In 2018, the Superior Court of Appeals (STJ) ruled out the restrictive concept of input material, according to which the expense with input material should be directly integrated into the formation process of the end product or provision of service in order to be eligible for PIS and Cofins credit.

At that time, the 1st Section held that the "concept of input material should be evaluated in light of the essentiality or relevance, that is, considering the indispensability or importance of a given item - good or service - for the development of the economic activity performed by the taxpayer” (Repetitive Special Appeal No. 1.221.170/PR).

Although the STJ examined the issue in a proceeding involving legal entities engaged in industrial activities, the theory established allowed commercial companies (retailers, wholesalers, etc.) to take credits also with regard to essential or relevant items for their business activity.

It was expected that this judgment would settle the matter in the regional courts, due to the clarity of the theory established and the grounds set out in the written opinions of the Justices. However, both at the administrative and judicial levels, there have been decisions denying the right to a credit for expenses, such as credit/debit card fees, advertising and promotion, especially in lawsuits involving taxpayers in a commercial activity.

Precisely because of this, the discussion has recently gained a new chapter and is expected to generate new debates in the 1st Section of the STJ soon, this time to review the issue in relation to commercial companies.

Just Manoel Erhardt, an appellate judge convened by the Federal Court of Appeals for the 5th Circuit, admitted the processing of Motion to Resolve Divergence No. 1.810.630/PR filed by a retailer against the decision of the 2nd Panel. The purpose is to resolve a divergence regarding the possibility of crediting PIS and Cofins in relation to expenses considered essential for the performance of the taxpayer's business activity. In the specific case, it seeks to credit financial expenses arising from loans and financing.

The taxpayer argues that, by conditioning the characterization of a given expense as input material to the direct application in the productive process or in the provision of services, the 2nd Panel reinstated the restrictive concept of input material already ruled out by the 1st Section, diverging from the understanding settled in Repetitive Special Appeal No. 1.221.170/PR.  

The repetitive theory established by the STJ clearly disassociated the concept of input from service and industrial activities, recognizing as creditable any and all goods or services that are essential or relevant for the development of any economic activity. Therefore, every expense incurred by a taxpayer, industrial, commercial, or service provider, that is essential for the performance of its economic activity, is to be considered an input and generate PIS and Cofins credits.

A different understanding could ultimately create unequal situations in which the industrial company could take credits for certain essential expenses, such as advertising and publicity, while the commercial company would not have the same right, which is not consistent with the STJ’s decision in Repetitive Special Appeal No. 1.221.170/PR or with the governing legislation.

Although the case is limited to expenses arising from loans and financing, it is expected that the 1st Section will examine the scope of the repetitive theory as a whole in the judgment of the motion to resolve the divergence. The measure would standardize the understanding on the matter nationwide, providing legal certainty to taxpayers, especially commercial companies.