Tax Reform: Companies Seek to Release ICMS Credits Before Changes Take Effect
With the tax reform approved by Congress, Brazilian companies are mobilizing to understand and anticipate the implications this transformation will bring to their operations.
One of the central concerns relates to ICMS Credits generated based on transactions carried out by companies to date, which may be subject to a lengthy period for recovery of the credit balance through installment payments spread over up to 20 years (or 240 installments), which may significantly affect companies' financial health.
Several companies in the State of São Paulo are turning to Apter to identify unused ICMS credits and to seek ways of recovering them before the tax changes come into effect.
Here are the key points to be considered:
- ICMS Credits: The ICMS (Tax on the Circulation of Goods and Services), is a state-level tax levied on commercial transactions. Companies accumulate ICMS credits based on their operations, which can be used to offset taxes owed on future transactions.
- Tax Reform: The tax reform approved by Congress, currently under review in the Federal Senate, will bring significant changes to the country's tax system. The Tax Reform bill provides for the end of ICMS in 2033 and the balance of accumulated credits may be offset through the IBS (Tax on Goods and Services) in installments spread over 20 years, with monetary adjustment shifting to the IPCA (5.79% in 2022) and no longer through the Selic rate (currently at 12.75%).
- Tax Planning: In parallel with ICMS credit recovery, companies are also exploring tax planning strategies to optimize their future tax burden, including the selection of favorable tax regimes and the pursuit of tax incentives.
In summary, the imminent tax reform is triggering a race to release ICMS credits before they can be frozen for up to two decades. companies are preparing and considering legal actions to protect their financial interests. tax planning is also gaining prominence as companies seek ways to maintain their competitiveness amid the tax changes. Guidance from qualified professionals is essential to address these issues effectively and in compliance with current legislation, and hiring specialized tax consulting services is essential to help navigate the complexities of the tax system.
