For some time the classification of ICMS tax incentives as an investment subsidy has long been debated in the tax courts. The relevance of this discussion stems from the possibility of excluding income from investment subsidies from the IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Income) calculation bases.

The Federal Revenue Service of Brazil (RFB) often questions exclusions of this nature on the grounds that, in fact, these are revenues from funding subsidies. The questions suffered by taxpayers are as varied as possible, such as: failure to invest funds from the subsidy in the projects incentivized, lack of synchronization between the amounts invested in the projects and recognition of revenues from subsidies, improper classification of presumed ICMS credit benefits as investment subsidies, and limitation on the exclusion of revenues from investment subsidies up to the values of the projects subsidized.

With the promulgation of Complementary Law No. 160/2017 (LC 160/2017), the legislator provided that ICMS incentives must be considered investment subsidies for the purposes of the IRPJ and CSLL and forbade mandating any other requirements not provided for in article 30 of Law No. 12,973/14.

Through LC 160/17, the legislator also provided that the above treatment applies also to administrative and judicial proceedings not yet definitively adjudicated, as well as to ICMS incentives granted in disagreement with the constitutional requirements. In the latter case, the law required the granting states to register and deposit their respective normative acts with Confaz (the National Council for Finance Policy), following the solution proposed for the context of the “tax war.”

At the same time, on recent occasions, the Superior Court of Appeals (STJ) has reviewed the application of the IRPJ and CSLL on income arising from ICMS incentives. On these occasions, the Court approached the discussion in a manner that was quite broad and dissociated from the provisions of LC 160/17 on the subject. In this context, the First Section of the STJ found that the benefits granted by the states of the Federation in the form of presumed ICMS credits should not be subject to application of the IRPJ or CSLL, under penalty of offense to legal certainty, the federative pact, and reciprocal immunity (article 18 and 150, VI, “a”, of the Federal Constitution).^[1] In the STJ's view, taxation of these amounts by the Federal Government would have an impact on the benefit granted by the state (Motion to Resolve Divergence in Special Appeal 1.517.492-PR).

As may be seen from the deciding vote cast in that judgment, presumed ICMS credits cannot be considered corporate profit, as they correspond to waiver of revenue by the state government, which acts within its competence and in accordance with its tax policy. Thus, it is fitting for the Federal Government to tax such amounts, since it would "obliquely withdraw the tax incentive which the Member State, in the exercise of its tax competence, granted."

It is important to highlight that this judgment does not address the classification of tax benefits as an “investment subsidy”, nor does it address any requirements established by article 30 of Law No. 12,973/14.

Subsequently, the STJ was urged to rule on the maintenance or modification of the position adopted in EREsp 1.517.492/PR, in view of the supervening enactment of LC 160/2017. At all times, the Court found that it was not the appropriate time to review the effects of LC 160/2017, as the law came into force after the National Treasury filed special appeals and it had not been challenged by the local court (issue not previously raised). In any case, the decisions expressly state that the entry into force of LC 160/2017 would not be able to change the position established in EREsp No. 1.517.492-PR regarding the violation of the federative pact.^[2]

Admittedly, this position should not be considered definitive, since the provisions of LC 160/2017 on the subject have not yet been specifically analyzed by the STJ en banc, which should occur shortly. In addition, the guiding basis for the STJ's decision on the merits is constitutional in nature. In principle, the last word on the matter should be the responsibility of the STF (Federal Supreme Court), which may review the decisions in question in the context of an Extraordinary Appeal.

The STF itself has previously recognized the general repercussion regarding the taxation of presumed ICMS credits for PIS and Cofins (RE No. 835 818-PR), which, although dealing with different taxes, has as one of its arguments precisely the offense to the federative principle and the interference of the Federal Government in the exercise of the competence of a state tax.

In summary, based on the recent precedents of the STJ that the Federal Government cannot tax benefits granted by states, as this represents an affront to legal certainty, the federative pact, and reciprocal immunity, it is possible to discuss the need regarding whether or not to observe the requirements established  by article 30 of Law No. 12,973/14. Among them, the most relevant for taxpayers is the obligation to allocate income from subsidies in a tax incentive reserve account, i.e., a profit reserve.

From the STJ's position on the subject, even without settling the controversy, it may be inferred that there are legal arguments to support the possibility of excluding the subsidized amounts from the IRPJ and CSLL calculation bases, despite the accounting of these amounts in a profit reserve.

^[1] Article 18. The political and administrative organization of Federative Republic of Brazil includes the Federal Government, the States, the Federal District, and the Municipalities, all autonomous, per the terms of this Constitution. (...).

