On October 7, the National Council for Finance Policy (Confaz) published ICMS Convention 109/24, which promotes changes in the rules regarding the interstate remittance of goods and merchandise between establishments of the same ownership. The measure revokes ICMS Convention 178/23. In this article, we outline a brief history on the subject and present the main changes brought about by the new Confaz measure.

Brief history

Complementary Law 87/96 (LC 87/96) established that the taxable event of the ICMS would occur, among other hypotheses, on the remittance/departure of goods and merchandise from an establishment (taxpayer of the ICMS), including remittances/departures to an establishment of the same ownership (a branch).

Much has been discussed over the years in the Judiciary about the levy of the tax on transactions between establishments of the same holder, under the argument that there would be no legal circulation of the good and, therefore, there would be no occurrence of the taxable event. This discussion ended up being consolidated (at least it seemed so) by Precedent 166 of the STJ.

The matter, however, was again taken to the Judiciary, when the imposition of ICMS in transactions involving the physical circulation of goods between establishments of the same taxpayer located in different states (interstate operations) was brought to the attention of the courts. The matter was examined within the scope of the Declaratory Action of Constitutionality 49 (ADC 49).

In ADC 49, the Federal Supreme Court (STF) established the understanding – with effects applicable to all taxpayers – that the taxable event for the imposition of ICMS is the legal circulation of goods. The Supreme Court also ratified that the simple remittance of goods between establishments of the same holder, even if to a different state, does not constitute a taxable event.

At the time, the STF also clarified that the credits linked to these transfers must be fully preserved, emphasizing that, in order to guarantee the principle of non-cumulativeness, the taxpayer would have the right to transfer these credits to the establishment too where the goods were remitted.

In this scenario, Confaz issued ICMS Convention 178/23 (addressed in this article), establishing the obligation (with its particular limitations) of the transfer of ICMS credits from the establishment of origin to the establishment of destination, on the interstate transfers of goods and merchandise.

After the States incorporated into their legislation the understandings set forth in ICMS Convention 178/23, a huge wave of issues began over the mandatory or optional nature of the transfer of credits in this operation. It is in this context that ICMS Convention 109/24 emerges, in which new rules were established for the transfer of ICMS credit in interstate transfers of goods between establishments of the same ownership.

Main changes brought about by the new ICMS Convention 109/24

  • TRANSFER OF ICMS CREDITS

 ICMS Convention 109/24 ensures, in its first clause, the right to transfer ICMS credit in the remittance interstate of goods between establishments of the same ownership – apparently making optional an issue that was mandatory in ICMS Convention 178/2023.

However, the sole paragraph establishes that the state of origin is obliged to guarantee only the positive difference between the credits related to previous operations and the result of the application of the percentages established in the Federal Constitution (CF/88) on the value of the transfer.

Thus, if the transfer of credits is not carried out, it is possible to interpret that the aforementioned sole paragraph authorizes the state of origin to require the reversal of ICMS credits that exceed the positive difference between the ICMS of the acquisition and the ICMS "calculated" in the transfer.

 ICMS Convention 109/24 also determines two important limits related to the maximum amount of the ICMS credit likely to be transferred.

The first establishes that this amount will correspond to the registered amount of ICMS related to the previous transactions, regarding the transferred goods. The second indicates that this credit will be limited to the result of the application of percentages equivalent to the interstate ICMS rates, as defined in CF/88, on the following values of goods and merchandise:

  • the average value of the receipt of goods in stock on the date of transfer;
  • the costs of the goods produced, including the sum of the costs of raw material, input, secondary material and packaging; and
  • in case of non-industrialized goods, the sum of the costs of their production, including expenses with inputs and packaging material.

Unlike what existed in ICMS Convention 178/23, it is clear that, as it is an effective credit transfer (from the state of provenance to the state of disposal), the value of the ICMS informed in the invoice of the transfer operation would be limited to:

  • the credit amount recorded at the acquisition of the product; and
  • the result of the application of the percentages established in CF/88 on the value of the transfer.

It should be noted that the limitation on the amount of credit to be transferred was already applied by some States, such as São Paulo (see the responses to consultation 29132/24 and 29566/24). The stipulation of this limit in the text of ICMS Convention 109/24, however, undoubtedly brings higher legal security to taxpayers, specially considering the other states of the Federation (which understand differently or did not have a formal understanding on the subject).

  • THE (IN)VALIDITY OF THE REVERSAL OF THE CREDIT AT PROVENANCE

As for the apparent obligation of reversal of ICMS credits that exceed the positive difference between the ICMS of the acquisition and the ICMS "calculated" in the transfer, we understand it to be judicially debatable, especially for the following points:

  • The unconstitutionality of the imposition of ICMS Convention 109/24, since the Federal Constitution, in its article 155, paragraph 2, subparagraph II, paragraph 'b', determines that the reversal of ICMS credits should be carried out only in transactions subject to the exemption or no imposition;
  • The illegality of ICMS Convention 109/24, since Complementary Law 87/96, in its article 21, determines that the reversal of ICMS credits must be carried out only in operations subject to exemption or not taxable; use of the goods in an activity other than the one defined to be of the establishment; or in case of loss, perishment or deterioration of the goods;
  • The illegality of ICMS Convention 109/24, considering that the towards the decision of the STF in the records of ADC 49, which did not bind the maintenance of credits from prior transactions to the obligation of its transfer. In this sense, the rationale of Justice Luís Roberto Barroso stands out that, for the effectiveness of non-cumulativeness, it is necessary that "taxpayers are allowed to transfer credits between establishments of the same ownership".
  • Optional taxable event

 ICMS Convention 109/24 also offers an innovation by granting the taxpayer the possibility of equating the remittance of goods to an operation subject to the occurrence of the taxable event. In this case, the value of the transaction will be considered to determine the ICMS calculation basis, considering:

  • the value corresponding to the most recent entry of the goods;
  • the costs of the goods produced (the sum of the costs of raw material, secondary material, labor and packaging); and
  • in the case of non-industrialized goods, the sum of the costs of their production (expenses with inputs, labor and packaging).

The new convention determines that the option in question will be annual, irreversible for each such calendar year, registered in the Register of Use of Tax Documents and Terms of Occurrence (RUDFTO) and with automatic renewal. It will also be applied to all taxpayer establishments located in the national territory.

If the taxpayer adopts this option and chooses to equate such remittances to taxed remittances, this fact must be duly indicated on the invoice under "Additional data" field.

  • NOT APPLICABLE TO OPERATIONS WITH ASSETS

According to its first clause, ICMS Convention 109/24 would apply only to the interstate transfer of merchandise, while ICMS Convention 178/23 also provided for the remittance interstate of goods (broader concept).

This differentiation is relevant, as it can lead to the construction that such a rule does not apply to all goods remitted, but only to merchandise, excluding, for example, goods registered as fixed assets.

ICMS Convention 109/24 entered into force on the date of its publication and will take effect as of November 1, when ICMS Convention 178/23 will be effectively revoked. However, it will be necessary to monitor the incorporation of ICMS Convention 109/24 by the States.

Our tax team remains available to answer questions on the subject.