Accumulated State VAT credit may be offset in the imports of goods

Number 1, 2010

CAT Administrative Rule 27, issued on February 12, 2010, has altered CAT Administrative Rule 59/2007 as it permitted taxpayers residing in São Paulo to offset the accumulated State VAT with the tax that must be paid in import transactions, without them having to apply for a special tax regime.

The opportunity created by the changes in Administrative Rule 59/2007 could have a significant positive impact on companies, since the matter of accumulated State VAT credit is considered more than just a tax problem, as it is something that has also affected corporate governance. The possibility of not having to use cash to pay the State VAT in import transactions has a direct effect on businesses' cash flows. In addition, this measure prevents an increase in the amount of accumulated State VAT and questionings on its realization.

Therefore, for many companies that have a high and growing level of State VAT credit balance, without any perspective of being used, this is another way of using this amount. In other cases, this measure could also be applied to avoid progressive increases in the credit balance.

It is important to explain the difference between tax credit balance and accumulated tax credit. Tax Credit Balance refers to the amount of State VAT accumulated and reported in fiscal ledgers without making any distinction regarding its origin. On the other hand, the Accumulated State VAT credit is created through specific situations described in Article 71 of the ICMS Regulation (State VAT Code):

• Different tax rates applied in transactions of input and output of goods and services
• Transactions with reduced tax calculation base
• Transactions that do not require the payment of the State VAT based on legal grounds that support the retention of the tax credit.

Hence, the credit balance amount is not necessarily the same as the amount of accumulated tax credit reported by the entities. The amount of the accumulated tax credit must be determined by the company and reported to the State Treasury of São Paulo through documents with layouts regulated by specific legislations. The claiming of accumulated State VAT tax credits depends on prior authorization by the tax authorities.

According to CAT Administrative Rule 27/2010, the accumulated tax credit may also be used to be offset (totally or partially) with the State VAT due in imports of goods. This is another alternative in addition to the previous options: (i) payment of suppliers, (ii) transfers between units of the same company, (iii) transfers to interdependent company, (iv) settlement of tax debts.

Taxpayers interested in this new alternative to offset the State VAT must first submit an application through the Electronic Management System of Accumulated Credit (“Sistema Eletrônico de Gerenciamento do Crédito Acumulado - e-CredAc",) available on the website of the State Treasury of São Paulo, in addition to obtaining an Accumulated Credit Offset Form (Guia de Compensação com Crédito Acumulado - GCOMP-ICMS). The form does not have to be signed-off for the imported good to be cleared.

Attention must be given to the correct filling-out of the form through the use of the "e-CredAc". Although this tool seeks to speed up the approval procedure for the taxpayer to use the accumulated tax credit, if the information submitted in the system is incorrect, it could delay/negatively affect the application’s approval.

For further information, please contact our team:

Roberto Cunha - Sócio, Indirect Tax & Customs,
+ 55 11 2183-3119, rcunha@kpmg.com.br

Maira Manna Rigoni Behrndt, Diretora, Indirect Tax & Customs
+ 55 11 2183-3218, mrigoni@kpmg.com.br

Elson Bueno, Diretor, Indirect Tax & Customs
+ 55 11 2183-3281, ebueno@kpmg.com.br

Indirect Tax & Customs

KPMG in Brazil