The change in ICMS on transfer – New headache for logistics?

It is already well known in the supply chain world the effect that the rules and tax benefits of different regions of the country have on the decisions of logistics facilities in Brazil. Often, production and distribution centers are positioned not for logistical reasons, such as proximity to customers and availability of suppliers, but rather according to tax gains that outweigh possible burdens of poor geographic positioning. This reality ends up not only having economic, social and environmental impacts, but also adds innumerable complexities in the mesh analysis, and the situation worsens as changes in law and legal interpretations are presented. One of them already discussed here by ILOS was the question about the collection of DIFAL and the impacts that are generated by changes in the rules mainly for retailers.

Recently, a decision of the Supreme Court determined that the flow of goods between branches of the same company should not be a taxable event for the levy of ICMS, as it currently works. This apparently good measure has problems due to the system of debits and credits that exist in the tax.

To remember, when a company buys products by paying ICMS, and then resells them also collecting the tax, is entitled to receive credit on what was paid at the entrance in order to avoid accumulation. There is an old problem, however, when the volume of credits to be received is greater than the debits at the exit, which can happen mainly when there are different rates between the flows. In this case, there is a retention of the ability to use these credits until they can be consumed by other debts, generating cash flow losses for many companies. In the example of Figure 1, which shows a supplier selling to a company in SP (internal flow taxed at 18%), and this, in turn, transferring to one of its branches in Bahia (rate of 7%) it is easy to see that credit accumulation will occur unless the mark-up between transfer and supplier purchase was significant.

Figure 1- Example of taxation levied on multilink operation. Self elaboration

The change in the new interpretation would aggravate the problem, since all the credit referring to the transferred flow would be accumulated, as shown in Figure 2. For very capillary operations, common mainly in retail, it would be a millionaire loss. The states are also in a tightrope, since they could be forced to credit companies without a corresponding collection.

Figure 2- Situation of credit accumulation with the new rule on transfers. Self elaboration.

After the non-incidence decision, a solution is needed so as not to make transactions between branches in different states unfeasible, which must be proposed in a judgment still to be carried out, but which already marks a new chapter in the complex history of the tax system in Brazilian logistics.

References:

- JOT