"The ignorant affirm, the wise doubt, the sensible reflect", said the Greek philosopher Aristotle, stating that it fits well to the context of recent tax disputes reviewed by the Federal Supreme Court (STF) and deserves to be remembered because of the decision handed down in the record of Declaratory Action of Constitutionality (ADC) No. 49. ADC 49 reaffirms the settled case law of the higher courts: mere displacement of goods from one to another establishment of the same taxpayer is not a taxable event for the ICMS (ARE No. 1,255,885/MS – Topic 1,099, ARE No. 1,213,482/RS-AgR, Precedent of STJ No. 166, REsp No. 1,704,133/DF-AgInt, REsp No. 1,125,133/SP – Topic 259, among others).

In issuing its decision, the Federal Supreme Court ruled that the levying of the tax presupposes transfer of ownership of the asset, with its collection in the event of displacement of the goods between establishments of the same legal entity being undue, whether in internal operations or in interstate operations.[1] To this end, it was established that the movement of goods must be legal (and not merely physical), which presupposes an actual act of trade, for which the goal is profit and the transfer of possession or ownership contributes.

From this perspective, in the context of ADC 49, unconstitutionality was declared of articles 11, paragraph 3, II, 12, I, in the section "even if to another establishment of the same holder", and 13, paragraph 4, of Complementary Law No. 87/96.[2]

If this is a well-known and settled position in case law, what differentiates the judgment in ADC 49 from the other cases reviewed by the higher courts?

In this regard, it should be recalled that the decision handed down in a declaratory action of constitutionality does not present itself as a mere precedent. This is because, for the first time, the High Court reviewed the matter under the system of concentrated control, which, consequently, guarantees the erga omnes effect of the judgment. The recent understanding stated by the Federal Supreme Court binds not only the parties involved in the course of or in other cases in which the matter is discussed, but also all ICMS taxpayers (even without a legal action). In this sense, the immediate consequence of this new judgment is the setting aside of the rule declared unconstitutional from the Brazilian legal system.

Another question posed is: what are the actual impacts of ADC 49 on goods transfer operations between the same holder's establishments? The question takes into account the debates regarding the write-off of ICMS debt, the emptying of certain special ICMS regimes/tax benefits, and the autonomy of establishments. Let's take a closer look at each of these points.

With regard to the first, the question pertains to the need to reverse the credit arising from these transactions, since tax is not levied on the exit of the goods under transfer. This inquiry stems from an interpretation of the constitutional text itself, or better stated, from the assertion that exemption or non-levy will result in the annulment of the credit for prior transactions – article 155, paragraph 2, II, 'b'.[3]

Despite the risk of the absence of any express ruling on the subject, there seem to be arguments to contend that the transfer of goods between establishments of the same taxpayer is nothing more than a physical exit, and does not show itself to be a "circulation operation" of the product in the economic chain. It doesn't even constitute a "non-levy of the ICMS", since the constitutional rule providing for reversal in cases such as this presupposes that there would be the closure of the chain of taxation of the product (which does not occur in the case of an exit transfer, considering that the next operation in the shipment would be subject to the levying of ICMS).

This conclusion reinforces the fact that Complementary Law No. 87/96 (article 21, paragraph 3)[4] ensures that exemption or non-taxation in the prior stage of the chain does not prevent the use of the ICMS credit resulting from subsequent transactions, subject to tax, with the same goods.

Thus, there seems to be arguments to contend that reversal of credit – in the case of transfer of goods – would violate the fundamental principle of non-cumulation, since it imposes on taxpayers full payment of the tax without the possibility of a credit, due to the simple physical movement of the good.

Another major debate involves the possible losses that the Federal Supreme Court’s decision may bring about for the ICMS tax incentives conditioned on the payment of the tax at the time of the transfer. Regarding this second point, the discussion derives from the fact that various States grant tax benefits whose effectiveness does not dispense with the prominence the ICMS has in the exit of goods to be transferred to establishments of the same taxpayer.

Despite the peculiarities of each case, upon a first analysis, we believe it is possible to argue that the beneficiaries of these differentiated tax treatments could continue to benefit from these tax incentives. Therefore, there seem to be two legal grounds that foster this possibility:

  • Normative and/or granting acts of ICMS benefits are specific standards and, as such, should prevail over the general standards; and
  • Compliance with the requirements established by Complementary Law 160/17 and ICMS AgreementNo. 190/2017 should ensure the constitutionality of the ICMS benefits, per the terms reintroduced into the legal system.

Finally, another important point of discussion concerns the repercussions on the validity of the precept of autonomy of establishments in the face of the declaration of the unconstitutionality of article 11, paragraph 3, II, of Complementary Law No. 87/96. We believe there are grounds for contending that, once the article expressly providing for this autonomy was declared unconstitutional, the possibility to concentrate ICMS debts and credits in the parent establishment of the legal entity (or in another establishment) would arise. However, despite this possibility, the Public Administration could claim that:


  • ADC 49 does not set aside the rule of independence of establishments, whereas other rules of the aforementioned supplementary law were not affected by the decision – in particular articles 17 and 25;[5] and
  • regardless of the alleged absence of the principle of autonomy of establishments, the fundamental principles of the federative pact and the tax order are still in effect, which would set aside the duty of the state to accept ICMS credits related to payments made in other states.