Article 150. Without prejudice to other guarantees provided to taxpayers, the Federal Government, the States, the Federal District, and the Municipalities are prohibited from: (...) VI - instituting taxes on:

1. a) property, income, or services from one to the other; (...)

^[2] In this sense: Interlocutory Appeal in Special Appeal No. 1.306.878-RS; Interlocutory Appeal in Special Appeal No. 1.726.562-RS; Interlocutory Appeal in Motion to Resolve Divergence in Special Appeal 1.462.237-SC; Interlocutory Appeal in Special Appeal No. 1.794.524-PR; Interlocutory Appeal in Special Appeal No. 1.725.131-SC; Interlocutory Appeal in Special Appeal No. 1.729.965-SC; Interlocutory Appeal in Special Appeal No. 1.675.331-PR.

Normative Instruction No. 1,888/2019 (IN 1,888), which establishes and disciplines the provision of information related to cryptoasset transactions, shows the concern of the Brazilian Federal Revenue Service (RFB) with providing transparency in transactions with virtual currencies. Although it represents an increase in compliance costs for companies operating in this market, the measure may give more credibility to the industry and help attract new players.

RFB's effort to publish a specific regulation on this matter confirms what the market and industry experts already knew: the volume of cryptoasset transactions has taken off in recent years and still has strong growth potential. In fact, the explanatory memorandum accompanying RFB’s Public Consultation No. 6/2018 on the subject already showed an estimated movement of R$ 18 to 45 billion in bitcoin transactions only in 2018.

Although bitcoin is the best known of the "virtual currencies," it is already possible to identify in an avalanche of new “altcoins” and other types of cryptoassets in the market. Aware of this new trend, the RFB was concerned with giving cryptoassets a comprehensive definition, rather than just using the term "virtual currencies," and deeming them as equivalent to financial assets, as it had been doing in the most recent editions of the Individuals Income Tax Questions and Answers.

According to IN 1,888, a cryptoasset is " the digital representation of value denominated in its own unit of account, the price of which may be expressed in local or foreign sovereign currency, transacted electronically using encryption and distributed recording technologies, which may be used as a form of investment, an instrument for the transfer of funds or access to services, and which does not constitute legal tender."

The broad definition adopted by the RFB suggests that tax authorities will seek to impose the obligations brought in by IN 1,888 on all kinds of transactions or investments involving encryption, including the so-called security and utility tokens, and not just crypto-coins. For this reason, we also believe that one cannot rule out the possibility that, in the future, the RFB will require transactions with fictitious virtual game currencies, or even credits used in certain applications, be reported on the basis of the new rule.

“The broad definition adopted by the RFB suggests that tax authorities will seek to impose the obligations brought in by IN 1,888 on all kinds of transactions or investments involving encryption, including so-called security and utility tokens, and not just crypto-coins.”

Following the effort to broaden the scope of persons required to provide information, the RFB also defined the concept of a cryptoasset exchange. According to IN 1,888, a cryptoasset exchange is “a legal entity, even if non-financial, that offers services relating to transactions performed with cryptoassets, including brokering, trading, or custody, and which may accept any means of payment, including other cryptoassets."

The RFB further clarifies that the concept of brokerage of cryptoasset transactions includes "the provision of environments for the execution of cryptoasset purchase and sale transactions carried out among the users of its services."

As explained below, the classification of a legal entity as a cryptoasset exchange is important because IN 1,888 imposes rigid obligations to these entities, including the control of their clients and the transactions they execute. On the other hand, the above definition refers only to legal entities that provide services related to transactions performed with cryptoassets, and does not cover entities that only accept or use cryptoassets as a payment method. Thus, companies that merely exchange their products or services for bitcoins, for example, should not be subject to the obligations imposed on exchanges.

In the same sense, IN 1,888 also does not refer expressly to companies that provide platforms for users to exchange products or services for cryptoassets, without the cryptoassets themselves being bought and sold for cash. Thus, in principle, marketplaces hosting vendors that accept cryptoassets as a form of payment would not qualify as exchanges.

After establishing the definitions above, the RFB required individuals or legal entities that carry out transactions involving cryptoassets to provide, on their own account or through a proxy, the information required by IN 1,888 in relation to transactions exceeding the monthly volume of R$ 30 thousand. These transactions include the purchase and sale, barter, donation, and even the "withdrawal" or "deposit" of cryptoassets in an exchange. These individuals and legal entities must report, among other information, the date, type, value, and persons involved in the transaction, the cryptoassets used, and the address of the sender's and the recipient's wallet.

