CONFAZ and state of São Paulo regulate ICMS levy on the transfer of goods between establishments of the same ownership

The non-incidence of State Goods and Services Tax (ICMS) on the transfer of goods between establishments of the same ownership has been decided on following the conclusion of Action for Declaration of Constitutionality 49 (ADC 49).

On the motion for clarification, the decision ensured the possibility of maintaining ICMS credit in these transactions, while states and the Federal District must provide regulations regarding such practice by the beginning of the 2024 fiscal year.

Although Bill 116/23 is still pending approval (after being passed by the Brazilian House of Representatives on December 05, 2023, to amend Supplementary Law 87/86 and adjust it to the Federal Supreme Court’s decision) – the National Council of Tax Policy (“CONFAZ”) and the state of São Paulo have already been drafting regulations that may be adjusted and made compatible if the Bill is sanctioned.

Following the publication of ICMS Agreement No. 178/2023, which establishes procedures for the interstate shipment of goods and products between establishments of the same ownership, CONFAZ entered into ICMS Agreement 225/2023, published in the Federal Official Gazette of Brazil on December 26, 2023, in order to clarify matters that involve the ICMS-ST (Tax Substitution) regime. 

In this regard, ICMS Agreement 225/2023 amended ICMS Agreement No. 142/18, which provided for general matters relating to tax substitution and ICMS advanced collection regimes. As such, the agreement established that, in the event of a transfer between the consignor’s establishments, the ICMS listed in the transfer invoice must be deducted in the calculation of ICMS-ST at the destination state, in compliance with ICMS Agreement No. 178/2023.

In this regard, on December 26, 2023, the state of São Paulo published Decree No. 68,243/2023, which provides for the shipment of goods and products between establishments of the same ownership.

According to the state’s legislation, and in compliance with ICMS Agreement 178/23, the transfer of ICMS credit within the scope of such shipments will be:

• Mandatory for interstate shipments; and
• Optional for shipments within the state of São Paulo (intrastate).

Also, according to the state’s regulations, if a taxpayer opts to transfer credits in intrastate shipments, this option will:

• Apply to all of the company’s establishments located in the state of São Paulo;
• Be recorded in the Tax Document Use and Terms Ledger (RUDFTO); and
• Remain effective for 12 months, calculated from the first day of the month that follows the issuance of the corresponding term.

The provisions of this decree do not imply revocation or modification of tax benefits granted by the state of São Paulo and will enter into force on January 01, 2024.

Finally, we highlight that new motions for clarification are still pending judgment within the scope of ADC 49.

Demarest’s Tax team is monitoring the topic and remains available to provide further clarifications.