Appeal on Extraordinary Appeal No. 1,521,931: Brazilian Supreme Court authorizes ICMS Credits on Amounts Paid to Temporary Budget Fund

On September 5, 2025, the Plenary of the Supreme Court (STF) published the decision granting the Motion for Reconsideration due to a Split Decision on Appeal against the denial of Extraordinary Appeal No. 1.521.931 (ARE No. 1.521.931), and recognized the right to credit the Tax upon the Circulation of Goods and Services (ICMS) on amounts paid to the Temporary Budget Fund (FOT), a levy established by the State of Rio de Janeiro pursuant to State Law No. 8,645/2019.

In its prior ruling on Direct Action of Unconstitutionality No. 5,635 (ADI 5,635/DF), the STF had already held that the disputed provisions must be interpreted in conformity with the constitutional text so as to ensure compliance with the principle of non-cumulativity, as well as the applicability of ICMS rules to the FOT surcharge.

Despite the precedent set by STF in the context of concentrated judicial review, conflicting case law regarding the entitlement of ICMS credits over FOT payments led to the filing of a Motion for Reconsideration due to a Split Decision, with the aim of harmonizing the Court’s decisions on the matter.

In this regard, Justice Alexandre de Moraes emphasized in his opinion the need to adhere to the conclusion reached by STF in the context of ADI No. 5.635/DF, specifically with respect to the application of the non-cumulativity principle to payments made into the FOT. However, this must be analyzed in a case-by-case basis due to the applicable tax incentives, in order to prevent the undue appropriation of ICMS credits.

Justice Alexandre de Moraes also emphasized the constitutional nature of the matter, framing the dispute within the interpretation of Article 155, §2, I of the Federal Constitution (CRFB/1988). He distinguished the case from Theme No. 1,386, which concerned the non-constitutional and factual aspects of the requirement to pay the FOT in connection with time-bound and conditional ICMS tax incentives.

The Office of the Attorney General of the State of Rio de Janeiro (PGE/RJ) has indicated its intent to file an appeal against the decision.

For further information regarding this legal update, please contact our tax team.

This content was produced with the collaboration of law clerk Ana Luiza Nordi.