These users, however, are only required to provide the above information in the event of transactions without the involvement of an exchange or of transactions involving a foreign cryptoasset exchange. In the case of cryptoasset transactions in a Brazilian exchange, the obligation to provide the information on the transactions is transferred to the exchange, and not the individual users or legal entities mentioned above.

In turn, exchanges domiciled in Brazil are obliged to provide the same information on the transactions carried out by their users. In both cases (delivery by users or by the exchanges), the frequency is monthly.

In addition, by the end of January of each year, exchanges must report the balances of fiduciary currency and cryptoassets held by their users as of December 31 of the preceding year, as well as the acquisition cost of each of these cryptoassets, if disclosed by the user. These rules seem to aim at controlling the capital gains earned by users in transactions with cryptoassets, which, according to the position adopted by the RFB, are subject to the imposition of income tax.

The entities covered by the RFB's definition of a cryptoasset exchange will need to maintain computerized management systems in order to be able to generate all the information required by IN 1,888 in a timely manner to meet the deadlines established. Likewise, these exchanges must be prepared to guide their users in relation to the new procedures required by the RFB.

Delay, omission, inaccuracy, or incorrectness in the delivery of the information requested by the RFB subjects the declarant to fines ranging from R$ 100.00 to 3% of the value of the transactions to which they refer, depending on the qualification of the declarant and the type of infraction.

From a reading of IN 1,888, it is possible to predict that the RFB will require the reporting of any and all relevant transactions involving digital assets. In fact, IN 1,888 is part of an effort by the RFB already felt in other sectors, such as the management of investment funds, which aim at increasing the transparency and reliability of transactions that, in the view of tax authorities, have a high potential to facilitate or cover illicit conduct. This effort is aligned with an international tendency to demand greater transparency of financial institutions and similar organizations regarding the transactions carried out by their clients.

Thus, despite increasing compliance costs, IN 1,888 may ensure the credibility of cryptoasset operators who meet its requirements. From this point of view, the RFB's new measure has the potential to attract sectors that have hitherto been resistant to the use of cryptoassets, as may be the case with institutional investors and financial institutions.

The natural gas market is gaining more and more relevance in Brazil as a way to diversify the country's energy sources. To foster the development of the sector, changes in legislation and regulations have been discussed, especially since 2016, when the Ministry of Mines and Energy launched the Gas to Grow (Gás para Crescer) initiative, with the participation of the entire natural gas market and some government bodies.

The development of the market, however, depends on the success of public calls for the purchase and sale of natural gas, which will allow the integration of new agents and the diversification of a highly monopolized sector. Tax obstacles, mainly related to the ICMS tax, and other challenges, however, make difficult the advance of public calls and the development of the sector.

The ICMS is a tax whose competence is assigned to the states and the Federal District, and complementary law defines the structural aspects of the tax. An analysis of state legislation with respect to natural gas points to complexity, unevenness, and uncertainty as characteristic elements.

Among the points of unevenness that represent tax challenges, the following stand out: the diversity of rates applicable to natural gas; the difference of tax burden due to special tax regimes; and the difference in the treatment of non-cumulative credits.

As for the diversity of ICMS rates, there is a large disparity between the states in relation to intrastate transactions involving natural gas, which vary from 12% up to 25%. This is because some states have internalized ICMS Agreement No. 18/1996, which provides for reduction of the ICMS tax basis so that the effective tax burden results in 12%. However, some states did not adhere to the agreement, applying the general internal rate (ranging from 17% to 18%) for natural gas transactions. There is also the state of Amazonas, which adopts a 25% rate for natural gas transactions.

In addition, it should be noted that some states establish additional rates for internal transactions, which usually correspond to 1% or 2% of the ICMS tax basis.

Many states also have unclear legislation regarding the application of tax benefits to imports of natural gas or liquefied natural gas, creating legal uncertainty for importers.

An additional point of dissimilarity concerns the existence of different special regimes for the taxation of natural gas. Some states have introduced tax benefits or differentiated regimes in the supply of natural gas to thermoelectric plants (PPTs) in relation to certain industries or import operations, in order to neutralize points of redundant taxation. This is the case, for example, of the granting of internal outputs of natural gas for electricity generation, which favors the development of PPTs in some states where it is applied, while others have no plans to solve the problem.

Also in relation to tax benefits, some states instituted obligatory payment of a percentage over the economic advantage obtained with the tax benefit to the State Tax Equilibrium Fund (FEEF), accentuating the discrepancy in treatment.

Another relevant aspect is the divergence in the treatment of non-cumulative ICMS credits. There is a lack of clarity and uniformity in the legislation that defines the treatment of credits in transactions benefiting, for example, from the reduction in the calculation basis or other special regimes. There are states that allow the maintenance of credits recorded, while others require the reversal of these credits, burdening the natural gas value chain and making it less competitive compared to other energy grids.

