and president of the Institute of Tax Studies and the Special Commission on Tax Law of the OAB/RS, Rafael Korff Wagner reinforces this argument. According to him, the principle of selectivity, which says that the more essential it is, the lower the ICMS rate should be, is already provided for in the Constitution.

Wagner recalls that, recently, the STF ruled that electricity and telecommunications are essential services. He assesses that fuels can also be considered like this:

— States will be able to judicialize the matter, but the Supreme Court tends to maintain its understanding saying that fuel is essential and applies to selectivity.

The constitutional principle that ICMS should be lower for essential goods and merchandise is also mentioned by Luiz Gustavo Bichara, founding partner of the Bichara Advogados firm. However, he highlights that the interpretation regarding fuels is controversial.

— Is fuel an essential commodity? For many — including myself, it is. However, certainly, for the states, it is not. So, I have no doubt that it will generate litigation.

Tereza Amorim, tax lawyer and partner at Bento Muniz Advocacia, assesses that limiting the rate is an immediate solution to a structural problem. These arrangements often cause economic distortions, he warns:

— As the popular saying would say, “there is no such thing as a free lunch.”

https://oglobo.globo.com/economia/noticia/2022/05/teto-do-icms-especialistas-explicam-por-que-medida-aprovada-na-camara-tem-tudo-para-terminar-na-justica.ghtml