Since the Federal Supreme Court (STF) recognized, in 2016, the right to a refund of the difference in the Tax on Circulation of Goods and Services (ICMS) paid in excess of the tax substitution regime when the actual tax basis of the transaction is lower than the presumed one (Extraordinary Appeal (RE) No. 593.849) there has been discussion of whether the states of the Federation, supported by the same precedent, could charge the ICMS-ST supplement in transactions where the actual amount of the transaction is higher than the presumed amount.
The STF’s decision was reached in the joint judgment of extraordinary appeal and Direct Action of Unconstitutionality (ADI) No. 2,777, considered unfounded by the justices. By majority and in accordance with the decision reached in an appeal admitted due to general repercussion, the STF granted relief to RE 593.849 and declared the constitutionality of article 66-B, II, of State Law 6374/89 of São Paulo, which ensures the right to a refund of tax paid in advance, "if it is proven that in the final transaction with goods or services there is a tax obligation that is less than the presumed amount."
The issue of the ICMS-ST supplement was subject to debate in the motion for clarification filed by the Minas Gerais State Revenue Service in light of the appellate decision handed down, in order for the justices to rule on the possibility of requiring supplementation of the ICMS-ST in cases where products are sold for an amount higher than the presumed basis. However, the STF found that this was a matter foreign to the dispute.
Since 2009, the state of São Paulo has had in its tax law a specific provision of law (article 265 of RICMS/SP and article 66-C of State Law 6,374/89) authorizing the tax supplement by substituted taxpayers when the amount of the transaction or final installment with supply of the goods or service is higher than the withholding calculation basis, if it has been established pursuant to the terms of article. 40-A (which deals with the rules governing tax matters). However, considering STF's previous understanding that the ICMS-ST is definitive, this provision of law was not used by the São Paulo State tax authorities to collect ICMS supplements.
The question now hanging over São Paulo taxpayers is whether the state of São Paulo could base ICMS-ST supplements on this provision of law and what the risks involved and the tax consequences throughout the chain would be.
According to opinion on the matter provided by the São Paulo State Attorney General's Office (PGE) (set forth in PAT Opinion No. 23/2018), the premise that the ICMS-ST calculation basis is not definitive reaffirms the legitimacy of the provision contained in article 66-C of State Law 6,374/89, which imposes on the substituted taxpayer the obligation to pay any ICMS-ST supplement when the price is higher than the basis presumed.
According to the PGE, this position is supported on the same basis that would oblige the state to refund the tax. As set out in the opinion, this alternative was made explicit by the STF in the opinions in ADI No. 2.777 and RE No. 593.849 and, from the standpoint of São Paulo laws and regulations, it is supported by article 66-C of Law No. 6,374/89.
The opinion was, however, was directed at the administrative processing of applications for ICMS-ST refunds. At the conclusion of the document, PGE instructs the tax authority, when processing an application for a refund, to verify in advance whether prices higher than the presumed tax basis are realized in order to then fix the amount to be refunded, as detailed in paragraph 73 of the document: "In fact, in addition to the burden on the interested party to prove (i) the realization of prices lower than the presumed tax basis and (ii) the assumption of the economic burden of the taxation, it is also up to the tax authorities to investigate the possible realization of transactions in which prices may have been higher than the presumed tax basis, an issue of greater relevance in ascertaining whether the interested party is entitled to the refund and, if so, to define how and delimit the 'quantum' of the refund, to be provided according to the rules issued by the State of São Paulo to govern the matter.
The text is aimed at taxpayers who file a claim for a refund and deals with the question of the supplement as an element in the settlement of the quantum of the refund claimed.
Recently, the Special Body of the São Paulo State Court of Appeals accepted Motion to Resolve Argument of Unconstitutionality No. 0033098-49.2018.8.26.0000, ruling out the limitation of the ICMS-ST refund provided for in article 66-B, II, paragraph 3, of Law No. 6,374/89 only in cases where the calculation basis is set by the competent authority (tax matters).
This recent decision by the Special Body of the TJ/SP, which is not yet final, recognized the unconstitutionality of paragraph 3 of article 66-B of State Law No. 6,374/89, which restricted the possibility of reimbursement of the ICMS-ST. If later upheld, this decision will represent a paradigm favorable to the taxpayer with respect to reimbursement, led by the STF’s guidance that recognized the right to a ICMS-ST refund, regardless of the method for setting the presumed calculation basis.
The possibility that the tax authorities may require supplementation of the tax has not been examined or mentioned in the appellate decision by the TJ/SP, which is why it would not be possible to draw a clear conclusion from that precedent that the tax authorities are authorized to do so.
In addition, based on the principle of strict legality set out in article 150, subsection I, and article 155, paragraph 2, subsection XII, of the Federal Constitution, and article 97 of the National Tax Code, it is possible to argue that there is no provision of law in LC 87/96 authorizing the states and the Federal District to require ICMS supplementation in cases where the presumed calculation basis is higher than the actual basis realized.
There are additional arguments to maintain that it is not fitting for the State of São Paulo to charge ICMS supplementation in a situation where the actual basis is higher than the presumed one. They are based on the fact that article 66-C of Law No. 6,374/89 would be insufficient to justify the existence of a legal basis in the state of São Paulo to require a ICMS-ST supplement in cases where the actual and final transaction is greater than the presumed one, since, in dealing with supplementary liability, the text of the article paraphrases the provisions of article 128 of the National Tax Code (CTN), according to which the law may expressly assign the liability for the tax debt to a third person linked to the taxable event triggering the respective obligation, thereby excluding the liability of the taxpayer or assigning to the taxpayer in a supplementary manner total or partial compliance with the obligation.
Article 66-C of Law No. 6,374/89 does not seek to support supplementation of the tax, but rather liability in the event that the substitute does not settle the tax debt, which does not occur in the event of ICMS supplementation.
After the publication of PAT Opinion No. 23/2018, there were no concrete changes in São Paulo's laws and regulations regarding the conditions for the requirement of ICMS-ST supplementation. Article 265 of RICMS/SP and article 66-C of State Law No. 6,374/89 were unchanged, which provide for a tax supplement when: (i) the price realized in the transaction is lower than the presumed calculation basis determined or authorized by the tax authority (tax administration office); and (ii) there is a supervening increase in the tax burden levied on the transaction. Therefore, according to the state’s laws and regulations, we believe that the São Paulo tax authorities continue to not be authorized to demand payment of the supplementation imposed in situations that go beyond these scenarios.
In our view, therefore, although there may be opposing positions on the part of the tax authorities, the requirement of an ICMS supplement in cases where the basis realized is higher than the presumed basis is not an immediate result of the STF's decision, nor does it find legal support in the current legal system, especially in the state of São Paulo.