Companies benefiting from ICMS granted credits face a question whose answer is worth a great deal of money: what may be excluded from the IRPJ and CSLL tax bases – the full benefit granted by the state, or only what remains after credit reversals and contributions to state funds?
The Brazilian Federal Revenue Service formalized its position in COSIT Advance Ruling (Solução de Consulta) 12/22, of March 25, 2022, by limiting the exclusion to the so-called “net benefit.” The Administrative Council of Tax Appeals (CARF) has begun to test this theory, and the most recent outcome was a close one.
The “net benefit” theory: background
The ruling request was submitted by a textile-sector taxpayer subject to the regime under article 41 of Annex III of the São Paulo ICMS Regulation. Under this regime, the granted credit may only be used if the taxpayer proportionally reverses the credits taken on the acquisition of inputs. The question was straightforward: should the full granted credit be excluded, or only the difference between it and the reversed credit?
The Federal Revenue Service answered: the difference. In short, the tax authorities’ position rests on three moves:
- the grant and the reversal would be “inseparable mechanisms,” so the transaction must be read as a whole (item 42);
- the exclusion from taxable income (lucro real) would correspond only to the difference between the “granted credit” and the “reversed” credit (item 56.2); and
- the reversed amount could not be treated as a deductible cost or expense (item 56.3).
In practice, the excludable subsidy comes to be measured by the state’s net revenue waiver, rather than by the amount of the benefit provided for in state legislation. The greater the reversal required by the regime, the smaller the permitted exclusion – and the larger the taxable base.
What CARF decided: Decision 1102-002.002
In Decision (Acórdão) 1102-002.002, the 2nd Ordinary Panel of the 1st Chamber of the 1st Section, in a session held on April 28, 2026, addressed the methodology of COSIT Ruling 12/22 in relation to the ICMS presumed credit granted under the Produzir Program of the State of Goiás.
The panel limited the exclusions to the net amount of the benefit, after deducting the mandatory contributions to Protege Goiás and to the Cultural Fund. The headnote states that “the exclusion of the ICMS presumed credit in the computation of taxable income and of the CSLL tax base must be limited to the net amount of the benefit, after deducting credit reversals and mandatory contributions,” since “the tax subsidy corresponds to the actual economic gain, not to the gross amount granted.”
The tax authorities’ theory prevailed in a tiebreak, by casting vote – that is, without a majority conviction. The prevailing opinion argued that the contributions to the funds had already been deducted as an expense in computing net income. Therefore, excluding the gross amount would result in a “double deduction” and a federal benefit greater than the state’s own revenue waiver.
The dissenting opinion, by reporting councilor Gabriel Campelo de Carvalho, provides the best defense roadmap available. According to the reporting councilor, article 30 of Law 12,973/14 does not provide for a net calculation of the amount excludable from taxable income. In addition, paragraph 4 of that article, introduced by Complementary Law 160/17 (LC 160/17), prohibits requirements or conditions not provided for therein.
Accordingly, COSIT Ruling 12/22, a sub-statutory act, could not create a restriction that does not exist in the law. As to the alleged double deduction, the reporting councilor noted that prohibiting it would require an express legal provision, which is absent from article 30, and that it is for the legislature – not the interpreter – to correct any distortions.
The reporting councilor also distinguished the case from COSIT Ruling 12/22. There, “granted credit” and “reversed credit” refer to the return of part of the credit to the treasury itself. The contributions to Protege Goiás, by contrast, are payments to a fund with its own legal personality, created by separate legislation and with a different purpose – an autonomous financial obligation, not a return of credit.
The precedent confirms that the dispute has shifted from “whether” to “how much,” and that the methodology of COSIT Ruling 12/22 is being extended, by analogy, to contributions to state funds. The tiebreak by casting vote underscores the absence of a majority conviction and the possibility of reversal both before the Superior Chamber of Tax Appeals (CSRF) and in the courts.
The theory does not hold up: three main grounds
In summary – and without prejudice to the analysis of each specific case – we believe that the theory formalized in COSIT Ruling 12/22 does not hold up, for the following reasons.
- It confuses the benefit with the cost of enjoying it. The granted credit is what the State grants. The reversal of credits and the contribution to state funds are conditions the taxpayer pays in order to access the benefit. They are distinct amounts, with distinct tax treatments, and they do not offset each other to reduce the excludable amount.
- It contradicts the non-recoverable tax regime – including the Federal Revenue Service’s own position. Under paragraph 3 of article 301 of the Income Tax Regulation (Decree 9,580/18), only taxes recoverable through credits in the tax books are excluded from acquisition cost. Once recoverability is lost, the amount becomes part of the cost. CPC 16 says the same with respect to inventories. And COSIT Ruling 208/15 had already recognized that non-recoverable ICMS forms part of the acquisition cost of goods held for sale. The theory forces the tax authorities to argue that the same credit is non-recoverable for the state and recoverable for the federal government.
- It creates a quantitative limitation without a statutory basis. Article 9 of LC 160/17, by adding paragraphs 4 and 5 to article 30 of Law 12,973/14, treated ICMS benefits as investment subsidies and expressly prohibited “the imposition of other requirements or conditions not provided for in this article.” If the complementary law barred additional qualitative conditions, there is no room for a quantitative cut created by a sub-statutory interpretive act.
The courts: the presumed credit remains protected
The courts have not directly addressed the “net benefit” theory, but they have set parameters that limit it:
- in EREsp 1,517,492/PR, the First Section of the Superior Court of Justice (STJ) excluded ICMS presumed credits from the IRPJ and CSLL tax bases on the grounds that taxing them violates the federative pact, without conditioning the exclusion on the requirements of article 30 of Law 12,973/14;
- in Topic (Tema) 1,182, the STJ distinguished between positive and negative benefits, allowing the exclusion of the latter provided that article 30 of Law 12,973/14 and article 10 of LC 160/17 are complied with, and waiving proof that the benefit was granted as an incentive for the implementation or expansion of business ventures; and
- on March 10, 2026, the First Section designated Topic 1,416 for decision under the repetitive appeals procedure, with Justice Regina Helena Costa as rapporteur, to decide whether presumed credits may be excluded under the regimes before and after Law 14,789/23, with appeals on the matter stayed.
The ratio of these decisions is qualitative: it defines which benefits are excluded and under which formal conditions. None of them authorizes deducting from the subsidy the charges borne in order to enjoy it.
Next steps
Litigation is expected to intensify. The precedent, decided by casting vote, signals both concrete chances of reversal and the risk of new tax assessments using the same calculation methodology. In our view, the dissenting opinion brings together the most consistent legal grounds, most aligned with the legal system.
Machado Meyer’s tax team is available to assess the impacts of this discussion on companies’ operations and on administrative proceedings – both new and ongoing. Follow our publications and contact us for more information.
