It is common to see headlines in Brazil newspapers related to Fiscal War between States. However, these headlines generally do not give any explanation about its nature, legality or even consequences. Then, the question to be asked is: what is Fiscal War?
Before starting any considerations, it is necessary to differentiate fiscal and non-fiscal aspects of taxes, two equally important lines and that coexist in any sphere. Fiscality is merely normative provisions inherent to a certain tax, intrinsically connected to tax collection purposes; whereas extrafiscality consists of wider, social, economic and even political goals[1]. In the words of PhD professor Roque Antônio Carrazza, extrafiscality comes into play when: “Lawmakers, in the interest of the collective, raise or reduce rates and/or the calculation basis of taxes, whose main purpose is to encourage taxpayers to do or not do something.”[2]
Extrafiscality gives to taxes, then, a purpose going beyond the mere upkeep of the machinery of government, behaving as an instrument capable of interfering with the economy, encouraging or discouraging certain conducts and favoring certain regions. If within constitutional rules, extrafiscality is fully licit, in this sense it simply governs the conduct of taxpayers.
However, extrafiscality may become illicit in cases of granting of exemptions, amnesties, pardons, selective enforcement of rates and presumed credits, without meeting formal and material requirements provided in the Constitution of the Republic and the National Tax Code[3]. Hence, it can be inferred that Fiscal War is the materialization of the illicit extrafiscality, summarized in the words of Osvaldo Santos de Carvalho as:
The unilateral granting of incentives or tax benefits by the States, marginal to Supplementary Law No. 24/75, and by legal corollary marginal to the Federal Constitution, aiming to draw investments, leading to, consequently, retaliation by other States, in every possible way, whether by disallowing encumbered credits from incentive, issuing notices of deficiency and enforcing penalties to taxpayers, or by knocking on the doors of the Judiciary with the purpose of excluding the legality of the measure that granted the institutional benefit[4].
In view of the excerpt, it is imperative to point out the three fronts of the Fiscal War: i. States that disallow encumbered credits from incentive; ii. Proposition of Unconstitutionality Direct Actions before the Supreme Federal Court; and iii. Dispute to see which State grants the best incentive, marginal to law and regulations.
With regard to the first aspect, it is inferred that disallowance of credits is in fact a hindrance to a right, an impediment by the tax administration to the taxpayer of using certain credit with the purpose of deducting their fiscal debts. Such situation occurs, for example, with companies based in the state of São Paulo, when they purchase a certain product manufactured in the Free Zone of Manaus that had its state vat (ICMS) reduced (due to tax benefits granted by the State of Amazonas), deduction which is later collected by the state of São Paulo as the product reaches its territory.
In the abovementioned example, it is observed that the State does not wage a Fiscal War against other federated state, but taxpayers themselves. The matter seemed to be pacified from the hearing of Matter 490 of General Repercussion by the Supreme Federal Court, the following thesis was established, “The proportional reversal of ICMS credit made by the State of destination, due to the presumed tax credit granted by the State of origin without authorization from the Brazilian Council On Treasury-Related Policies (CONFAZ), does not violate the constitutional principle of non-cumulativeness.”
Nevertheless, with regard to, specifically, the Free Trade Zone of Manaus, the controversy revolves around the applicability of art. 15 of Supplementary Law No. 24/75, which determines that the conclusion of agreements for granting of exemptions is “not applied to industries settled or to be settled in the Free Trade Zone of Manaus, being prohibited to all other Federated States require the exclusion of tax incentive, premium or stimulus granted by the State of Amazonas.” Notwithstanding, even with an alleged pacification, there still remains some grudge between federated states, as with the Higher Chamber of Tax Court of São Paulo (TIT), which, in the monothematic hearing of March 24, ruled that the State of São Paulo is not required to accept ICMS credits stated in fiscal documents of acquisition of goods, in cases where the manufacturer enjoys the benefit granted by the State of Amazonas and does not pay taxes in the State of origin.
The second front, in its turn, is absolutely legal, pursuant to art. 103, section V, of the Constitution of the Republic. The provision at hand confers legitimacy to governors to file constitutional remedies for concentrated control of constitutionality, provided that the State they represent is interested. As it has no relevant trace, such aspect has no deeper understanding.
The third line mentioned would also have been allegedly pacified through ICMS Convention No. 190/2017, rule that confirms all normative rulings related to tax benefits granted without authorization from CONFAZ, published until August 8, 2017, or that were or are under litigation, provided that they are waived with administrative and legal spheres. Notwithstanding, it should be noted that such Convention, although, at first glance, complies with what has been proposed, it is not actually revolutionary with regard to an alleged end of the Fiscal War. This happens because, by making a timeline for formal provisions regarding the execution of the granting of benefits by the States, the Convention is already set to expire, not adding anything relevant to discussions that go beyond its lifetime.
The recent discussion concerning reduction of ICMS-fuel by member States rekindled the debate involving Fiscal War, by exposing the potential creation of a Value-Added Tax (IVA), model which would include IPI (Excise Tax), PIS (Social Integration Program), COFINS (Contribution for the Financing of the Social Security), ICMS (State Vat) and ISS (Municipal Service Tax). By unifying the collection of all taxes mentioned into a single federal tax, the States would receive transfers from the Federal Government, so that it would no longer be possible to provide granting of benefits or exemptions by Member States. Moreover, it is denoted the impossibility of disallowing credits, as well as the extinction of state legislations concerning the ICMS, also extinguishing the chain of actions that questions its constitutionality.
The implementation of IVA could be considered then an almost miraculous end for the Fiscal War. Nevertheless, as denoted by the solution given by ICMS Convention No. 190/2017, there is no simple solution for The Fiscal War, situation which has caused disagreement between the Federated States for years, and which behaves as one of the country’s tax roots.
[1] TOMÉ, Fabiana Del Padre. Extrafiscalidade Tributária – estrutura e função instrumentalizadora de políticas públicas. Available on: HTTP://www.ibet.com.br/extrafiscalidade-tributaria-estrutura-e-funcao-instrumentalizadora-de-politicas-publicas-por-fabiana-del-padre-tome/.
[2] CARRAZZA, Roque Antônio, 30 ed, Curso de Direito Constitucional Tributário. São Paulo: Malheiros, 2015. P. 133
[3] GAMA, Tácio Lacerda. Competência tributária e (in) segurança jurídica: patologias da Guerra Fiscal. VI Congress of Tax Law of Paraná, April 2012. Available on: HTTP://pt.slideshare.net/luciapaoliello/vi-congresso-direitotributario-paran-abril-2012-12702493?qid=6c19b744-97d8-44e7-95e7-6f0726afc898&v=default&b=from_search=60.
[4] CARVALHO, Osvaldo Santos de. Não cumulatividade do ICMS e princípio da neutralidade tributária. São Paulo: Saraiva, 2013.
Available at: https://br.lexlatin.com/opiniao/imposto-unico-guerra-fiscal-estados
Autor: Flávia Sant'Anna Benites • email: flavia@ernestoborges.com.br • Tel.: +55 67 99984 1406
