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Decree No. 46,233/18 regulates ICMS levied on E&P activities in the state of Rio de Janeiro

8Fev2018Feb8,2018
Oil and Gas; Tax
On February 6, 2018, the governor of Rio de Janeiro, having regard to ICMS Agreement No. 3/18 (enacted by CONFAZ), published Decree No. 46,233/18, which provides for a reduction in the basis of calculation of, and exemptions from, ICMS levied on transactions involving goods used in E&P activities in the state of Rio de Janeiro.

In general terms, Decree No. 46,233/18 replicates most of the wording of ICMS Agreement No. 3/18, regarding ICMS tax treatment and related requirements, and aligns it with the legislation and specific procedures applicable to the state of Rio de Janeiro.

ICMS Agreement No. 3/18 took effect last week upon its national ratification through Declaratory Act No. 3/18 and it is now regulated in the state of Rio de Janeiro through Decree No. 46,233/18.

As detailed in our Memorandum to Clients of January 18th, the ICMS tax treatment introduced by ICMS Agreement No. 3/18 – now regulated by Decree No. 46,233/18 – is as follows: 

1.   Reduction in the basis of calculation of ICMS levied on "permanent items", imported or acquired locally under Repetro-Sped, pursuant to which the total ICMS burden will be equivalent to 3% (but it will not be possible to record ICMS credits); 

2.   ICMS exemption on "temporary items" imported under Repetro-Sped; 

3.   ICMS exemption on importation and local acquisitions carried out by "local industry" under Repetro-Sped; 

4.   ICMS exemption on transfer of Repetro to Repetro-Sped. 

We indicate below a summary of the main provisions in Decree No. 46,233/18, where the wording is different from that under ICMS Agreement No. 3/18, but where the intention is to align the provisions with the legislation and specific procedures applicable to the state of Rio de Janeiro: 

a.    With respect to item "2" above, Decree No. 46,233/18 clarifies that the ICMS exemption on importation of "temporary items" under Repetro-Sped does not require any deposit to be made with the State Fund of Fiscal Balance (the so-called "FEEF").  

  • This clarification confirms the provisions established in Decree No. 45,810/16, which regulates obligations relating to the FEEF and excludes from such obligations ICMS incentives upon the importation of goods carried out without the transfer of ownership to the importer.
     
  • Regardless of the above, it may be argued that, in any event, ICMS incentives granted under ICMS Agreements enacted by CONFAZ are not subject to FEEF rules. Based on this rationale no ICMS tax treatment under Decree No. 46,233 would be subject to FEEF obligations anyway. 

b.   As for item "4", Decree No. 46,233/18 clarifies that the ICMS exemption is available in respect of: 

  • goods imported into Brazil up to January 23, 2008 under section 13, Book XI, of Decree No. 27,427/00, which implemented, in the state of Rio de Janeiro, ICMS treatment on importations carried out under the federal temporary admission regime, as authorized by ICMS Agreement No. 58/99. ICMS Agreement No. 3/18 refers to goods imported into Brazil up to November 27, 2007 under ICMS Agreement No. 58/99. 
  • goods imported into Brazil up to December 31, 2017 under Decree No. 41,142/08, which implemented ICMS treatment on transactions carried out under Repetro, in the state of Rio de Janeiro, as authorized by ICMS Agreement No. 130/07. ICMS Agreement No. 3/18 refers to goods imported into Brazil up to December 31, 2017 under ICMS Agreement No. 130/07.
     
  • goods imported into Brazil up to December 31, 2017 and exempt from ICMS, under the terms of Resolution No. 1,000/16 issued by the Rio de Janeiro Treasury Office (please refer to our Memorandum of March 4, 2016). ICMS Agreement No. 3/18 refers to the exemption from ICMS under the terms of the relevant state legislation. 

c.    Decree No. 46,233/18 requires that taxpayers interested in benefitting from items "1" to "4" above must formally adhere by submitting to the relevant tax authority a document ("Statement for Communication of Adherence to the Tax Treatment of Decree No. 46,233") which is annexed to Decree No. 46,233/18. 

  • Additionally, Decree No. 46,233/18 requires that taxpayers demonstrate to the tax authorities, within 15 days of filing the above document, their withdrawal from any ongoing administrative or judicial proceedings relating to ICMS levied on the importation of goods without the transfer of ownership to the importer.
     
  • Decree No. 46,233/18 establishes that taxpayers may begin to benefit from the relevant ICMS treatment immediately after filing the above document. 

Decree No. 46,233/18 came into force on February 6, 2018, but became effective as of February 1, 2018 and will remain in effect up to December 31, 2040. 

As a final remark, please note that it is controversial as to whether or not the incentives approved under a CONFAZ ICMS Agreement require the enactment of state law (i.e., enacted by the legislative branch). There are precedents of the Supreme Court of Justice (the highest court in Brazil for constitutional matters) requiring the ratification of the state's legislative branch in the implementation of such benefits.

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