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Legal Update

ICMS Convention No. 03/2018: Exemption and Reduction of ICMS Tax Calculation Base on Imports and Domestic Purchases under REPETRO-SPED rules

26 January 2018
Tauil & Chequer Legal Update

ICMS Convention No. 03/2018 (“Convention”), published on January 17, 2018, authorizes Brazilian states and the Federal District to grant ICMS exemption and reduction of its calculation base on transactions with goods and merchandises destined to research activities, exploration or production of oil and gas under the REPETRO-SPED regime.

According to first clause of the Convention, Brazilian states and the Federal District are authorized to grant the reduction of ICMS calculation base, so that the effective tax rate is 3% (without the offset of ICMS credits) on the imports and domestic purchases of goods classified as “definitive/permanent stay” by REPETRO-SPED-specific federal rules.

The benefit is also applicable to: (i) spare parts to be directly incorporated into the main assets intended to guarantee the operability of the assets destined to oil and gas activities; and (ii) the tools used directly in the maintenance of the goods mentioned above.

In these case, the ICMS will be due to the State in which the economic use of the asset or merchandise occurs. If the block of exploration or production field is not defined at the time of importation or acquisition in the local market, , and federal legislation admits the storage in a non-bonded warehouse, the levy of ICMS will be suspended until the exit of said goods for their economic use.

The ICMS will be paid only once, even if the asset leaves the national territory and returns thereafter, without any alteration or processing, or in subsequent internal or interstate operations.

The second clause of the Convention also authorizes the states and Federal District to grant ICMS exemption on imports of goods classified as "temporary" for application in oil and gas exploration and production activities. This benefit applies only to the goods provided for in the list of temporary goods issued by the BrazilianFederal Revenue Office .

This benefit also applies to: (i) equipment and other parts and spares to be directly incorporated into the main assets intended to guarantee the operability of goods destined for oil and gas activities; (ii) the tools used directly in the maintenance of the goods mentioned above.
In order to benefit from the exemption, the assets must be owned by the legal entity domiciled abroad and imported, without foreign exchange hedging, by the following legal entities:

  1. the holder of a concession or permit to engage in oil and gas exploration and production activities ;
  2. the holder of a transfer of rights agreement (“cessão onerosa”) pursuant to Law 12,276 / 2010;
  3. legal entity holding a production sharing agreement (“contrato em regime de partilha”) pursuant to Law 12,351 / 2010;
  4. the legal entity that executed a services agreement with the aforementioned legal entities to provide services for the execution of the activities that are the subject to the concession, authorization, transfer of rights or production sharing agreements, as well as their subcontractors;
  5. importer authorized by the contractor, when it is not domiciled in the country.

According to the third clause of the Convention, the states and Federal District are also authorized to grant ICMS exemption in the following transactions:

  1. export, including the fictitious export, or sale to legal entity domiciled  inside or outside the state in which the manufacturer is located, of the temporary or permanent goods and merchandise manufactured in the country that are, respectively, admitted or purchased under the terms of the first or second clauses of said Agreement.
  2. transactions prior to the ones mentioned in item (i), thus considering all the transactions of supply of goods or merchandise made by suppliers and sub-suppliers of the national manufacturers of goods or merchandise destined to oil and gas exploration and production activities.

In both cases, the states and Federal District are authorized to allow the maintenance of ICMS credits instead of requesting their write-off. 

Such rules also apply to the following assets:

  • Equipment, machinery, accessories, appliances, parts, spares, materials and other goods used as inputs in the manufacture and assembly of floating systems and production or drilling platforms, as well as their modular units to be processed, industrialized or assembled into industrial units;
  • Hulls and modules, when used as inputs in the construction, repair and assembly of floating systems and production or drilling platforms.
  • Operations carried out under Special Customs Regimes, in the form of suspension of payment, in relation to the proof of compliance under specific federal legislation.

The Convention also provides, in its seventh clause, that the transfer of the beneficiary does not constitute an ICMS taxable event.

In addition, the eighth clause of the Convention authorizes the states and Federal District to grant exemption of ICMS levied on imports of temporary or permanent goods or merchandise admitted before December 31, 2017, due to the migration or transfer of the REPETRO regime to REPETRO-SPED, established by Law 13,586 / 2017. This benefit applies to the following cases: (i) goods and merchandise admitted until November 27, 2007, under Convention No. 58/99; (ii) goods and merchandise admitted until December 31, 2017, under Agreement No. 130/07; (iii) goods and merchandise admitted until December 31, 2017, with exemption from payment of ICMS under the terms of the state tax legislation; (iv) goods and merchandise admitted under the regular taxation regime provided for in the domestic legislation of the states and Federal District.

In such cases, the taxpayer must submit to the Tax Administration the Import Declarations and, where applicable, the proof of transfer of beneficiary or regime, and must observe the following:

  1. if, at the moment of temporary admission, the tax has not been collected or has not been waived, pursuant to paragraph 1 of clause eight in the Convention , the taxpayer must provide the payment due on temporary admission, in accordance with the legislation applicable to the period, at its original value, without any additions;
  2. in the event of a transfer of beneficiary of REPETRO, the payment mentioned in item (i) above will be due only in cases where the original importer has not collected the tax.

The rules set out in this Convention shall apply only to purchases made on the domestic market or imports of goods or merchandise by the following legal entities:

  1. the holder of a concession or permit to engage in oil and gas exploration and production activities;
  2. the holder of a  transfer of rights agreement (“cessão onerosa”) pursuant to Law 12,276 / 2010;
  3. legal entity holding a production sharing agreement (“contrato em regime de partilha”) pursuant to Law 12,351 / 2010;
  4. the legal entity that executed a services agreement with the aforementioned legal entities to provide services for the execution of the activities that are the subject to the concession, authorization, transfer of rights or production sharing agreements, as well as their subcontractors;
  5. importer authorized by the contractor, when it is not domiciled in the country.

We emphasize that the tax treatment provided for in the Convention is optional to the taxpayer, who must formalize his adherence to the State on its own communication terms. It should also be noted that submission to this treatment will result in the withdrawal of administrative appeals and judicial actions, as well as expressly and irreversibly waiving any administrative or judicial right that questions the levy of ICMS on the importation of goods or merchandise without transfer of ownership, referring to events that occurred prior to its effective date (January 17, 2018). This rule does not apply to administrative discussions prior to the effective date of Convention No. 130/07.

In relation to ICMS Convention No. 130/07, this should be applied, as appropriate, in a subsidiary manner.

Finally, the states and Federal District shall issue the necessary acts to regulate the requirements to enjoy the abovementioned benefits. The Convention entered into force on January 17, 2018 and will be effective until December 31, 2040.

Authors

  • Carolina M. Bottino
    T +55 21 2127 4217
  • Diana Castro
    Associate
    T +55 21 2127 4252

Related People

  • Ivan Tauil
    Partner
    T + 55 21 2127 4213
  • Guido Vinci
    T +55 21 2127 4230
  • Eduardo Maccari Telles
    T + 55 21 2127 4229
  • Ana Luiza Martins
    T +55 11 2504 4626
  • Celso Grisi
    T +55 11 2504 4671
  • Luís Inácio Lucena Adams
    T +55 61 3221 4321
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