Given this context, it is clear that the position established by the Federal Supreme Court in ADC 49, in addition to reiterating settled case law, has led to the confrontation of possible new judicial obstacles, if the Federal Supreme Court does not clarify the scope of its decision – in the context of motions for clarification pending judgment – from an integrated analysis of the Brazilian tax system.

For now, taxpayers must wait patiently for the final deliberation on the matter, in order to mitigate some of the discussions raised above, by examining the scope of the decision regarding autonomy of establishments and possible moderation of effects. Alternatively, they can implement complex restructurings that, to a large extent, tend to increase the tax burden on their operations and which, in the event of a favorable judgment on the motion for clarification, should be revised and amended.


[1] Headnotes of the judgment handed down in the record of ADC 49: CONSTITUTIONAL AND TAX LAW. DECLARATORY ACTION OF CONSTITUTIONALITY. ICMS. PHYSICAL DISPLACEMENT OF GOODS FROM ONE ESTABLISHMENT TO ANOTHER OF THE SAME OWNERSHIP. NO TAXABLE EVENT. PRECEDENTS OF THE COURT. NEED FOR LEGAL OPERATION WITH TRANSFER OF POSSESSION AND OWNERSHIP OF PROPERTY. SUIT DISMISSED. 1. While the law under analysis provides that the ICMS tax is subject to the departure of goods to an establishment located in another State, belonging to the same holder, the Judiciary has an understanding in favor of non-levying, a situation that exemplifies, immediately, clear legal uncertainty in the tax area. Therefore, the requirements provided for by Law No. 9,868/1999 for the processing and judgment of this ADC are fulfilled. 2. The displacement of goods between establishments of the same holder does not constitute a fact that triggers the levying of the ICMS, even if it is interstate circulation. Precedents. 3. The case of tax levy is a legal transaction carried out by a trader that entails circulation of goods and transmission of ownership to the final consumer. 4. Declaratory action dismissed, declaring the unconstitutionality of articles 11, paragraph 3, II, 12, I, in the section "even if to another establishment of the same holder", and 13, Paragraph4, of The Federal Supplementary Law No. 87, of September 13, 1996.

[2] For didactic purposes, see what each of the above-mentioned legal provisions establishes:

Article 11. The place of operation or supply, for the purposes of collecting the tax and defining the responsible establishment, is: [...] Paragraph3 - For the purpose of this Supplementary Law, an establishment is the place, private or public, built or not, owned or belonging to third parties, where individuals or legal entities perform their activities on a temporary or permanent basis, as well as where goods are stored, also observing the following: [...] II - each establishment of the same holder is autonomous; [...]

Article 12. The triggering event of the tax is considered to be the moment of: I - the departure of goods from the taxpayer's establishment, even if to another establishment of the same holder; [...]

Article 13. The basis for calculating the tax is: [...] Paragraph 4 - At the exit of the goods to an establishment located in another State, belonging to the same holder, the basis for calculating the tax is: I - the amount corresponding to the most recent entry of the goods; II - the cost of the goods produced, thus understood as sum of the cost of raw material, secondary material, labor and packaging; III - in the case of non-industrialised goods, their current price on the wholesale market of the sending establishment. [...]

[3] Article 155. [...] Paragraph 2 - The tax provided for in subsection II shall comply with the following: I. it shall be non-cumulative, offsetting what is due in each operation relating to the movement of goods or services with the amount charged in the previous ones by the same or another State or the Federal District; II. exemption or non-levying, unless otherwise determined by law: (a) it shall not entail credit for offsetting with the amount due in the following transactions or services; (b) it shall result in cancellation of the claim relating to prior transactions; [...]

[4] Art. 21. The taxable person shall perform reversal of the tax for which he has been credited whenever the service is received or the goods enter into the establishment: [...] Paragraph 3 - The non-crediting or reversal referred to in paragraph 3 of article 20 and the head paragraph of this article do not prevent the use of the same credits in subsequent transactions, subject to tax, with the same goods.

[5] Article 17. Where the freight amount, charged by establishment belonging to the same holder of the goods or by another establishment of a venture that maintains a relationship of interdependence with it, exceeds the normal price levels in force on the local market for similar service, contained in tables drawn up by the competent bodies, the excess value shall be made part of the price of the goods.

Sole paragraph. Two companies shall be considered interdependent when:

I - one of them, by itself, its partners, or shareholders, and their spouses or minor children, holds more than fifty percent of the other's capital;

II - the same person is part of both, as director, or partner with management functions, even if exercised under another denomination;

III - one of them leases or transfers to the other, in any way, a vehicle intended for the carriage of goods.

Article 25. For the purposes of the application of article 24, the debts and credits must be calculated for each establishment, offsetting the credit and debt balances between the establishments of the same taxable person located in the State.

Paragraph 1 - Credit balances accumulated from the date of publication of this Complementary Law by establishments that carry out transactions and services dealt with in subsection II of article 3 and its sole paragraph may be, in the proportion that these exits represent of the total of the exits performed by the establishment:

I - imputed by the taxable person to any establishment of his in the State;

II - if there is a remaining balance, transferred by the taxable person to other taxpayers of the same State, by issuing by the competent authority a document that recognizes the claim.

Paragraph 2 - State law may, in other cases of credit balances accumulated from the enactment of this Complementary Law, allow:

I - are imputed by the taxable person to any establishment of his in the State;

II - are transferred, under the conditions it defines, to other taxpayers of the same State.