The treatment of accumulated ICMS credits, as well as that of other taxes that will also be replaced by the IBS and CBS, has been encompassed by the tax reform, which has introduced significant changes in the conditions for their utilization.
The specific rules for offsetting these credits, as set forth in the new legislation, have required heightened attention from taxpayers, as they impose challenges and risks that may directly impact cash flow and the economic value of these assets.
The following four essential points merit particular attention with respect to this issue:
1. Temporal Limitation on the Utilization Period: The legislation establishes that only credits accumulated over the past five years (retroactively to 2028), provided they have been duly homologated, may be offset as of 2033. This criterion significantly reduces the pool of credits eligible for utilization, effectively excluding older or non-homologated credits from compensation.
2. Potential Loss of Value and Liquidity: The regulation stipulates a schedule for installment-based offsetting over a period of 20 years, with monthly adjustments based on the IPCA index, without immediate monetization or transferability. As a result, these credits tend to become low-liquidity and lower-value assets, particularly in inflationary or high-interest scenarios, as the reimbursement process will occur in an exceptionally slow and fragmented manner.
3. Dependence on State-Level Homologation: The right to utilize the credits is subject to prior homologation by the originating state, creating uncertainties since each state may establish its own rules and deadlines for this procedure, thus hindering the uniform and efficient use of such credits.
4. Documentation Review and Regularization of Credits: With the tax transition approaching, any registration inconsistencies, errors in tax records, or even a lack of adequate supporting documentation may pose additional obstacles to the recognition and homologation of accumulated credits. It is therefore essential that companies carry out a thorough review of their ICMS credit balances, ensuring that all documentation is compliant and compatible with state tax authority requirements, in order to avoid challenges and possible disallowances during review by the competent authorities.
The changes introduced by the tax reform in the management of ICMS credit balances will have a significant impact on operational results, particularly regarding the timeframe and monetary updating of these amounts, which is why immediate action is required. Filing lawsuits to expedite the resolution of administrative proceedings, securing the unrestricted right to sell credits, assessing the feasibility of engaging in new economic activities to enable their utilization, and even undertaking corporate reorganizations are examples of measures aimed at preserving companies’ accumulated ICMS credits.
The innovations brought by the tax reform with regard to the treatment of accumulated ICMS credits call for even greater attention, since the new rules present concrete risks to liquidity, predictability, and even the effective recovery of these assets. More than ever, it is essential to anticipate scenarios, review credit balances, and plan strategies in a coordinated manner. Deferring action until the final transition phase in 2033 may result in the loss of legitimate credits and in the impairment of future cash flow.
