ICMS Bulletin on Interstate Operations target for non – taxpayers

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The purpose of this bulletin is to provide information about changes to the Tax Legislation introduced after publication of the Constitutional Amendment No. 87/2015, based on the Constitutional Amendment Proposal (PEC) No. 7/2015, popularly known as the “E-commerce PEC”.

Constitutional Amendment No. 87 of 16 April 2015

The full text for the Constitutional Amendment No. 87/2015 can be accessed at: https://www.planalto.gov.br/ccivil_03/Constituicao/Emendas/Emc/emc87.htm.


On April 17th., 2015 the Constitutional Amendment No. 87/2015 was published with basis on the Constitutional Amendment Proposal (PEC) 7/2015, which changed art. 155, Paragraph 20, item VII of CF/88, which previously stated:

VII – regarding operations providing goods and services to a final customer located in another State, the following measures shall apply:

a) the interstate rate when the recipient is a taxpayer;

b) internal rate when the recipient is not a taxpayer;

It should be noted that the previous text in the constitution provided that the ICMS for interstate operations regarding non-taxpayers was withheld in full by the State sending the goods, with the internal rate applied (figure 1). It is important to consider that during the year the Carta Magna was published (1988) there was no internet and telemarketing sales performance were rather minimum. Throughout the years, due to the technological advances of telecommunications, telemarketing operations and e-commerce, became frequent and companies specialized in these areas started to surface.

Figure 1: ICMS for the operation with non taxpayer fully withheld for the original State

In this sense, since the social and business reality was changed when compared to the time of constitutional legislators, States in the North, Northeast, Center-West, Federal District and Espírito Santo have required changes to the legislation for years in order to balance the ICMS revenue with the South and Southeast States, where the main taxpayers of Brazil are located.

This subject had greater proportions in 2011 especially due to the controversial ICMS Protocol 21/2011 which required a portion of the ICMS to be withheld in favor of the final reception States in interstate transport operations delivering goods to final customers (Non taxpayer for ICMS), with long-distance purchases through the internet, telemarketing or showrooms, even if the sender-taxpayer is located in States that have not signed the aforementioned Protocol.

In summary, the law inferred double taxation on the cited operations, since the ICMS for own operation was, according to the constitutional regulation, withheld in full by the State sending the goods (as mentioned, it applied the internal State rate), and the rate differential would also have to be withheld to the Interstate Operation Recipient not applicable as ICMS taxpayer Internal rate of the sender’s State The State of the sender would receive the entire ICMS of the operation final benefitiary of the recipient State. For this reason, this Protocol was declared unconstitutional in 2014 after a Direct Unconstitutionality Motion – ADIns 4628 and 4713, in accordance to the Supreme Federal Court, the subject of the Protocol goes clearly against the Constitution, not only in the formal but in the material sense.

In other words, the provisions of the Constitution are clear enough setting the regulations for the ICMS collection, so any attempts to violate this constitutional system by the States shall be disavowed.

Modifications Promoted

The Constitutional Amendment No. 87/2015 intends to solve this lack of understanding amid the regulated States by modifying the ICMS collection system in operations providing goods and services to the final customer and non taxpayer located in a different State as the supplier, as follows:

I. In operations providing goods and services to a final customer, whether or not applicable ICMS taxpayer, and located in a different State, the interstate rate shall apply and the recipient’s State shall be responsible for the difference between the internal rate of the recipient State and the interstate rate (figure 2);

II. The responsibility for the collection of the aforementioned tax shall be:

a. The recipient’s when refers to ICMS taxpayer;

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b. The sender’s when the recipient is non ICMS taxpayer.

It is worth noting that the Constitutional Amendment 87/2015 provided that in the aforementioned operations the ICMS corresponding to the difference between the internal and the interstate rate, which is currently the full responsibility of the sender’s State, would gradually become the responsibility of the recipient’s State, considering the following proportions:

I. For 2016: 40% for the recipient’s State and 60% for the sender’s State;

II. For 2017: 60% for the recipient’s State and 40% for the sender’s State;

III. For 2018: 80% for the recipient’s State and 20% for the sender’s State;

IV. 2019 onward: 100% for the recipient’s State.


Figure 2: Through the Constitutional Amendment 87/2015, ICMS is shared between the sender’s and the recipient’s States

Example of Calculation

Interstate Operation with imported and non-industrialized products subject to a 4% rate of ICMS in the interstate operation, applicable to non-taxpayers located in Bahia:

Effective Term for Enforcement

The legislators amended article 3 in compliance with one-year advance notice and ninety-days advance notice principles, mentioned in article 150 III “b” and “c”, CF respectively, determining that the constitutional amendment will be effective the year following the current financial year and after 90 days have passed after publication.

This Constitutional Amendment created an antinomy by establishing in article 2, I, that since 2015 the total ICMS collections shall be divided into 20% for the final State and 80% for the sender’s State, whereas article 3 provides that effects shall be valid only the year after the publication.

Despite of the aforementioned antinomy, the edited standard shall be considered in its merits.

Therefore, in summary, although the Text in the Amendment mentions the year 2015, the provisions shall be valid since 01 January 2016.

Collection Methods

Until this moment the Legislation does not establish the collection methods for the difference in ICMS rates between the States involved in operations involving a non-taxpayer. However, it is probable that the GNRE (Brazilian National Directive for Collection of State Taxes) will be applicable.

Publication in the State of São Paulo

The State of São Paulo published Statute No. 15.856 of 2 July 2015 amending the ICMS State Regulation (Decree 45.490/00) with the provisions found in the Constitutional Amendment 87/15, effective since 01 January 2016.

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