Controversy on Non-levy of Brazilian state VAT on Temporary Imports

The country of Brazil is made up of 26 states and one federal district and each has its own regulations when it comes to taxes on imports between states. The ICMS is a state-level tax on imports and is non-cumulative, meaning previous levies can be credited and offset future imposts.

The general rate of 17% and applies to:

  • Imported goods
  • Intrastate trade of goods
  • Domestic circulation of goods
  • Communication services

Regarding the importation of goods, there are some special customs regulations on special arrangements in which the foreign party allows for the use of the good while not transferring ownership such as an operational lease, rental, or loan agreement. Thus the transactions are forced to move forward with no exchange coverage since the actual owner remains abroad.

State authorities in general operate under the assumption that the ICMS is triggered by any import of a good regardless of ownership. Therefore transactions of a special nature such as Temporary Admission and REPETRO are exceptional cases allowed for to reduce or tamp down the ICMS.

In September 2014, the Brazilian Federal Supreme Court (STF) ruled the triggering event of the ICMS on imports would only take place if the goods’ ownership is transferred to the Brazilian party. This ruling has changed the situation for importers, especially those in oil and gas, who utilize Temporary Admission or under REPETRO since it is a significant precedent towards challenging the imposition of the ICMS.

The decision between importing under Temporary Admission or REPETRO has thus been superseded.

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