Finally, the assignment of responsibility for tax substitution in state legislation is an ingredient that reinforces the complexity of the system. The asymmetry between the various state laws obviously creates complexity, increases compliance costs and distortions in the chain, and often aggravates the cost itself of operations. Standardization and rationality are essential for proper development of the market.

The viability of many transactions is also dependent on regulations regarding compliance with ancillary obligations, especially those related to transport through gas pipelines. They are simple measures that should not change tax collection. Their implementation gains complexity because of our tax system, but they are essential for us to take this step forward.

Law No. 13,655/2018, published in early 2018, included new general principles in the Law of Introduction to the Norms of Brazilian Law - Lindb (Decree-Law No. 4,657/1942) and since then, much has been said about the applicability of the changes in all areas of law, especially tax law.

This is because one of the amendments, promoted by article 24, provides that "review, in the administrative, oversight, or judicial spheres, of the validity of an act, contract, agreement, process, or administrative rule whose production has already been completed shall take into account the general guidelines of the time, it being thus forbidden to, based on later change in a general guideline, declare invalid situations already entirely established."

This provision was included in the rule as a new instrument in favor of legal certainty of the system. In the same spirit, the mandate of article 23 came about,^[1] which provides that, when an administrative, oversight, or judicial decision addresses the interpretation adopted in relation to an undetermined legal norm, it is the duty of the judge to provide for a transitional system, thus ensuring adequate time for subjects to adapt to the new interpretation.

When the two articles are analyzed together, it is clear that the legislator's intent was to bring in new normative provision that, based on comprehensive and clear wording, guarantee legal certainty to the subjects in all areas of Brazilian law.

This article intends to analyze the scope of the effects brought in by article 24 of Law No. 13,655/2018 and of the argumentative combat inherent to its application in administrative tax procedure.

From an objective interpretation of the provision reviewed, it is noted that its wording establishes that administrative and judicial courts, when carrying out a reassessment of acts performed by private individuals, must take into consideration what the majority guidance given in the period reviewed was. Specifically in the tax context, the issue has frequently been raised by taxpayers in judgments handed down by the Administrative Council of Tax Appeals (Carf)^[2] in order to request the cancellation of tax assessments, on the grounds that the taxpayer adopted the guidance in effect at the time.

The Attorney-General of the National Treasury opines in favor of the inapplicability of article 24 of the LINDB in administrative tax procedure. One of the points raised by the Attorney-General's Office is that it is not possible for ordinary law (Law No. 13,655/188) to prescribe general guidelines on tax law, since article 146^[3] of the Federal Constitution of 1988 establishes that regulation is within the exclusive competence of complementary laws.

The taxpayer argues that article 146 only applies to special and specific rules of tax law, that is, rules that regulate tax matters such as conflicts of jurisdiction, limitations on the power to tax, and applicability of taxes, among many other issues. The requirement of a complementary law is not unrestricted, that is, for any and all tax law rules. That being the case, rules of public law in general that do not deal with the specific situations of article 146 of the Federal Constitution may not be imposed via ordinary law. Also along these lines, the taxpayer argues that Law No. 13,655/2018 came to regulate the LINDB, which is imposed on the entire legal system, not excluding tax law.

To refute the application of article 24 of the LINDB, the National Treasury affirms that only accounting courts are under its scope, on the justification that the LINDB governs exclusively administrative law.

However, from a reading of the justification of the bill that gave rise to Law No. 13,655/188, one notes that the main concern of the legislator was the fact that, the more the legislation and the State's actions advance, the more legal security recedes due to uncertainty and unpredictability regarding the processes and controls of the Public Administration.

Thus, the main purpose of the legislator was "to include in the Law of Introduction to the Norms of Brazilian Law (Decree-Law No. 4,657/1942) provisions to raise the levels of legal certainty and effectiveness in the creation and application of public law."

Public law, as is well known, encompasses various branches of law, such as constitutional, financial, environmental, social security, and, above all, tax law. Thus, the National Treasury’s interpretation in a restrictive manner that the amendment promoted by Law No. 13,655/2018 would not cover tax matters is unreasonable. The norm introduces general provisions for and on the application of public law, which includes tax law.

Even if there were any doubts about the applicability of article 24 of the LINDB in the analysis of tax issues, professors Carlos Ari Sundefeld and Floriano de Azevedo Marques Neto, authors of the bill that was converted into Law No. 13,655/2018, insisted on clarifying the question once and for all.^[4] In articles published on the subject, scholars emphasized that tax law is a branch of public law, the primary application of which is done the Public Administration, being fully subject to articles 20 to 30 of the amended Law of Introduction to the Norms of Brazilian Law.

