In the judgment of ADC 49 (Declaratory Actions of Constitutionality), the Brazilian Supreme Federal Court (STF) recognized the lack of a tax-generating event for ICMS (Tax on Circulation of Goods and Services) in the operations of merchandise transfers between establishments of the same owner.

As a result, ICMS taxpayers are guaranteed the right to maintain and transfer ICMS credits resulting from previous operations. The effects of this decision came into force on 01, January 24, except for judicial and administrative processes pending completion by the date of the publication of the minutes of the said judgment. Additionally, the STF granted states a period to regulate the transfer of credits. There are still outstanding issues pending the STF’s decision, following an appeal filed by taxpayers.

Complying with the deadline set by the STF, states have regulated the transfer of credits through ICMS Agreement 178/2023, observing the following provisions:

• the transfer of ICMS credits from previous operations and services is mandatory and will be carried out by “NF-e” (Electronic Invoice), with the credits being transferred at the time of shipment of the goods, the value of which will be reported in the field designated for the ICMS highlight;
• the credit/debit values of the transfers will be recorded in the entry and exit books at the time of the documents’ posting;
• forecast of the maintenance of tax incentives granted by the originating state;
• the amount of the credit to be transferred should correspond to the application of the interstate rate, to which the operation is subject, over:

1. The amount corresponding to the most recent entry of the goods;
2. The cost of the manufactured goods;
3. For non-industrialized goods, the sum of their production costs;

Subsequently, the President of Brazil enacted Complementary Law 204/2023, which stipulates the non-occurrence of the ICMS tax event in the operations of merchandise transfer and the right to maintain ICMS credits from operations prior to the transfer.

This includes cases of interstate operations, so that the transfer of credits will observe the following:

• for the destination state: credit limited to the application of the tax rate;
• for the originating state: credit equivalent to the positive balance between the credits from previous operations and those transferred to the destination state.

It is worth noting that the provision dealing with the possibility of ICMS taxation on these merchandise transfer operations was vetoed by the President of the Republic.

Given the pending STF decision and the outlined normative acts, we must wait for the following developments:

• the internalization of the rules related to the topic by the states;
• the publication of new acts or the positioning of the states regarding the discrepancies between the wording of ICMS Agreement No. 178/2023 and Complementary Law 204/2023;
• the conclusion of the STF’s judgment on the appeal, which will address the possibility of utilizing ICMS credits in the state of origin or destination, at the discretion to be defined by the taxpayer, and also the possibility of the new rules coming into effect from 01, January 2025.