The dispute over the destination of Value Added Tax (ICMS) credits in the transfer of goods between branches of the same company in different states has taken a turn favorable to the taxpayer in the Court of Justice of the State of São Paulo (TJSP). Following the enactment of Complementary Law 204/2023 and ICMS Agreement 109/2024, which recognize that the transfer of these ICMS credits is optional, the court has been analyzing the issue. There are conflicting decisions from the TJSP, but both acknowledge the optional nature of transferring the credits.
The requirement to maintain ICMS (Brazilian state sales tax) credits at the point of origin would restrict tax planning possibilities for taxpayers, in addition to potentially impacting companies' cash flow. Without the transfer, there is no credit to offset the amount due in the destination state due to sales to consumers, which would prevent compliance with the non-cumulative principle of ICMS, burdening the operation. On the other hand, with the maintenance of the credit at the point of origin, companies can use it to offset accumulated debts in that state and, at the same time, benefit from incentives offered in the destination state, such as presumed credits, without having to give up the ordinary credit. This flexibility would expand the scope for planning.
Although disagreements persist, a survey conducted by the Lavez Coutinho law firm and shared exclusively with JOTA reveals a jurisprudential shift favorable to taxpayers in the São Paulo Court of Justice (TJSP). Of ten decisions analyzed, half uphold the understanding that the transfer of ICMS credits is optional, including four judgments and one preliminary injunction. There are five other judgments favorable to the tax authorities. In one of them, however, the judges did not recognize the writ of mandamus as an appropriate instrument to claim the right, but pointed out that the legislation already makes the transfer optional.
The survey, which can be viewed in full here, analyzed the decisions made by the TJSP (Court of Justice of São Paulo) after the publication of ICMS Agreement 109/2024, from the National Council of Finance Policy (Confaz), in October 2024. The text introduced new guidelines addressing points of legal uncertainty within the topic, which date back to the Supreme Federal Court's (STF) decision on the matter.
In Declaratory Action of Constitutionality (ADC) 49, proposed by the state of Rio Grande do Norte, the STF (Supreme Federal Court) decided, in April 2021, that ICMS (Tax on Circulation of Goods and Services) does not apply to the transfer of goods between establishments of the same owner located in different states, an understanding already present in Precedent 166 of the Superior Court of Justice (STJ).
The Supreme Court also modulated the effects of the decision to take effect from January 1, 2024; that is, the understanding of ADC 49 only produces effects from that date. “The taxpayer does have the right to maintain the credit. But the Supreme Court modulated the effects so as not to harm the revenue collection of the states of origin and destination,” says Pitman. Later, in April 2023, in a motion for clarification, the Supreme Court defined that, “once the deadline has expired without the states regulating the transfer of ICMS credits between establishments of the same owner, the right of the taxpayers to transfer such credits is recognized.”.
However, the decision on the appeals did not specify which instrument would be used for regulation. The states then addressed the issue through the National Council of Finance Policy (Confaz), which issued ICMS Agreements 174/2023 and 178/2023. These agreements were interpreted by many federative entities, including São Paulo, through decrees, as imposing the mandatory transfer of these credits in interstate transactions. Although they did not explicitly state this obligation, their wording and the way they were incorporated by the states indicated this interpretation. This generated controversy, as the Supreme Federal Court's decision spoke of a "right" to transfer the credits, not an obligation.
Regulations clarify the landscape regarding the transfer of ICMS credits.
The scenario involving the transfer of ICMS credits, including in the TJSP (Court of Justice of São Paulo), only began to become clearer with the enactment of Complementary Law 204/2023, which amended the Kandir Law. This new rule included paragraphs 4 and 5 in article 12, expressly establishing that the transfer of ICMS credits between establishments of the same owner became an option for the taxpayer, and not an obligation.
Therefore, ICMS Agreement 109/2024, published in October, revoked the previous texts of Confaz, now explicitly providing for the optional nature of the transfer of ICMS credits, in accordance with the new legislation. The state of São Paulo, in turn, consolidated this new understanding via Decree 69.127/2024.
Nevertheless, the São Paulo state tax authority has continued to demand the mandatory transfer, according to Arthur Pitman. “Many clients contacted us after the agreement was issued to understand what the best option was. But the state of São Paulo continued to consider the transfer of credits mandatory, even after legislative changes that indicate otherwise,” he says.
Decisions of the TJSP (Court of Justice of São Paulo)
With this impasse, taxpayers took the matter to court. In one of the main rulings, the 5th Chamber of Public Law of the TJSP (Court of Justice of São Paulo) stated that "the taxpayer may opt for the transfer of ICMS (Tax on Circulation of Goods and Services) credits between establishments of the same owner starting on 07/28/2024". The decision concluded that "hierarchically inferior norms (ICMS Agreement 109/2024 and State Decree 69.127/24) cannot obstruct the right conferred by Complementary Law 204/2023". The ruling occurred in Appeal 1035639-63.2024.8.26.0053.
Another decision by Judge Maria Laura Tavares, in case number 1035639-63.2024.8.26.0053, also reaffirmed that, with the new complementary law in effect, "it is not possible to prevent the São Paulo taxpayer from opting for the transfer of ICMS credits from the establishment of origin to the establishment of destination of the goods".
Despite the progress in decisions favorable to taxpayers, the São Paulo Court of Justice (TJSP) still has unfavorable rulings in some cases. This occurs mainly when the actions are filed in the form of a writ of mandamus against abstract regulations. That is, when taxpayers file a writ of mandamus to challenge the general content of a regulation, such as an agreement or decree, without having actually suffered any concrete act of tax inspection based on the regulation.
This means that the request is made "against a rule in theory," and not against an actual action by the tax authority (such as an assessment, a payment demand, or an administrative denial). In these situations, the Judiciary usually rejects the request based on Precedent 266 of the Supreme Federal Court, which prohibits the use of a writ of mandamus to challenge rules in an abstract way, without demonstrating a real threat or concrete harm to a clear and certain right.
In a case judged by the 2nd Chamber of Public Law, the appeal was denied on this basis. However, the ruling still recognized that "ICMS Agreement No. 109/2024 allows the option of maintaining ICMS credits in the State of origin." This refers to Civil Appeal 1028663-40.2024.8.26.0053.
Transfer of ICMS tax credits: what to do?
According to Pitman, this recognition by the São Paulo Court of Justice (TJSP) of the right to transfer ICMS (Brazilian state sales tax) credits, if consolidated, could generate significant savings for companies that concentrate acquisitions in distribution centers and operate in several states, such as wholesalers, distributors, and retailers with a national presence. “In many destination states, there are benefits such as presumed credit, but these require the waiver of ordinary credit. If the taxpayer does not transfer the credit, they keep it at the origin and can still use the benefit at the destination. It's a win-win situation,” he says.
Given this unstable scenario, caution remains. “Even taxpayers who are perfectly suited for tax planning have preferred not to litigate yet. Many are waiting for the jurisprudence to become more firmly established before adopting this strategy,” says Pitman. The expectation, according to him, is that the understanding will solidify in the sense of the option to transfer the credit. “The most correct thing would be for the jurisprudence to continue in this direction, recognizing the taxpayer's right to choose where to allocate the credit.”.