From there, it is concluded that the applyer of the law, including tax law, must observe the guidelines brought in in the new rule. Regarding the discussion held here, article 24 obliges Carf to confirm the majority rule at the time of the facts during the review, such that, if it is proved that the understanding was favorable to the taxpayer at that time, the levy must be rejected.

Regarding this issue, the National Treasury also states that the law was silent in not determining what the majority case law would be and that, given the structure of Carf and the constant change in the composition of the adjudicatory panel, it would not be possible to determine what the "majority understanding" of the body would be.^[5] However, it would not be necessary for legislators to be concerned with establishing what majority case law would be, since the majority is based on common sense, the largest part of the whole.

Nor is the argument valid that the possibility of changing the composition of the adjudicatory panels of the body precludes the implementation of majority case law. Taxpayers have already been successful in demonstrating that some matters had a consistent understanding during a certain period within the Carf,^[6] proving the current understanding regardless of change in the composition of the members.

Even in view of these and many other considerations that confront the arguments against the application of the rationale of article 24 of the LINDB to administrative tax procedure, it is verified that the current tendency of the Carf is to rule out its applicability.

The three adjudicatory panels of the Carf’s Superior Chamber, responsible for consolidating the administrative case law of the body, have already ruled in favor of the inapplicability of article 24 of the LINDB, although on different grounds.

The 1st Panel is of the understanding that article 24 of LINDB would not be applicable to the Carf, believing that that body does not exercise the activity of review, but rather of judge.^[7] In turn, the 2nd Panel argues that administrative adjudicatory bodies could not determine what the majority position is for the entire Tax Administration.^[8] The 3rd Panel was the last one to rule on the subject, expounding an understanding to the effect that the legal text of the instrument refers to review of the validity of an act, process, or norm, and not to review of acts in the sphere of administrative litigation.^[9]

The ordinary panels of the Carf, although they do not have settled case law on the controversy, for the most part follow the same tendency, in favor of inapplicability of the provision.

Despite this, taxpayers still have hope. There are already judicial decisions on the matter, such as the judgment^[10] conducted by the Court of Appeals of the State of São Paulo (TJSP) in September of 2018, which dismissed a levy done at the time when the case law moved in the opposite direction. In the decision, it was evident that the interpretation regarding the application of article 24 of the LINDB was instrumental in forming the judge’s persuasion.

This indicates the need for the Carf to recognize the guidelines drawn by article 24 of Law No. 13,655/8 and respects the intent of the legislator to preserve legal certainty, at risk of being a dead letter of the law. These are times of change, which will certainly bring more benefits to the legal system.

^[1] Article 23.  The administrative, oversight, or judicial decision that establishes a new interpretation or guideline regarding a rule of undetermined content, imposing a new duty or new condition of law, should provide for a transitional system when indispensable for the new duty or condition of law to be complied with proportionally, equitably, and effectively and without prejudice to general interests.

^[2] Administrative court of appeals that definitively reviews the validity of tax credits of taxpayers at the federal level, whether individuals or legal entities.

^[3] Article 146. The following is incumbent on complementary laws:
I - govern conflicts of jurisdiction, in matters of taxation, between the Federal Government, the States, the Federal District, and the Municipalities;
II - regulate the constitutional limitations on the power to tax;
III - establish general rules in matters of tax legislation, especially on:
(...)

^[4] Sources:
https://www.jota.info/opiniao-e-analise/artigos/lindb-direito-tributario-esta-sujeito-a-lei-de-introducao-reformada-10082018
https://www.conjur.com.br/2018-jun-01/opiniao-lindb-direito-previsibilidade-mudancas-interpretativas

^[5]  Except for provisions relating to Carf’s restatements of law, the reproduction of which is obligatory.

^[6] For example, the issue of limitation on the percentage of 30% for the offsetting of tax losses or negative calculation bases in merger operations, deductibility of amortization with goodwill, among others.

^[7] Appellate Decision No. 9101-003.839, of October 3, 2018.

^[8] Appellate Decision No. 9202-007.145, of August 29, 2018.

^[9] Appellate Decision No. 9303-006.839, of May 17, 2018.

^[10] Judgment handed down by the 6th Chamber of Public Law of the Court of Appeals of the State of São Paulo - Administrative Proceeding No. 0013375-90.2014.8.26.0224 - Opinion drafted by Appellate Judge Reinaldo Miluzzi.