New Regulation for ICMS Tax on Interstate Transactions in Brazil

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Following a recent law regulating Brazil’s State VAT on interstate transactions, new controversies remain on the horizon

On 5 January 2022, Supplementary Law 190/2022 was published to regulate the allocation of Brazil’s State VAT (ICMS) revenue on interstate transactions to end consumers (DIFAL), but it has ended up creating new controversies over the start of the new rules’ effects.

ICMS revenue split rules

Following the Brazilian Federal Constitution’s requirements on interstate transactions to end consumers, the ICMS should be split between the state of origin and state of destination as follows: (a) to the state of origin, the ICMS is calculated with the interstate rate (4%, 7% or 12%); and (b) to the state of destination, the ICMS is calculated based on the difference between the interstate rates used in the transaction and the rate applicable to internal transactions in the state of destination (usually from 17% to 19%).

The start of the controversies

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